Valuations are not subjected to intelligent scrutiny: Aashish Kalra

Aashish Kalra-led Cambridge Innovations (CI) has invested in eight companies including RoadZen, Authess, Causemo, PhotoKarma and MyCrowd since its inception in December last year. Earlier this month, CI announced investments in two US-based startups, Ourly.help and Valet Anywhere.

In this interview with Techcircle.in, Kalra, chairman of CI and IT company Cambridge Technology Enterprises, speaks about CI's plans to fund 50 startups in the next three years, why it is too early for it to invest in India-based startups, and its focus on disruptive technologies in the enterprise and B2B segment. Edited excerpts:

Is CI an accelerator? I don't think we can call CI an accelerator. The startups work as partners with us, and it's a long-term commitment and engagement. CI is set up as two branches – Cambridge Technology Investments and Cambridge Innovation Labs "the latter tries to compress the time it takes to build a technology product. Once you get to enterprise scale, you'd probably be a client for CTE, and not a client for this framework.

When we started we had a business idea, but faced a few challenges. The first was: Can we even find quality 50 companies to fund in three years? The second challenge: If we find enough good quality companies, would they be interested in working with us in this model? The third challenge was whether our organisation could adapt from serving large clients to work with some of the smallest companies in the world.

When we announced CI in December, we told the market that we would do 12 deals by March 2017. But we have announced eight transactions already by April 2016. Now it is a question of scalability for us. We are confident of making the 50 investments.

Authess was our first company for investment. Its big challenge was finding a global group it could work closely with. Valet Anywhere is solving a real challenge. It's a simple business but is transformative. Same goes for Ourly.help, which was launched in 30 communities in the US. So these startups have practical use in India, but we don't know when or how they'll come here.

Will you be looking at investments in India? There are three reasons today why we are potentially not focused at India. Firstly, we have invested in the US market since the 90s. Secondly, it is the largest market in the world, India is the potential business. Thirdly, you are getting tested teams there.

There is only one venture in India where we invested, Anthill Ventures, which had further invested in 91Springboard. So, we are in the middle of the deal flow. If we find an exciting company, we will invest. We are not an India-dedicated fund, so we have a choice here.

The other reason why it is too early for us in India is that we are enterprise-focused in our business. We don't chase e-commerce unicorns; it's something we don't understand.

What is your investment strategy? We are sector-agnostic. They have to succeed without us, plus it has to be transformative. It can't be incremental. It has to be driven by the convergence of cloud and big data, which is fuelled by artificial intelligence and machine learning.

What are the domains you are interested in? We probably won't do hardware, we probably won't do semi-conductors. We probably won't do an e-commerce company, or any company marketed directly to the consumer. Our focus always tends to be enterprise and B2B.

What is your opinion on correction of valuations of startups? I was a VC during the dotcom and Lehman Brothers crises. I saw exactly the same euphoria in the US during the dotcom phase. But outside Amazon, pretty much everyone failed. The big-box retailers adapted. Wal-mart is equally big in e-commerce as it is offline. At a time when nobody was looking at brick-and-mortar stores, Apple decided to build stores outdoors, and did it successfully. So the market adapts itself.

Business models and valuations are perhaps not subjected to the intelligence that they should be otherwise. And usually, then everything crashes and we reach the other end. Or we could do it in a modulated manner where we put some sense in it. But even in this time of downturn, I think we have had access to better teams and better evaluations.

What is the ticket size of your investments? Our investments are predominantly in the US market, and typically, at the seed stage. A seed stage is typically $1 million in the US, and we do it for up to 20 per cent of the round. We do not want to lead the round as we are already helping the company with technology and other things.

How much money has been allocated for this? There is no such allocation per se. It's a business plan; we don't sit and decide to spend $50 million regardless of what happens. We would like to get to 50 companies. Can we get to 35 and be happy? Yes.

In this 50, there is potential that we might participate in the future rounds. Though we might invest 20 per cent in the seed round, we might look at a smaller or larger participation in the subsequent rounds. And we'd probably do these follow-on rounds in our businesses. We won't look at Series A or Series B elsewhere. We are looking at disruptive businesses globally.

When do you plan to exit these companies? We don't plan the exit, the company does. But typically, we are looking at a 3-5-year horizon.

How does the next year for CTE look like? When I took over as the chairman of CTE, we set out on a plan of attaining minimal scale, which we defined as $2million a month in revenue by March 2017. And we are well on track. We are getting close to 300-odd people, and we may be 500-plus in March 2017. We have six verticals and are targeting a reference client in each one. CI itself is one of our largest clients, or has the potential to be a large one.

Will CTE be looking at acquisitions? Probably not. We can barely deal with the organic growth that we have. If you are buying a small business, it's more headache that it's worth. There is a minimal chance of this happening anytime soon.