Mr Abhay Havaldar has just had a very successful stint with the Draper International Fund which he managed in India. The fund has invested in Rediff.com, Selectica, Unimobile (formerlyGray Cell) among several other successful ones. Mr Havaldar who began makingventure capital investments in the country about four years ago has closedthe Draper Fund and is now in the process of raising another VC fund withRamanan Raghavendran of Connect Capital. In a candid interview with PriyaSrinivasan, he shares some of his views on the reasons for the slowdown inVC investments in the country, the direction that venture capitalinvestments are likely to take in India and the factors which will providethe trigger for the nascent Internet economy which is currently seeing aconsolidation of sorts.Excerpts:
What reasons do you assign to the sudden and marked slowdown in venturecapital investments in Internet companies?
The mood has undergone a change from euphoria to uncertainty and theuncertainty is largely due to the absence of execution capabilities and nota questioning of the market itself. Most companies are finding it difficultto attract second round funding because they are not able to command thevaluations that they did in the first round and they are not willing to sellat the new valuation. The drop in valuation again is because they haven'tbeen able to meet the objectives. This is not an indictment of theentrepreneur alone, the VC as a partner in the company is equallyresponsible for its performance.
Why has there been a particular indictment of the B2C space? Do you seeit recovering ever?
I am bullish about every segment of the Internet business. I will neverwrite off sectors. In any case VCs back companies and not sectors so singlespace can be written off. In the current market situation, those companieswho are able get ahead of the pack through execution will attract goodvaluations. Execution is really key. There is another side to this, pleaseremember that the VC is also under a lot of pressure from investors, so if aVC has companies which are falling short on execution in their portfolio, heis questioned as well and part of what we are seeing now is due to that.
Apart from performance, what according to you are the triggers that willget investments flowing again?
If huge investments get into infrastructure, that could trigger a change insentiment, besides, once the shakeout is complete and the weak companiesfall by the way, the ones that survive are likely to attract investmentsonce again. Of course, companies can even today get ahead of the pack byscoring on execution. We are seeing several new funds come into the countryas well, they will have to start making their investments and I feel aturnaround should happen within the next one year.
SEBI's guidelines for VC firms which was released last week incorporatesa clause whereby the VC is required to exit the company it has invested in,within one year of the IPO. This has come in for some criticism, what do youmake of this caveat?
SEBI should really decide whether it wants to attract funds or exportcompanies. If the regulations don't suit the investors, they will simply getthe companies to register elsewhere and start a 100 per cent subsidiary inIndia. That apart, the most important thing is consistency. Investors hateuncertainty and if legislation is going to keep changing investors arelikely to be turned off. Funds should be allowed to operate under thelegislation that prevailed when they registered. Investors would like to seea consistent legislation at least for about 6/7 years when the fund isoperational.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.