Pramod Haque is one of the most revered private equity investors globally. Haque, a frequent in the Forbes Midas list, has invested in more than 60 companies, producing nearly $30 billion in exit sales value to date. In an exclusive interview with VCCircle, Haque, a former Delhi University engineering graduate who moved to the USA for a Ph.D. degree with a $4000 loan from his bureaucrat father and now the world's top venture capitalist, talks about trends in the Indian venture investing scenario.
According to Haque, the Wall Street is very appreciative of Indian consumer Internet companies, owing to its strong demographic favourables â€“ in terms of a growing domestic consumption story and a rapidly increasing disposable middle-class income. He also adds that the valuations, particularly for the consumer Internet companies, are extremely overbidden or overhyped and they will soon see a correction. He is particularly bullish on three sectors in India â€“ IP-driven companies which can automate IT services, medical devices and consumer Internet, although it's a little overheated. In a quick chat at the recently concluded VCCircle Bengaluru investment forum, Haque, with a childlike smile, added that valuations would follow a cyclical pattern and that the valuations, which had been overbidden, would soon see a correction. Here are the excerpts:
What are the most exciting areas for venture investing market in India now?
There are multiple areas that we find interesting right now. We are beginning to see some interesting innovations happening, which relate to automating IT delivery and IT services. We are also finding some real IP companies, which are getting started or developing in India. Another area that we find quite interesting is the medical devices space. We are quite active in this segment. Then the other area which is very hot now is consumer Internet. What we are trying to do is to get into companies early while the valuations are still in control, instead of waiting when these valuations may get very difficult to manage. So, those are pretty much the three areas that we find interesting now.
What do you think about cloud computing?
Oh yes, cloud computing will come to India. Well, it already has. It's a rage in the USA right now and it is impacting a lot of things in a lot of ways. It's impacting IT services; it's also ensuring that a lot of companies can enter the marketplace. In fact, it is changing the business models for a lot of large companies too â€“ IT providers, software providers and so on. I think those ramifications will be felt in India as well. So, we are looking at and investing in cloud services companies in India.
You have seen various shades of venture investments around the world. Given some recent successes such as MakeMyTrip and Just Dial, would you say venture investing is finally taking off in India?
I think it is fair to say that in certain sectors, companies are growing very rapidly and, therefore, you see possibilities of exit from those companies. Some of those exits are going to happen via IPOs and some via IPOs on NYSE, NASDAQ. So, certainly, there is much excitement about that.
If you look at the Indian scenario, consumer Internet is certainly hot. And if you look at the Wall Street, they are very appreciative of that as well. They are looking at consumer Internet companies in the USA; they are also looking at such companies in China and India. And China and India excite them in terms of consumer Internet because they look at the macro trends â€“ high GDP growth rate, growing middle class and their high level of disposable income. I think by similar analogy and reasoning, healthcare companies will also witness very rapid growth and adoption in the market place.
How does the venture environment in India differ from that of China?
Yes, one may argue that certain sectors in certain countries have gone a little out of control and consumer Internet companies were overbidden in China and there is a sort of general, gradual correction that's taking place. I hope that the same thing doesn't happen in India. But I think, to a certain extent, it will happen. So, we will see valuations of some of these companies getting overhyped and overbidden and then you will see a correction in the private market itself. But it's always been there as long as I have been in the business. Valuations will go up and then they will gradually go down. It goes in cycles.
Is that why fund managers say that it's a very difficult deal-making environment? How are you coping with it?
I think the area where we have seen very difficult conditions to deal with are valuations, especially in the consumer Internet space. Valuations are getting bid up quite a bit, which makes it very difficult to carry out some of these deals. There are certain deals from which we just walked away because the valuation expectations were not making any sense to us and it was very difficult to envision how we would be able to make money. Our goal, therefore, is to get into those companies early, when the valuations are still manageable. We have done a lot of VC investments in early-stage companies in the USA and China.
We saw a lot of venture capital funds which began as technology-focused funds and then diversified or expanded their focus areas. Is flexibility to invest across sectors an advantage?
Our fund has a 50-year history and it's a large fund. Over the years, we have played across all these sectors in the USA â€“ be it consumer Internet, hardware, software, healthcare or IT services. And we do early-stage, late-stage and the PE stuff. So, it all depends on your background. If you have only done IT and it's all that you are familiar with, and if tomorrow you want to change direction and do healthcare with no expertise, that's a problem, at least in my opinion. But I might be biased about it.
We are sector-agnostic but we have domain expertise in various sectors. So, it's easy for us to invest across multiple sectors. Now, that's not necessarily true for every fund out there.
I would, therefore, be somewhat cautious from an entrepreneur's perspective. At the end of the day, when entrepreneurs choose to work with a fund, they should not look for money alone. They should be looking at expertise and contacts, business models and advice, which they can get.
Given the growth opportunities, many fund houses have started specific, emerging-market allocations. What is your strategy?
We don't do any allocation. We look at things on an opportunistic basis. When we look at a deal, it is evaluated on the merit of what kind of return it can get and the market size that it is addressing and so on. So, we don't do any sector-based or geographic allocation. We just work as one team and do that on an opportunistic basis.
A lot of fund managers, out on the road to raise money, are finding it difficult to convince investors. You have had a successful fundraising. What is it that really helped you?
My thoughts would be somewhat biased because we have a long track record. The firm was founded in 1961 and I joined in 1989. Because of its long history, we differ from a lot of other funds. We raise our funds on the basis of our track record, over a long period of time. One would say that it's a lot easier for us to raise funds than others.
What can we expect from Norwest Venture Partners in the next 12 months, in terms of sector focus and allocations?
You will see investing in early stage as well as late stage. You will also see us investing in health services, medical devices, software companies, IT companies and firms which are developing IP. You will also see us investing in consumer Internet.