Q&A: B Capital’s Raj Ganguly

Q: What’s behind the recent flurry of activity?

A: As COVID-19 came, we put our heads down and made a bet that growth-stage tech was only going to get bigger, so we needed a later-stage fund. At the time, it seemed like a contrarian bet to some people. We also said that China is going to be extremely resilient and China enterprise tech is only going to get bigger. And we said we want to be full-stack in our ability to meet entrepreneurs earlier through seed and Series A, so we need a traditional venture fund. A bit of premonition and a lot of luck has got us to where those bets have paid off.

Q: Have you expanded the LP base?

A: We always give our existing LPs priority on new products, but we have been able to have conversations selectively with LPs that have become new investors in these products. Even in a COVID-19 environment, we’ve found that LPs are willing to make new commitments to managers they feel have a differentiated strategy. For us, what they liked was the global reach, the value-add through our platform team and through BCG [Boston Consulting Group, a strategic partner to B Capital], and the focus on B2B and enterprise.

Q: What are the internal resource implications of adding strategies?

A: We’ve added dedicated teams for early-stage investing and for China. We’ve also added to our healthcare team, because we believe innovation in healthcare is required in emerging markets where there are accessibility issues and in developed markets where there are affordability, efficacy, and impact questions. We are now over 100 people and eight offices, and we have $2 billion under management. On the investment side, there are about 40 people, 10 of them in the early-stage team. However, we have a very fluid structure and we all work together. We also have a platform team that works with portfolio companies and a firm operations team that supports the internal operations of the firm.

Q: Are there growing pains that come with expansion from nothing to multi-strategy within six years?

A: We are building one firm and we want to make sure culture and values are consistent across the organization. We have spent a lot of time making sure that is the case. Regardless of which office you go to or what product you are dealing with, everything works in a similar way. We are incredibly focused on backing founders and being the highest value-add investor in the cap table. We put a lot of resources into post-investment value-add because to do things well you have to resource well. A lot of firms build their teams slowly as the management fees come in. Our partners are not only the biggest investors in our funds, but we are also significant investors in our firm. That includes spending above what a fund of a certain size could support. 

Q: What is the pattern of deployment in terms of sector and geography?

A: We invest equally across three verticals, healthcare, financial services, and industrial and transportation, and one horizontal, which is enterprise software. The US is the biggest market for enterprise tech and B2B and China is the fastest-growing market. But the number of cross-border enterprise investments we’ve made in Indian companies that have become unicorns is the less-told story. Even though 90% of our investments have been in the US and Asia, we are very focused on companies that can become true global market leaders. We have made investments in Latin America and Europe in companies we believe have that potential. It doesn’t matter if you are a founder starting a business in Silicon Valley, Bangalore, Singapore, or Beijing, we want to make sure you have a global-first mentality and that you are building a business that we believe can truly be a global market leader.

Q: Don’t enterprise and B2B look very different in Asia to the US?

A: We do enterprise and we do B2B, and they are not the same. In addition to the India cross-border enterprise investments, we do a fair amount of B2B investing. In India and Southeast Asia, there is a lot more SMB [small and medium-sized business] flavor because you don’t have large enterprises. The future enterprise leaders in India are today serving SMBs. Ninja Van, our first investment in our first fund, serves big e-commerce companies, so it’s B2B but it’s really B2B2C. It’s deeply operational and has tens of thousands of employees. That’s different from a US enterprise SaaS [software-as-a-service] business, which is very technology-driven, very product-market fit-driven, and doesn’t have a big operational component. B2B and enterprise look different in the US versus India and Southeast Asia. In China, you are starting to see both – traditional SMB tech and the early innings of true SaaS companies.

Q: The shift in focus among venture capital firms has been rapid…

A: Two years ago, our friends at VC firms in China started to ping us and ask what CRM [customer relationship management] ecosystem means. We asked why they wanted to know, and they said they were going to build it in China. We said, wait a moment, do you mean the ecosystem is being built organically? They were like, no, we are going to build one. It has been very purposeful. The last two years have been incredible in terms of the rise of enterprise.

Q: What was behind the timing of the China entry?

A: We have been looking at China since we started B Capital. Eduardo [Saverin, co-founder of B Capital and co-founder of Facebook] always had a good phrase for China: “Many other markets we can trial by dipping our toe in the water. If you dip your toe in the water in China, it’s an easy way to lose your foot.” So, we didn’t want to dip our toe in China. We said when the Chinese market is ready for our focus and our thesis, we will do it with an in-house team. There’s the speed of most of the world, the speed of Silicon Valley, and now there’s the speed of China tech, which seems to be even more rapid than the valley. If you get something wrong in Chinese B2B, it’s probably the exit values of these companies because they can be so much higher than what people thought even a year or two ago. The Star Market has helped in that.

Q: Isn’t monetizing SaaS difficult in China because products are customized, or project-based, rather than standardized and subscription-based?

A: The US enterprise tech market has been built on product and minimizing services. In the early days in China, it was very much service-driven with very little product. When we looked at China five years ago, it was a nice technology wrapper on something that was fundamentally still a services business. That has changed dramatically in the last 12-18 months. Even during COVID-19, we have seen a move to much more productized, true B2B and enterprise technologies.

Q: Must the China SaaS start-ups you back address global markets?

A: They don’t have to serve other markets, but a global-first mentality is important because we want founders to think about not just who their competitors are today but who they could be in the future. In some ways, enterprise tech is a lot more global than consumer tech has ever gotten. Microsoft and Oracle are used everywhere, including in places where consumer tech companies haven’t been able to go. Our businesses don’t have to be global, but if you are serving a large company then it is probably global, and you must think of competitors outside of your market.

Q: How difficult is it to go cross-border?

A: We’ve helped companies from Southeast Asia expand into China, and companies from the US expand into Asia. It’s a risky process, but there are a few different approaches that really work. What we often say is, "You want to enter the Asian market and your biggest customer already has a presence in Asia but is using a different technology. Start with the companies that you know well and know you well and sell to their global teams rather than try to go find someone else."

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• Topics
• South Asia
• Southeast Asia
• Greater China
• North America
• Venture
• Technology
• Fundraising
• China
• India
• USA
• B Capital
• enterprise software