Catch Them Young – Kanwal Rekhi hasn’t lost his appetite for early-stage investments. And Inve

For a man in his late sixties, Kanwal Rekhi is surprisingly fit. He walks 12 km on the treadmill every day and goes mountain-biking on weekends. This exercise regime isn’t a prescription from his cardiologist but a demand of his profession. As a venture capitalist raising money from endowments and pension funds, Rekhi has to frequently answer questions regarding his advancing age and health.

“They’re used to dealing with 40-somethings,” says Rekhi. “They can’t fathom why a man on the wrong side of 60 would want to slog it out instead of playing golf and enjoying a comfortable life.” And then, trying hard to control his laughter, he adds: “I tell them early-stage investing is what I’ve been doing all my life, and, hence, there was never any time to learn golf!” So far no one’s asked him for a doctor’s certificate, but the man says he’s planning to keep one handy, just in case.

It is Rekhi’s reputation as a seasoned early-stage investor that is the main draw for investors (or ‘limited partners’ in industry parlance) in his firm Inventus Capital Partners. They’re staking their money on his impressive track-record—over the last ten years, Rekhi has backed 53 entrepreneurial ventures, of which 20 have generated huge returns, often in excess of 10-15 times the money invested. Without Rekhi at the helm, there are bound to be concerns. Insisting he’s in the “pink of health”, Rekhi says Inventus’ core team members—who, incidentally, are all in their forties—are early-stage investing veterans. “I tell investors that with people like John Dougery (former head of Bank of America Venture Partners), Sameer Kumar (ex-Acer Technology Ventures) and Parag Dhol (ex-Intel Capital), their money is in safe hands,” says Rekhi. “Between the four of us, we’ve done 84 early-stage investments and had a good strike rate.”

But despite their early-stage investing prowess, raising money wasn’t easy for three-year old Inventus. When the venture capital (VC) firm was incorporated in late-2006, the going was good—the housing boom in the US was at its height and consumers were busy taking out new mortgages to buy their second or third houses. India was seen as a very hot late-stage VC market, but investors weren’t too keen on early-stage ventures where the gestation is longer and the risks are higher.

Undeterred, Rekhi and his team hit the road in 2007. They toured the US, UK, Switzerland and Japan in an effort to raise money. Rekhi’s reputation played a great role in mobilising investors. By the middle of calendar 2008, they were confident of getting a commitment of $100 million. Recalls Rekhi, “Although limited partners were beginning to question venture capital as an asset class because of a growing perception that returns were not in sync with expectations, the response we got was encouraging.”

For one, Inventus wasn’t looking to raise a large amount of capital. And second, the strong operational experience of the core team was viewed favourably by investors. “All of us at Inventus Capital have built businesses from the ground up and are, hence, aware of the challenges and risks involved,” says Rekhi.

But the crisis brewing in the US financial system, led by the collapse of Lehman Brothers in September 2008, put paid to the company’s plans. As the situation worsened and spread globally, a very large UK-based investor (he refuses to name it) pulled out saying it was reallocating funds from venture capital to other asset classes. It had earlier promised to commit substantial amounts of money to Inventus.

In May 2009, Rekhi and his team decided to close their fund—it had been more than two years since the road shows began (in normal circumstances, the fundraising would have been done in a year). The company garnered only half the commitments initially targeted.

The funding closed with a commitment of $52 million instead of the targeted $100 million. Rekhi admits that he was disappointed. “But considering what was happening in the market, it wasn’t too bad. Besides, as an early-stage investor, we wanted to invest only $0.5-1 million per firm. So, even with our fund commitment of $52 million, we could build a portfolio of 20-25 firms and go for a second round of funding later.”

The other bit of good news is that Inventus Capital has so far not seen any defaults on its capital calls. When venture capital firms raise funds, they don’t get all the money up front—it’s given to them on a need basis and that’s known as a capital call.

Slow And Steady

Inventus has made three investments so far, all in the technology domain. Unlike some VC firms, it intends to focus on the domain and invest in firms that use technology to solve a business problem. The three firms in its portfolio are TELiBrahma (bluetooth-enabled advertising solutions), Insta Health (IT solutions for small and mid-range hospitals) and Pilani Soft Labs (online ticketing). Two more deals—one in the US and another in India—are likely to be closed over the next month.

The target for the year is 10. Because of the high-risk involved in early-stage investing, it is important to build a large portfolio. “But this doesn’t mean we will invest in anything that comes our way. We studied 400 business plans and then invested in three,” he adds.

Phanindra Sama, Co-Founder & CEO, Pilani Soft Labs, likes Rekhi’s approach. “In every meeting, he talked about the big picture; streamlining our go-to-market strategy and building a customer network. Never once did he ask how many customers we were adding every month.”

Although Inventus’ immediate priority is to build its investment portfolio, securing a second round of funding in 2011 is also on the agenda. Rekhi says the company will be looking to raise $100 million. But is this easier said than done given investors’ preference for other asset classes? According to Deloitte’s 2009 report on the global venture capital industry (See table: Funding Gap), limited partners have been cutting their venture allocations.

Rekhi, however, insists raising money will not be a problem as Inventus will remain a small VC fund, looking to raise small amounts: “Our corpus will not exceed $150-200 million.” A small fund and small investments, but, hopefully, big profits. That’s Rekhi’s gameplan.

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