Incubator:Sarath Naru, founder and managing partner, Ventureast funds.
If the Ventureast-TeNet Fund experiment succeeds, the entire start-up ecosystem will gain.
Unlike most startup incubators backed by academic institutions, access to capital has never been a problem for Chennai based TeNet Group. A unique joint venture with Ventureast Funds has enabled the incubator, promoted by the Indian Institute of Technology, Madras (IIT-M), to raise $20 million over two seed funds—Ventureast TeNet Fund I and II—and bankroll 16 startups since 2001.
The success of the TeNet model, however, is yet to be tested. Out of the nine companies seeded by the $5 million Fund I, only one, iSoft Technologies, has been exited. Sasken Communications bought it in in 2006 for a reported $1.45 million. Given the extremely nascent stage of these investments—pre-seed and seed—it can take more than seven years to recover such investments, says Arun Natarajan, CEO of research firm Venture Intelligence.
Sarath Naru, founder and Managing Partner, Ventureast Funds, is confident that the TeNet companies can deliver. “How to market, position and find the behavioural pattern are challenges, but that’s part of the risk. If we build leadership there, we can succeed. We would want to make at least twice of what we have invested,” he says. That confidence has probably rubbed off on marquee investors. In 2007, US search giant Google picked up a 30% stake for $3.75 million in Fund II, which has a total corpus of $15 million.
The returns that Naru expects rest on two factors. One, the TeNet funds should be the first mover in backing companies in niche or disruptive sectors. Two, the portfolio companies should have access to the right kind of mentoring. “They (Ventureast) do a lot of mentoring,” says TeNet Chairman Ashok Jhunjhunwala. Take Hyderabad-based Intelizon Energy. It found it a challenge to sell solar lanterns in rural areas. Ventureast stepped in with a scheme of creating a sales force that would sell Intelizon products by adapting the Tupperware model, wherein villagers were reached through locals who had small stores. “I wanted someone who was doing something more than just making money and Ventureast was ideally suited,” says Intelizon founder Kushant Uppal. But mentoring comes later. First, it is critical to find the right companies. Intelizon and Vortex’s ATM machine, both innovated at the TeNet lab, are examples.
For the sake of the Indian startup ecosystem, it is important for the Ventureast- TeNet experiment to work. It would bring credibility to industry-academia collaboration, encourage adoption by other business schools and venture capitalists, build a repository of quality startups on-campus and address the pertinent need for seed capital,typically less than $1 million.