The New Kings of Deal Street

BY POOJA KOTHARI

Avendus Capital may have started out from a building that houses a garage on its ground floor, but its nameplate now shines brightly on the fifth floor of one of the toniest office addresses in suburban Mumbai – the IL&FS building. It took the firm a few years to cover the short distance from Agnelo House in Khar to their more fashionable address in Bandra Kurla Complex. But it has used the time rather well.

Avendus has transformed from a “venture catalyst” in 1999 into a financial advisor focused on the IT sector and most recently, to an investment bank that bagged one of the biggest and most watched deals of recent times – the distress sale of Satyam Computer Services in 2009. It was appointed, along with the blue-blooded Goldman Sachs, to find buyers to bail out the collapsing company. And it did. Satyam received a US$582 million investment from Tech Mahindra in April last year – and Avendus hit the headlines.

“Satyam was the pinnacle of what we had been trying to achieve. It gave us immense confidence to complete a transaction of that size and complexity,” says Kaushal Aggarwal, one of the three founders.

It is only fit that Avendus found its spot under the sun right in the middle of an economic downturn. It was, after all, born in the throes of another one – the dotcom bust in the early years of this decade.

Its first avatar was Coolstartups, started in 1999 by three professionals in their twenties: Ranu Vohra, Gaurav Deepak and Aggarwal. The idea was to be “an intermediary which connects entrepreneurs with VCs and other business-related services”, as mentioned in a newspaper report from the time.

Those were the heady days of the dotcom boom in India. Almost everyone had an idea, and was either launching a new business, or getting funded. Vohra and Aggarwal were working for CEA, an investment bank in Mumbai, while Deepak was investing in technology companies for ICICI, a financial institution.

They ran into entrepreneurs all the time. “It made sense to start an online investment bank focused on technology start-ups,” recalls Deepak. But where was the money? The trio, belonging to middle-class families, started pitching to investors. Luckily for them, attracting the attention of venture capitalists was not difficult in those days. Before long, they had money in their bank, including from Saurabh Srivastava’s Infinity Ventures.

“They struck me as very intelligent, confident guys, who were raring to go. They were the kind of team that you paid attention to,” remembers Srivastava.

The venture showed promise. When it launched a website in mid-2000, Coolstartups was flooded with 500 applications from entrepreneurs who were looking to raise funds. These applicants were ready to part with cash and equity in return for funds raised.

Then the buoyant economy abruptly began to run out of steam. The dotcom bust was leaving wreckage in its wake – companies were shutting down, even as investors were tightening their purse strings. By the end of 2000, the writing was on the wall for the founders. The market for their original idea disappeared less than a year into the business. Avendus did exactly three deals in nearly 18 months: two in 2000 and one in 2001, according to data available on its website.

“The market crashed on us in late 2000, our hypothesis was completely washed off, and we had to take a conscious call on where to go from there,” recalls Deepak, who now co-heads the investment banking division.

The young entrepreneurs didn’t know what to do. They were only sure of one thing – none of them wanted to take up a job again. The experience had given them a taste of entrepreneurship and they had taken quite a shine to it. “I had a wife and kid. But I didn’t think twice about carrying on,” says Vohra. Deepak seconds that sentiment since he too had got addicted to the “high of doing something on (his) own.”

However, the climb ahead was difficult. The money left from the first round of funding was only going to cover expenses for a few more months. The financial world was still licking its wounds. “We remapped the market – but we did that with the discipline and integrity it deserved,” says Deepak.

“We decided to create a successful investment bank,” he adds. Just like that. A bunch of three 20-somethings with few relationships decided one fine day that they were going to break into a market that was run like an old boys’ network. There was no precedent either. Most Indian investment banks were either partnerships with big international players, such as the Hemendra Kothari and Merrill Lynch combine of DSP Merrill Lynch, or divisions of big Indian banks, such as ICICI Bank.

The only thing in their favour was that each one of them had worked for an investment bank at some point in their short professional lives. “We understood advisory business and had looked at investments for companies,” says Deepak. What they understood then of the market was simple: most transactions were done on the basis of relationships. “No one was using any knowledge or insights into the industry. We decided to provide advice from the business owner’s perspective,” adds Vohra.

Having decided on a plan of action, realisation hit that imparting financial advice under the existing brand name CoolStartups was going to be difficult. Since “branding had to become a big identity” for them, the trio found a freelance designer to create that identity. “We knew what we wanted – a name that was cosmopolitan.” Thus, at the end of 2000, was born Avendus Advisors.

The founders did everything that came their way, including a “mandate to map the BPO market for Rs 2 lakh”. Avendus stuck to the IT vertical and provided “knowledge-based deal making in the M&A and private equity space”.

The turning point came in 2003, from where they have not looked back. Every year, till 2006, the firm doubled its revenue, and became profitable. It also got its first big-ticket deal in the interim. It was the sole advisor to Cymbal Corporation, a US-based IT services company, in its US$68 million acquisition by Patni Computers, an Indian software firm.

On a trip to the US in 2006, the trio faced another moment of truth. “We were back to asking: where do we go from here?” recalls Deepak. The team had to decide whether to continue being a boutique investment bank, or to transform into a full-service player to better serve the needs of its clients. A full-service investment bank, by definition, offers corporate clients a bouquet of services, including raising capital in both public and private markets, trading securities, and managing corporate mergers and acquisitions.

Around the same time, the three founders realised that despite the recognition their firm was getting, it lacked high-quality investment banking talent on its rolls. “It was hampering our chance to grow,” recalls Deepak.

In hindsight, 2006 turned out to be another inflexion point in the firm’s life. Not only did the team decide to become a full-service investment bank, the founding trio also took up the challenge of recruiting talented professionals from the world of finance. Luckily for them, a few people took an early bet on the company. One of the first such professionals to join Avendus was Aashish Bhinde, an IIM-Kolkata alumnus, and now head of its European operations. Girish Nadkarni followed, and now looks after the institutional broking business.

From a team of 30 in 2006, Avendus now employs more than 120 people. “By next year, we will have at least 13-14 people with 18-25 years of experience in the market,” says Aggarwal.

Its most recent hire is a case in point. After searching far and wide, Avendus finally hired Akiva Elias as its chief operating officer. And Elias, whose resume boasts of the prestigious Wharton School and 14 years of experience at Morgan Stanley's Information Technology division, might just be the big ticket name that Avendus needed to feel confident of its ability to attract and retain high-quality talent.

“We are now equipped to deliver on our full-service promise to our clients,” adds Deepak. Like an army commander who goes about collecting his men and weapons for the war ahead, the Avendus team too has spent the last three years preparing for the big plans ahead. Now, the time has come to make true on the promise shown so far.

In the high-risk, high-reward world of investment banking, Avendus has already carved out a niche for itself. It was recently awarded the prestigious India M&A Investment Bank of the Year award by the Global M&A Network. In 2008, it even got the validation it was looking for in the form of an investment of Rs 100 crore from Eastgate Capital.

It now serves clients in London, New York, Delhi, Bangalore and Mumbai across verticals such as capital markets and institutional broking, and practices such as technology and infrastructure. Many of its customers are giving the newcomer a chance to further prove its mettle. “Five of our IPO clients have previously used us to raise private equity,” says Deepak.

Of course, it is still struggling to shed its “boutique” tag. “We hate that word,” says Aggarwal, who is confident that once its businesses gather steam, Avendus wouldn’t be called a boutique i-bank anymore.

But what the market calls them will hardly decide their future as a company. They don’t have to struggle to bring in the revenue any more. What they do have to worry about is how Team Avendus will fight as an army to rub shoulders with the big names of investment banking. So far, the teams have worked with a linear set of relationships. But, as the last few months have demonstrated, these teams will increasingly have to work together to land new mandates as well as deliver existing ones. “In the past six months, we have landed seven IPO mandates and not one has been a single-person job,” says Deepak.

The challenge ahead, as Aggarwal puts it, will be in how the “senior team gels and works together.” As happens with most firms that enter this stage of growth, the focus shifts to leadership and team work. At Avendus, first, it was about attracting the high-quality talent that would give them respectability in the market. Now, it is about getting it to work seamlessly to deliver the goods.

“It isn’t a big deal, but we haven’t done it before,” says Deepak. But, then, learning on the job shouldn’t be new to the Avendus founders. Now in their mid-to-late thirties, a majority of their working lives have been spent in building this business. Except for Vohra’s years at CEA, the founding trio has never had first-hand exposure to global best practices, or systems and processes of established companies, or the nuances of making people work together.

They haven’t had much help along the way, either. “We didn’t have a mentor from a financial services background, who understood all aspects of the market and could have helped us early on. We have made tons of mistakes in these years,” says Aggarwal, rather candidly.

What is also new is the re-introduction of risk into the equation. After years of being comfortably placed, Avendus is trying its hand at competing again – and this time, the fight’s with the big boys of investment banking and on their own turf. “This is typically where an organisation gets into risk again. They shouldn’t lose their core strength, while coming up wanting in the other space,” says an industry observer.

Only time can tell whether they can become the Goldman of India – and succeed in creating “a high-quality financial services company out of India,” as Vohra put it. But one thing’s clear - not every successful start-up needs a garage. Sometimes, the room above will do just as well.

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