Venture Intelligence recently spoke to Rishi Navani, co-founder and Managing Director at Matrix Partners India. The firm, which has a special focus on domestic consumption, has announced three investments in the past 12 months – a new Rs.100 crore investment into education firm FIITJEE and follow on investments into online classifieds firm Quikr (a spin out from eBay India) and prepaid cash card firm ItzCash (part of the Essel Group).
Venture Intelligence: In the post-financial meltdown scenario what is your reading of both the growth equity and VC space?
Rishi Navani: In the growth equity segment, we are in a situation where capital has dried up - particularly from hedge fund investors and investment banks. For companies that are profitable there is definitely capital available, but there are less pockets but the pricing has certainly rationalized compared to 2007.
In the VC segment, lots of people have invested in companies where they have to spend a lot to time to see if those companies go anywhere. While the environment is picking up, it has become lot more strained particularly in VC and it is very hard to get early stage funding right now.
VI: Will we see the sheer number of funds in the market returning to the 2007 levels any time soon?
RN: On the VC side specifically, there is a higher degree of skepticism around the venture asset class, which will reduce the appetite for VC in India. Also, the biggest pocket of capital for the venture capital industry is mainly the US and there has been a significant retreat and retrench in venture capital there. Earlier, people were able to raise $600-800 million funds in the US; those are now becoming $300 million dollar funds. It was really the excess $300 million they were allocating to India, China and other geographies. Now that the excess does not exist and they have limited capital for the US market, they may not want to stretch out into India and other places.
VI: On the growth equity side, what are the key challenges?
Rishi: Valuations are still a challenge, but that will only subside over a period of time and there are more people building companies and the depth in the market increases. The amount of money and the irrationality has definitely reduced. Lot of the irrationality in growth equity was driven by hedge funds and investment banks. That capital has retreated significantly.
VI: There has always been an interest in Education but now we are seeing deals come through. Do you see any danger of overheating as the theme is played up?
RN: That’s a constant danger in India. But just because five more people are interested doesn’t mean the sector is going to grow that much faster.
VI: Beyond education what other sectors do you feel are attractive?
RN: We are focused on basic need sectors such as healthcare, education, financial services and infrastructure.
VI: Does infrastructure fit into your broad consumer theme?
RN: Our theme is consumption; power consumption, for example, very much fits into our theme. The way to think about is, if India is consuming in any shape, size and form we are interested. How much infrastructure would we end up having in our portfolio? I don’t know – but if I had to guess, I would say 10-20%.
VI: In most of your first round investments, you have been the sole investor. Is that something that you will continue to do going forward as well?
RN: There has to be a capital need that justifies bringing in another investor or there must be a specific value-add that the investor brings to the table. Otherwise, there is no reason to bring in outside investors right at the outset.
VI: Another contrasting feature about Matrix is that you have stayed away from the listed universe? Will that change?
RN: It’s not a no-no, but we have stayed away from it consciously.
VI: Is Early Stage something that you have moved completely away from? For instance, would you invest in another Asklaila - in terms of the company’s stage of development?
RN: It is unlikely we would be first round investors in Early Stage companies. So, we would do an Asklaila equivalent - but a couple of years post the stage when we entered that company.
VI: From your point of view, what is unique about Matrix’s positioning vis-à-vis attracting dealflow?
RN: There are various parts to positioning - the people, the culture you create, how you interact with entrepreneurs; it’s a variety of things. We work really hard to find good investment opportunities and we work very close with entrepreneurs post investment. And we tend to be very independent in our thinking of what we want to and what we don’t want to do. We don’t spend a lot of time on what others are doing.The full version of this interview appears in the latest Venture Intelligence India Roundup Quarterly Private Equity Report