D.Murali & C.Ramesh

Chennai, May 1.: One of the biggest challenges before a venture capitalist is deciding on whether to invest in an top class management team (‘A’ team) with a not-so-great opportunity (‘B’ opportunity) or a ‘B’ team with an ‘A’ opportunity. There is no clearcut answer: it is left to the VC to define his or her own yardstick in such matters. Given a choice, says Avnish Bajaj, Managing Director of Matrix India, he would “ideally like to back an ‘A’ team with an ‘A’ opportunity, but it is a very hard to find such a combination!”

Speaking to Business Line on entrepreneurship and where the management team figures in the VC scheme of things, he said: “If I were pushed to make a choice, I prefer an ‘A’ opportunity with a ‘B’ team. I believe a rising tide lifts all boats; there is little an ‘A’ team can do if the market opportunity is limited. The flip side is that if there is an ‘A’ team, they convert a ‘B’ opportunity into an ‘A’ opportunity. We really have no clear answer to this one and both philosophies have worked well in different situations all over the world.”

According to him, it is easier to work with an ‘A’ team but, like many in the field, he frets that finding such a team is tougher in India. “I believe there are a lot of ‘A’ opportunities to explore in India. Generally speaking it is much easier to work with an ‘A’ team and for a VC it becomes tough to work with a ‘B’ team even if it is an ‘A’ opportunity.”

Often times an opportunity is so attractive that the VC decides to invest and hire an ‘A’ team. “There are well-known VCs in the world who follow this approach. It’s a known fact between VCs that one cannot create an ‘A’ opportunity but one can definitely employ an ‘A’ team. An ‘A’ opportunity is either there or not there.”

Bajaj would certainly qualify as an ‘A’ entrepreneur; he successfully built and sold Baazee.com to eBay. In his book, the typical entrepreneur is one who is “very curious, interested, passionate and gets bored of what he is doing easily.”

Describing himself as an example, he adds: “I started off with computer science and worked as a computer engineer but got bored and became a manager, only to get bored again. After that I went to a business school, then did consulting in the middle and then did investment banking.”

He believes that there are two kinds of people with this trait: the first always keep getting bored and never achieve anything in the long run. “The second kind are the entrepreneurial types who keep getting bored until they find their passion and vocation, which is more meaningful and different.”

Bajaj realised he was more of the latter type: “I wanted to run away and start my own business, which is why I had a shorter attention span with a traditional career. I was motivated by creating new things and taking on new challenges, which is far more likely in an entrepreneurial setting than in a regular job.”

And that’s a trait he actively looks for, now that he’s a VC himself. He also looks for track record of achievement – “because success is no accident” – passion about business, understanding of the market opportunity, dose of reality, etc.

“I personally want to be convinced that the entrepreneur knows what he doesn’t know as much as knowing what he knows.” After all, the VC’s primary objective is to deliver superior returns to the investors, and it’s in his interest to invest in someone he has utmost confidence in.

According to Bajaj, the first hurdle in the road to successful investment is when one bases decisions on emotions than on logic. “It is very hard to be very disciplined and stick to the first principles even as the market around you may make you look conservative or bold.”

He adds candidly: “We have passed on a few opportunities as well as made a few bets that are not in line with what the VC market has been thinking – and this is difficult. The biggest pitfall is to sacrifice independent thinking and cold hard analysis at the altar of momentum investing. We hope we are right in the long run!”

Bajaj sets store by experience and not certificates. “We never hire graduates straight out of a business school. We want to bring in people who have achieved something in life by having worked successfully in an operating position, since this gives them a better understanding of building successful businesses.”

As an example, he states that seven of the nine partners of Matrix Partners, US used to be entrepreneurs in companies that Matrix funded. “Perhaps the best way to join a VC firm is to be a successful entrepreneur! There is a huge demand-supply gap between the number of people who want to join a VC firm and the number of people who actually get hired.”

He thinks that one should get ‘pull hired’ rather than ‘push hired’ into a VC firm. “One can never push oneself to a VC. In fact, a VC will pull you if you fit the bill. Personally I don’t entertain any e-mails by any MBA just out of B-school, be it an Indian or from schools like Harvard, Wharton, Stanford, etc. Many people apply but we don’t even look, as we believe in identifying the kind of people we want and then going after them aggressively.”

His advice to people wanting to join firms like Matrix: “Work at a startup and do such a great job that the VC wants to hire you. It doesn’t matter if you do not succeed. Even the best of VCs have failed but it’s most important to give it your best.”

He adds that sometimes VCs do hire from consulting firms like McKinsey “because we believe that those individuals get a lot of exposure in different fields. If you have a strong background in consulting, that would definitely be considered. Ideally one could do 2-3 years of consulting and then go in for some years of real operating role, like sales on the field.”

For Bajaj, the real challenge begins after the decision to invest is made. “We are fairly active, as a VC can play variety of roles in a company. Normally we play a role in strategy and are an active part of the company’s board but do not like to be too hands-on since we want to invest in a great management team and let them lead from the front.”

He adds: “In all our current companies we have helped in one or more roles. We have been very closely involved in strategy. Take, for instance, Yo! China. We changed their model to a non-franchising one. If you are the best Chinese food joint brand in Agra it does not matter much, but being the best in Mumbai matters a lot from a winning the market perspective. This is an example of a big strategic shift for the company which we have been involved in.”

Matrix also participates in the hiring process in almost all the companies it invests in. “We sit down with the CEO, enquire about his requirements and accordingly use our network to help him in the best possible manner.”

On the VC culture in India, he says that the ecosystem is just starting to build out. “VCs are very much part of a broader ecosystem and cannot thrive in isolation. This broader ecosystem includes angel investors, mentors, support services firms (legal, accounting, etc.,) regulatory framework, etc. While some of these have started to move forward in a positive fashion (there is a good Band of Angels network now in Mumbai, Delhi and Bangalore), there have also been some retrograde steps on behalf of the policymakers (FBT tax on ESOPs, sectoral restrictions for VCF benefits, etc).”

Matrix is a multi-sector, multi-stage consumer services investment firm. Its basic thesis is seeking to invest in the consumer sector, which typically includes Internet, mobile, BFSI, travel and tourism and media and entertainment. “As for seeding businesses, only if we believe that the market opportunity is very large and the team has a good shot at building a market-leading company."