Friday, February 18, 2011

Indian Venture Capital: Funding The Billions


Luis Miranda, presently Chairman of IDFC Equity and Sumir Chadha, presently MD of Sequoia Capital are veteran Indian venture capitalists. Both have been around for more than a decade. Both have `discovered' and nurtured entrepreneurs in different spaces. Luis can claim some credit for the initial success of infrastructure groups like GMR and Sumir, the likes of Cafe Coffee Day, JustDial and Carzonrent..which tells you something about the diversity.

Both were part of a panel discussion I was moderating last night at the VC Circle's  Limited Partners Summit  at the JW Marriott in Mumbai. We went through a brief history of  investing, including the challenges posed by  volatile markets and staying the course. Both admitted that the learnings had been tremendous, investments had gone wrong as had, more importantly, their judgement of some of the entrepreneurs behind  the ventures. The good news was that there seemed to be more rights than wrongs.

The discussion was wide ranging but let me bring out one or two points. One question often asked of venture capitalists is about their ability to find or create the truly innovative start-up, read the Yahoo or Google of India. I posed this to Luis and Sumir and was not surprised with the answers. For one, its now increasingly clear that innovation in India will not translate into startups like Google. At least for a while. The real innovation will happen in companies and ventures that are creating appropriate products and services for the Indian market market and consumer.

Digital Dividend
Sumir quoted the example of Star Health & Insurance which his firm Sequoia recently invested in. I am familiar with Star, its a good example of how firms in India are applying cutting edge information technology and processes to solve the problems of the poorest. In the Kalaignar Insurance Scheme, Star provides cashless insurance protection against a host of medical contingencies requiring surgery and hospitalisation. The scheme, which is government funded and aimed at `below poverty line' or BPL residents of Tamil Nadu covers some 352 surgical procedures. And some 40 million individuals are covered.

The part thats really exciting about this project is that its entirely digital. Patient records, interactions, transactions, everything, is oneline. Which means the poorest of the poor in this country in some states are enjoying facilities that citizens of many developed countries can only dream of. Firms like  Star are not just innovating new and efficient cost models using technology but also showing how the bottom of the pyramid effect can be served profitably. Not surprisingly, venture capital is headed there.

Luis had similar thoughts about the innovation in funding and structuring infrastructure projects. And I agree.  The gaps are so huge that there is enough to do here. By all means think of the next Google and Facebook if you can. Chances are you will be better positioned to do it if you were in Stanford or Harvard. Or maybe even in India in coming years. But the exciting innovation in India will be about finding solutions to the problems faced by a billion people.

The Next Decade

Leading on from the innovation argument, there was  some discussion on the next decade of venture capital/private equity. The bottomline is that everyone is considerably bullish about India and investment opportunities. And there are newer focus areas like health insurance, education, infrastructure and products and services focussed on the consumption side. For example, Luis' firm has invested in Manipal Health Systems which manages 11 hospitals and over 1,400 beds in south India. I would consider this innovative too, because  more such firms, in areas like education and health, would be encouraged to set up and raise capital. And also think of raising their standards and offerings.

Several stalwarts of the Indian VC industry, including Luis and Sumer as it happens, are moving on.  Luis is off to the public policy space and Sumir to start a public markets venture, which is more of picking stocks than seeding companies that may go public some day. Is this is a comment on the state of affairs in some way ? Both disagreed, saying the industry was strong and would continue to grow. Their own life cycles were turning, they pointed out. I wouldn't quarrel with that !

The question on the future was answered in a different way. I met Atish Babu and Jinesh Shah from Omnivore Capital. They call themselves an  "early stage venture capital fund investing in agricultural technology startups in India". Atish told me they were  back entrepreneurs  innovating solutions to improve agricultural productivity and sustainability. Their knowledge and understanding of rural Indian opportunities was strong and growing as I could see. They already had plans of what they could and not do in this market. And there are many more Omnivores out there, including Omidyar Capital, whose interest overlap somewhat. The next decade is evidently about the billions, not the millions.

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