Take a bunch of IT stalwarts, throw in some serious money, add a healthy pinch of mentoring ability and what you get will be something very much like Reservoir Investment Managers. The Bengaluru-based investment management company that funds tech ventures is just a few months old but its credentials are impeccable. And it has got big plans for the Indian IT start-up space.
It all started in early 2013, when Shailesh Ghorpade, then CEO of Azure Capital Advisors, approached his ex-boss TV Mohandas Pai to invest in his real estate fund. Despite “badgering” Pai, Ghorpade — who worked closely with Pai in his previous stint as member of the corporate planning team at Infosys — was unsuccessful. “He would always tell me, ‘Why don’t we do something in the space we are in?’” says Ghorpade, now managing partner, Reservoir Investment Managers.
Both realised that there was an ecosystem developing where people are leaving big technology companies to start their own ventures. Given their background, starting a fund to invest in these tech start-ups made imminent sense.
“We have operating experience. We have built companies and we know what it takes to grow a company. We don’t want to be entrepreneurs at this stage of our lives but we can be mentors and investors and help entrepreneurs,” says Pai.
After a long stint in Infosys from 1994 to 2011, where he held multiple roles, including as head of finance and HR, Pai is currently the chairman of Manipal Global Education. Apart from being a partner at Reservoir, he is also a partner at Aarin Capital, a $100-million fund he co-founded with Ranjan Pai that invests in healthcare and life sciences companies.
Pai then roped in another former colleague, V Balakrishnan, a 22-year Infy veteran and ex-CFO who quit as its board member in 2013. Bala, too, wears multiple hats — apart from being involved in the Aam Aadmi Party, he is chairman of peer-to-peer lending platform MicroGraam, as well as an investor (along with Pai) at Unitus Seed Fund. Pai and he will also be part of a fund that invests in mid-caps and a hedge fund that is of smaller size.
“Start-ups don’t fail because of lack of capital. They fail because of the lack of sustained mentoring and because their go-to-market strategies are weak,” he says. Bala adds that sometimes entrepreneurs are so obsessed with technology that they forget they need to create a market and customers who will buy the product. “We have years of experience dealing with customers, entering new markets and pricing products and that’s where we can add more value and what makes us different from other funds.”
With two industry heavyweights already on board, Ghorpade reached out to another veteran, Girish Paranjpe, the former joint CEO of Wipro.
Leaving Wipro in 2011, Paranjpe went on to become managing director of Bloom Energy, a US-based fuel cell technology firm, till July 2013. He is now an operating partner at private equity firm Advent International, leading technology investments there.
“Many people were approaching me, seeking investments and mentorship and a combination of things. It was difficult to say yes or no. I had invested in a couple of companies because I had worked with the people earlier but there were definitely limitations on doing this on an individual basis. This was a great opportunity to do things on a more institutional basis,” says Paranjpe.
Joining Paranjpe was his Sydenham classmate and yet another tech heavyweight, Deepak Ghaisas, former CEO of i-flex. He is now the chairman of Gencoval Strategic Services and dental cell bank Stemade Biotech.
As the former member at the Nasscom Executive Council and an advisor to several management institutes, Ghaisas says it is heartening to see the quality and the number of entrepreneurs increasing multifold, particularly in the products space. “Today, you don’t need a lot of capital to start a business — you need a good idea and an ecosystem that supports good ideas. We have to create that ecosystem.”
That’s where Reservoir’s first fund, Exfinity Technology Fund, comes in. Started in March 2014, within two months, the company raised Rs 103 crore, with the partners investing Rs 22-23 crore and the balance coming from 60-odd investors in India.
“We wanted to create a fund with capital coming from India and a broad base of investors,” says Pai. It was a deliberate decision to keep the fund size small because otherwise, “the fund manager becomes happy and satiated with the fees. We wanted to incentivise them to focus more on growth and exits rather than fees.”
While all four partners will mentor entrepreneurs and there will be consensus on the companies they will choose to back, the fund will be run by Ghorpade, who will take care of the commercial aspects, and Chinnu Senthilkumar, who will manage the technology side of things. Senthilkumar has over two decades of experience working in hi-tech companies such as Sandisk, Intel and Texas Instruments, both in the US and India, and has some nine US patents to his name in semiconductor design and hardware systems.
Finding the gap
So, what is Exfinity’s brief? Essentially, the fund is looking to fill the gap after angel funding but before Series A funding. “If you look at the spectrum of investments today, angel funding up to Rs 1-2 crore is available and there are large funds that do Series A investments of $5-20 million (Rs 30-120 crore). The sweet spot is between Rs 2-3 crore and Rs 10-12 crore and that is a good gap for us to play in. Post angel funding, companies need to scale up before they become Series A ready and we can help them do that,” says Ghorpade.
Initially, the fund is looking at taking a 10-20% stake in companies, where Exfinity will invest individually or co-invest with other firms. As companies scale up, it will look to consolidate its position in the following Series A round and exit investments in the next — Series B — round.
“We don’t want entrepreneurs to become employees because we are diluting their stake at every investment round. We want entrepreneurs to have enough skin in the game at all times,” explains Senthilkumar.
Exfinity is looking to invest the money it has raised in about 10-11 companies over the next 15-18 months. Ideally, the partners would like to invest in companies where proof of concept has been established, the first few customers are in and a revenue stream has been established. The focus will be on companies that use technology to create products and platforms, mostly in the B2B space.
“Not that we will not invest in companies in the B2C space, but we understand the B2B space better, given the experience of all our partners. We know what it takes to scale a business in this space,” says Senthilkumar.
While most investments are likely to be in what is now popularly called SMAC (social media, mobility, analytics and cloud) technologies, the company has zeroed in on some interesting options in other areas as well.
Take the case of the fund’s very first investment, Virtual Power Systems. This Silicon Valley-based start-up has developed virtualisation software that will dramatically reduce power costs in data centre, bringing down overall costs substantially. Started in 2012, it has managed to raise more than $5 million in funding so far, including the latest Series A round of $4 million from Vinod Dham, who invested in his personal capacity, and Exfinity. Shankar Ramamurthy, CEO of Virtual Power Systems, says the firm saw Exfinity as a more strategic investor rather than a financial investor.
“We plan to launch the product in the Asian markets by the end of next year. We wanted strategic investors with a strong presence and network in these markets who will help us define our go-to-market strategy,” adds Ramamurthy.
The fund has also shortlisted two other investments — a start-up in Mumbai that develops unmanned aerial vehicles and an analytics firm in Bengaluru. The partners, though, prefer to keep mum on the details until the deals are finalised.
The right fit
Will tech veterans who handled billion-dollar businesses really understand the pain points of a start-up? “We started relatively small and struggled to get our first international customer and million-dollar order. While that happened some years ago, we have gone through that phase and it is not unfamiliar to us,” says Paranjpe.
The partners also believe that since most companies they will invest in are likely to go after global markets, their experience in building global business will come in handy. “For product companies, global exposure is very important. We don’t always package and market our products correctly even if we have quality. In the product business, the manual is as important as the product itself,” says Ghaisas.
It’s a subject he knows a thing or two about: Ghaisas was one of the key members at i-flex, one of the most successful product companies to come out of India, which was acquired by Oracle in 2005. Ghaisas believes one of the biggest factors that contributed to i-flex’s success was the fact that it built the product not to fit Indian banking standards but against global benchmarks.
Similarly, he says,“We can help entrepreneurs build products that can be universal rather than creating something for India and then force-fitting them into the global environment.” Such inputs at the conceptualisation stage would result in saving much time and effort for the entrepreneurs.
The passion and excitement is clear to see in all four partners. They want to give back to the industry, which they say has given them everything. “We have had our place in the sun and look forward to help entrepreneurs become the next tech superstars,” says Bala, who believes the next $100 billion in revenue for the tech industry is going to come from products and platforms, not services. With advice coming from the best in the industry, it is now time for India’s tech start-ups to shine.