Asia Awards: VC Professional of the Year – Sanjeev Aggarwal

Q: Helion and several other Indian VC firms have raised funds this year, while domestic PE firms appear to be struggling. Why is venture popular among LPs?

A: Venture capital in India is miniscule - it is worth less than $1 billion per annum against a GDP of $1 trillion-plus. Private equity is well entrenched and well contested, but venture capital is very scarce. In the technology and consumer sectors there are lots of opportunities for non-linear returns. Concept arbitrage, which has happened in the US and China, can be brought to India. E-commerce, for example, accounts for 0.4% of overall organized retail, compared to 5-10% in China and the US. There are so many white spaces to play with, and that is attracting capital to the early stage. In the sectors we are targeting, growth rates are 13-14% per annum, twice the country's GDP growth rate. Our portfolio revenue has increased 40% in the last 12 months.

Q: Helion closed its third fund at $255 million this year, compared to $210 million for its predecessor. How has your team and approach evolved?

A: We can invest about $50 million per annum, which means 7-8 deals each of around $6 million, so $200-250 million is good for us. It gives us dry powder for four years or so before we go back to the market. One thing that has changed is we have strengthened our sector allocation process. We now focus on five core areas - mobility, e-commerce, internet, enterprise software and healthcare - and have specialists in each one. It means we develop good networks and deal flow becomes a combination of reactive inbound and proactive outbound, of top-down and bottom-up.

Q: What is the nature of Helion's ties to Silicon Valley?

A: We have a very strong partnership with Sutter Hill Ventures. In addition, about 80% of our deals are syndicated and we often find Silicon Valley firms like Foundation Capital and Charles River Venture reach out to us because they like our local knowledge and presence. There is a US dimension to our business because many companies are starting from India for India and then going global. A company might have a consumer-facing team in India but some of the engineering and development capability is in the US because there is so much talent in Silicon Valley.

Q: How many companies in Fund II are going global?

A: About 20% could be anywhere in the world, competing globally and serving multiple markets. In many cases, they already have teams in multiple continents. In Fund III, this number is going to be even higher. Most of the enterprise software companies design themselves to be global companies because our domestic industry isn't deep enough to generate a critical mass of revenue. We have 2-3 companies that have been very successful in taking their offerings global. Kirusa, which allows you to send voice SMS, started in India and Bangladesh and has since entered a lot of countries in Africa. Then there are outsourcing companies - like legal industry-focused UnitedLex - where the talent base is India but the clients are in North America.

Q: Which portfolio companies really stand out as potential star performers?

A: We have invested a lot in online travel and one company we are very pleased with is called RedBus. Bus travel is a highly fragmented industry in India and there was no automation, but this company has become the equivalent of Makemytrip, bringing inventory online and making it available to consumers. They virtually have a monopoly position. RedBus could list offshore, but it is still some years away from achieving the critical mass that Makemytrip achieved. You need $30-40 million in annual revenue before you can consider a NASDAQ listing.

Q: How are the exits looking for Fund I?

A: It takes 6-7 years to exit in India and we still have 13-14 companies in the portfolio and a lot of exciting exits lined up. We see a lot of interest from strategic buyers - the Japanese are very active. Several of our outsourcing companies are also targets for global IT firms, but the companies serving domestic consumption are candidates for IPOs and that market is beyond our control.

Q: Some investors say Indian VC is attractive but unproven. Is this a fair assessment?

A: That's the reality. India's venture capital industry only really started in about 2006 and it takes 7-8 years to build a company with $30-40 million in revenue that can be exited for $200 million, or a 4-5x multiple. I'd say there are 15-20 venture-invested assets, several of them in our portfolio, that are in this position. But when will the exit environment improve? And when is the optimal time to exit? With some companies, you get such high operating leverage in the latter years that if you sell prematurely you aren't realizing the full value. The next 2-3 years will be very important for VC in terms of returning capital at a decent IRR.

Q: What is the competition like for deals?

A: Competition for Series A deals is fairly light. There are 3-4 firms investing consistently in this area and you can normally get in at a reasonable valuation, typically single digit. But for Series B, where the company has gained some traction and reached $10 million in annual revenue, everyone is jumping in and it becomes quite expensive, especially if the sector is hot at the time. It's not that there are too many investors, there aren't enough of these deals. The trick is to get in early and build relationships with the entrepreneurs so you aren't just competing on price.

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