India Economic Times - November 5, 2012
by Archana Rai
The valuations for technology investments are very high in India, while the opportunity for venture and growth capital lies in nontechnology areas, according to Navin Chaddha, managing director of Mayfield Fund, one of the world's oldest venture capital firms, which manages a corpus of $3 billion (about Rs 16,15 crore). Mayfield, which has recorded big exits in India from Fourcee Infrastructure and Persistent Systems, invests the bulk of its India corpus in nontechnology areas. In conversation with Archana Rai, Chaddha, who led Mayfield's recent investment in technology incubator AngelPrime, said backing specialist very early stage funds is the way ahead in technology investing.
Does your recent investment in AngelPrime indicate heightened activity in early stage investments in India?
Absolutely. First of all, I am a big believer in the macro-economic India story. India is pretty nascent also, so I don't know, whether in India the technology industry is where the US technology industry was in 70's . So, if I look at India, there are two broad opportunities in the early stage. One is the non-technology opportunity. There is tremendous opportunity in education, financial services and specialty retail, where early-stage venture capital players are playing. I would say e-commerce , even though they have websites, is a hybrid opportunity. There is a huge opportunity in upgrading India's infrastructure, supply chain, warehousing and logistics . Mayfield has a dedicated fund for investing in India. We raised it in 2008 and that fund is $111 million.
How much of it is invested?
We are roughly 60 per cent on the way investing it, but the primary focus is on nontechnology opportunities. We believe the early-stage technology market is still nascent. We have some internet deals in Bharat Matrimony, apparel firm Genesis Colors, Bharti's rural education play Centum and in Sohanlal Commodities.
So, you see no opportunity in technology investing?
Entrepreneurs need help. The US ecosystem is very developed. If you start a company, you can hire lots of people - markets are humongous. The technology market in the US is $1 trillion, equivalent to India's GDP. In India, the market is minuscule; you have to go back where the US was in late 60s and early 70s and say what the right approach is. The right approach is to have smaller technology funds and get involved at the ideation stage.
Do you advocate a fund-of-funds approach?
We have partnered with AngelPrime for seed-stage investing. It does not make sense for a $111-million fund to give Rs 1-2 crore to somebody. $200,000 to $400,000 is too small for us. Our cheque sizes in India are $3-7 million. That is why the partnership with AngelPrime makes sense.
The debate in India has been the lack of ecosystem. Are we at a point in India where early-stage investing is viable?
There will be more seed-stage funds. Mayfield was also investor in Seedfund. First there will be seed funds, which are giving money to lots of companies. They are just giving people $25,000, $50,000 and $100,000. Plus, there will be incubators that really help people to shape their ideas and help them become entrepreneurs of tomorrow. There will be both seedfunds and incubators at such small investment levels. Then there will be an ecosystem of earlystage venture capital firms that invest $3-5 million in series A investments. Everybody needs focus, because startups die of starvation as well as indigestion. Similarly, venture funds need to focus. You can't do everything yourself.
What sectors look good for you? Is non-technology looking good from Mayfield's perspective?
In technology, we are selective and are looking at software, mobile, we always keep our eyes and ears open for internet companies. Out of the $111-million fund, 80 per cent is allotted for non-technology areas and 20 per cent is technology-focused - in the area of software, mobile and internet companies.
How do valuations compare in those sectors?
I think valuations are very high for technology sector in India. And you have to go earlier. I think non-technology companies are ignored at early stage, because everybody goes there after growth capital. Very little capital is available for the early-stage in the non-technology space.
How are technology valuations?
I think in ecommerce, the bubble has burst. It has come down, with people hesitating to do anything with e-commerce. I think valuations in technology are always going to be high. The technology sector worldwide is always expensive and the exits are higher too. Whether you are buying diamond or silver, it depends in the end. You pay higher multiple, you exit at higher multiple.