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Seed Capital: IndiaCo Investor Rahul Patwardhan

Posted on Friday, Mar 9th 2012

[We just received a tragic news that Rahul passed away of a cardiac arrest.]

The entrepreneur ecosystem continues to grow in India. This is an exciting time for both startups and investors. As my interview with Rahul Patwardhan of IndiaCo shows, there are investors for every sector. If they do their own due diligence before sending out pitches, those entrepreneurs who need funding to get their ventures started can find several potential investors in their chosen industries.

Sramana Mitra: Hi, Rahul. Tell us briefly about your group.

Rahul Patwardhan: IndiaCo is an investment management firm listed on the Bombay Stock Exchange. IndiaCo selects investment opportunities with strictly defined parameters, where IndiaCo can bring about positive change through strategic, financial, technological, and operational involvement, thus revolutionizing the company’s fundamental parameters.

Our involvement with enterprises is deeply connected to add value in multiple ways, thereby exponentially increasing the return on the capital deployed. IndiaCo leverages its approach to investing to maximize return on capital, offering investors a unique conduit into risk-controlled high return investments.

SM: Do you or members of your group have any particular industry expertise?

RP: Energy, materials science, telecom, manufacturing, security, lifestyle, healthcare, intellectual property and management.

SM: Do you invest regionally, nationally, or internationally? If regional, what is your primary region(s)?

RP: IndiaCo Invests only in India, but our portfolio companies are encouraged to invest globally.

(1M/1M has a large deal flow, and we are interested in channeling some of these deals to you when we find a match.)

SM: What are your current sources of deal flow?

RP: Through references through our network or through portfolio/board/advisory recommendations.

SM: On average, from all sources, how many pitches do you receive a month?

RP: Approximately 100.

SM: Out of all pitches you receive, how many deserve a closer look?

RP: We look at each pitch closely and then take a call if we should engage further, on average of two to three companies.

SM: What factors receive the most weight when you’re debating whether to fund a venture?

RP: Entrepreneurial team/management; viable and sustainable business opportunities that are feasible; level of motivation and whether it matches ours; money projections – forward/backward and vertical/horizontal; existing momentum built;  and potential investment opportunities where IndiaCo can acquire unambiguous control positions (greater than or equal to 51%). Intellectual property is considered a key ingredient, i.e., pre-investment requirement

SM: How many investments have you made in the last 12 months?

RP: Three investments.

SM: How much money do you usually invest?

RP: That would depend on the enterprise.

SM: How long does it take for a company to receive funding from you or your group?

RP: Three to five months.

SM: What is the typical valuation of a company you invest in?

RP: That would depend on the enterprise.

SM: In terms of percentage, how much of a company’s equity do you usually seek?

RP: Usually beyond 51%, but sometimes, if we are certain of the exit potential, we can go below 51%.

SM: What is the typical return you seek, and over what period?

RP: Fifteen times over five years.

SM: In what stage of business development do you usually invest? An idea on paper, product ready, validated with customers, without revenues, with revenues?

RP: Growth stage most of the time, but we are stage agnostic.

SM: What should be the TAM (total available market) for the company’s product or service? At 1M/1M we believe that there are many more $20 million business ideas than $500 million ones. Do you invest in the $20 million ones? An investor can get 20x by investing in a small niche idea that either has a strong exit or generates great dividends every year for 20 years. Do you invest in such deals?

RP: We have no such criteria. We like the company to address a reasonable market that is growing or when we can catalyze the addressable market for the company to significantly grow.

SM: What do you do with your rejects (businesses you don’t invest in), if anything?

RP: We archive the companies in our proprietary platform, where we would continue to follow the company or would engage with them in the future.

SM: Do you have any sector preference?

RP: Energy, materials science, telecom, manufacturing, security, lifestyle, healthcare, intellectual property, and management.

SM: Do you have to have an exit strategy, or would you invest in deals that can go on generating dividends over a long time?

RP: [We have no] exit strategy.

SM: What is your preferred investment type? Common shares, preferred shares, royalties?

RP: Equity shares.

SM: Do you do debt financing? Convertible? Non-convertible? Terms?

RP: No.

SM: OK. Thank you, Rahul, for taking the time to answer my questions.

RP: Happy to. Thank you, Sramana.

This segment is a part in the series : Seed Capital

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What? Seed investing with >51% stake. Not focused on exits. Not preferred or common , but equity shares ?

Sorry, Sramana this raises several flags around the investment model, and ….

Ravi Wednesday, March 14, 2012 at 3:38 AM PT