‘India Ideal For Long-term Patient Capital’
The president and chief executive officer of Avid Park Capital thinks consumer finance is an attractive area to invest in India
Rob Chandra, Silicon Valley investor and president and CEO of investment management firm Avid Park Capital, believes certain sectors in India are ripe for investment. In a chat with BW Businessworld, he talks about his views on the burgeoning entrepreneurial ecosystem in India and his stint with Bessemer Venture Partners, where he led investment in Snapdeal at a Rs 1,000-crore valuation.
When you were at Bessemer Venture Partners, you invested in Snapdeal way back in 2011 at a Rs 1,000 crore valuation. Today, it is the second-most valued Internet company in India at a reported valuation of Rs 40,000 crore. What are your key takeaways from this investment? What should entrepreneurs focus on?
The Snapdeal story is still being written. So far, the biggest lessons are about finding the best entrepreneurs at the start of a disruption. In Kunal Bahl and Rohit Bansal, we were fortunate to find very capable entrepreneurs at a time when smartphone penetration was accelerating. We felt that smartphone proliferation was likely to fuel massive e-commerce adoption. What we didn’t anticipate was how aggressively Amazon was going to invest. Indian consumers are certainly benefiting from all the e-commerce offerings. But the question that looms large is: which e-commerce company will become strongly profitable? For entrepreneurs, the best place to focus is where there is some sort of disruption to an existing or new market which creates an opportunity for a newcomer.
The entrepreneurial landscape in India has undergone a massive transformation over the past 4-5 years eliciting tremendous interest from risk capital investors. What is your outlook on the sector?
We feel too many startups have been funded at valuations that are likely too high. This implies that many startups will fail. Of course, that is the nature of startups. Many fail, few succeed. The successful ones we tend to read quite a bit about. What’s interesting is that the failures teach us a lot of lessons which then leads to better startups. Sometimes the best entrepreneurs and investors are those who have been humbled a few times from their prior experiences.
Given that there is a “problem of plenty” in the startup ecosystem today, do you foresee any bubble going forward? Are the current valuations for real?
The valuation challenge is more pronounced for the US startups with so many unicorns valued at over $1 billion. In many cases, they will be forced to raise their next financing round or go public at a valuation that may be lower than their last private round. That’s okay because even after adjusting their current valuations down, the overall result for early investors, founders, and employees will be quite satisfactory.
Which are the sectors that have high investment potential? Apart from new economy sectors like the Internet, which other industries could investors focus on?
India remains an attractive destination for long-term patient capital. Of course, the best time to invest was during 2011-2012, when most global investors had a negative outlook on India. I think, consumer finance is an attractive area. Like, when I led the BVP India investment practice a few years ago, we invested in several non-banking finance companies, such as Shriram City Union Finance and Home First Finance, which was started by Jerry Rao and P.S. Jayakumar. I felt then and continue to feel now that consumer finance is under-penetrated across India. In reality, finding the best sector is not important. Instead, one should find a high quality promoter like Jerry Rao to fund. Usually high quality promoters attract high quality people to their companies and together they are able to develop strategies which lead to substantial growth and returns.
Tell us a little bit about Avid Park Capital — the hedge fund you started in Palo Alto, California a few years ago? How are things going with the fund? What are you focused on?
In hindsight, we were rather fortunate to start our fund early in the cycle of what is now a seven-year-long bull market. Better to be lucky than smart. Our focus was publicly traded US technology companies such as Apple, Avago, Adobe, Salesforce, Netflix, Priceline, and so on. It’s hard to predict how much longer the bull market will really continue. Consequently, late last year, we diversified our portfolio towards much lower beta holdings. We are also more focused on global opportunities which further diversifies our portfolio. Of course, the challenge always remains the same — how to find a high quality management team to back which has credible earnings growth strategies. We never have enough good ideas or opportunities. But we enjoy the never ending hunt.
You recently invested in privately held Finwizard Technology that operates personal finance app Fisdom. Was it in your personal capacity?
Yes, I invested in the seed round of Fisdom as a personal angel investor. Fisdom was started by three fantastic individuals, Subramanya S. V., Ramganesh Iyer and Anand Dalmia. They are blending cutting edge technology with personalised financial advice for a segment of consumers, who want lower fees with consistent investment results. I enjoy making angel investments. I back individuals that I know from a prior experience or students from one of the courses I teach at UC Berkeley. One lesson I have learned in venture capital is that there are very few successes. So, when I think I have stumbled upon the rare company on a potentially successful path, I am quite motivated to invest.
In India, it is increasingly becoming a trend for fund managers, promoters and even corporate executives to invest in startups in their personal capacity. What additional expertise/input do they bring on the table? Also, why are entrepreneurs increasingly opting to receive such investments?
I think the trend towards personal angel investing is being driven in part by the new startup economics. It takes very little capital to test a startup’s core innovative idea now. The key test is: will consumers use the product, or app, or website? In most cases, this “product and market fit” question can be answered with a very small angel round. If the test is successful, a startup then demonstrates clear adoption momentum, then traditional venture firms are more likely to be interested in financing the subsequent growth phase. So, while the amount of angel funding booms and busts with each investment cycle, the new startup economics are likely to be here to stay.
What are your views on the measures that the government has taken so far and the ease of doing business here? Do you think the government needs to specifically focus on any particular reform to further encourage private equity investments in the Indian market?
The Modi government is doing well as it is taking a pragmatic approach. We think the government should have a goal of providing a stable, consistent policy framework. It would be easier for investors and entrepreneurs to make long-term investment decisions if they had confidence about what the regulatory framework will look like in a few years. So far, the Modi government seems to be doing a good job of thoughtfully communicating to foreign institutional investors.
So, you joined the UC Berkeley faculty a few years ago. What do you teach? What lessons do you impart to your students?
I teach two courses at Berkeley in the Haas School of Business — a course on entrepreneurship and another on investing. These topics are of high interest to students these days. But the main lesson I try to impress upon my students is that I always encourage them to work with high quality people. Whatever successes or failures I have experienced in my career, they are usually a function of the people I have worked with. Of course, the challenge for young professionals is to learn how to identify good people.
This article was published in BW Businessworld issue dated 'Aug. 22, 2016' with cover story titled 'Are Cows, Culture Wars And Dalits Atrocities Derailing Modi’s Economic Agenda?'
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