In recent years we have seen rise of entrepreneurs in India. The ideas of these audacious entrepreneurs are backed by a strong capital and meticulous plans. Today we have with us Mr. Nitin Shakdher who is an industry veteran to invest into businesses and start-ups. We got a chance to interact and understand the elements of investing, and what budding entrepreneurs do to get funding for their start-ups. Check the transcript of our interview.
How did the journey in investing start?
My journey started many years back, my family business started in 1985. I am the 3rd generation entrepreneur that converted wealth trust into the family office. I started investing in 1998-99 and today over the last 20 years we have substantial offices and today we invest in different public assets. Mainly I would say public equities, private equities, venture capital, real estate, funds, and all other types of assets.
I started very early, my first investment was when I was around 18-19 which is more than 20 years of investing. It was a journey of learning, creating mistakes as well as making some right decisions and I think it was a great learning experience as well.
What are your top concerns before investing?
My top concerns are
1) Do we have to require liquidity to take on the investment
2) Once you decided to take on the investment, we always have to risk manage and risk control of a certain percentage of their investment, in terms of, What if we don’t play out according to what we envisage to play out to? What if our thesis is wrong?
Mostly we are right but sometimes we might be wrong. We need to have a platform that says that how will you manage the investment if it doesn’t match the expected rate of return and other concerns.
Example, what should be the position size of the current investments? What is expected of what we are allocating our funds to? Who is the management of the company? What stage the company is in, e.g. early stage, established private company or a listed company.
Understanding also when and where do you want to exit and invest that’s also an important point to focus on.
What metrics are you tracking when considering an investment?
We pretty much talk about 3 or 4 metric points when we decide to track an investment risk.
What is the sector?
It is important to understand. There are many good companies but are they in the beneficial sector? Does it have enough dividends so that the company or venture you are investing is pretty sure to grow, and also does the sector has any current challenges and if it has any current challenges then what is the evaluation of the company that you are investing in.
The second metric we really track is what is the metrics point if the company returns of investing on employee, what is the capital structure of the company? What are the funding and financial main streams of the company? What is the structure in terms of depth equity ratio? what are the structures in terms of cash flow? And obviously what are the margins considering the current valuation and then take a future calculation in terms of growth of the company.
The third important aspect of investing is to understand the management quality and what are the people behind the company in terms of ambitious management in terms of right decision-making management, creating goal structure required for each company. So understanding the management is also a very important aspect of our investment metrics.
Do you have a specific industry or geographic focus for your investments?
During the public equities, we focus a lot more on companies which all are in the consumption stage, consumer direct reaching companies, we also focus a lot more on companies which are in healthcare, information technology, CSR, chemical sector and more.
We also look at regional consumer and technology. So one of the companies we invested in was Zoom this year in March and we bought a substantial return of 5X in zoom.
How many investments do you make per year, and what is your typical investment size?
I cannot tell you the exact investment size because it keeps on changing. We turn to make around 10-15 investments in the year in public domain space and 3-4 in private equity, 3-4 investments in venture capital.
What are your standard terms & Do you prefer to take board seats?
So there are no standard terms in public equity but in venture capital space we tend to look at them by minoritystakes which are up to 10% – 5 % areas. We tend to look at the board seats. We tend to follow on investing voting rights on current investment.Our investment is based on a valuation of the term. Some of the structures that we build are debt and equity, because it could be a mix of convertible debt or mix of equity and debt.
What are your most successful investments?
Recently one has been Zoom, the other investments which I deal in the past have been on large public limited companies for e.g. Titan, Britannia, AI Industries which have successfully grown.
What should businesses improve to make their pitch efficient?
It is very important for businesses to understand their business first. It is not just about raising capital at the end of the day, business do have sufficient funds for operations yet they end up raising and deploying capital. I think businesses should understand how capital structures work and raise as per the requirement.
The second thing is it’s not just capital, it is also about when you need that capital. How do you plan to grow the company and how the capital gain is to be deployed. What are the benchmarks of the company or what is the incubation of capital that will allow capital to grow? It is very important to have a long term perspective for the company, rather than just grow up in the capital. It is a long-term investment, so they should also take care of how product development will work. How you can give services to your customers?