BT dot.com/Vc Viewpoint

VC VIEWPOINT
"Speed is the essence"
Walden's investment strategy is built around a unique selection strategy and an emphasis on the fundas.

By Roshni Jayakar

Risk and venture capital? It's a myth, deadpans Sudhir Sethi, Director, Walden-Nikko India Management Company (Walden). As head of the Indian arm of Walden International Investment Group, US, Sethi sits on a corpus of $63 million (Rs 274.49 crore). Since 1999, Walden has invested in 10 companies, in software, Net, and new media. Affirms Sethi: "VCs are not risk takers. They de-risk."

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Pray how? Walden prefers funding at the concept level, early in the life-cycle of a start-up. Risky? Sure, says Sethi, who estimates that it takes $30 million to build a dot.com company. But that is a justifiable risk, he argues. Investing $10 million at the concept level--as Walden did with the Bangalore-based software solutions firm Mind Tree Consulting--is a clear-headed investment decision that steers of risks. Sethi explains how.

THE MANAGEMENT TEAM. The team driving the start-up has to be committed, driven, and in place. The VC's search is based on intellectual property, methodology, databases, and the overall impact of technology. All these add up to reveal the prospect company's strengths. Moreover, the venture capitalist has to be an expert in the sector or industry. Sethi refers to his 6-member team as `company builders': "All of us (Walden team) have experience in building divisions inside corporates."

THE IDEA. The big one. Within the cusp of the idea, Walden searches for market scalability. There are degrees of scalability: what market is the idea targeted at? What is the revenue model which is intrinsic to the idea? For example, e-payments, the core idea behind Transaction Technologies, a company that has attracted some Walden-funding, is targeted at banks and any e-Commerce dot.com. And its revenues come from facilitating credit card processing and building payment engines.

There's more to Walden's investment philosophy, says Sethi: "Indian companies addressing global markets are one of our focus area. But we have not invested in English language portals." The idea? Tap the growing market for vernacular portals. That's why Walden has invested in Webdunia.com, a Hindi portal, and plans to invest in Tamil and Marathi language portals soon.

EXIT. Typically, it's a 2 to 4-year cycle for a start-up, from concept to maturity, peppered with 3 rounds of funding. While Walden's policy is not to allow a company to go public unless it has revenues of Rs 50 to Rs 100 crore, speed is the essence. Says Sethi: "If a Wipro can do something in 10 years, I want to know if the entrepreneur can do it in 3. Only then can we build value."

RETURNS: Sethi pooh-poohs the myth that VCs are loss-friendly. The company, he emphasises, should have strong fundamentals. "I will not touch a company which cannot show me, at least on paper, a 100 per cent IRR," he declares. Truly, a risk-free proposition.

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