When Ratan Tata backs a startup, it’s all about intuition and founders’ judgement

One-man funding army.
One-man funding army.
Image: Reuters//Rebecca Cook
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A one-man venture capital fund is giving Indian startups some money and a lot of credibility.

Ratan Tata, the chairman emeritus of the Tata Group, turned angel investor post his retirement from the salt-to-steel conglomerate in 2012. So far, he has invested in over two dozen startups, including furniture e-tailer Urban Ladder, digital payments app Paytm, ride-hailing company Ola and its electric vehicle arm Ola Electric Mobility.

His investment may only be a few million dollars, according to industry sources, but what’s invaluable is having the 81-year-old tycoon’s name attached to a young startup.

“Contrary to common belief, my pockets are not so deep, so what I had to do was perhaps take greater personal risks than I might have under different circumstances,” Tata said during a fireside chat with Sudhir Sethi, founder and chairman of Chiratae Ventures, on Oct. 15. “The fact is we (Indians) are entrepreneurs at heart. Maybe what we need is the opportunity to flourish and I think the startup industry is doing just that.”

During the course of the evening, where he was facilitated with a lifetime achievement award by the VC firm, Tata revealed some of his tricks when it comes to funding nascent firms. Edited excerpts from the conversation:

How do you pick startups to fund?

I found that in my case it was selection more by intuition than by numbers, and very importantly, by the judgment of the founders. In fact, I would say talking with the founders and drawing conclusions from their attitude, their maturity, and the seriousness with which he or she is committed to building an enterprise with someone else’s money meant more to me than any other single factor.

What probably drives an entrepreneur to start a business is the fire in his belly that there is a better way to do something that has been done or a good opportunity to make a difference because something has not been explored well enough. And (they need) the confidence of staying with it while it goes through its teething troubles. Not every enterprise is going to be glory all the way through.

When should a startup go global?

I don’t think there’s a defined right time to go global. The founder is in the best position to decide if going global gives him or her the opportunity to expand the market. India is still a new market, a highly successful entrepreneur may find the opportunity is greater in another market in addition to India or even instead of India.

Are high levels of cash burn among startups a concern?

If you look at other countries, where this has been somewhat longer in existence, it goes without saying this is a sector that will grow. The number of companies are bigger. The money involved—magnitude and scale is higher. And the knowledge base has grown.

Is domestic funding the need of the hour?

As an Indian, I would hope that the trend of it (majority of funding being foreign) would change and that the sector would have access to funds from India rather than from overseas. (Foreign funding) may distort the ability and direction of the company—maybe rightly in some cases but unfortunately in others, where the venture is whisked out from the involvement of India as its home country into a smaller part of an Asian entity. I think, as often happens, those companies do well—they grow in size and magnitude—so I wish those companies well but I think it’s unfortunate they’re not Indian companies in terms of their ownership.

Should legacy family business fund startups?

That has to come naturally. I don’t think you can force them or entice them. It comes from the success the sector has.

There’s a plus to this (startups growing) because more and more big companies will in one form or another recognise there’s another way to do something, and that might be the better way. It could be cheaper, more cost-effective, have greater capabilities, and so on.

Which sectors are hot properties according to you?

I think on the tech side there are many breakthroughs happening and they’re not confined to one or two sectors. On healthcare and medical treatment end, there’s a tremendous opportunity. In online areas, manufacturing fields, everywhere you look, there’s a better way to do something. And the opportunity is great for startups because there are legacy costs in the big companies, where there’s a tendency to not make the transition to newer, better ways to do things.