Arihant Patni has seen the ups and downs of venture capital investments in India for close to a decade now. Along with his brother Amit, he launched his first venture capital fund in mid-2011 called Nirvana Ventures, just six months after his family business Patni Computer Systems was sold to Nasdaq-listed iGate for $1.5 billion. Arihant and Amit are sons of Gajendra Patni, the eldest of the three Patni brothers who co-founded Patni Computer.
While the first venture capital fund focused on internet technology startups, Arihant and Amit launched another as early as 2013 called Hive India focusing on early-stage Big Data startups. They later teamed up with venture capitalists in the country to launch a third fund with a special focus on enterprise technology startups, called Ideaspring Capital. Some of the startups featuring across portfolios of these funds include industrial IoT platform Altizon, Big Data analytics solutions company Flutura, and design and verification tools developer Simyog Technology. Others are artificial intelligence startup Worxogo, digital payments firm TranServ, point-of-sale platform Zopper (acquired by Flipkart-owned PhonePe) and mobile games publisher Games2win.
In an interaction with TechCircle, Arihant narrates his investment voyage and shares his plans. Edited excerpts:
You have launched three separate venture funds so far. What was the thinking behind each of them?
We, my brother Amit and I, started looking at early-stage investing after the Patni exit. Early-stage investing was still early in 2011, and we were doing mostly angel investments. It would have been easier for us to keep writing angel cheques off from our prop book, but we decided to play it with a little bit of discipline -- we wanted to go with a domain-specific agenda. So we partnered with Rajan Mehra to launch our first fund, which was Nirvana Ventures. While we anchored the fund, Rajan had solid credentials and rich experience, so it was a true partnership with someone who knew the domain. We also got external capital from Japan and Germany and more. That was our first foray into venture-fund creation.
The other two funds, Hive India and Ideaspring Capital, originated out of our previous experience in the enterprise space. Though the consumer space was new to us back in the 2011-2012 period, enterprise was something we have dealt with throughout our career at Patni Computer. Hive was a Big Data incubator that we were exposed to in Palo Alto. We really loved what they were doing, so we brought them to India. I’m still an investor in Hive in the US.
Ideaspring was the result of our explorations in expanding the Hive agenda from Big Data to Big Data, cloud and everything enterprise. I teamed up with Naganand Duraiswamy and Prashant Deshpande to launch the fund. Mohandas Pai backed us in this.
What’s the future for Hive India and Nirvana Ventures?
Both Nirvana and Hive India are fully invested, and Ideaspring is the only active, investing fund currently. I think Hive is a great thesis, which in a way is carried forward by the very virtue of Ideaspring, because we do Big Data at Ideaspring as well. Hive in Palo Alto has three funds, while in India, we are looking at growing the companies in the portfolio and getting them to a good size. We may not raise another India-focused fund under Hive until we have some great results from the first fund.
The Nirvana portfolio is looking good. We are working on growing those companies. We will do a second next fund as and when it makes sense.
Ideaspring being your active investing fund now, what’s the strategy and plan?
Ideaspring is a small fund of about $20 million, created specifically for early-stage investment in sectors such as deep tech, machine learning, and enterprise tech. We come in with between half a million to a million dollar cheque size. We will be the first institutional investor and would take a chunk of the company, which would be between 20% and 30%. We have got about 10 companies in our portfolio already, we will make another four to five investments this year and then we will have some funds reserved for follow-ons. Then we will definitely do another fund. I think deep tech coming out of India is new and exciting and it’s a great growth area.
TheMathCompany was your last investment, it was from your family office. What’s the strategy with the family office fund?
In the past few years, I have started doing direct deals from the family office that do not conflict with any of the funds. These are unique ideas or opportunities that we come across where we want to take a more meaningful position because we see them creating value over time. A fund might have a time cycle of five to seven years but with family office, I’m looking at long-term partnerships that could run into 10-15 years. So, the family office investment is done from that perspective. We do anything from $100,000 to $2 million. It is a wide range, depends on many factors.
Early-stage investing is a common theme across your investment vehicles. Would you actively venture into growth or late-stage investments?
I think early-stage is where we do the most-engaged investments. However, sometimes when I get an opportunity from the family office to do a secondary in a later-stage company, I do look at it because that becomes a financial investment. However, I still have to like the founder and have some chemistry. We have done those sorts of investments, and we will continue to engage such opportunities.
What’s your exit philosophy?
Exits are tough. When you look at the early stage, especially with enterprise companies, I’m not averse to looking at exits early on. For example, if you come into a startup at a valuation of $3-$5 million and you build an enterprise of about $50-60 million of valuation, that is a good time to get out. Sub-100 million dollar exits happens a lot in the US, though not many in India. However, it is quite possible. It’s still not systemic in our ecosystem, but it is happening. Many larger enterprises are looking at companies in that range. The moment you get above the $100 million valuation or be anywhere under a billion, it would become much harder for an exit. Exit is still something we are discovering and we are sure will we will see good learnings on that front in the next three to five years.
From a venture investor’s perspective, across your funds, what’s going to be your road map?
Our ethos has always been about creating value. From a DNA perspective, we are not about raising funds after funds, that’s not our thing. Being entrepreneurs and investors, we are going to make sure that our existing portfolio yields results. For example, the first fund of Hive US returned the full investor money in the first two years with one exit when Rakuten acquired its portfolio company Deep Forest Media. It is great to return money or, at least, one needs to demonstrate that value before you get into your next journey. I believe in that. We are not in any hurry, we are still young, and I think the venture capital investment ecosystem in India is only getting bigger and bigger. We are learning and we are growing. We can easily do this for the next 20 years.
What do you expect in a startup that you would fund?
I cannot say this enough, but the founding team is the most important element for me when I look into a startup. Having multiple founders is important because it gives scale to the management team. I’m invested in some companies with single founders, but single founders are restricted because they have only so much time and so I like multiple co-founders. The energy, excitement and chemistry between founding members are critical in the success of companies in early stages. Early-stage investment is not really based on numbers. We have done some late-stage deals where it is more metrics based. Early-stage investment is all about how you work with these founders, resonate well together, and create an exciting journey to successfully manage changes because every company will go through changes and uncertainties. I’m very keen on finding young and exciting teams that are in good markets. As far as markets are concerned, we generally look for tech-enabled markets, just because that’s our knowledge area. It is unlikely that I would invest in clean energy or something like that where I have no influence. The market size or the market attractiveness is really important.
What are the trends you see as emerging and are likely to draw more investor attention?
Automation is exciting. Innovations around robotic process automation and voice-based intelligence, especially in regional languages, are really interesting. I love the whole automation meets-artificial intelligence-meets-deep learning prospects, because all these are integrated and extremely effective when combined. Both enterprise and consumer tech (B2B and B2B2C) are exciting because, at the end of the day, enterprises are also starting to behave like consumers. The consumerisation of the enterprise approach is still going good. Beyond these, logistics and transportation are interesting, from bike sharing to electric scooters. B2C has become a lot more capital-hungry, and the unit economics is at times a bit wonky, which makes investors very cautious. However, there’s always a lot of room for building a company right. The country’s maturing online commerce environment has made it very easy for offline businesses to reach consumers without necessarily having those bricks-and-mortar distribution systems. So, I think niche consumer brands, the online-only ones, have a lot more potential to grow.