In a recent interview to Venture Intelligence, Shailendra Singh discussed some of the firm’s newer investments in the early stage segment including in the online payments space, the progress at a few existing portfolio companies and the active role the firm is playing in helping its portfolio companies scale and succeed in India and globally. Prior to joining the firm in 2006, Singh was a strategy consultant at Bain & Company in New York and before that, an entrepreneur in the digital media industry.
Venture Intelligence: How does Sequoia go about identifying potential early stage investments in India? Is there anything different you are doing today than, say, a couple of years back?
Shailendra Singh: There is a lot more focus on technology investing and early stage investing. In general, as you might remember a few years ago, we were doing primarily growth investing but in the past 18-odd months, we have had a very strong focus on early stage and that’s continuing. In terms of how we identify early stage investments, every possible source is used: reach out to companies on our own, meeting them at events, through references, etc. A good percentage of early stage companies know and understand that we are willing to invest very, very early. We believe the right entrepreneurs are resourceful enough to find a way to reach us.
VI : Sequoia has recently invested in two companies in the online payments space – Zaakpay and Citruspay? Why invest in two companies in the same space & how are they different from the existing solutions (like CCavenue, BillDesk, etc.)?
SS: While the existing players in the space are good companies, they have been around for a very long time and the market needs new age technology led companies that can leverage upon the wave of technological innovation in this space. Zaakpay and Citrus had very different strategies when we made the investments. Zaakpay had primarily approached us with a ECS centric new payment model. But their regulatory approval was delayed. So, they pivoted into the payment gateway space. Citrus on the other hand is meant to go beyond being just another payment gateway, but bring to the fore their special relationships with all the banks. While they seem similar on the surface, they are using different strategies and different technologies for payments.
At a more fundamental level, companies change direction over time and end up looking more similar. We don’t try to stop companies from doing something just because other portfolio companies have also decided that the opportunity looks interesting to pursue.
SS: While they are not probably classic e-commerce, we also did Healthkart, Freecharge and FreeCultr in the online transactions space. But yes, as a firm, we are “underweight” on ecommerce so far and yes, that will change. But, we are in no hurry - we think it’s a long term game and ecommerce is a 30 year growth story. We have the flexibility to invest both out of our venture fund as well as growth fund - so we can write small cheques of a few millions and also large cheques of $50-100 million.
In-between, the market for e-commerce companies seemed very frothy and it seemed like a mini bubble. There were a lot of entrepreneurs who had jumped in to start e-commerce businesses since it is quite easy to start. They were also very similar to each other and it wasn’t very clear to us from the data whether they would grow into large enterprises and do well 10 years from now. So that’s why we decided to be cautious and instead spend more time on technology, software as a service and cloud-oriented companies. In the next 4-5 years, we hope to have very significant investments in ecommerce, but we will continue to be selective and not get sucked into the hype spiral.
VI: In general, what are the key qualities you would look for in an Internet/E-Commerce investment?
SS: The most important quality is we are looking for are companies that we think will be market leaders in 10 years. So we try not to get focused on short term momentum, short term traction and we ask ourselves does this company have the characteristic, defensibility or differentiation in their model.
VI : What other companies in your early stage portfolio which are witnessing good traction?
SS: Many of the early stage companies have become growth companies now because they have witnessed good traction. Prizm Payments and Pine Labs are good examples in payments. Healthcare data analytics company ScioInspire, where we had made a seed investment is doing very well. Freecharge similarly is also witnessing good traction.
VI : On the exits front, apart from TutorVista, which other venture investments of Sequoia would you describe as having provided exciting returns?
SS: Vasan Healthcare is a company we had invested into from our venture fund that has become large and recently given us a partial exit recently. Among other companies that were invested into from our venture funds in the pipeline for good outcomes, Justdial has filed for an IPO and is closest to a liquidity event. Prizm Payments has also become a big company. As I’d said earlier, in the 2007-2009 timeframe we weren’t focusing on early stage investments and more focused on growth equity. So, our early stage portfolio is quite young and we try to take a 5-10 year view and we are still in the build stages.
VI: While there seems to be genuine return of vibrancy to the early stage segment in India (including among LPs), are there any concerns or gaps that you see in the ecosystem?
SS: While the phase of evolution is getting better, I would like to see more management talent become available for helping early stage companies scale. While there are some people leaving large companies like Google, Facebook, LinkedIn, etc. to become entrepreneurs, but not enough of them are joining early stage companies in executive or managerial roles. Hiring management talent for the companies we invest in is hence one of the main areas we try to help with. We have a full time recruiter at Sequoia Capital and all he does is to help recruit high quality talent for our early stage companies.
The other issues are more structural – the Internet advertising market in India is still young, payments infrastructure is still young and so, we are trying to invest wherever we think there are gaps and try to improve that.
VI: Is there any plan to raise a new India-dedicated fund in next 2-3 years?
SS: Yes, we will be raising the next fund for Sequoia India in 2013.
VI: Will Sequoia look at more investments in Tier 2 cities?
SS: We have a very active policy to try to go where the entrepreneurs are and where the good companies are. Especially in the non tech sectors, we are more than happy to go to the tier 2 tier 3 cities and look for great companies.
VI: Any other new initiatives or focus areas that you would like to highlight?
SS: We have a big emphasis on globalization and we are actively building resources to help Indian technology companies become global quickly. The idea is to find global opportunities out of India and help companies here succeed in Silicon Valley and other parts of the world at a rapid pace.
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