1Mby1M Virtual Accelerator Investor Forum: With Rajul Garg of Leo Capital (Part 5)

Sramana Mitra: What do you make of unicorn mania? Silicon Valley is going crazy. India tends to be more conservative, but India went crazy too.

Rajul Garg: We all plug into the same mothership. There’s not much that you can do to deviate from that. Smaller funds define a unicorn, in our own heads, as a company which can reach $150 million in value but we really need that kind of scale at least to move the needle for our fund. It’s very hard to enter an opportunity knowing that it will be a nice $20 million profitable business.

Maybe we need funds like that. Early stage venture funds is not the asset class that can cater to small businesses. I do think there’s a real gap. As an angel, I have made investments in those businesses. As a fund, I just don’t see how a fund can invest in those kinds of businesses. That is a gap which the ecosystem has to fill. Venture is just not set up right to cater to that.

Sramana Mitra: There are small funds and accelerator type of funds that are focusing on these small niche businesses that are designed for acquisitions. You may have read my recent article where I articulated that there are a lot of SaaS companies that have reached critical mass and these are looking to acquire. They are very happy to acquire these small niches to fill the gaps in their product portfolio.

This is an unusually large number of acquirers available especially in SaaS right now. Instead of bloating them up with huge amounts of funding, if they can be done as a capital-efficient small business with a small number of customers where the product-market fit is identified and then sell to one of these larger SaaS players to access the channel, this is an excellent investment opportunity.

Rajul Garg: I agree with you. In India, we need more validation in terms of these acquisitions picking up velocity. 2017 was, by far, the best year in terms of exits. In absolute terms, it’s relatively small. We need to create these linkages with other markets to be able to increase deal flow and deal volume.

Sramana Mitra: My recommendation to you and all the investors who are on the ground in India is, look for the connections into the SaaS ecosystem of companies that have critical mass and invest in companies that can be acquired by those in small acquisitions and create lots of these deals. I think a lot of transactions happening in India right now will add enormously to the ecosystem.

Rajul Garg: Perhaps the way to do it is, engage with people in the Bay Area. Otherwise, it’s hard. For a small fund like mine, how do you do that? We need some sort of an interface. Maybe larger companies like Lightspeed can do it because they have presence in India and Bay Area. I do agree with you conceptually. I would like to figure out how to do it.

Sramana Mitra: We’re working on that. Any other parting thoughts? This is a great conversation. I think it’s helpful for the entrepreneurs. I always point to entrepreneurs to listen to and understand the investor’s thought process before going in. Is there anything else that you want to convey to the community?

Rajul Garg: The only other thing I’d like to say is India is buzzing. There is a lot of entrepreneurial activity. I get four or five investment approaches every day organically. There’s a lot of activity. The wheel is turning and scale is approaching. I’ve been in India the last 20 years. I’ve never been more excited about the Indian entrepreneurial activity more than I am right now. I would certainly encourage entrepreneurs to keep the faith and keep going. It should only get better in the next 5 to 10 years.

Sramana Mitra: It was very nice speaking with you. Thank you.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Rajul Garg of Leo Capital
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