Nagaraja Prakasam left his software job to fund enterprises that have a definitive impact on society.
BY ANSHUL DHAMIJA Forbes India Staff. Image: Sri Manikandan for Forbes India PUBLISHED: Nov 3, 2016
By 2013, Umesh Sachdev, CEO and co-founder of Chennai-based Uniphore Software Systems, had been turned down by close to 20 venture capital (VC) investors. Incubated at IIT-Madras in 2008, Uniphore was creating tools that would allow software applications to understand and respond to human speech. Sachdev admits that, five years later, the story of Uniphore “was not sellable”. The startup was doing “bits and pieces of many things”, he says, as it had started to digress from voice recognition and created “non-core” verticals such as mobile apps. More so, Uniphore had modelled its voice recognition business as a service rather than a product.
Enter software engineer-turned-angel investor Nagaraja Prakasam, who was introduced to Sachdev by an acquaintance in late-2013. What Uniphore was building instantly caught Prakasam’s imagination. As Prakasam, 45, says, “Only 250 million speak English in India, which means 1 billion are left out of the digital revolution. That’s the problem he [Sachdev] is solving.”
In early 2014, Prakasam (known to just about everyone as Naga) led an undisclosed angel round of funding in Uniphore. The investment was routed through the Indian Angel Network (IAN)—a network of angel investors, which Prakasam became a part of in 2010. While Uniphore was a much older startup than those IAN typically invests in, Prakasam believed that an angel investment could come at any stage before a startup raised VC funding. As with other IAN lead investors (who contribute 20 percent of the overall investment), he also got himself a board seat in Uniphore.
Since then, Uniphore has raised two more rounds of funding and counts Infosys co-founder Kris Gopalakrishnan as an investor. Prakasam’s advice for the company to ditch the “non-core” mobile app business and start selling the core voice recognition business as a product, not a service, has helped Uniphore clock revenue growth of 250 to 300 percent over the last two years. Moreover, the startup has taken its business global to the Philippines and the UAE and has banks, telcos and airlines as clients. “After Naga came, our story has crystallised and has been fine-tuned to such an extent that of the same 20 VCs who had rejected us earlier, three have come back and invested in us,” says Sachdev.
While Prakasam helped steer Uniphore onto the growth path, he has stopped short of micro-managing its affairs. Says Rajiv Rao, founder and CEO of FreshWorld, an offline fruits and vegetables retail startup in which Prakasam led an IAN investment in 2015, “Naga truly shares the challenges the entrepreneur and the startup faces and facilitates a way forward. Entrepreneurship is often a lonely experience. With Naga on one’s side, it makes life slightly less challenging for startups.”
Since 2011, Prakasam has funded 19 startups in India that operate across sectors ranging from pure-play IT services to waste management. As an individual, his personal investments through IAN have ranged from Rs 1 lakh to Rs 1 crore. Nearly 40 percent of his total startup investment is structured as debt, earning him interest and obtaining a steady cash flow. This is his only source of income after he gave up his high-paying job as president, South and Southeast Asia at CDC Software (now known as Aptean) in 2012.
The career shift has also brought about a shift in his lifestyle. From yearly international vacations, Prakasam now only indulges in biannual domestic vacations. “In four years, my family has not taken any international vacations. Instead, that money has been invested into a startup,” he says. He admits that when he took the decision to shift gears, he was worried about his family, and whether they would be able to handle the social pressure of him quitting a full-time job. Today, it is not an issue. “I have a seven-day weekend.”
So far, Prakasam has fully exited one startup, Solaron (a rating agency that offers environmental, social and corporate governance data to international institutional investors), and has partially exited from Druva (a cloud-based services provider that recently raised $51 million), and Stayzilla (an online aggregator for homestays in India).
On October 5, he announced his 19th investment, as he, once again, led an IAN funding in Bengaluru-based healthtech company Neurosynaptic Communications. Like Uniphore, Neurosynaptic is a much older company (of over 10 years) and had approached nearly 30 investors, but was turned down. Till Prakasam, who is always on the lookout for entrepreneurial ideas based around people, problems, and technology, picked it up.
What made Prakasam bet on what was touted a losing horse? The company’s long-term goals. According to his estimates, about 68 percent of India lives in villages where only 2 percent of doctors are available. Medical expenses in rural areas almost triple when taking into account low wages, travel to nearby towns, and additional expenses of a person accompanying the patient. “Health care expenses are one of the main reasons why poor people can’t come out of poverty. This makes them shy away from health care until it’s very late,” says Prakasam. Neurosynaptic, he felt, would be able to make a difference.
Eight of Prakasam’s 19 investments have had a similar philosophy: All of these have been in startups that are trying to make a definitive impact on society. (Being a techie himself, most of his other investments are in IT-based startups.) He has been doggedly pursuing the social impact cause since 2013, when he spearheaded impact thinking within IAN and went on to co-found a sub-group known as IAN Impact, which focuses on investing in social enterprises. Outside the IAN Impact umbrella, he has made social impact investments in ventures like Guardian (a micro-finance venture engaged in water and sanitation), Sattva (a CSR consulting and implementation firm), and Lumiere Organic (a Bengaluru-based producer and retailer of organic food).
Much of Prakasam’s social investment thinking was born out of his association with New York-based impact investor Acumen Fund that has backed entities such as Aravind Eye Care System. Prakasam has been an Acumen India Partner since 2012. Further back, when he worked with CDC Software in the US, he was the president of the San Diego (1999-2002) and Atlanta (2002-2005) chapters of the Association For India’s Development, a non-profit that raised funds for social causes in India. While many of his friends from the association moved back to India and were with NGOs engaged in activism, Prakasam wanted to be different. Instead of activism, he dreamt of marrying the core objectives of an NGO with corporate efficiency.
For instance, the first social impact investment he led (in early 2013) was in GoCoOp, an online marketplace for handloom and handicraft co-operatives, and rural artisans. The social aspect of this startup was to ensure that these co-operatives don’t become extinct and that its artisans don’t end up in slums. The ‘corporate efficiency’ part was to use technology and create a platform to that end.
This August, GoCoOp received a government national award for outstanding contribution in marketing handloom products (ecommerce). The company has put over 5,000 co-operatives online and close to 40 percent of its revenue comes from global buyers (largely the Indian diaspora). “My thesis that people can solve such basic problems is proving to be good,” says Prakasam.
In an urban landscape, consider his efforts at Saahas Waste Management, founded by journalist-turned-social activist-turned-entrepreneur Wilma Rodrigues. In 2015, Saahas raised an undisclosed amount of funding from IAN, led by Prakasam.Prakasam had first met Rodrigues four years earlier, when she began supplying recycled paper to him at CDC Software. So when he began to focus on social impact ideas, he thought of Rodrigues and her NGO. Prakasam, though, believed that there was a for-profit business model to be built around waste management. “I said Bengaluru is spending Rs 400 crore a year to manage waste. The city produces 5,000 tonnes of waste every day, the bulk of which [almost 1,400 tonnes] is from large campuses, so let’s focus there,” he recalls.
From the sidelines, Prakasam, with the help of his portfolio company Sattva, helped Rodrigues set up a for-profit entity. This was in addition to her NGO entity. Only when he was convinced that the for-profit model was working, did he lead the IAN investment into Saahas.
Simultaneously, he mentored Rodrigues in other aspects. “He gave us insights into how to become an investor-friendly company without diluting our core objective: To create zero-waste entities through conversion of waste to resources in large tech parks, companies and apartments,” says Rodrigues. “Naga gave this objective a tangible image when he consistently talked to investors about Saahas ‘owning the waste’.” This, she adds, has helped her enterprise position itself as a company that owns waste that can then be sold to various recyclers. “Every month she [Rodrigues] ships 250 tonnes of Tetra Pak back to Tetra Pak,” says Prakasam.
Since the IAN investment, Saahas has tripled its revenues and now manages approximately 30 tonnes of waste per day. “She started as an NGO to fight with the government…Right now we are accelerating the Series A round funding,” he says.
Even his investment in FreshWorld has a social impact aspect, although the purpose with which it was launched hasn’t been met. In Bengaluru, there are about 15,000 pushcart vendors who walk 12 km a day to sell fruits and vegetables. FreshWorld’s vision was to get these vendors to drive electric vehicles and deliver farm produce to the consumers’ doorsteps. While the startup failed to convince the vendors to change their set patterns, they have now started to hire unskilled, Class 10 dropouts from employment exchanges in Hassan and Tumkur districts to drive their 32 electric vehicles that sell around 7 tonnes of vegetables per day. FreshWorld aims to turn these drivers into micro-entrepreneurs by helping them get a loan of Rs 2.5 lakh to own the electric vehicle. “The more they sell the greater would be their profit share,” says Prakasam.
The idea of investing in social enterprises is still not very appealing to mainstream investors. For instance, K Ganesh, entrepreneur, angel investor, and partner at GrowthStory, believes that the social sector would not pass muster when viewed in terms of hyper growth, multimillion-dollar fundings, quick exits, potential IPOs, and good mark-up on valuations. That said, Ganesh adds, “The opportunity is huge, the need is great and for a different type of investor it can lead to good returns for a much lower risk. It is encouraging to see the focus and support from angel investors like Prakasam.”
“Impact investment is for patient capital,” points out Prakasam. “It needs more time when compared to so-called hyper-growth companies. But now we see that they are not that hyper at all—for every success, there are a few failures, as there is room for only few companies to reach that scale [$1 billion valuation].”
In the last two years, Prakasam has played a key role in setting up the Nativelead Foundation in Madurai to encourage local entrepreneurs to start ventures and create jobs in tier II and III towns. The foundation has a separate investment arm—Native Angels Network (NAN)—that provides early-stage funding and mentoring. Through NAN, Prakasam has led investments in Happy Hens, a Madurai-based enterprise producing organic eggs, and Rainstock, which provides affordable rainwater harvesting solutions.
Repeats Prakasam, “Most equity funding is for them [the 250 million people speaking English].” With around 150 local angel investors [typically traditional business families], who are willing to bet on local entrepreneurial ideas and talent, he hopes NAN will change that.
Recently, Ganapathy Venugopal, co-founder and CEO of Axilor Ventures, an early stage venture capital fund and accelerator, accompanied Prakasam to Madurai to participate in a Nativelead programme and attend a meeting between Prakasam and the founder of Rainstock.
“I was amazed at how well the entrepreneurs had come prepared for the meeting, better than most you get to see,” says Venugopal. “When most of the focus is on the top 20 percent of the population, it is critical to nurture local investors closer to where the entrepreneurs are. Nativelead is so far ahead of its time.”
For Sachdev of Uniphore, Prakasam is still a pillar of strength. Even after multiple investors have come onboard Uniphore, Sachdev continues to look to Naga to deliver the bad news first. That’s because, says Sachdev, “I have never seen him panic and react in a negative way.”
And that’s the kind of open dialogue that Prakasam likes to have. As he says, “If you know the problem early, you can also figure out a way to solve it.”
(This article is excerpted from the latest Forbes India 11 November, 2016 issue which is now available at news stands and book stores. You can buy our tablet version from Magzter.com)
Forbes Print version November 11,2016 Issue