Lightbox
Company building and culture

An opportunity in crisis

Sid Talwar
29th September 2020

Are private equity firms 2 faced? How does the financial service sector deal with challenges? Read on to find out:

1. It is sometimes cynically said that Private Equity firms are two-faced: angels on the one side (while giving money), and devils on the other (while demanding their pound of flesh)! At the outset, please share with our readers what makes a Private Equity firm an important part of an economy.

Honestly, I don’t know any industry that doesn’t have its share of demons and angels. Private capital is no different. The important thing is to make sure one doesn’t generalize any one industry as either only demons or only angels. 

On the question of the importance of private capital (which I will refer to collectively as venture capital for the sake of brevity) in the larger economy, here is my two cents. In our immediate future and beyond, invention and innovation will drive our economy, more than any other single element. And entrepreneurs are going to be the force behind it. At their side, will always be private money, in the form of venture capital, to help them in ways no one else can, and of course, for a piece of the action.

I would argue that venture capitalists come at a point of an entrepreneurs journey when no other pool of capital dares to even try. In essence, venture capitalists come in at the ideation stage, they nurture it for a short period of time, and then exit before the true value of successful companies is realised. How much innovation would the last 50 years have seen if it weren’t for venture capital? How much innovation would the last 15 years in India have seen if it were not for venture capital? Dare I say, not much unfortunately. Where would the founders of Flipkart, Infoedge, Ola, and MakeMyTrip be today? Probably still standing in line at HDFC Bank’s loan department hoping to meet an officer for the 100th time. And we would still be struggling to find a taxi and booking a flight. How lucky we are, as consumers (and how lucky are they, as founders), that venture capital happened to be around.  

 

2. As Covid-19 continues to impact us all, businesses are faced with more uncertainty than any period since the global financial crisis. What are some of the challenges that have come about due to the pandemic on the financial services sector, and specifically on private equity firms?

Venture capital is not the same as traditional financial services companies. The kind of issues faced by venture capital businesses aren’t the same as the larger finance sector. And although the pandemic is the biggest crisis to hit the world since the 2008 crash, it is not the same thing. Yes, both created an uncertain future. Both saw an initial collapse of the global stock exchanges. And both saw governments intervening. But that’s really the only similarity. The larger financial services sector is far more secure today than it was in the aftermath of what happened in 2008. 

As for venture capital, some of the largest businesses of our generation were started and funded during that time. Some of the largest software infrastructure and development tools businesses were founded then. For example, Nutanix, MongoDB, Github, and Cloudera. And, many services businesses that revolutionized how work is done today—from Square, to Slack, to Dropbox and Glassdoor. The total market value of these 8 companies is over $30 billion. 

And in 2009...Uber was founded.

I’m eager to see what revolutionary businesses venture capital funds during this crisis. 

 

3. Private Equity players often state that they are not just about money. What is the nature of support that your firm has provided to investee firms to weather the current storm?

The most important thing we can provide, I would say more important than money, is to be there for our companies. To be available. To be both a sounding board, as well as a support system. To let them know they are not alone. In some cases, we have supplemented that with capital. But in every case, our capital is not the reason our founders have weathered this storm. And I can tell you today, every one of our founders have weathered it.  And they know they’re not out of it yet, but they also have a clear path now to move forward. It’s a good place to be. 

 

4. You have been an entrepreneur at heart. What attracted you to the Private Equity industry?

I wanted to give back to entrepreneurship something I didn’t get myself - support. There are many pools of capital out there. But very few of them are truly able to support a founder in any way outside of money and potentially a few introductions. My partners and I wanted to change that. We wanted to truly be available and knowledgeable enough on their company to be of help whenever needed. That’s what we strive for today. That’s what we rate ourselves on. And that’s what we continuously try to improve on.  

 

5. Please share with us more on the story behind Lightbox ventures and your investee firms. What makes you different from other Private Equity players in the market?

Our investment thesis has always been about building along with our portfolio companies and not just betting on them. Being entrepreneurs ourselves, we love building products and companies and understand the importance of growing and building a business with the right set of virtues, culture and financial foundation while creating something impactful and sustainable. So we get to know our founders early on and try and get operationally involved in the any way we can. We also enjoy working with consumer tech and tech enabled businesses that sell within India, to make a better India because it's not enough for a company to be able to generate value if they're not doing it in a manner that's actually benefiting us as residents of the country and we believe in the ability of technology to play a larger role in helping build the future of India.  

Having a concentrated portfolio makes it easier for us to do that effectively and that approach is what really separates us from the other players in the market.

 

 Source: Interview with Empoweredindia

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