VC Perspective – What worked/What didn’t? Learnings from Portfolio Companies

Posted by Pradeep Chopra

at January 30, 2009

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Directly after the networking tea break, here comes the much awaited session which brings forth the VC perspective on what worked/what didn’t work in the downturn as analysis of portfolio companies at some of India’s leading Venture funds. Harish Gandhi (Canaan Partners) (Moderator) began the session by sharing the intent of the session - to give specific and practical insights on ‘Winning in Downturn’ by entrepreneurs turned VCs. He then briefly introduced all the speakers and invited them to share their experiences. Siddhartha Das (General Partner, Ventureast) took over from Harish and began by sharing his experience as a VC in the previous downturn. Some of the key learnings he shared from his own experiences in the downturn:

Strategy & Refocus - may require unfashionable decisions such as shifting the focus away from IT
Exit Opportunities - be prepared to exit even in tough times ad look for strategic opportunities

Mahesh Murthy (Partner, SeedFund) with his unusual background (school dropout and started career by selling vacuum cleaners) has always been interesting to listen to. Talking on his strategy on funding, he listed some key requirements for his portfolio companies:

Break-even on cash flow basis (eg. Carwale, Printo, Redbus) – treat the funding as if it were your last funding
Be fast on making revenues – in months than quarters or years

His mantra is ‘if a business can survive in the downturn’, the chances of thriving in the upturn are very high. Finding right people at much lower salary is another great opportunity thrown in the current downturn. Talking on his fund, he characterizes his fund as ‘recession proof’ fund than ‘growth fund’ - with breakeven in quarter as the risk mitigation strategy. Bejul Somaia (MD, Lightspeed Ventures) started by sharing Lightspeed’s experience in funding companies globally including their focus in India since last 2 years (e.g. TutorVista is being funded by Lightspeed). He also talked about his experience as an entrepreneur in the downturn early in his career, after leaving the Venture industry to bootstrap his venture. vc-session-at-tie-sig-delhi1

Harish then requested the panelists to share their recommendations to entrepreneurs on the opportunities and changes in the current downturn. Siddhartha mentioned that the mobile and internet space offer new opportunities in the current downturn, as long as revenue (vs views) is the focus. Talking on his experience, Bejul mentioned that while the last downturn was a result of failure in business models, the current downturn is more financial and general. His own takeaway and key lesson from the previous downturn is:

“If you are solving a painful problem and innovating exponentially, downturn is even better opportunity to start a new business.” Google is a great example.

Mahesh acknowledged the fact that current downturn is more severe and more wide spread than the earlier one. His recommendation to entrepreneurs is to ensure that “you don’t just earn but receive cash in time” – there is not much opportunity to conserve cash. At the same time, do your best to delay your outflows as much as possible. If you can ensure your survival for long enough time, you are bound to see great times for you because many of your competitors are going to die.

In short, “Survival itself is the strategy to win in the current downturn.”

Talking on the emerging sectors for investment in the current downturn, Siddhartha listed ‘Education’ (including for non-IT sectors such as manufacturing), ‘Food’ and ‘CleanTech (e.g. water conservation)’ as interesting sectors to watch. Mahesh shared a very different point of view. He mentioned that his fund may not be very clear on what they are looking but are clear on what they are not looking at – any business which is non-IP driven (e.g. KPO, any cost arbitrage business). Moreover, they are in lookout for sectors which may not exist today but 2-3 years later can be classified sectors (e.g. Caarwale). Talking on his fund’s interests, Bejul mentioned that his fund is always in lookout for businesses, which are serving really large markets by innovatively solving real life problems. On this positive note about continued interests in investments by VCs even in the current downturn, the session was turned to audience for Q & A, which was very well received with great enthusiasm by both the audience and the panellists.