A year after launching venture capital firm Exfinity Venture Partners, V Balakrishnan, former CFO and board member of Infosys, is in the middle of raising money for two new funds under the VC firm. Founded by veterans of top-tier IT industry firms, Exfinity is looking to raise a Rs 250 crore fund besides $125 million (Rs 796 crore) through an offshore vehicle that will primarily invest in US-based tech startups. This will take the overall assets under management close to $200 million. Speaking to Techcircle.in, Balakrishnan, partner and chairman of Exfinity, said the VC firm is focusing on backing enterprise IT startups. Edited excerpts:
You began with launching a Rs 125 crore fund last year. How has been the journey so far?
We have invested in six companies, Rs 6 crore to Rs 12 crore each, and four are in the pipeline. We are reserving some money for the next round. More than half (Rs 65-70 crore) is invested. We are keeping the balance for the next round.
What is the driving force behind starting multiple funds focusing on enterprise IT?
Customer spending is happening in new technology areas such as social, mobility, analytics and cloud (SMAC) and all the big companies have stopped investing in innovation since they are in public markets—they have the pressure to deliver profits. Second, their ability to attract talent and remain innovative is limited. The world is moving rapidly towards new technology and they were caught by surprise. Now they are scrambling to invest in startups and are creating funds; but it is not easy. Being in the public market, investing in innovation and taking risk are going to be a challenge. So all of them have to leverage on the ecosystem. We believe ecosystem is where the value is going to be created in the technology space. Although large companies see their business getting commoditised, their movement towards new technology is going to take longer time. Therefore, the value creation is going to take place in the fringes and that is where we want to play a larger role. That is the whole idea of forming the funds.
Are startups equipped to cash in on this disruption in technology vis-à-vis big IT companies?
If we talk to any CIO today, it is clear that there are no more investments in hardware because of cloud. Customers figured out after 2008 crisis that there is so much volatility in the market. If you can’t predict revenue, why do you predict cost? So there is a hesitation to invest in products and large software implementation projects. Clients are saying: look I have got a business problem; you come and address that by creating a platform or a product or technology; I will pay you as and when I use it. Startup companies are not under pressure to report revenue and profit every quarter; so they are willing to make the investment and get the revenue stream over a period of time. For big companies in the public market, it is difficult to do so. That is why innovation is happening in the fringes. And most of this is going to happen in B2B space and that is where you are actually creating value. Either you are helping customers and enhance revenue or reduce and become more productive.
So, you don’t look at B2C tech startups?
B2C is more of a challenge. B2C is all about getting more and more digital consumers by offering more and more discounts and that is not a scalable business model. We look at some B2C which are strategic but the main focus is on B2B.
In the case of these B2C companies, this GMV is an artificial number and after you put 60-70 per cent discount your revenues are very small. B2B is more real—you are actually solving a problem.