Colloquium: January 10, 2008
Mr. Rajesh Rai
Role of venture capital in entrepreneurial growth
Amrita fraternity was honored to have Mr. Rajesh Rai, co-founder and principal of New Markets Growth Fund (NMGF), a leading early stage venture capital fund in the US midatlantic region, addressing the students of our b-school. Mr. Rai’s illustrious career boomed from a background of a BE from REC, Suratkal (NITK), an MBA from the Robert H. Smith School of Business where he was awarded the Lamone Entrepreneur Scholarship and the Dean’s Scholarship and an executive program in private equity and venture capital from the Harvard Business School. Prior to co-founding NMGF, he had launched new businesses at Godrej-GE Appliances, worked on product planning at Federal Express, optimized product design at Kirloskar Electric and managed on educational services franchise.
Mr. Rajesh brings over 11 years of venture capital, corporate experience to his position. He serves on the Board of Fortius One, Artifact Software and Innovative Biosensors. He also serves as an advisor to the India-based start-ups Ticketvala and Arctern. He is a TIE Charter member. He also participates on the review committees of National Science Foundation’s Small Business Innovation Research Program, Maryland Industrial Partnerships and Maryland Technology Development Corporation. He is an adjunct faculty at the University of Maryland, College Park, teaching a graduate level engineering course in technology entrepreneurship and guiding Executive MBA students with their business ventures.
The evening also marked the inauguration of the Finance forum – Fortune, a management team as part of Pragati, the b-fest at Amrita. Speaking on the occasion, Mr. Rai sought after the growth factor in India. He said it is indeed a great time for the graduating students in this country. Opportunities have widened manifold, opening a wide array of ideas to be tried out as an entrepreneur. According to him, student life is the best time to try out newer ideas, to think of innovative ventures to create something because it is now that one receives unmatched help from his teachers, colleagues etc. He hinted at Mata Amritanandamayi being the ideal source of inspiration for all young entrepreneurs.
Defining an entrepreneur as one who produces something without resources or with bare minimum resources used creatively, identifies opportunities, takes risks and gets rewarded for his actions, etc, Mr. Rajesh Rai spoke about the nature of entrepreneurship and his expertise as a Venture Capitalist. “Technology propels a business towards growth. The growth margin in a financial statement is an indicator of competition in any industry. It is a differentiating factor for any enterprise as it creates profitability and helps scale the venture. Companies with small growth margins are unable to sustain”, he said. He considers venture capital as expensive money – equity which comes with a free advice. The investors are interested in future cash flows and are less sensitive to current incomes. The risks reduce as one progresses in a venture capital. Showing statistics, in 1999, venture capital figures in India stood at around US $ 20 mn while the same rose to US $ 7 bn in 2007. Comparing banks and private equity investment with venture capital showed that over the long haul, venture capital returns 20-25 %.
Mr. Rai introduced the students to a basic VC model wherein the life of a fund is considered to be of ten years. Hence it follows the principle of ‘invest in the first five years and harvest in the last five’. He also cleared us on concepts such as pre-money (value of a company before investment) and post-money (value of a company after investment). He lined up the various risk factors involved in a VC such as managing management risks, technology risks, market risks, financial risks, other regulatory/legal/political risks etc. He insisted on a single common factor for any kind of business i.e. CASH, without which big order books and profit figures seem worthless.
Finally, he tipped-off some of his recommendations on venture capital for future entrepreneurs. Along with keeping good records, having a clean and transparent business, knowing the costs and benefits of equity & debt, getting customers etc, the most important step is to align interests with investors, lenders, partners etc. Also, for that added advantage, it is important to focus on some problem which is desirable by the customer but is difficult to solve. Mr. Rai wrapped up the talk by answering questions of curious young managers. He differentiated private equity and VC in terms of the former having debt involved in it. He suggested that it is difficult to have a high gross margin in technology-devoid industries, but it is always possible to focus on an unfair competitive advantage to survive above the rest. One should always look for sustainability in an industry. Though 70 % of entrepreneurs go for fields which they have experience and knowledge in, there is no harm trying out all new ventures which have a probable market. Mr. Rajesh Rai not only showcased an inspiring personality and a personal success story, but also posed to be our guide into a completely new and unknown field of study and also tickled a few of ours ideas in the same.
Neha Sashi
I MBA
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