An interview with a Venture capitalist who works for an American Venture capital company, is influenced by John Bogle and John Naish. Surprisingly his conscience is still working and he gave a free and frank interview to subramoney.com.
Any resemblance he has to Santa Claus is absolutely correct. Both are fictional characters. Read on:
Sir, thank you for giving us time to do an interview with a retail player like subramoney.com who has no viewership, no readership, no influence, no ad revenues. It is written by
The word venture capital conjures up some very difficult investments with uncertain returns and extremely risky investmnets, correct?
Very difficult to understand, difficult to monitor, difficult to handle, correct?
The participants should be capable of doing all this as well as have the ability to write off the whole amount, or say substantial parts of the amount, correct?
The participants should be rich and the minimum investments should ensure that only sophisticated investors should play a role, correct?
The minimum investments should be Rs. 5 crores (or say 1 Million US $) so that only clients with access to a lawyer, CA, advisors invest in a venture fund, logical and correct?
Logical yes, not correct.
What is the minimum amount of investment that a ‘venture capital fund’ can take from an individual?
Well, er, Rs. 5 lakhs.
Is that amount to small?
Hmmmm that is the law.
When was the amount fixed?
In the year 2000. Adjusting for inflation it should be at least Rs. 13 lakhs now.
Is it a problem?
Yes some banks which do not let their clients sleep are offerring a Venture capital product – in instalments of Rs. 5 lakhs to its clients.
What is the pitch?
Sir, you are rich (well on an Indian average this is true for all the people I know), you should NOT be putting your money in some silly SIP (which any distributor can give you) but in an exclusive product designed for rich people like you.
Do clients fall for this pitch?
Flattery, even if false is a great bait. If a website is willing to put just my photograph with the article I write and not pay me any money, I write for them, do I not? Vanity can get you anywhere. So yes clients are falling for it.
What do clients think it will do for them?
The previous fund is supposed to have given a 400% return. So clients are hoping that tomorrow will be like today.
What is subramoney.com’s view?
Frankly 400% spread over a 10 year basis may not be a great CAGR (Compounded Annual Growth Rate). Hence SEBI prohibits mutual funds from talking like this. One has to find the CAGR of the fund, and see the VALUE of the investment TODAY. It may tell a different tale. For example one of the ‘success’ stories mentioned is Subhiksha – showing a 10x return. Today Subhiksha is at loggerheads with Icici ventures. Difficult to understand.
Cut all this bull. Should I invest or no?
Well if you have a networth of about Rs. 10 crores and can afford to lose all (or substantially all) the money invested, you should invest. However if your net-worth is just a couple of crores, your family (and your lenders!) look forward eagerly to your salary cheque, you should not.
Why is the government allowing this?
Well governments react only to a crisis. I am sure you know that. Currently such sales is a small problem. Once the AUM under such “retail venture capital” schemes reach about 1-2 Billion US $, it will wake up and perhaps react.
Who are the distributors doing this?
Well, er, hmmm., ha, ho…..do i really have to name them. You must be joking. You know them. Please let me be.
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