Among VCs that existed in 2000, only Sequoia India survives.

• ICICI Venture: ICICI Eco-Net Fund, which merged in 2000 with ICICI Venture invested in 14 companies. Many of them perished. Moved on to PE investing by 2001.
• Actis: Known as CDC Capital Advisors till 2004, it counts BPO startup Daksh eServices among its better known venture deals.

  In the last 22 months, Sequoia has invested in 10 start-up firms from its $300 mn third India-focused VC fund. No other fund has invested more in this period.

  Now plays only in private equity and buyouts.
• CVCI: Citi’s private equity investing arm had backed about 30 start-ups by 2000 but changed track around 2002 to more mature companies. Today, it only invests in the PE space.
• ChrysCapital: Started in 1999 with a $64 million venture capital fund focused on Indian start-ups. About $25 million had to be written off. Changed focus to PE deals.
• eVentures India: Backed by Rupert Murdoch’s Newscorp and Softbank. Invested $45 million in 14 start-ups. It shut down in 2003 and returned only 70% of the money invested.
• Antfactory India: The Indian arm of UK-based Internet incubator, Antfactory. Stopped investments in 2001 when its parent’s global investments ran into trouble.

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Companies That Sequoia Helped Grow To $100 Million

Firstsource Solutions

• Business: BPO
• Founding Year: 2001
• Year of Sequoia Investment: 2003
• Amount Invested: $18 million (over multiple rounds)
• Current Revenues: Rs 1,749 crore (consolidated revenues as on March 31, 2009)

Indecomm Global Services

• Business: BPO
• Founding Year: 2003
• Year of Sequoia Investment: 2003
• Amount Invested: $15 million (over multiple rounds)
• Current Revenues: Expected to cross $100 million in March 2010

Zavata

• Business: Healthcare BPO
• Founding Year: 2004
• Year of Sequoia Investment: 2003
• Amount Invested: $6 million
• Current Revenues: $120 million as on December 2006 (was acquired by Apollo Health Street in 2007).

Applabs

• Business: Software Testing Services
• Founding Year: 2001
• Year of Sequoia Investment: 2004
• Amount Invested: $12 million (over multiple rounds)
• Current Revenues: Expected to touch $95-100 million in March 2010

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K P Balaraj takes affront to the suggestion that Sequoia Capital India, the venture capital firm he co-founded nine years ago, with Harvard Business School buddy Sumir Chadha, is easing itself out of the VC business.

The gutsy duo has done more than merely survive. They have invested nearly $400 million in 49 start-ups, the most by any VC. That is also 15% of all VC investments made in India since 2004. They have exited with profits from seven of the 18 investments made from their first $135 million fund, even though it was launched on the eve of the dotcom crash of 2000. In just a few months, this fund will exit all remaining investments and return money to its limited partners (companies like Goldman Sachs, among others, that gave Sequoia India money to invest). Incidentally, this will be the first successful VC fund closure in India.

Along the way, Balaraj and Chadha, both 38, have framed the contours of the VC ecosystem here. They have shown how to make old-style VC investing work in India. Their success has encouraged US Silicon Valley stalwarts such as Draper Fisher Jurvetson, New Enterprise Associates, Norwest Venture Partners and Kleiner Perkins Caulfield & Byers to venture into India. “There is no doubt that they have not only built a successful venture business as an early mover, but also demonstrated how to expand the scope across multiple stages and sectors,” says Kanwaljit Singh, co-founder and Managing Director of Bangalore-based Helion Venture Partners, a newer homegrown VC firm.

Sure, Balaraj and Chadha have also made a few wrong calls, shut down five companies and lost a few million. But in the VC business, who hasn’t? That is why Balaraj is offended at the very notion that Sequoia India will vacate the VC space. Sitting in his Murphy Road, Bangalore office, he presents evidence to the contrary. In the last 22 months, the firm has invested in 10 start-up companies from its $300 million, third India-focused venture capital fund. No other VC fund has invested more in this period. Two of those are seed deals.

“We are still very active venture investors. We continue to see a lot of young companies and are always willing to invest at an early stage,” says Balaraj, the seemingly quieter half of the duo.

Entrepreneur’s Friend

In the last four years, Sequoia India has raised two more venture funds of $200 million and $300 million each. That makes it India’s largest venture capital investor. This is in addition to the $1.25 billion that it has raised over two growth funds (that invest in more mature companies, not start-ups) in as much time. To peers, this is what makes it seem that Sequoia India is vacating venture in favour of growth investing. But Balaraj and Chadha believe this actually reinforces the venture business. The 49-odd start-ups that the firm has backed to date are now in the growth stage and Sequoia India wants to catch them young, again.

“Entrepreneurs are core to our business model and we want to be able to back them at every possible stage,” says Balaraj. The firm’s diverse posse of limited partners has bought into this story. Limited partners such as Goldman Sachs, Princeton Endowment, Government of Singapore Investment Corporation and the Hewlett Foundation have been consistent investors across Sequoia India’s five funds.

This is an endorsement of the unique VC model that the firm has defined for success in this market. It is different from the US Silicon Valley model, where venture capitalists necessarily back only technology product start-ups that promise 100-200% revenue growth year-on-year to achieve supernormal returns. In India, VCs invest as frequently in hospital chains and beauty salons as they do in Internet start-ups and software product companies. Sequoia India showed the way in 2005 when it invested $11 million in New Delhi-based diagnostics services firm, Dr Lal Pathlabs.

The firm’s exit track record so far bears out the unconventional investment thesis. Dr Lal Pathlabs is part of the 18 companies that Sequoia India backed from its maiden fund. BPO firm Indecomm Global Services, software testing company Applabs and Dr Lal Pathlabs are each projected to fetch 4-5 times the initial investment when it exits them over the next 6-9 months. It has already seen seven exits so far, of which four, Brainvisa, Firstsource Solutions, Zavata and MarketRX, have each returned between 2.5 times and 4 times the initial investment (See table: Portfolio). The fact that all these companies are in the cash-intensive services space (an absolute no-no in the Silicon Valley venture market), and are yet able to deliver venture-type returns, is a pointer to how differently venture capital works in India.

Another significant milestone is that two portfolio companies, Firstsource and Zavata, crossed $100 million in revenues (before Sequoia exited). Another two, Indecomm and Applabs, will get there in a few months. These companies were at $2-3 million revenues when Sequoia India invested in them. “That’s an amazing success rate in the venture business. In the US, where a normal portfolio is 40 companies, they may get two $100 million firms. We have four out of 18 and we invested much less in each,” says Chadha, who is currently setting up Sequoia’s New Delhi office. Sequoia India’s Fund I has already returned 70% of the original corpus.

And A VC’s Friend Too

Entrepreneurs and other VC investors admire Sequoia for more than its successful investing. They credit Sequoia with helping VCs bloom in India.

In 2002, Chadha spearheaded the setting up of the Global India Venture Capital Association to bring together US-India focused venture capital firms and mobilise interest in India. That led to a contingent of 20 such investors visiting India in 2003, with Chadha and Silicon Valley Bank’s Ash Lilani leading the way. Sequoia India, then known by its founding name WestBridge Capital Partners, was the only active Indian venture capital firm on the ground. “One quality about Sumir and KP is that they are always one step ahead of the curve. They knew that for them to do well, they had to create a venture capital industry here,” says Lilani. Silicon Valley Bank, which specialises in banking start-ups and venture capital firms in the Valley, subsequently set up a liaison office in Bangalore. The chic Brunton Road office served as the landing base for firms such as Norwest, Bessemer Venture Partners, Matrix Partners and Mobius Venture Capital. 

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Number Of Investments

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Value Of Investments ($ mn)

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Total Funds Raised ($ mn)

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Today, almost all the firms who were part of that delegation either have local teams here or have offshore teams focused on India investments. Interestingly, that is also how Sequoia India came to be born again in its current avatar. Balaraj and Chadha had originally founded WestBridge Capital Partners in 2000. Menlo Park-based Sequoia Capital, one of Silicon Valley’s top quartile funds, decided to get one step ahead of its peers. In 2005, it formed a partnership with WestBridge, which was renamed Sequoia Capital India (Balaraj and Chadha still own Sequoia India). “I sometimes wonder if it was smart to sell India to the other US funds so aggressively,” laughs Chadha, who until April this year, was based in Menlo Park.

It has certainly been the smartest thing for Indian entrepreneurs. Investments have shot up from less than $200 million in 2004 to $2.8 billion now. There are about ten India-dedicated funds worth nearly $2 billion and an equal number of offshore funds investing from global corpuses. Around 296 start-ups have reportedly been funded at multiple stages between January 2007 and June this year, the period when venture capital re-discovered the Indian entrepreneur.