We fund the growth story

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Mayfield Fund, a global venture capital firm with $3 billion under management, first came to India with Mayfield I, a $111 million fund that focused on early-stage investments in India-based companies. In February 2014, it raised its second India-focused fund of $108 million. Current investments here include Amagi Media, Centum Learning, Genesis Colors, India Property, Matrimony.com, Securens Systems, Sohanlal Commodity Management, Tejas Networks, and The Beer Café. Nikhil Khattau, managing partner, MF Advisors LLP, which advises Mayfield India II, was the founding CEO of Sun F&C Asset Management, one of the first private sector mutual fund companies in India. He tells Financial Chronicle about the company’s current focus.

Can you elaborate on Mayfield’s general investment strategy globally?

Mayfield is currently present in three geographies – US, India, and China. In the US, we focus on early-stage venture investments where we are driven by broader trends like Cloud/SaaS, Mobile, Big Data, Social as important technology platforms for businesses. These investments are made through Mayfield XIV, a $365 million fund. We invest in China-based companies directly alongside our partner, GSR Ventures, a firm we helped start in 2005. The focus in China revolves predominantly around consumer internet.

Our investment strategy mirrors classic early-stage venture capital and is contrary to today’s trend towards mega funds. We provide mentor capital and are committed to serving the individual needs of each of our entrepreneurs. We invest early and globally in these including mobile, cloud­/SaaS, social, energy and big data. Over our 44-year history, we have invested in more than 530 companies, resulting in over 110 initial public offerings (IPOs) and more than 150 mergers and acquisitions.

We have recently raised our second fund in India – Mayfield India II – worth $108 million in February 2014. The strategy for this fund is to make early-stage investments in consumer & business sectors across non-tech, tech-enabled and technology verticals. We will invest anywhere between $500,000 to $10 million in these companies. We believe world-class businesses are being built in India and there are plenty of opportunities to earn true venture-style returns. Mayfield is and will continue to be part of India’s growth story.

Post- 2008 global financial crisis, there has been an acknowledged slowdown in the quantum of investments as well as deals across industries in general. What has been the case with Mayfield on this front?

Mayfield is a very established fund, founded in 1969 with a very successful 45-year track record. In India, we raised our first fund in 2008 at the height of the global financial crisis and our second fund in February this year.

We invest in companies that are solving real customer pain-points and those that will grow in a secular fashion as opposed to being impacted by macro-economic cycles. This strategy has allowed us to continue to actively invest at an even pace since the commencement of Fund I and is also the reason why are portfolio companies have performed well, even in a slow economy.

With angel investors enlarging their investment capability as well as combining their efforts with mentoring skills, do you still see a role for funds focused on early-stage investment? Or do you see an enlarged role at later-stage investment?

On the contrary, this augurs well for early-stage investors like ourselves – as these are signs of enhanced quality and depth of the Indian entrepreneurship ecosystem.

Angel investments usually come in even earlier in the life cycle of a startup than funds like us. We see enormous room for both early-stage investors like ourselves and angels to co-exist in this ecosystem. Many of our current investments, the deals that we look at on a daily basis, are companies that have received previous angel funding and mentoring.

What is the general strategy and what will be the approach for Mayfield as it looks out for investment opportunities in India? Which are the sectors you plan to focus on here in the country?

Mayfield India is a venture firm focused on early-stage companies with high quality entrepreneurs in business segments capable of non-linear growth. We look for companies solving real industry pain-points and are less concerned whether these are ‘tech’ or ‘non-tech’ investments.

Unlike a decade or so back, funds, especially through the evolving network of angels, are now aplenty to back up ventures in India. But what the Indian market lacks is larger funds to take up early investments forward. Can we have your views and does Mayfield intend to bridge this gap?

Since Mayfield is a venture investor, we are focused on early-stage investing. Having said that, we do make follow-on investments in our portfolio companies, post our initial investments on a case-to-case basis. Our exits are sometimes to large private equity funds but more usually by way of M&As and sometimes IPOs.

You had raised your first India fund in 2008 at the height of the global financial crisis. How much did you raise then and what was the investment strategy for that fund?

We raised $111 million through our first fund. The strategy then was the same as the strategy now, with focus to invest largely in non-tech companies. The reason why we largely look at non-tech, though we invest in tech too, is because India is several generations behind the developed markets and even some of the emerging markets.

For instance, we have invested in Sohanlal Commodity Management, which foc­uses on post-harvest pro­ces­ses. A similar company doing this in the US was formed about 200 years ago, during the American civil war.

In India, that kind of company has been built now. Another case in point is Fourcee, a logistics player in liquid cargo transportation using multi-modal containers. We invested in this company in 2010 and it is the first company in India to do this.

Through our first fund, we have invested in 11 companies. We have had one exit and the portfolio is looking good, with companies getting good traction.

Continuing on India, several global funds seem more willing to back ventures in China over India, thanks to big exits the deals have witnessed in the recent past. Since Mayfield is keenly focused on India as well as China, can you compare the two scenarios and the way forward?

We believe that India and China are in different stages of development and thus the investing play in these countries is different. Our Chinese partners focus on consumer-facing internet companies and have shown great results. We see the Indian opportunity as being broader – we are one of the few venture firms in India investing actively in ‘non-tech’ opportunities.

There is a general feel among global funds that the laws of the land in India, especially the frequent changes, are not only not conducive for business, but also detrimental to investors when it comes to exits and closures. Now that there is a new and stable government in place promising change, what suggestions you would like to place before the government to enable an investor-friendly environment to prevail?

We need a regulatory and tax environment that is both stable and equitable. One area that worries institutional investors is uncertainty, where both the fiscal and regulatory environment is perceived as unclear. This results in serious difficulties in long-term planning.

Further, the current tax rules actively discourage the formation of a domestic fund management industry. In fact, they aggressively push fund managers to operate offshore. Changing this and making the domestic fund management more viable will not only increase foreign capital inflows but also provide the exchequer with greater revenue from fund managers themselves.

govardand@mydigitalfc.com

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