Sistema Asia Fund, the venture capital arm of Russia conglomerate Sistema JSFC, is looking to expand in India. The investment firm, in early 2016, floated a proprietary fund with a corpus of USD 50 million and has backed three startups. It is now preparing to float another fund to tap into the growing technology startup segment in the country. In an interview with VCCircle, Andrey Terebenin, head of Sistema Asia Fund Advisory, talks about the firm’s investment strategy, the Indian startup ecosystem and the challenges it faces. Excerpts:
It’s been a year since you launched Sistema Asia Fund. What are the main challenges you see in the Indian startup market?
The biggest challenge is low level of liquidity. We should take it very seriously. Indian companies don’t buy startups; it is less than 10 percent compared to what American companies buy.
We have decided to invest in Series B stage, where the investment horizon is five years instead of eight years. We can’t predict what will happen over a longer period, but five years is okay as people and strategy will change after this time.
Why did you decide to enter the venture capital segment, especially when Sistema had had a troublesome experience in the telecom sector in India?
Sistema has been present in India since 2008. We invested a lot but unfortunately didn’t have good luck. It is still a big puzzle for us why it happened.
Then we started thinking of mergers and acquisitions. We had the strongest team in the telecom market here, we are the number one player in data. In 2015, we decided to enter the venture capital segment in India, banking on our experience here.
We had a good sense of the ground reality and it was an interesting time from a technology point of view.
How much have you invested from the initial corpus of USD 50 million till now? What’s the plan for the new fund?
It is the right time to raise another fund. We have in mind a USD 100 million fund. Sistema will put in USD 50 million and mobilise the remaining from external investors. It will not be a proprietary fund but a traditional one and Sistema will be an anchor investor. It will be launched by the end of this year.
We have invested nearly half of the corpus of the first fund and have kept aside the remaining corpus for top-up investments in the same startups. We will exhaust the first fund this year.
Are you looking to invest in e-commerce companies?
We are not going to invest in marketplaces or e-commerce companies. It is too late to invest and the e-commerce segment is toxic at the moment.
We are doing a little bit of niche investments here and there and trying to understand what the market will need in the next five to 10 years based on our Russian experience—how the Russian market developed and what kind of development can happen in India.
In anticipation of this development in India, we are trying to invest in certain companies. The idea is to invest in Indian startups looking to expand globally, especially in the Russian market.
We share specific resources with the startup. It’s a different type of mentoring focused on brand building and customer service. Both are critical to startup development. We also look at startups with a stable revenue stream and where it thinks the break-even point is in the near future. It was our first year in India. It took us some time to shape a strategy but now we understand what we are looking at and what we are trying to find in the local market.
What’s your investment ticket size? How many deals are you evaluating?
The average investment ticket size is around USD 2-4 million right now. Sistema is a big ship, so we can go up to USD 10 million once we come up with the new fund.
We are evaluating many proposals but investing very less proportionally. We want to close one deal per quarter, which means four deals a year.
What are the main criteria you look at while investing in a startup? What’s your long-term view on Indian startups?
We are looking at only technology startups and tech-focused consumer companies. We look for a strong team and quality, customer service and their competitiveness at the international level. In the consumer space, we look at stickiness, it must be high. Again, it comes back to client relationship and customer service.
The Indian startup market is very tough and challenging. Good education, proficiency in English language and high energy level of people here make it a vibrant market. – VC Circle