What Does It Take to Build The Right Team of VCs
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It’s been a decade since IDG Ventures India Ltd has been in the business of funding and supporting the start-ups ecosystem. Entrepreneur spoke to Sudhir Sethi, Founding Chairman and Managing Director at IDG Ventures India, last month. We asked Sudhir as to how he has seen the ecosystem evolve over the past 10 years and what he feels needs to be done to encourage entrepreneurship in India.
How has the VC aspect of the system changed over 10 years?
Lot of things have changed at the market level, let’s take two examples. Internet; 10 years back there were 50 million consumers, now we have 300 million and we are heading towards 700 million – 750 million. Today, we have 200 million smartphones users and are heading towards 500 million. Software industry was purely a services industry and today it’s emerging as a combination of services and products rapidly. Today, it is $150 million, and out of that the product/SaaS industry is about maybe $5 billion, but by 2020, I expect it to be about $20 billion.
Ten years back, government policy towards risk capital was non-existent. Today, it is favourable. Rupee capital was almost zero per cent then. Today, you have a large amount of rupee capital along with dollar capital in the country. We ourselves are managing about $100million worth of rupee capital along with our international capital. These are some of the changes.
At the ecosystem level, I remember “counting” the number of angel investors in the country in 2007, it was around 220. Today, I’ m sure that number is close to 5,000.
What has three highlights for IDG in the last 10 years?
There is only one big highlight, or maybe two! We’ve been very fortunate to build one of the best venture teams in the country. We believe we are not entrepreneurs, but venturepreneurs; which is a mix of venture and entrepreneurs! Secondly, our team has stayed back; two of us were the co-founders and have been there for 10 years.
What does it take to build a good VC team?
We continue to build our firm on five engines. Unlike many other firms, most of our team members joined us as associates, our viewpoint was that they should stay with us and grow old with us. Our training and induction for an associate requires them to sit on company boards along with us. And what better way to teach venture capital! It is not what you learn in an MBA. If you look at us, four of our partners joined us as associates and senior associates and now they are partners. It is a long term process to learn the other four engines – the deal flow engine, capital raising and monitoring a company grow, the engine of divestment and fundraising.
So all the partners have got tremendous exposure to all these four engines. .
How does IDG’s funding strategy work, as of today?
We are early-stage tech investors. We look at the quality of the entrepreneur, the market size, disruption, how it is differentiated, revenue models and scaling – and these factors haven’t changed over the years. What has changed? In the first quarter of 2006, when we started, we saw 67 companies, and today we are seeing 700 companies in that same quarter. The manner of selection hasn’t changed.
I keep telling my team members to add value to your portfolio, we come on the board of a company because we are investing. Ask yourself, “Suppose I did not have the capital, would any of my entrepreneurs want me on their board?” and if the answer is yes from even one of the entrepreneur, then you have arrived!
How do you tackle a situation of a roadblock at any of your portfolio companies?
Huddle together and discuss every single opportunity that arises and take a firm action, even if that is the toughest one. It is not necessary that all companies should succeed. What is important is that no stone shall be left unturned to make a company succeed. However, if still the company is not able to make it, it’s better to cut the flow of capital, because good money after bad money will not make a great company.
Is the term failure overrated in the start-up ecosystem?
All of us have to deal with failure at one point. What matters is not the fact that things aren’t going well, what matters is how you tackle that and come out of it. And that’s the role of investors like us. We are not just providing capital; we are providing mentorship, motivation and expertise.
What’s you take on bigger corporate houses partnering with startups?
That’s a very good thing. Significant disruptive innovation does not happen in a processbound corporate. It happens in a chaotic entrepreneur’s office. The moment you come out of corporate mindset, you find a company like Manthan or Newgen and a host of other companies. These are disruptions which happen outside the corporate entity.
Opinion on Government helping the ecosystem
As long as they (the government) are pure financial investors, without any strings altogether, I think it’s good for the ecosystem. China is a good example where a large part of the RMB capital is government and of the provinces. In India, SIDBI is a very good example of a very professional LP in the market space. IDG India’s portfolio includes companies like Zivame, Lenskart, Manthan, AgorStar and more.
(This article was first published in the November issue of Entrepreneur India Magazine 2016)