'We look at ways to change the world'

Q&A:

Since September 2008, Nexus India Capital has made four investments from its $200-million second fund. It is working on three more deals in addition to the two follow-on investments already made so far this year. In an interview, Suvir Sujan, partner at Nexus India Capital, tells Shilpy Sinha about their vision, investment plans and belief in the Indian growth story. Excerpts:

What is your outlook for 2009-10? How has the downturn affected venture capital (VC) investments?
We have a longer vision and looking at what will happen in 2018. There is no impact of the downturn on us. Had we made investments eight-nine years ago, then there would have been worries about exiting those ventures. Today, we are not projecting returns two years down the line.

VC firms are increasing their stake in companies through second round of funding. Have you made second round of investments in your companies?
Basically, three types of second round of funding are taking place. For example, we fund companies which are unable to raise funds and we believe in start-ups. Second, if the company is a rock star and we want to increase our stake in the venture. Third, we increase our stake if the valuations are attractive. We have done two such investments from our first fund. In one of the companies, we wanted to increase our stake but the valuation was too high and we could not invest.

Have limited partners revised their expectations from investments in India after the financial crisis?
We have long-term investors such as university endowments and pension funds. They have a very different outlook. Most of our investors are looking at long-term profits. They are betting on India and its growth story. We are investing in asset classes that are high risk and provide high returns. There are different measurements of performance and so we need to have one solid exit in five years. We look at ways to change the world. It is like investing in Bharti Telecom 10 years ago.

IITians are now increasingly becoming entrepreneurs in the aftermath of the downturn. How do you look at it and how many such projects have you funded?
We have funded one fresher from IIT. Two years ago, we used to go to their campuses, but now they find us since we are very few. We have funded a lot of IITians who have two-three years of experience and have worked for a few years with a start-up company. In general, a lot of these IIT guys have a commercial mindset, and nine of the 10 we meet are in their dream technology world. When an IITian has worked in a start-up for three-four years, and then tapping the market, we are more willing to fund them. There is more passion towards a particular product but they lack the passion to start a big company.

Are there any specific sectors that you are focusing on?
We broadly invest in three sectors — technology, consumer services and business services. We look at every sector and broadly classify them.

Investments in IT and ITeS have come down. Will the momentum pick up again this year?
They will pick up. There is a significant strength in this sector. There was a lot of apprehension about the sector after the financial crisis hit US markets and then with Obama shutting down BPOs. The potential in the sector is immense and it will do well in the long run.

In the first half of 2009, investments have come down by 65 per cent. Do you expect the second half to be the same?
Investments by VCs will remain the same as capital is not a constraint for us. Since there were not many funds floated by PEs last year, investments by them may dip. Also, the number of deals may not be affected much but the value of investments would fall.

How many investments did you make out of your second fund?
We have made four investments. We have made two cross-boarder investments. We invest in Indians starting business abroad and are willing to come back to India later. Investments have not dried up by VC firms as there are only a few of them in the market. We will make another two-three investments this year. We will exhaust our second fund in another three years.