Since moving to India four years ago, Rajan Anandan, managing director of Microsoft India till August 2010, has been active in the angel investment scene with 15 investments in Indian firms and more coming up. He invests in early stage businesses that have great founders and disruptive growth potential. A member of the Indian Angel Network (IAN), Anandan brings professional experience of two decades across high technology and management consulting domains. Prior to joining Microsoft, Rajan served leadership roles at Dell and Mckinsey & Co. A graduate from Massachusetts Institute of Technology (MIT) and a Masters Degree holder from Stanford University, Anandan recently co-founded Blue Ocean Ventures, the first venture fund focused on seed stage investing in Sri Lanka. In an interview with VCCircle, Anandan outlines his recent investments and predicts web 2.0 revenue models. Excerpts:-
Can you take us through your recent investments?
The most recent investments have been in online tax filing service Taxspanner.com, luxury brands ecommerce site Exclusively.in (which announced its VC round recently) and managed IT services domestic startup eTechies.in. Taxspanner’s mission is to get 20 million of the 40 million tax payers in India online. Exclusively is focussed on the private sale concept.
In 2006, when I moved to India, I invested in Chandigarh-based authorGEN Technologies, which has an online learning portal called WizIQ.com – the portal now has over 1 million students and over 80,000 teachers. It was recently acquired by Educomp. (Note: Educomp paid $8.7 million for 51% stake in authorGEN in 2008.
I have since invested in a Bangalore-based boutique investment bank , online food ordering and table booking site Hungryzone.com, Gurgaon-based Digilogue Communications and Pune-based Innovize Tech. I primarily focus on very early stage companies in the Internet, mobile, software, some segments of ITeS and business services industries. Around half of my investments in India are IAN investments, with a number of other investors.
What is the typical size of your investment?
I’ve done the entire spectrum, depending on the type and age of a company – from Rs 25 lakh to Rs 5 crore. As a definition, if a company is looking for Rs 25 lakh or Rs 50 lakh up to Rs 5 crore, it would receive individual angel investment to Rs 2-3 crore after which the number of angel investors that join to fund the startup rises. A company looking for over $1 million (Rs 5 crore) should seek out venture capital firms. My investment has not risen over Rs 5 crore.
When investing in a company, what is the checklist you go by?
The team, especially the founder, needs to have relevant domain experience. My investment in Druva 3 years ago was solely based on this belief in its founders. The concept itself has to be novel. I do not invest in me-too companies. Third is scalability – we look at if they can achieve a business worth Rs 100 crore in five years.
What sort of companies you will not invest in?
I do not invest in lifestyle businesses, the dividend generating businesses – say an entrepreneur wants to begin a hotel with five rooms and it will generate Rs 5 crore in revenue. As an investor with a 30-40% stake, you would get a good Rs 2 crore from dividends. This is still a good model for investors looking to increase their investment immediately but I do not invest in them as they cannot scale up.
What is a wrong business to invest in the tech space?
There are a few types of ventures that are not interesting such as me-too companies, which I see a lot. There are many firms attempting to launch ERP products for SMBs, for example. Do we really need more of them? There are also companies that think that if they build huge traffic, revenues will come. This is a web 1.0 theory. Web 2.0 is on how to monetise traffic.
What are the web 2.0 revenue models you would invest in?
Revenue models such as advertisements are proven – they clearly work. You can build it with banner ads and listings. The other is subscription-based services, where users pay for content like Bharatmatrimony.com. And the third is e-commerce, which is again proven.
How old are the startups when you invest in them?
This would be very early stage – in the first 2-3 years of their establishment. eTechies.in was 6-8 months, in the case of Digilogue, a digital communication company founded by Supriyo Gupta, he walked up to us with just a business proposal and we okayed it. Generally, the team has 3-4 people and a product, generating revenues of Rs 3-5 lakh per month.
What is the involvement that you, as an angel investor, bring to startups?
The involvement depends on the founders, so if the founder does not need a lot of help, it would be capital and direction. If the founder needs support and help, that’s when I sit on the board. The first is capital but there are a lot of places where an entrepreneur can get capital these days. Investors also hone the concept to a very specific customer segment, from a strategy perspective and help building the team with connections, since we know a lot of CEOs. We make external connections too – whether it is partners, channels or agencies. Especially for a first time entrepreneur, when it is time for them to raise a venture round, we help in figuring out how much they need to raise, which VCs to contact, valuation etc. But it really all boils down to the entrepreneur, if they don’t need any help and just want to update every couple of months, that’s okay.
Can you elaborate on the involvement with exclusively.in and eTechies?
I am on Rohit Chaudhary’s board so I will be more involved with eTechies.in than other companies. I will help him with connecting with important channel partners, online marketing as well as talent. With exclusively.in, Sunjay Guleria moved to India around 10 months ago and I have helped him leverage talent, find developers and project managers. I’ve been on the board of Viedea for three years now. There I have helped them connect with potential customers, who will give them access to deals or give them buy-side or sell-side mandates and making the right connections – with VCs, private equity firms, large firms that want to buy companies and also very interesting early stage companies that want to raise capital. So making these connections was a big part of the value addition.
I also helped with the strategy, when they started off, they wanted to be an advisory firm that only focuses on very early stage companies. But as we went down the road, like most startups, who, in the first 24 months, change their business in a very fundamental way, it went from Plan A and Plan B. A year into it, we were working closely with the team and told them that they should also focus on mid-market. I think that was the single biggest strategic change in the company that helped it and helped it scale up. Now we are thinking of the future, on making it a full service financial company. There, the role I play is leveraging our network to meet domain experts so they can learn more about the spaces, where they want to play etc. And at some point, they will get to the point where they will need to raise more capital and we will step in to help in that process.
So really it is not about strategy formation because these are smart entrepreneurs but helping them refine their strategy, build teams and connect with partners, think about subsequent rounds of funding for the company.
On the strategy side, what are the inputs that you offered that changed the course of the company?
Let me talk about Druva, which was co-founded by Jaspreet Singh. He came to us with some ideas on server backup, which is a very tough space: there are many competitors and it is very difficult for an early stage company to build a business around it. But we liked that the team was seasoned and knew technology and marketing. Their killer engineering team had written software to solve the problem and that’s what made the company. So we decided to invest in them and figured out what could be a killer app.
Over 3-4 months, we honed in on the concept of backup software for notebooks and they founded it in six months and received venture funding from Sequoia Capital in 18 months. Now they have customers like NASA so they have gone back to the idea and are launching their server product.
It would be presumptuous of me to go to any of the companies I have invested in and tell them what to do, but good investors help an entrepreneur refine, and in some cases radically change, and focus the concept so it becomes scalable. But the fact is that many of us have built companies and know how to evolve or refine a business plan. At the end of the day, an entrepreneur has to own the idea, it can never be an investor’s idea because then the investor should go and build on the idea.
What do you think is the critical element that decides if a startup succeeds or fails?
I think that if an entrepreneur keeps sticking to a business plan and original idea, if the founder is not willing to learn and be nimble, open to feedback, the startup is doomed.
What are your exit strategies?
There are more or less 2-3 ways of exiting a startup – one is if there is a strategic acquisition like in the case of authorGEN or if institutional investors pitch in or if the company goes public.