Helion Venture Partners has been one of the more active venture capital firms in India this year with more than half dozen deals in existing portfolio firms and new investments. The early-to-mid-stage investment firm, which chases technology-powered businesses and consumer services companies, has bet on a string of e-commerce ventures besides healthcare and education services companies. The firm, which was involved in marquee investments like MakeMyTrip in the past, is now betting on companies like Webaroo (SMS GupShup), Exclusively.in, Vienova and Vas Data Services (Yepme) this year. As the co-founder & senior managing director of Helion Venture Partners, Kanwaljit Singh has been closely involved with venture investments, especially those related to the Internet services businesses, which are now poised for a big leap. In a free-wheeling chat with VCCircle, he discusses Helion's portfolio companies, the current e-commerce wave, how data consumption on the mobile might drive the next wave of opportunities and entrepreneurship. Here are the excerpts.
Helion has been one of the early VC firms betting on e-commerce in India, with investment in MakeMyTrip. But how do you read the rest of the portfolio companies, especially those in the revenue traction mode?
We have 38 portfolio companies and yes, the one big success we have seen so far is MakeMyTrip.com. But right now, some really interesting growth stories are happening â€“ on technology side where we have companies like UnitedLex, Amba Research, Komli Media and ngpay, and on the consumer front where we have Mast Kalandar, Eye-Q and YLG Salon & Spa.
UnitedLex, Komli.com, PubMatic, LetsBuy.com and Redbus.com are some of the companies emerging as the front runners. But it's still early to comment. For instance, there's the four-month-old Yepme.com (a full-fledged online private label fashion brand) that is doing well and seeing some very interesting numbers. So is Hoopos.com (a baby products e-tailer) "the two-month-old firm is doing 100 transactions a day. On the other hand, LetsBuy.com has grown 10 times in the past one year and that's a phenomenal growth story.
You have said LetsBuy.com has seen phenomenal growth. But the majority of the firm's sales come from electronic goods which have low profit margins. So how does it work?
Electronics is one of the biggest drivers in e-commerce space across the globe and LetsBuy.com has positioned itself as a specialist in that space. Of course, as you said, margins are low. But we handle really large volumes and part of your operating costs would get amortised with larger volumes. The company has good growth potential, given the kind of market opportunities emerging now. Also, as you grow, you can negotiate better margins. With big volumes, you get benefits of scale, negotiations and logistics. And you also start driving efficiency in the process.
Let's talk about some 'big' funding. For example, Jivox, an interactive video advertising technology company, has recently raised $8.2 million (Rs 40.6 crore). Do you think that kind of funding is justified?
Video ad networks can grow globally. As Jivox is targeting the US market and the cost of business development is fairly high there, it needs that kind of capital. Also, this is an emerging space and adequate investment is required to develop the right technology.
You have invested in an LPO (legal process outsourcing) firm although globally outsourcing as a business is said to have lost its growth momentum. What's the rationale behind it?
The LPO space is still hot and it's probably the most interesting business right now. Also, UnitedLex goes beyond the traditional outsourcing solutions and offers a host of value-added services spanning eDiscovery and document review, contract review and management, intellectual property, immigration, legal research and law firm support. The company operates in the USA and India, and has fair growth prospects because of the unique combine of legal consulting, technology platform and multi-location services capability.
You have worked with one of the largest FMCG companies in the past and seen its distribution network from close quarters. What do you think of new e-com sites selling groceries?
Personally, I am not too enthusiastic, as it calls for round-the-clock execution and competing with neighbourhood grocers where brand availability is not so much an issue (that is, people often pick up similar products if a particular brand is not there in the local shop). So it may not work too well unless you are offering something very special â€“ like branded cosmetics and other premium products. In retail business, margins are relatively small and it's double whammy for grocery e-commerce sites due to low margin and execution difficulty.
Currently, we find a lot of e-commerce companies striking deals with huge valuations. What do you think of this trend?
Interestingly, the valuations have become more reasonable now and we may safely assume that the frenzy witnessed a year ago has come down. I would say that valuations are more rational now, more stable. However, this space is still evolving and both investors and entrepreneurs are betting a lot on this emerging sector. So expectations are high and the valuation pressure will continue, but it will be rooted to reality. Forget the strange numbers we have heard before. Since the initial euphoria is gone, valuations will be more practical and in tune with the market.
After a period of frenzied e-commerce activity, we witnessed the first casualty when e-com site Taggle.com shut shop. How will this affect the e-com space?
This is nothing extraordinary or unique to e-commerce. When outsourcing started, hundreds of companies came up and many of those had to close shop as well. Now that e-commerce has become the hot topic, everyone is talking about Taggle. But the fact is some companies won't make it and that's hardly new or surprising. Neither would it affect the e-commerce industry as the fundamentals are in good shape. But there are other relevant questions that should be looked into. Is the e-commerce hype for real? Is it going to be a large opportunity? Will it be easy to execute and deliver in this space? Is the infrastructure scaling up adequately? No one is asking these crucial questions and that is a matter of concern.
Can you tell us about the current deal flow in Indian venture space?
Overall, the deal flow is good due to the current entrepreneurial environment. My experience tells me that we will have cycles of sectors and themes, which are exciting at any point of time. For instance, outsourcing was a big theme 5-7 years ago, but it's not that big now. Similarly, e-commerce is a big thing now but I don't see more e-commerce companies emerging in the coming days. In other words, the e-com space is now stabilising. Mobile is the emerging sector right now as mobile penetration is on a fast track. As data consumption on mobile is becoming more popular, it can be the next big thing.
So far Helion Ventures has raised around $350 million and invested around $266-280 million across 38 companies. What are your future plans?
The entire fundraising process is tied up with how much money is left in the existing fund and how long it will last us. Currently, we have enough in the fund to keep investing and we are not looking at raising any significant amount. We will think about fundraising as and when we deploy the entire fund.
Finally, what's that deciding factor you look for while funding an entrepreneur?
For us, the most important criterion is the team. After all, we are an early-stage investor and we bet on the entrepreneur to lift the business from a relatively early stage. At Helion, we believe that we must reach a comfort level with the entrepreneur â€“ we must be able to appreciate his ability to execute, visualise, strategise and manage things. It's a view that we take very seriously. Also, the funding requirement is another key factor. We are keen to invest in businesses which are looking to raise around $8 million-$10 million. There's no point in putting $1 million in a business and getting back $5 million after a certain period. It may sound like a great deal, but it's not large enough to impact the overall performance of the fund.