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Naren Gupta, Suvir Sujan and Sandeep Singhal, Founders, Nexus Venture Partners, in candid conversation about the funding scenario in India.

Entrepreneur (E): There has been a barrage of foreign venture capital funds flooding the Indian investment scene. However, many believe that a staunchly  U.S.- based  approach to funding would notwork in India.
Naren Gupta (NG): Well, the concept of venture capital funding was pioneered in the U.S. I think many of their concepts apply to India, but they need to be modified for the Indian market.

This is because some Indians are now building global companies. Then again, one needs to realize that if someone is making hi-tech products that can cater only to the U.S. market, it doesn’t make sense to invest in such a company in India. It is important to see whether the company can also serve the Indian market.

Having said that, it would be wise to note that the concepts developed in the U.S. can be applied almost everywhere. For example, fast food—primarily a U.S. concept—would have the same demands of hygiene, health, etc. everywhere else in the world. However, real estate prices in the U.S. are low as compared to India, but one can sell products like coffee at a higher price there than in India.

That’s why cafés here cannot afford to let customers sit around all day and, therefore, cannot provide the kind of comfort and services provided at cafés in the U.S. Consequently, the same business would have to be planned differently here than it is in the U.S. So when investing in India, a golden rule must be followed to look at everything from an Indian perspective, but with
learnings from the U.S. or even China.

E: What characterizes a successful entrepreneur? Are these characteristics different in different places?
NG: In the U.S., the biggest success stories have come from people who were passionate about what they wanted to do. This, I think, is universally true.
We invest in people, not necessarily in the business. We do not want to fund people who always have excuses and blame others for not getting things done.

E: Is entrepreneurship in India different from that abroad?
NG: Yes, it is. Indian entrepreneurs are innovative—but in terms of modern entrepreneurship, they face several obstacles.

Firstly, they often come from very conservative, security-oriented families. In addition, the legal system here really doesn’t help much, considering the number of clearances one has to get. Even infrastructure is such a deterrent. If people don’t have access to electricity and the internet, can you imagine the number of people who lose out on the opportunity of starting an online venture? Big companies like Google started because of the internet.

Entrepreneurs based in the U.S. also have an edge over the guys here in their access to good quality research reports; there is an utter lack of readily available research reports in India. This is a very important tool for startups that Indian guys lose out on. Another thing that sets Indian companies apart from their American counterparts is that the most successful ventures in the U.S. were started by a few people coming together. In India, this has its pitfalls, because the best reality checks come from someone who is at par with you, not from a subordinate or a superior.

Indian entrepreneurs have another peculiar problem. Although we have a huge population, we are an English-speaking nation, unlike China. While this is an advantage, it also means that there is almost no hope for local language social networking sites in India. China has a huge market for such sites.

And lastly, the concept of entrepreneurship in India was, for the longest time, associated with capital and not talent. The situation is fast-changing now. In the U.S., it is all about talent. That’s why some of the largest Indian firms, which were successfully riding on capital until now, are not meeting with success with their newer ventures. That is because just capital is not enough to see a venture through.

E: Do Indian entrepreneurs have an edge over their counterparts abroad?
NG: Indians are innovative. And their innovation can come from unexpected angles. I see a lot of innovation in the technology domain—Indians actually have an advantage there. The world wants the 80:20 ratio in terms of capability and price. In India, due to the high innovation potential, and low manpower and raw material costs, this ratio is achievable.

So, Indian entrepreneurs have a large, ready market for technology innovations. It is indeed difficult to make easy-to-use products, but that is what everyone needs.

E: What about investing in the Indian rural or agricultural sectors? We don’t see much of that happening.
NG: To begin with, Indian farms are tiny compared to the ones in the U.S. We are talking less than 5 acres as opposed to over 500 acres as the average farm size. Such small areas make it unviable for farmers to have proper logistics and supply chain in place, resulting in huge losses. This means that there is a huge potential for establishing big, successful businesses in rural India. We have already invested in one rural company in India.

Although these guys may not be suave, it is amazing to see how they understand business just as well as any urban, educated person does. We are, in fact, looking at making a couple more investments in rural Indian companies. Agriculture is a politically sensitive area, making it risky for investment; our prowess, as investors, lies in how we can manage that risk better than others.

E: What are the five things you look at in an entrepreneur before investing in the company?
Suvir Sujan: I would like to say passion, passion, passion, passion and passion. But we also look at the target market, the uniqueness of the offering and the sustainability of the business. We also consider the adaptability of the entrepreneur, his motivation levels and his ability to motivate and sell, his values and ethics, and his ability to spot opportunities.

E: What sets you apart from other VCs? And why be an early stage investor?
Sandeep Singhal: As the three founders of this fund are entrepreneurs themselves, we understand the needs of entrepreneurs better. Moreover, we do our business in an entrepreneurial way: we care about the returns, and we keep the fund small so that the returns are higher.

Moreover, back in 2005, there were no entrepreneurial firms backing up entrepreneurs. We felt the startup space was more exciting than the late stage, although late stage investments yielded good returns between 2005 and 2008. We invest between $1 million to $5 million dollars in the early stage, and between $5 million and $7 million dollars in the early growth stage.

THE PORTFOLIO

Number of companies invested in so far: 20
Altruist Technologies: Provides voice- and web-based value-added services to wireless carriers.
Deccan Healthcare: Develops, manufactures and supplies high-quality wellness products.
DimDim: Develops web meeting software.
D.light Design: Serves people by providing access to reliable electricity.
Eka Software Solutions: Help companies that buy, sell or trade commodities to manage the challenges of volatile markets.
Gluster: Develops solutions for storing and managing unstructured data.
Kirusa: Provides advanced “Voice SMS” solutions.
CE Info Systems: Provides services and solutions based on internet and mobile applications, GIS and turnkey projects.
mCheck: Provides patent-pending, mobile-based, security and payment services.
Mistral Solutions: Offers professional design services, which include hardware and software development.
Netmagic Solutions: A managed IT service provider, specializing in internet data centers.
OLX: Provides free online classifieds and allied services.
PubMatic: An ad revenue optimization company.
Sedemac Mechatronix: Builds and offers high-value mechatronic products, such as electronic controllers for automotives.
Suminter India Organics: Organic farming contractors.
Unicon: Long- and short-term financial services provider.
Vdopia: Internet video ad network and smartphone application ad network globally.
VMOps: Developers of a software stack that allows service providers to create and manage an elastic computing service.
What’s On India: Provides high-quality electronic program guide content management solutions to the Indian television industry.

©Entrepreneur January 2010

Tags:
funding, Naren Gupta, Nexus, Nexus Venture Partners, Sandeep Singhal, Suvir Sujan, VC, venture capital