N. Sriram of Venture Intelligence recently spoke to Niren Shah, Managing Director of Norwest Venture Partners, who heads the Silicon Valley firm’s India investments out of Mumbai.
Niren was earlier CFO and Director of Operations at Baazee.com and joined eBay as part of its acquisition of the Baazee in 2004. Before joining Baazee in 2000, Niren was part of KPMG India’s Corporate Finance arm.
What is Norwest’s overall strategy for direct investments in India?
We have got about six investments in India and if you count cross border investments (i.e., cos. with back-end operations in India) there are about 22 . And we are looking at more direct investments.
We are basically a very broad fund. We can invest anything from US$ 1-2 million to US$30-35 million. We started off in India with late stage investments. We are now going to be doing few early stage deals apart from looking at late stage investments.
Norwest was a very active investor in 2006, but then went quiet. Why?
That’s incorrect; we actually made investments in 2005, 2006 & 2007. I don’t think there is any completely quiet year. It is just that in 2007, we put out a lot of term sheets but, sometimes, the valuations were completely out of tune. The market was very different and we are happy that we were quite disciplined.
Would you be doing more deals like Mobile2win where investors bought out one of the stakeholders?
In the case of Mobile2win, the management was intact. In general, among late stage companies, we are open for secondary sale by promoters.
Would you consider investments in sectors other than IT?
Yes, we are in the process of looking into various kinds of things like retail, health care, financial services, media and infrastructure. In non-IT , our focus would be on late stage deals.
Within IT, do you have any preference among sectors?
We are fairly bullish on Internet and mobile companies. It’s probably going to take 5 years or more for companies to come of age in these sectors. We are also interested in product companies with a lot of entrepreneurs of Indian origin coming back from the US. Also, the domestic market is gaining critical size in areas like telecom or stock broking.
What sectors will you surely stay away from?
Real Estate. It’s a very large sector and you need a different team. We don’t want to hold land banks, buying and selling properties.
Do you have any policy on co-investing with other VCs? Would you always prefer to be the lead investor?
Yes, we genuinely like to syndicate with other investors. We often become the lead but we have no real preference to become the lead.
How much do you look to put into a company over the life of the investment?
It differs from company to company. But I think it does not make sense to go above US$ 30 million. US$ 10-25 million would be our sweet spot.
What are your current revenue requirements for early stage investments?
It totally depends. Things like sector, concept, plan, competitive scenario, etc. all play a role.
Would you invest in "two guys and a PowerPoint presentation"?
If we see a management team with strong domain (knowledge) which has successfully executed before and it’s a good business plan in a market which is growing, the answer is a resounding yes. Yatra is a good example of such an investment. When we invested, even their website wasn't up.
Will the recession in the US hurt the flow of funds into Indian start-ups?
I don’t think issues in US will have an impact on India - particularly in early stage investing. In the late stage, it has impacted valuations. Norwest continues to believe that the long term story in India is very much intact.
Niren was earlier CFO and Director of Operations at Baazee.com and joined eBay as part of its acquisition of the Baazee in 2004. Before joining Baazee in 2000, Niren was part of KPMG India’s Corporate Finance arm.
What is Norwest’s overall strategy for direct investments in India?
We have got about six investments in India and if you count cross border investments (i.e., cos. with back-end operations in India) there are about 22 . And we are looking at more direct investments.
We are basically a very broad fund. We can invest anything from US$ 1-2 million to US$30-35 million. We started off in India with late stage investments. We are now going to be doing few early stage deals apart from looking at late stage investments.
Norwest was a very active investor in 2006, but then went quiet. Why?
That’s incorrect; we actually made investments in 2005, 2006 & 2007. I don’t think there is any completely quiet year. It is just that in 2007, we put out a lot of term sheets but, sometimes, the valuations were completely out of tune. The market was very different and we are happy that we were quite disciplined.
Would you be doing more deals like Mobile2win where investors bought out one of the stakeholders?
In the case of Mobile2win, the management was intact. In general, among late stage companies, we are open for secondary sale by promoters.
Would you consider investments in sectors other than IT?
Yes, we are in the process of looking into various kinds of things like retail, health care, financial services, media and infrastructure. In non-IT , our focus would be on late stage deals.
Within IT, do you have any preference among sectors?
We are fairly bullish on Internet and mobile companies. It’s probably going to take 5 years or more for companies to come of age in these sectors. We are also interested in product companies with a lot of entrepreneurs of Indian origin coming back from the US. Also, the domestic market is gaining critical size in areas like telecom or stock broking.
What sectors will you surely stay away from?
Real Estate. It’s a very large sector and you need a different team. We don’t want to hold land banks, buying and selling properties.
Do you have any policy on co-investing with other VCs? Would you always prefer to be the lead investor?
Yes, we genuinely like to syndicate with other investors. We often become the lead but we have no real preference to become the lead.
How much do you look to put into a company over the life of the investment?
It differs from company to company. But I think it does not make sense to go above US$ 30 million. US$ 10-25 million would be our sweet spot.
What are your current revenue requirements for early stage investments?
It totally depends. Things like sector, concept, plan, competitive scenario, etc. all play a role.
Would you invest in "two guys and a PowerPoint presentation"?
If we see a management team with strong domain (knowledge) which has successfully executed before and it’s a good business plan in a market which is growing, the answer is a resounding yes. Yatra is a good example of such an investment. When we invested, even their website wasn't up.
Will the recession in the US hurt the flow of funds into Indian start-ups?
I don’t think issues in US will have an impact on India - particularly in early stage investing. In the late stage, it has impacted valuations. Norwest continues to believe that the long term story in India is very much intact.