Nadathur Investments Have a New Order
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Image: Mallikarjun Katkol for Forbes India
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THE NADATHURS THREE: Sriram (L), N.S. Raghavan and Anand
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n October 21, 2009, N. R. Narayana Murthy sold Rs. 174 crore worth of Infosys shares to capitalise Catamaran, his venture capital fund. If Murthy ever needs advice for this new venture, he won’t have to look too far. He just has to call the man who could have been the second CEO of Infosys but turned down the job in 1999 and quit the company in 2000. Nadathur Raghavan doesn’t even live too far away. He is right there in Bangalore.
In India, the terms ‘innovation ecosystem’ and ‘angel investor’ are frequently used but rarely seen in practice. Nadathur Raghavan’s fund Nadathur Investments is a rare fund in the country that has truly done this. Over the last nine years, it has invested $65 million in technology, lifesciences and healthcare start-ups. Companies such as Impulsesoft, Metahelix, Connexios and Medi Assist owe their existence to Raghavan’s love of financing new ideas.
For instance, Raghavan told a bunch of bewildered scientists who had approached him with a business plan and excel spreadsheets predicting revenue for their company in 2000, “I don’t understand much of these things, and even though you’re all great scientists, I’m not sure you do either.” However, the scientists had a cheque for Rs. 6.5 crore the very next day, even before the term sheet — a legal document that specifies the quantum and value of different shareholders in a start-up — was prepared. Today, the company is a promising agriculture biotech company: Metahelix.
Raghavan has backed entrepreneurs. He has created an ecosystem in lifesciences. But he hasn’t made much money on his investments. Raghavan may like to continue funding innovative companies but he will need money to do it. Some companies that he has invested in also agree. “No other group in India has thought out how to support innovation as systematically,” says Suri Venkatachalam, the CEO of Connexios. “But if Nadathur has to survive and grow, exits are needed.”
Raghavan’s two sons – Sriram Nadathur, 37, and Anand Nadathur, 35 – both left their careers in the US (Sriram in 2003, Anand in 2000) at their father’s calling, to join Nadathur Investments. Their plans include creating new entities and reshaping older ones. They are changing the way Nadathur Investments works. They have formed a separate entity Ojas Ventures that will invest in pure information technology investments and will work as a professional venture capital firm.
Further, the new Nadathur Investments that will become a creator of synergistic ecosystems. Such firms used to be called incubators in the past. Nadathur will have mostly lifesciences and healthcare investments. “Anand and Sriram are literally becoming owners instead of investors. They are building physical assets for the group much like what Tatas did a 100 years back,” says Nitin Deshmukh, head, Kotak Private Equity.
As the new order takes over, the genteel and old-fashioned way of Nadathur Raghavan will disappear.
Both have made the new investment norms much tighter and stricter, putting more emphasis on the viability of business plans, including often steering away from funding paper ideas altogether. Younger brother Anand says, “Because we don’t have someone shoving discipline down our throats, we need to have the maturity to discipline ourselves,” he says.
There is an increased focus on exits, especially from companies where the brothers don’t see long-term value. “In three years, we will exit all the legacy investments, like Cades, that are not being managed by Sriram or Anand,” says Raghavan.
The next step is to separate the risks. Both brothers know that in this business there is an extremely risky angel investing phase and slightly, less risky venture capital (VC) phase. In the VC phase the invested companies all have a proof of concept and usually real revenues. Ojas will invest in such companies. Ojas is a $35 million venture capital fund that operates independently of Nadathur Investments. Headed by a family relative and serial entrepreneur Rajesh Srivathsa, Ojas will operate like any other early stage venture fund, including an 8-10 year lifespan within which it has to return of Nadathur Investments’ money along with profits.
It will also try and raise money from outside investors. It diversifies risk for Ojas and also gets them to fund larger deals. “If Ojas cannot raise the second fund on its own, then there is no point to it,” says Sriram.
Then comes the new Nadathur Investments. Sriram has spent the last six years meticulously funding and incubating life sciences companies. It will follow the Japanese philosophy of ‘keiretsu’.
Outside of Japan the keiretsu concept has been applied with less emphasis on formal cross-holding and more on productive collaboration within a trusted network.
“We don’t start with entrepreneurs now, we don’t fund ideas. Because both can either already be found or created within our network. We just bring everything together,” says Sriram. His network is already fairly rich.
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India cannot be made rich by the state and central Governments, nor by organised business companies, whose employment generatig potential is low, but only by crops and crops of ew entrpreneurs, who have to be nurtured, tended and cared bysupport from Nadathur like companies and funds.
Raghavanji, kep up the good work and your 2 illustrious sons are alos out with you, betting their shirts, as you can always lend them your coat of knowledge and experience!!:-)).
