From selling bicycles to having dozens of business ventures, the Hero Group has come a long way. And after watching the business acumen of their fathers and forefathers, the third generation entrepreneurs are all set to write their own destiny.
In an exclusive telephonic interaction with Moneycontrol's Priyanka Sahay, Akshay Munjal, Partner, Survam Partners, President, BML Munjal University and son of Suman Kant Munjal, Brijmohan Lall Munjal's second son, talks about the investment strategy of his family office fund, Survam Capital.
He explains why he would not get swayed away by startups witnessing positive trends just because of COVID-19 and his decision to not invest in businesses that deal with alcohol. Survam invests in startups as well as venture capital funds. Startups such as BharatPe and Bellatrix Aerospace have raised money from Survam while VCs including Fireside Ventures and Sixth Sense Ventures have it as their limited partners.
Edited excerpts:
Q. You are investing in startups through Survam Partners. What are the criteria you are looking at before making investments, especially at a time when COVID-19 has brought in so much uncertainly in the market?
Akshay Munjal: Post-COVID, a lot of trends have accelerated but we look at businesses without a trend because trends come and go. We invest our own money. It is not third-party money. We look at the uniqueness of a business, founder's background, the ability to execute and their ability to create long term value because we don't come in and move out in a couple of years. We like to stay for the long run. At times we see great founders but not a great idea; however, they have managed to pivot. On the other hand, there are great ideas but founders are not very motivated and there things don't work. At the end of the day we are betting on people and human dynamics.
What sort of infrastructure have you put in place in terms of people? Who are your guiding forces when you close a deal?
A: We have two levels. First, there is an internal filtration and then it goes to the investment committee. And in that, we try and involve all the people who are part of the Survam family office. We ask them if it is actually making sense. What is the thesis? Why do we believe what we believe in? And once that's cleared, it goes to the formal investment committee.
I actually work with the team. My father and other members don't get involved at that level. They only come when we have a formal investment committee.
Q. What sort of ticket size are you investing across these startups?
A: That typically is around half a million dollars.
Q. But how often are you bullish about re-investing and participating in the growth round of your portfolio companies? What is the ticket size then?
A: We have done two or three up rounds. But those are the rounds we don't lead because we normally come in pre-Series A and after that, somebody does a Series A or a Series B then we try and protect our equity percentage. For example, if we have taken 10 percent earlier and now the company is raising a Series A we will try and ensure that we remain at 10 percent and don't get diluted.
Q. How many startups have you already invested in through Survam?
A: 18.
Q. Are you a board member across any of these startups?
A: We don't take board seats. We are board observers. In fact, in the earlier ones we were not but in the last two years, what we have done is that we have taken a lot of rights and we have become board observers.
Q. Why is that important?
A: We also had experiences. I do not want to name but there were one or two companies where it didn't play out as expected and without having any rights, it was becoming sort of a black box. We had no idea what was happening on the board. We were not getting enough information or update.
Q. What are the rights we are talking about here?
A: Essentially information rights, board observer, affirmative voting rights, etc.
Q. So, fair to say it took you some time to realise how important it was for investors to keep their rights robust so that they are not taken lightly?
A: Correct, because at the end of the day if you look at a pre-Series A, investors are investing behind the founders. Unlike the public markets where you can take an exit and walk off, here your say is very limited. If a thing is going well, everybody is happy; when things go bad that's when the problem starts. That is the time when you really want to know what happened, is there any way you can help out. Otherwise when things are well then it is all fun and game.
Q. Are you looking at fresh investments in India right now? And across which all sectors?
A: We are, actually. We have been looking at gaming not just because of COVID but because so far we have not been able to close any opportunity. Then ed-tech is something I am very close to because of the background and the university. So we are closely looking at things there. Because we think ed-tech, gaming and cybersecurity, right now they are hot but these are the trends that are not going to go away.
Q. How many deals are currently active on your table?
A: Around 6-7. These are across sectors such as educational toys, drones, fin-tech, etc.
Q. This is a time when a lot of investors are actually backing out from their prior commitments. A lot of term sheets have been pulled back. While investors are interested in deals, these are for very selective sectors. What do you have to say to this?
A: We have also seen that and have come across many instances where the term sheets have been pulled back. There are certain sectors that are working and others are not. But if you have to take a longer-term horizon, which is if this company will survive and create value for the next 10 years, then these current trends don't become that important. So the things (startups) we liked even before COVID, we are still talking to them on the same terms.
Q. Have you also kept any of your term sheets on hold?
A: There were one or two term sheets where the company only collapsed because of COVID. But others are continuing.
Q. So, according to you, COVID is a problem but you cannot be making all your investments given the requirements of COVID.
A: Correct. So at the end of the day, we will find a vaccine. These are painful times. It will take us six months, a year or two years to be better from where we are. Given the technology we have today and given the recourse that everybody is working on it 24 hours, I am sure we will find a vaccine sooner than later and at that time recovery would happen and we want to be there.
Q. There are a bunch of young generation entrepreneurs including that your large business family has. How often are you guys taken for grooming sessions by your uncles Pawan Kant Munjal, Sunil Kant Munjal or your father Suman Kant Munjal. What sort of dos and don'ts do you have to abide by?
A: In our family, for us, it is very clear that we got to protect our family name and its reputation. So there are some sectors that we don't invest in. We don't go into alcohol, etc. And we also give a lot of premium to what's the value system of the founders because at the end of the day what we have learned from our elders is that values are more important than short term gain or loss. So that is one thing we are very careful about.
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