I rely on gut feel to invest: Ratan Tata

Bengaluru: Tata group doyen Ratan Tata and the University of California’s investment arm on Thursday announced they were partnering to invest in Indian start-ups, although they did not specify what quantum of funds were available for such investments.   

Mr. Tata has been in the news recently for his private investments through RNT Associates in some 25 Indian start-ups so far, mostly in the e-commerce domain.

In late January, he partnered with the Massachusetts Institute of Technology and the Tata Institute of Social Sciences to launch an online learning initiative, Clix, in government schools across rural India. UC Investments, led by its Chief Investment Officer Jagdeep Singh Bachher, manages close to $100 billion, some $2 billion of it invested in start-ups in the US.

“What we are hoping to do is to provide an ability for some of these new start-ups to be partly funded, to see if through University of California systems, great assistance can come to the entrepreneurs that they themselves might not be able to arrange,” Mr. Tata said. “We haven’t a pre-judgment on what the funds will go into. What we do have is a joint view to encourage entrepreneurship which is promising. We will recognise the ability of founding groups and support them in a manner that makes a difference”.   

Later, answering questions, Mr. Tata said he saw far greater risks in investing in large companies that had big money tied up in a projects than in start-ups. “The challenge in investing in start-ups is less than investing in the stock markets. The risk profile of start-ups could be higher, but the risks involved, the difficulties involved are much less in magnitude compared to investing in a major company that has tens of hundreds of crores tied up in a project”, he said, adding however that quality and character of founders is more important in a start-up than in an established company with processes and systems in place.

Asked how he decided on which companies to invest in, he said that he relied more on how exciting he found and idea and being “able to look the founders in the eye” to gauge “their passion, seriousness and innovativeness and whether they had laid out a path that they could achieve”, rather than on researching into their financials and projections. “Gut feel and intuition” led him to decisions, although he would look into the numbers, too, when they got too big to rely only on intuition.

Mr. Tata’s start-up investments have aroused much curiosity about his investing philosophy and what he was seeking to achieve. He revealed his secret in answer to a question on how he viewed start-up valuations.

“It is true that net profit doesn’t seem to be dictating valuations, rather these are based more intuitively on the last investment (made into the company)”, he said, “But I do not invest like a Private Equity company. I have nothing to do with those valuations. I look at whether it has growth potential – and that potential could be export potential, medical potential – and I ask if I am supporting it”.
Asked if he had a “success mantra” to give entrepreneurs, he said, “I wish I knew”, adding that he saw an investor’s success in being able to take a visionary, long-term view of where a company could go, even if sometimes the founder himself could not envision it”.