Persistent invests $250k in start-up via venture fund

Q: What is your view on the growth in the second half of the year? In the first half the company managed to do a 14.5 percent revenue growth and now prospects are improving. We are seeing a good economic recovery in the US as well. Do you think you could continue to beat the National Association of Software and Services Companies (NASSCOM) guidance and deliver this 14-14.5 percent growth in the second half of the year as well?

A: Yes, absolutely. We believe that we can beat the NASSCOM guidance and beat the numbers that we did in the first half. I must also caution that December quarter is usually a soft quarter in the IT industry and it is hard to predict exactly how much it would be distributed between Q3 and Q4. The trends are looking very god and there is a lot of interest in the IT and new technologies activities that we see in the market.

Q: Your company has invested in a US-based life sciences start-up called DxNow. Just take us through that. It is through your Persistent Venture Fund.

A: Innovation is an important part for what we do as a business and we wanted to make sure that we are investing in early stage companies, because a lot innovation really happens in that area. At Persistent, we have been working in many technology companies and our idea was to align where we have alignment either in technology or in the customer ecospace or in general in areas that we think are going to be big areas in the future. So we have this small fund that we are using to fund start-ups. We did one investment in a company called Ustyme about a month back and this is second one in this series.

Q: What is the link of Persistent to this fund? Is the entire money, the cash surplus of Persistent Systems? What has been the prior experience of this venture fund and the companies it may have incubated?

A: This is only the second investment that we have made. Investment is coming directly from the Persistent’s P&L, so we have not carved it out as such. These are very small investments. Our range in which we are operating is between USD 100,000 and USD 250,000. These are early stage investments.

These companies are before Series A and they will go in for a VC funding in a few months and they are early stage, but the technology that they are building on is usually very exciting and both these cases we have worked with the founders before when they were running companies that were customers of ours.

Q: When do they bear fruition? For a Persistent investor what do you want to say? Is this a five-year vision, is this a three-year vision, is it even beyond five years which it might well be if it is that early stage a start-up?

A: In early stage start-ups like where we are investing we do not necessarily have to stay invested in this company financially for them to exit. Some of these companies will take 5-7 years to exit or to get to an event that maybe where the returns happen. The way the VC investment happens in the US, you have the Series A, Series B, Series C and as an early investor sometimes you can get opportunities to exit at Series B or Series A or whatever else that maybe appropriate. So, some of these may not have to go on for five years. These can actually be fairly short-term as well.

Q: We have been lately getting very strong economic data from the US, something that was confirmed by the US Fed’s move yesterday to stop printing dollars at the same pace they have been doing. How does this translate into any gain for you? When you last reported numbers you said your US business grew Q-o-Q by 4.9 percent, Europe was largely flat. Will these numbers look better in the second half?

A: Yes, over the next half we should see reasonably similar numbers or little better numbers for the second half of the year. I would not say that that will be the same for this quarter, but for the second half for definitely we will see better numbers. Other thing is that we have a very significant percentage of our business coming in from the US markets, in upwards of 85 percent of our business comes from the US market. So while Europe is also doing better, as a fraction of our total business it is quite small.

Q: What about the margin performance? After your Q2 performance many analysts went ahead and raised their margin forecast of the company because of lower transition costs. Most of your transition costs are behind you, better operating leverage etc. Do you expect to see either sustainable or better margins in the second half of the year?

A: That is always a difficult question. When you are running the company there are also many challenges that one has to operate, especially costs in the US are actually going up. Because of the economic recovery it is harder to find people onside in the US and as you recruit in the local market the cost of US employees is going up. So there are certain headwinds and some tailwinds. So it is hard to say, but we think we can at least maintain margins like we had last year.