Showing posts with label IRR. Show all posts
Showing posts with label IRR. Show all posts

Monday, July 22, 2013

The start-up investing winds, they are a-Changing OR are they?

In his latest, 'SuperLP' Chris Douvos  writes about the fears of an impending VC apocalypse....., okay to start with, in silicon valley primarily triggered by the capital deployment in start-ups far outpacing funds raised by venture capital firms, essentially affecting that someone else is gaming the system rather than VCs themselves..

Given they appear only once in a blue moon, I couldn't really let go a SuperLP article without a comment... here goes what I posted on his article 'Scents in the Air'

My comment
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Comments

Murali Apparaju

I am wondering if the issue with "capital raised by VC's increasingly falling short of capital invested into start-ups" is about true of all start-up hubs & not just Silicon-valley AND, that probably in general it’s true of all VC activity across the globe (tho' i do understand this data is of NVCA and for USA)

Out of the entities you mentioned, I see the following two as the key contributors to this skewed ratio;
1) CVC: The emerging aggression of CVCs whose enthusiasm to invest is in equal measure helped/ influenced by not having a limitation of capital to deploy AND by their necessity to shortening the product introduction cycle in face of an increasingly unproductive in-house innovation (think... a top-10 pharma major investing in start-up biotech with just one pre-clinical asset....)
2) Angel: The recent market regulatory changes indicate (JOBS et al) that the government is attempting to bring down the dependence of start-ups on the VC's - primarily by way of increasing the available angel base & encouraging HNWIs to risk their money a lot more freely than before.
Surely the above aspects do suggest why there's a scent of fear in the winds blowing through VC quarters.
I personally feel that these newer sources of capital need to establish their longevity & consistency before the start-ups can forget about serenading the VC for funds – particularly given that non-financial companies tend to be a lot more impatient with IRR cycle-times and HNWIs a lot more prone to gravitate towards less complex and shorter-term alternative investment options.
Essentially, IMHO what goes around comes around & VC as a source of start-up capital would remain a lot more relevant in the long-term

Wednesday, July 17, 2013

There's some traction (in exits') for Indian VCs & that ain't bad!

Expectedly, there was some excitement & some skepticism over the recent acquisition of redBus by Ibibo. My comment on one such recent article "Is the redBus exit really good for the VC ecosystem inIndia?" on StartupCentral is as follows;

My comment:
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What you have said above sounds (to me) like;
If only the ‘sheer-return achieved on one exit’ by the VC is looked at in the broader context of ‘performance of the fund’ as such (disbursed funds?) rather than merely as a nX return on investment made into that particular company, only then will the overall picture emerge.
Now, just because you mentioned 200mio USD fund in your article, I wish to know if I can assume that one of the three VCs (or all three as an average) who disbursed funds of ~200Mio USD across past 7 years among multiple portfolio companies has hitherto managed only one attractive return of ~15-20X? (of RedBus) & this sheer return still doesn’t amount to being anything substantial to the LPs from whom the 200mio fund was raised?
If the answer is yes, I agree with you that for the Indian VC universe ‘Dilli abhi dhoor hain..’ (loosely translates as ~miles to go before resting on ones' laurels...)
Of course I’d also be cautiously optimistic when I say that if only the VCs that invested into RedBus used a similar good-sense & judgement while identifying, nurturing the other portfolio companies within this 200mio fund, then it is likely they’d still see some more good exists, including some from an IPO even.
Overall I guess there’s some traction & that aint bad. 

Saturday, March 2, 2013

What when the boundaries blur between VC & PE?

My response on the highly thought provoking blog post "Venture Capital 2.0" by Drug Baron (David Grainger) - posted on 01/Mar/2013

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Once again a really thorough proposition by Drug Baron that leaves frustratingly little scope to contradict. For the sake of a debate I would still like to raise a few questions; make a few statements & generally try not to sound like mouthing a rejoinder in support of Venture Capital 1.0 - which it definitely is not! J

It is absolutely true that the VC model should periodically re-invent itself & evolve like the innovations of other kind it chases routinely – this, I believe is not just true of VCs focused on life sciences but for all others too. Also, after a quick read, I realized that one could misread the term “asset centric investing” if they do not go through what exactly Index ventures pursues through its IDDs – David, you may consider hyperlinking your statement “Asset-centric investing is only the first step on a road to improved returns for life science investors” to http://www.indexventures.com/blog/index/post/354.

Now, since the primary intent of the asset-centric-investing model appears to be de-risking venture funding to the LPs (and thus raise funds with less difficulty), the inferred premise(s) of this model appear to be as follows;
  • That the early discovery prior to lead-validation should-not-be/ need-not-be venture funded

  • That owing to the large investment & the inherent risk of failure, innovation (in particular drug discovery) is something better left to academic/ federal institutions & large pharmaceutical organizations that can afford the risk (did someone say, ‘risk is neither created nor destroyed, only transferred and hedged differently!’ :-))

  • And finally that any VC backed biotech with a “pipe-line” hasn’t probably thoroughly screened the clinical & commercial viability of candidates including, probably in a few cases other than, the lead-program candidate for which it managed to tease out some funding?

No doubt this model makes absolute sense to the fund of funds or LPs on its focus on sheer reduction of risk to IRRs but not sure if this model helps generate & nurture novel enterprises & why should it? - now I do realize that the ACI model also believes that creation of an innovative enterprise is NOT the VCs responsibility (probably since they are using ‘others money’ for this noble cause? J) & more a responsibility of the struggling entrepreneurs themselves?

Without sounding too knowledgeable about it, I would like to believe that across the past few years, VC seemed to have played a role in keeping afloat the spirit of enterprise at the most critical & vulnerable early stages and thus helped, however minimally, in letting a lot of budding innovators take root & grow their enterprises into cash-cow organizations that’d offer a lot more de-risked alternative asset investment options to the LPs.

So while I generally & unequivocally support the need for yet another paradigm shift in drug discovery methodology & innovation models, I am not sure if a VC model de-risked to this extent almost morphing into a PE would help this innovation paradigm nor help create the much needed pipeline of early innovative enterprises that later mature into investable asset-centric organizations.

Post thought:

In the current context of drastically reduced spend on basic discovery by big-pharma, I see that most most biotechs, drug discovery organizations have started to reinvent themselves into “drug development organizations” and have quite voluntarily started de-risking by building a pipeline/ portfolio of in-licensed/ spun-off ~pre-validated drug candidates . So I guess without so much as a nudge, the enterprise out there is all ready for Venture Capital 2.0 – Now again that doesn’t say much about the survival chances of real innovation that not necessarily stems from the largest of organizations/ institutions….. after all, garage innovation in life sciences appears to be a distinct possibility in in these winds of open source drug discovery.

Thursday, January 31, 2013

IRR v/s Social Impact: Do financial institutions necessarily go through this dilemma?

The news on Times of India Social Impact Awards & what Nicolas Aguzin, chairman and CEO of JP Morgan- Asia-Pacific said during his speech there about JPM's commitment to its social responsibility triggered a cackle of thoughts that're simultaneously standalone, contradictory, inter-connected and inter-dependent;

  • CSR (Corporate Social REPONSIBILITY) isn’t necessarily the same as CSI (Corporate Social IMPACT)
  • Given all the progress out there in the science of measuring impact, it’s possible a lot of companies have figured out OR will figure out sooner than later, how they could reposition their CSR as CSI
  • In an effort to make their social impact measurable, it’s possible that corporates' inadvertently project & expect social-change in a defined, time-bound (& not practicable) fashion?   - While objectivity & accountability are a must, through my wife’s  work in the development sector (at an implementation level..), I could sense/ witness how some inappropriately designed impact measures of a funding organization can/ have killed or maimed a promising social initiative, which if supported on a longer term could've indeed resulted in replicable, scalable & sustainable social change
  • Finally, if not blatantly so, at the very root most CSR initiatives tend to carefully (& smartly?) avoid any conflict of interest with the organization’s business goals – while this is understandable since the very purpose of a business is NOT social impact but profitability in the longer-term, it definitely makes more long-term business sense to ‘tangibly’ align the CSR/ CSI with an organization’s core business mission. While I wouldn’t risk associating this with the “social business model” of Prof. Muhammad Yunus, I’d think it’s nevertheless related, but limited to formulating the CSR plan – Social-Aligned Business Responsibility-SaBRe anyone?? :-) 

While attempting to apply, superimpose the above ethos onto the social sensitivity of the investing universe out there, I could only come up with a posse of questions, but no obvious answers – ponder this;

  • What would amount to a social impact of a financial institution (LP)? – i.e. apart from making sure the eventual investments (through GPs) are in alignment with certain mandated geo-political guidelines – I do see some institutions following macro-level charters like the Equator principle et al & that’s no doubt a great start, but not sure if that’s comprehensive enough in all complex geological, social contexts and effective for what length of a long-term?
  • In a climate where the accepted investment efficiency measures employed are the time-bound investment-to-exit cycles & IRR, is there a safety catch, any checks & measures that’d  ensure sustenance of an innovative enterprise that may have a greater social impact, if not an eye-popping ROI?

Food for thought…