"Entrepreneurs Should Stop Chasing Hot Sectors" Investment decisions are taken after a lot of thinking over the criteria that need to be considered.

Alok Goel, Managing Director at SAIF Partners, says that young entrepreneurs should stop chasing "hot sectors" and should rather follow their passion and identify pain points in the system.

Has the down round in funding changed the way SAIF Partners approach investments?

Investment decisions are taken after a lot of thinking over the criteria that need to be considered. Everyone has their individual style of looking at investments. Generally, these things don't change. Our investment criterion remains the same – there should be a large opportunity, a huge market and the business should be an insight to leverage that market and be a profitable business.

Our criteria regarding investment doesn't change, but once in a while we look at what is happening in the ecosystem and refine what kind of things would work and what will not. So, obviously, your learning about the ecosystem keeps teaching you more things.

Personal checklist before taking the final call

There are two kinds of entrepreneurs that I meet; one are those who create a laundry list of ideas of potential things that can be done and pick one idea out of it; because they think it would be profitable and is going to give them a good exit. Those are the arranged marriage sort of models wherein you are shown a gallery of brides and you pick one for yourself.

The second is more of a love marriage formula, where the entrepreneur had a general insight into a market, discovered a pain point and found a solution to that pain point. I generally look for the second kind of entrepreneurs because those are the people who are striving for a real passion instead of getting a short term return.

Advice for young entrepreneurs

I very often get questioned by various founders on which are the hot sectors right now. The underlying reason for asking this question is that once the entrepreneur finds out which sector the investor is planning to fund in and basically work in that sector. The whole idea of looking for hot sectors is a short approach because the viewpoint of investors keeps changing. The investor might move on to another sector after a quarter or so and if you have bet your life in a sector which was hot right now, what will happen if that sector does not remain hot six months from now. In those situations companies end up becoming like zombies.

There is nobody to take care of them because that sector is not hot anymore. I don't think entrepreneurs should look for hot sectors or basically look for a laundry list of ideas to work on. It's probably better to have genuine insights on something that you really want to solve and work on that thing.

Why isn't there enough number of profitable exits today?

I would not say that there aren't enough profitable exits happening, RedBus happened in 2013 and Freecharge happened in early 2015.

So, there has been a one and a half year gap between these two exits. Exits in India are itself fewer in number, so it's sort of unfair to expect an exit after every two or three months. There will surely be an exit that will happen maybe in a year or year and a half and the exit would be profitable.

Viewpoint on acquisitions and buyouts

There is no clear answer to when is it a right time for a buyout or an acquisition. At the end of the day there should be clarity in why you are trying to acquire some other company. There are many reasons as to why you would acquire a company. One can be technology, second could be to reduce competitive heat in the marketing world, third could be to consolidate the position and grow your metric.