How about a startup in the Venture Capital space? Stumped? Tejas M Sati – Co Founder and COO of Axon Ventures, shares with Amit Singh his idea of starting up in the Investment space and a wealth of information based on his observations of Venture Capital and Technology Startups in India.
AMIT SINGH: Is AXON a Venture Capital fund or a Seed Stage (Angel ) Fund?
TEJAS SATI: AXON Ventures has a unique model to cater to start ups which are seeking angel funding. Unlike other investors, we don’t operate in a typical VC fund structure. We have tie ups with HNIs who are interested in angel funding. These HNIs infuse financial capital and Axon Ventures infuses intellectual capital in to the investee company. Axon generates the deal flow, evaluates the proposal, structures the deal, negotiates the terms and conditions and represents the investor in the investee company and also plays a significant role in filling the non cash gaps of the investee company.
AMIT SINGH: Tell me about AXON’s founding story?
TEJAS SATI: 1.5 years back I made an exit from operational role in my previous startup in the construction sector. I was looking at starting another high growth venture and wanted to try out the investment scene. I did some research and tried to find the pains and gaps in the entrepreneurial ecosystem of India. I found that there was a huge gap in the VC arena in India. Small ticket investments – 100K $ to 1M $, were tough to get. I established connections with HNIs in South India and I interacted with lot of startups too, and got a lot of traction from both ends. I realized that most start ups needed angel funding and also substantial amount of hand holding to get to the next level. I had to line up investors, compelling start ups and also build a solid team in Axon which can truly hand hold start ups. We chose to not take the fund route directly because of SEBI regulations and certain other upfront barriers. After 9 months of hard work, we had a solid team spread across Bangalore and N America which comprises of experts in technology, strategic finance, business development, operations and investment banking backgrounds. Collectively our team has over 100 man years of experience in the IT industry.
AMIT SINGH: Can you throw more light on Axon Team?
TEJAS SATI: Axon is headed (CEO)by Nagendra Satyan who has more that 30 years of experience in the IT industry. He has held very senior positions in EMC, Accelerated Networks, Sanware Solutions, TCS etc. He did his engineering from IIT Kanpur and MBA from IIM-B
Our CFO is Mr Venkatesh who is CA by profession and has over 20 years of experience in the corporate world. In the past, he was the CFO of Sun Microsystems, Macromedia and has also held very senior positions in Reliance.
We have in our team Mr Satish Kambalimath who is based out of Austin, Texas. He is a technology cum business development expert and has held very senior positions in Lucent Bell Labs, Cadence etc.
We are formalizing an advisory panel comprising of experts from technology, investment banking, academic and M&A backgrounds.
AMIT SINGH: Why is there such a gap in small ticket investment in India?
TEJAS SATI: Most VC firms have 2 kinds of fees, Asset Management Fees (AMF) and Carry Interest (CI). Asset Management Fees is a small % of the fund size which the firm manages its running expenditure. Hence it doesn’t make a lot of sense for VC firms to go with small ticket investments. Carry Interest is the return you get in the long term when you make 2X, 5X exits.
AMF is a small % (2%-4%) of the fund managed and CI is the % share of the profits. Most VC firms try to cover the operational expenses by AMF and hence they land up raising huge funds. The average investment size is directly proportional to the fund size. Hence VCs cannot make small ticket investments. Unlike in the US or Europe, the HNIs in India are still not educated about the angel investment opportunities.
AMIT SINGH: What kind of role does Axon play in its portfolio companies?
TEJAS SATI: We provide the following assistance to our companies in the portfolio:
1. Strategic and tactical support and N.America entry initiatives.
2. Raising VC funding
3. Managing Strategic Finance
4. Drafting Contracts with the customers/strategic partners
5. Forging Strategic Alliances
AMIT SINGH: How big is the fund?
TEJAS SATI: We invest in the range of 100K to 500K USD .
AMIT SINGH: Are you a technology centric fund?
TEJAS SATI: Yes, our focus is on technology and Tech Powered businesses. Within technology too, we are very domain specific. However our initial investments will be slightly broad based and distributed across sectors.
AMIT SINGH: What is your current portfolio?
TEJAS SATI: We have funded 2 companies
- OutDo Media Tech Pvt Ltd Technologies: Media Technology Space
- Textual Analytics Solutions Pvt Ltd Information Management Space
We are in the last phases of the investment process with 2 more companies
AMIT SINGH: What markets are hot in the technology space right now?
TEJAS SATI: Green/Clean Technologies, Data Storage, Security, Risk Governance, Cloud Computing
AMIT SINGH: What are your criteria for short listing a startup?
1. The first thing we look at is a well balanced core team. Even if they are not a complete team, they should be aware of their gaps.
2. We also look at a Well Articulated Business Plan
3. High Entry Barrier
4. Exit Opportunities within 24 to 36 months. Post Seed and Pre VC.
5. Integrity levels of Promoters
6. Another factor that we pay a lot of attention to is how open the entrepreneurs are to the guidance/suggestions provided by AXON. Which obviously comes from people who have been there done that.
AMIT SINGH: Do you focus primarily on Product Companies?
TEJAS SATI: Yes, Tech Product Companies.
AMIT SINGH: Given that you have not had your official launch yet, how do Startups get to know about AXON?
TEJAS SATI: We have a strong network in the entrepreneurial circuits. It is primarily Word of Mouth as of now. We still get to see about 4 business plans every week.
AMIT SINGH: How mature is the Indian Entrepreneurial Ecosystem compared to the Valley’s? What is missing here?
TEJAS SATI: There is an acute shortage of Business Development people here. Primarily people with a few years of industry experience, contacts and the ability to close deals. Strategic Finance is another area that needs attention. I think we need to have more incubation centers that provide more than just the infrastructure. I have already covered the shortage of Seed Capital. Plus, we need to have mentors handholding the startups in their very early stages and do the same for equity and not drain cash.
AMIT SINGH: A lot of visionaries worldwide have predicted that the next “Google” could be coming from India/China/Singapore. What are your views on the same?
TEJAS SATI: Yes, Definitely.
AMIT SINGH: Why?
TEJAS SATI: Indian Youth are dreaming big. Besides, our ecosystem gives us the ability to innovate using very cost effective models. The Domestic Markets have a huge growth potential. And, most importantly, the Indian IT workforce is moving up the value chain. There are more than 600 R&D labs in the country right now. What do you think these researchers are going to do when they take the entrepreneurial plunge?