Economic Times: August 8, 2014

Industry stalwarts pour money into seed funds

Wealthy Indians are opening their wallets wider to pour more money into seed and venture funds as they look to grab a slice of the frenetic startup activity across the country. These industry stalwarts, who come with rupee capital and an understanding of local business, are channelling their money into specialist funds that can help identify the hottest ventures in areas such as consumer internet, mobile technology and software products. Apart from Manipal group scion Ranjan Pai and the Patni brothers Amit and Arihant, others who are actively backing smallto -midsize funds include Marico chairman Harsh Mariwala, Raheja group scion Sandeep Raheja and Bharti Enterprises vice chairman Akhil Gupta.

“It is not possible for individuals to do the due diligence, mentor and track progress of startups. If we have to see a lot of entrepreneurs emerging (then) investing in venture capital funds is the best way,” said Gupta, an investor in early-stage fund YourNestAngel Fund. He aims to back more such funds.

Experts said there is a change in risk appetite that is driving this trend. Since 2013, nearly half a dozen companies have seen their valuations rise to over $1 billion.

Illustrating this is the $7 billion valuation for Flipkart when it raised money last month. Others such as SnapDeal, data analytics provider Mu Sigma and local search provider Just Dial are also in the billion-dollar club.

“The (ultra-rich) have realised that they had no participation in these. They missed out on a couple of waves of these companies,” said angel investor Rehan Yar Khan, who has backed enterprise software maker Druva which is valued at about Rs 1,400 crore and taxi services aggregator Ola Cabs.

To ensure they are part of the next wave of enterprise, several of India’s Ultra-high-networth Individuals-those with investible surplus of over Rs 25 crore–are upping their stakes in the startup game.

Marico’s Mariwala, who has backed early stage investment fund Blume Ventures as well as startup accelerator Ant Farm, said he realised the need to diversify about two years ago.

“I was investing my wealth back by only buying shares of Marico.

All our wealth was parked in one entity, so we decided to diversify,” said the Mumbai-based tycoon who expects to now allocate about 15% of his money to alternative assets.

At present the allocation of money towards alternative asset classes, which includes venture funds, is 2% in India, while the global average is around 15-20%, according to a survey by consultancy McKinsey.

“I see upward trends in this as there are also more funds approaching the market,” said George Mitra, chief executive officer of Avendus Wealth Management.

A few of them have also set up their own funds, like Pai who teamed up with former Infosys director Mohandas Pai to set up Aarin Capital. Screwvala runs Unilazer Ventures and the Patnis manage Nirvana Venture, but spreading their capital across funds, that are managed by specialists, gives them a better chance of picking the next big winner. “When we meet smart investors who understand specific sectors, we back them,” said Ranjan Pai, chief executive officer of the Manipal Education & Medical Group who along with Mohandas Pai has backed a host of earlystage investment firms including mobile technology fund Tandem Capital, social impact fund Unitus Seed fund and technology investment firm Exfinity Ventures.

The two, who are not related, have invested nearly $100 million in venture funds.

Wealth managers said another motivating factor for industrial tycoons to back startups is the need to keep abreast of new technology, some of which can impact their existing business.

“They are looking to invest or acquire these assets to understand them,” said Mitra of Avendus.

While in India firms like Flipkart are changing the retail landscape, players like room sharing service AirBnB have disrupted other tradition businesses like hotels.