John Dougery: There are many opportunities and efficiencies in India to build world-class products for business customers out of India. Our focus was, and continues to be, both consumer consumption in India and also business consumption both in India and globally.
About half our companies are business software companies with an increasingly heavy dose of services inside them. It’s not just technology. It can be very high-end advanced services. India has gone through a huge renaissance in the last two years. There has been more than a doubling and tripling in the amount of capital, number of companies being started, and the quality of companies being started.
All of those have improved since we started. It’s playing out as we expected. 2008 made it a little bit slower than we had hoped for. We’re heading in the direction we expect to head. We’re feeling very optimistic about it. I think that some people worry about the short-term corrections in valuations but those are, in our experience, part of the normal cycle and unavoidable in any economy. The underlying fundamentals are still encouraging.
Sramana Mitra: Let’s double-click down on some of the things that you’ve said. Firstly, our audience is early stage entrepreneurs. Like you said, we also believe in this capital-efficient entrepreneurship philosophy. By and large, we have tried to coach and mentor our entrepreneurs to focus on that philosophy. Having said that, the last couple of years have been a bubble market.
In our portfolio, one of the companies has raised a hundred million dollars. We’ll see how that all pans out. So far, so good. They’re doing great. In general, I much prefer companies that don’t raise that kind of money. It sounds like that’s where your sweet spot is.
Tell us a little bit about at what point do you like to invest. If you’re doing B2C, what do you like to see in terms of traction and validation? If you’re doing B2B, what do you like to see so that our entrepreneurs will get a feel of when is a good time to start working with you.
John Dougery: We do have some companies that have raised a hundred million or more. We don’t have total control over that. Some companies justify it and can put it to good use. The rule is capital efficiency. We find that to be as much in the entrepreneur’s interest as ours.
Going to your question of where we focus, we had always been post-seed, Series A investors. Before we started Inventus and since starting Inventus, our sweet spot is the Series A stage, which in India is generally a company that has a product. Maybe it’s just a beta product. It’s usually a product that’s working. It’s in the hands of customers. It delivers an ROI that a customer is willing to pay for. It doesn’t need to be huge scale.
It’s not about how many dollars of revenue. It’s about how much approbation as a value statement is present. We would lead the first $2 million to $4 million. We would do anywhere from half of that to two-thirds of that. We generally like to syndicate. It’s in our best interest but also in the company’s best interest to have a good foundation of support. We like to have two firms with high conviction willing to put in a million or two each to support the company. That’s our style. This all came out of our own analysis of what worked and what hadn’t.
We found that when we were making highly-convicted bets and significantly engaged with the teams, we had wonderful results. We’ve had a dozen IPO’s, a dozen M&A’s. The areas where we follow other people passively where we put in a little money, we broke even. The companies did okay, but they didn’t do great. No surprise that when we formed Inventus, we said, “We want to be the lead investor. We don’t want to make dozens of investments a year. We want to make six or eight and be highly engaged and focused.”