Ventureast, recognized as one of the committed early-stage investors in India, has been investing quite actively in 2008 across three funds – the sector-agnostic “Proactive Fund”, the seed level-focused Ventureast-Tenet Fund and the Biotech Venture Fund. While Proactive Fund and Ventureast-Tenet were raised in 2007, the firm is raising a new successor fund to the biotech fund under the new name of “Life Fund”. Also, in November 2008, the Ventureast-sponsored special purpose acquisition company (SPAC) or "blank check" company announced that it is acquiring an over 80% stake in Solar Semiconductor Ltd., a Hyderabad-based maker of solar photovoltaic modules.
Sarath Naru, Managing Partner of Ventureast, recently spoke to N. Sriram of Venture Intelligence on the new developments at the firm. Some excerpts:
Venture Intelligence: Now that there are a few others firms focusing on the seed-to-early stage funding space, will there be a change in your strategy?
Sarath Naru: We are venture style investors into highly differentiated businesses and unproven risk is the essence of our style of investing. I don’t think we would start doing private equity kind of investments.
VI: Which are the sectors that you would invest in going forward? Which are the sectors that you would stay away from?
SN: We are open to investing in all the businesses where there is innovation and sectors which are rapidly growing. Innovation could be in the business model as opposed to technology innovation.
We don’t do pure play Real Estate. However, we do invest in infrastructure-related services - one of our bigger investments was in Ocean Sparkle. We have recently invested in a company that is into water supply infrastructure and irrigation infrastructure for semi-urban and rural areas.
On the Economic Slowdown
VI: What is the impact of the global economic slowdown on fund raising?
SN: Investors believe that VCs will be least affected by the current situation. We think experienced managers should be able to continue fund raising.
VI: How would the economic slowdown impact valuations?
SN: In India, there has never been abundance of early stage money though there has been early stage investing in the tech side over the last 12-18 months. The valuations were not abnormal. My belief is that this would continue and founders will figure out ways to stretch money longer.
VI: What about deal flow?
SN: I think it is going to get tight. One reason is that some of the funded companies have vanished. Non-cyclical sectors will see decent deal flows. It is because of this reason we feel that healthcare would see a lot of action.
On Life Sciences
VI: How different is investing in life sciences from other sectors?
SN: Investing in drug discovery and device development related companies requires very different skills from IT oriented tech investing. Very little drug discovery and device development kind of work happens in India. A fund manager’s ability to be patient matters a lot. With drug discovery and medical devices, the valuation of the business does not change until much later. Even after reaching phase 3 clinical trial, the success rate still remains 1 in 7. It is a lot more complex than IT investing.
VI: You are now raising a successor fund to your Biotech Fund under the name of Life Fund. What’s behind the name change?
SN: We wanted our earlier fund to be first Biotech Fund in India. Since then, environmental related concerns have become very important. We need clean environment related solutions for sewage, garbage disposals and so on. It is all about improving your life through pharma, healthcare, drug discovery, food and agri-products. Hence the change of name to Life Fund (to capture the broader focus).
VI: We thought Trans-India Acquisition Corp. was originally floated to invest into Life Sciences; but it has ended up investing into a solar tech company. Why?
SN: The mandate of the fund was to invest in Life Sciences or renewable energy segments. Life Science did not happen not because of lack of opportunity but because of valuation concerns. We felt that valuations in the pharmaceuticals/life science space in India were pretty high. Also, we had to list or reverse merge the company with a US-listed company. So it had to have some arbitrage with the multiples in the US. If there was no arbitrage between the Indian and the US multiples, there was no value to the investors in the US. Also, the tax structure and regulations to do the same deal with a listed company were also very complicated.
Sarath Naru, Managing Partner of Ventureast, recently spoke to N. Sriram of Venture Intelligence on the new developments at the firm. Some excerpts:
Venture Intelligence: Now that there are a few others firms focusing on the seed-to-early stage funding space, will there be a change in your strategy?
Sarath Naru: We are venture style investors into highly differentiated businesses and unproven risk is the essence of our style of investing. I don’t think we would start doing private equity kind of investments.
VI: Which are the sectors that you would invest in going forward? Which are the sectors that you would stay away from?
SN: We are open to investing in all the businesses where there is innovation and sectors which are rapidly growing. Innovation could be in the business model as opposed to technology innovation.
We don’t do pure play Real Estate. However, we do invest in infrastructure-related services - one of our bigger investments was in Ocean Sparkle. We have recently invested in a company that is into water supply infrastructure and irrigation infrastructure for semi-urban and rural areas.
On the Economic Slowdown
VI: What is the impact of the global economic slowdown on fund raising?
SN: Investors believe that VCs will be least affected by the current situation. We think experienced managers should be able to continue fund raising.
VI: How would the economic slowdown impact valuations?
SN: In India, there has never been abundance of early stage money though there has been early stage investing in the tech side over the last 12-18 months. The valuations were not abnormal. My belief is that this would continue and founders will figure out ways to stretch money longer.
VI: What about deal flow?
SN: I think it is going to get tight. One reason is that some of the funded companies have vanished. Non-cyclical sectors will see decent deal flows. It is because of this reason we feel that healthcare would see a lot of action.
On Life Sciences
VI: How different is investing in life sciences from other sectors?
SN: Investing in drug discovery and device development related companies requires very different skills from IT oriented tech investing. Very little drug discovery and device development kind of work happens in India. A fund manager’s ability to be patient matters a lot. With drug discovery and medical devices, the valuation of the business does not change until much later. Even after reaching phase 3 clinical trial, the success rate still remains 1 in 7. It is a lot more complex than IT investing.
VI: You are now raising a successor fund to your Biotech Fund under the name of Life Fund. What’s behind the name change?
SN: We wanted our earlier fund to be first Biotech Fund in India. Since then, environmental related concerns have become very important. We need clean environment related solutions for sewage, garbage disposals and so on. It is all about improving your life through pharma, healthcare, drug discovery, food and agri-products. Hence the change of name to Life Fund (to capture the broader focus).
VI: We thought Trans-India Acquisition Corp. was originally floated to invest into Life Sciences; but it has ended up investing into a solar tech company. Why?
SN: The mandate of the fund was to invest in Life Sciences or renewable energy segments. Life Science did not happen not because of lack of opportunity but because of valuation concerns. We felt that valuations in the pharmaceuticals/life science space in India were pretty high. Also, we had to list or reverse merge the company with a US-listed company. So it had to have some arbitrage with the multiples in the US. If there was no arbitrage between the Indian and the US multiples, there was no value to the investors in the US. Also, the tax structure and regulations to do the same deal with a listed company were also very complicated.