There are some well-paved paths laid out for top Indian bureaucrats for their life after retirement, such as becoming a member in one of the government’s innumerable task forces and committees, taking up board memberships in corporate houses, and pontificating on policies.
But, rarely does one begin the second innings as an entrepreneur.
Ajay Kumar, a 1985-batch officer of the Indian Administrative Service (IAS) who retired as India’s longest-serving defence secretary in 2022, is challenging the stereotype by co-founding a venture capital firm to invest in startups.
“I always had this desire to experience multiple challenges in life. God has been kind. I have had great jobs in the IAS, and I'm proud that I was able to do whatever I was able to,” Kumar says on the phone while on his way to the scenic IAS training academy in Mussoorie.
Credited for conceptualising a programme called iDEX to kickstart government procurements from the country’s tech startups during his stint in the defence ministry, Kumar is now ready to take the plunge into the defence ecosystem as a startup investor.
With several retired senior officials helming the fund, MountTech Growth Fund or MGF-Kavachh has swiftly garnered commitments surpassing its planned corpus of Rs 250 crore. It has also kept a greenshoe option of adding a further Rs 250 crore to the fund at a later date.
In an interview with Moneycontrol, the bureaucrat-turned-VC investor talks about the kind of defence tech startups he wants to back, India's opportunity in defence tech exports, raising capital from domestic investors, and more. Excerpts from the interaction:
What kind of startups are you looking to fund?
They should be something that would create significant intellectual property, and not something which has already been done. We would focus mostly on developing products, not services. We don't want people to be doing services, whether it is software services or hardware services. We are not so inclined to fund those kinds of startups.
We have identified two sub-themes, one is space and the other is unmanned aerial vehicles. We are also doing a detailed examination of about 10-15 sub-themes, out of which we will narrow down on 4-6 which will be our focus areas.
How many startups are you looking to invest in? Also, what would be the average cheque size?
That is a difficult question to answer because we are looking at early stage, as well as series A or post-Series A. So, depending on what stage we enter, the quantum of money may vary significantly. If we fund many early stage startups, then we can back many more startups. But if we do more investments in Series A and thereafter, obviously it will be a fewer number of bets. We will not want to go at a very small equity size – not less than 5-10 percent of shareholding.
Startups want to raise funds from VCs who have the legacy and ecosystem heft to help them with their further fundraises. What would be your fund’s USP?
We would like to make a difference to the startup where we go. We will be able to connect the startup to the whole supply chain through our base and node network. That is a huge value addition which we will bring. Our idea is every time we invest in a startup, we should be able to give them value beyond our money.
So, would you help your portfolio companies with selling their products to the government?
As far as they need help in understanding the defence procurement process, surely. But if the question is whether we're going to intervene, no question of that at all. A whole lot of senior professionals from the armed forces work with us and all of them have brought in a huge tonne of experience. But none of us will ever try to intervene in the procurement process.
VCs often shy away from areas like drones as many startups in these spaces are dependent on revenue from the government.
Rightly so, because government orders are very erratic. And, so are the payment terms.
Doesn’t that concern you now as an investor?
See, we are not into services. We would be more into the creation of IP. A lot of these drone companies are doing assembly and trying to offer services like spraying pesticides. I'm not saying it is right or wrong. But that is not going to be our cup of tea.
We would like to see if there's a good drone company creating components for drones which can be sold both nationally and internationally. And companies in areas like drone software, propulsion, or renewable drones. We need to create Indian champions in drones.
Who are the backers of your fund? Are there any large domestic or foreign institutions?
It is 100 percent Indian money. In fact, even now, I'm getting offers because there is a significant amount of interest in that sector. I think the team is also attracting a lot of attention. So, we have not even had the opportunity to go to the institutions. We hope to go to the institutions maybe either in the greenshoe stage or in the second fund.
Do you think the US-China tension has opened up fresh opportunities for India in defence tech exports?
The two major countries today are antagonistic and there is also a feeling that they have their own control or expansionist agenda. They have been the major suppliers, either through finding easy financing terms, through the zone of influence or via various treaties and agreements.
Now, countries want to diversify their sourcing. And that is where a lot of countries are actually looking for alternatives. And, because of India's non-expansionist and 'vasudhaiva kutumbakam' approach — as we don't want ill of anyone — a lot of countries are very keen to source from India.
Isn’t that a very lofty goal?
Our exports in the last five years have grown 8 times — and 80 percent of the growth has come from the private sector. I see that in the next 10 to 15 years, India would be one among the top players in the defense ecosystem, if we are able to create the right innovations.
Our startup ecosystem is very strong generally. By my own understanding of the global landscape in this regard, India possibly has the world's biggest startup defense startup ecosystem. It is growing. If you look at the defence market, we are on a trajectory which can make us become one of the major players of defence in the world. That will happen only if we develop new technologies. It will not happen based on mere manufacturing.
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