Ringside view of a Venture Capitalist

When I got an invite from TiE Chennai for a small-group interaction with a Charter Member of TiE Delhi, Dev Khare, I did some research.  I found an article that he had written about the obstacles being faced by start-ups in India.  Impressed by the clarity of thought and a crisp language that was evident in the article, I immediately registered for the event and was in fact looking forward to it.

Dev KhareThis evening, as I walked into the TiE office, I had a feeling that I would find this session valuable and interactive.  The next hour and half totally vindicated that feeling.

There were about 15 of us who made space for each other in the tidy conference room but once Dev started talking and interacting with us, we really did not mind the lack of physical space in the room.  Dev first introduced himself and talked about the setup of LightSpeed Ventures (a Private Equity Venture of which he is a Principal) both in the United States and in India.  He waxed eloquently about the kind of investments they have made in the past and the sectors in which their investment portfolio is pre-dominant.

Dev then took the audience through the VC business in a very absorbing manner where he covered the source of VC funds being largely Pension funds, university endowments, sovereign funds, family offices in the US, the manner in which the funds are utilized and the format in which the profits are distributed.

I drew his attention to his remark in the article mentioned above about ‘lack of trust’ being an impediment for start-ups in India and asked him to elaborate and he really took off.  He talked about the way entrepreneurs were trying “to cross every t and dot every i” (my phrase) in a contract with VCs, hypothetically considering every possible consequence and building it in the contract, executives negotiating hard to get a great deal but not showing up just to name a few.  He was also critical about the way in which VCs were not coming clean during the early interaction with potential investees and he believed that all of these consumed a lot of energy that could have been better utilized in building great businesses.

Responding to a question of how VCs evaluate a business, Dev took us on a guided tour and although there were a few interruptions and distractions, he managed to retain the thread and address the issue squarely.  He explained the parameters that VCs look for in the investees in various stages being the early stage and Series A, the first meeting, the subsequent meetings to see if the VC’s concerns are being addressed adequately by the entrepreneur, the internal discussions, the offer of a Term Sheet with clauses that protect both the investors and the investees, the due diligence on legal and financial aspects to uncover any potential liabilities and the final contract.

He then asked each one of us the nature of our businesses and nicely summarized the plethora of industries that we represented.

To a question of ‘Valuations’, he honestly admitted that it was largely based on gut feel than any rule of thumb and would vary depending on the nature of industry and the geography.

When he mentioned that his company looks at about 400 proposals before investing in 1, I asked him for the grounds on which they eliminate the 399.  He shared with us that the quality of the founder team, the size of the market, the nature of the product being FNAC (Feature Not A Company) and the investment that would be required to get the business to the level of exit as being some key factors they consider before investing.

There were other questions on the rationale of the sectors of investments, whether they invest in ideas, whether they would insist on the promoter being available full time, whether VCs fund for working capital requirements just to name a few.  I was amazed by Dev’s ability to provide a detailed yet focused response to each question.

I can go on and on but suffice to say that it was an interaction that I would remember for a long time to come.  I only wish that TiE Chennai had made it possible for a larger audience as a regular event and I am sure they would do so at the next available opportunity.  Thank you TiE Chennai (special thanks to Sonia who sent reminders about the event and even called me) and Dev Khare.

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