Going global for green shoots


“There are certain environmen­tal factors that affect innovation and favour start-ups,” says Dave Feller, co-founder & CEO of the Redwood City-based Yummly. “Large com­panies have difficulty replicating these. Some of those are: being small, having technology-focused teams, efficiency and effectiveness of inter­nal communications and rapid decision-making.”
Multinational corporations, by their very nature, end up as large bureaucracies. The cor­porate culture is codified; risk-taking, innovation and entrepreneurship are in short supply. Yet there is a grow­ing realisation that in an innovative age, if you don’t join the crowd, you are dead. Companies in fast-moving consumer goods (FMCG) and allied sectors, where innovation needs to straddle several dimensions – prod­uct, packaging, distribution, market­ing – are trying to solve the problem by funding external start-ups.

Yummly, which describes itself as “the most powerful way to search 1 million-plus recipes”, was funded by Unilever Ventures, amongst others. “Unilever Ventures was started to give Unilever a window into the start-up world and find early-stage compa­nies that it could collaborate with, or young brands that it could help to grow and one day integrate into the Unilever portfolio,” says Christopher Sponiar, investment principal with Unilever Ventures, the venture cap­ital fund of the Anglo-Dutch MNC. “Yummly (and others like it) can offer speed and innovation which can be valuable learnings for larger companies,” says Feller.

Unilever is one of the early
a second fund of €90 million and Uni­lever Ventures recently started investing out of a third fund of €350 million. “All the money is from Unilever,” clarifies Sponiar. Success stories include Snog frozen yoghurt, which began life in Lon­don and now has outlets in Kuwait, Pakistan, Columbia and Dubai. “Uni­lever has licensed the brand to create a take-home product,” says Sponiar.

Feller explains what Unilever brought to the table: “Yummly has several other investors including Uni­lever Ventures. They provide guidance and resources.” What’s so innovative about a directory of recipes? Yummly is different from other food sites, says Feller, because of its ability to ‘under­stand’ a recipe. “We can look at a recipe and determine a lot of things about it: whether it’s applicable to


Feller: valuable learnings

specific diets or allergies, the nutri­tion, the price per serving, the taste… Because Yummly ‘understands’ reci­pes at such granular levels, it can also provide excellent recommendations (similar to a Netflix or Pandora).”

Some Unilever Ventures’ invest­ments have given handsome returns. Brainjuicer is a market research con­sultancy using psychology, behav­ioural economics and social sciences to create tools that better under­stand and predict human behaviour. Unilever Ventures invested in Brainjuicer in 2003. The company was listed on AIM in 2006. Unilever divested its stake through a series of share placements in 2010 and 2011, generating a 17x multiple on its investment.

Unilever is not the only big fish sniffing around the start-up pond. In Europe, in 2006, Nestle tied up with Inventages Venture Capital to set up a new fund styled W. Health. At the launch, Nestle explained that “this fund will invest in companies active in health, well-being and nutrition as an external complement to Nestle’s own internal R&D competencies”. Says Nestle spokesperson Meike Schmidt: “Nestle has invested in the W. Health fund, managed by Inventages, and not in the company itself. The invest­ment is ongoing and is showing positive results.”

Among the companies backed by Inventages are Xolution, which has
developed re-closable ends for bever­age cans; Accera, whose portfolio con­sists of novel therapeutic drugs and medical foods for neurodegenerative diseases such as Alzheimer’s, Parkin­son’s, and Age Associated Memory Impairment; and Phytomedics, which is developing innovative phar­maceutical and food products from traditional plant remedies.

Wolfgang Reichenberger, former global CFO, Nestle, is a general part­ner at Inventages. In an interview with PricewaterhouseCoopers’ Retail & Consumer World, he explained the difference: “As an independent venture capital fund, Inventages can make independent decisions and par­ticipate in the supervision of portfolio companies in a very different fashion from any large corporation… We are not averse to small and sometimes more risks investments than Nestle or any other large corporation. Next, we seek participation, whereas large corporations seek control. Finally, corporations integrate and normally realise synergies. We, however, side with our companies in the years of highest growth rates, and negotiate the modalities of an exit in a couple of years.”

Kartik Hosanagar, professor of Internet commerce at The Wharton School, says he prefers the Reichen­berger approach rather than compa­nies making direct investments in start-ups. “Within their sectors, these investors can be very strategic,” says he. “The biggest concern that entre­preneurs have about investors is whether they add value beyond pro­viding money. These strategic inves­tors know the market well, can make customer introductions, and help with all kinds of business development.

The flip side is that taking a lot of money from a strategic investor can at times limit exit options for entrepre­neurs. Competitors of your investor may hesitate to buy you because they are worried that your investor has already acquired a lot of proprietary information about the start-up. So, at times, taking money directly from a strategic partner, such as a large com­pany in the market, can backfire. For this reason, I like models wherein these MNCs do not invest directly but instead join as limited partners in an independent venture vehicle. That model has some of the benefits that a strategic investor can provide without many of the downsides.”

Bangalore foray

Sometime in early 1991, Jyoti Sagar, chairman, Jyoti Sagar Associates (JSA) sat his uncle down for a talk. Sagar had worked at his uncle’s law firm for nearly 19 years now, three-and-a-half years as an apprentice and 16 as a lawyer. Over the two decades, he had added to the goodwill of the firm and helped the firm grow. What about the future, Sagar wondered. Would his uncle consider making him part­ner, or share profits?

“He was actually blunt with me,” Sagar recalls. “He expected people to remain as paid employees. Then he said, I can give you a 10 per cent partnership, but you have to pay for that share and that goodwill amount was around 60x my annual profes­sional income. I was stunned.”

Sagar left the firm about six months after that conversation. On 1 November 1991, he set up his solo practice from a single hotel room in Qutub Hotel, Delhi. “There was a waiting list of 8-10 years for a tele­phone line in those days. So, I started in a hotel room. It was just me and an office boy,” says Sagar.

Now, 24 years later, JSA is one of
the top law firms in India, with over 270 lawyers, including 70 partners and offices in New Delhi, Gurgaon, Mumbai, Bangalore, Hyderabad and most recently, Chennai. “We started with a capital of ?50,000,” recalls Sagar, “which was actually advance fees given by my first client.” Despite a humble start, JSA actually had a good run from the begin­ning and even Sagar admits that he was ‘uniquely blessed’. He informed about 20 clients of his departure, along with his new address and con­tact information. Soon after, clients began sending cables to his uncle’s firm, requesting a transfer of files to Sagar’s new practice. “After the first week, it felt like my table had just moved from one location to the other.” Sagar’s founding clients were the same he’d been working on ear­lier – the likes of Oracle, Pepsi and the Digital Equipment Corporation.

Sagar’s timing was fortuitous. The opening of JSA coincided with the opening of the Indian economy and a flurry of legal work. “Prior to 1994-95, lawyers didn’t work in telecom or power or mining, because there was no private investment in these areas,”
explains Sagar. But it wasn’t just luck. After a successful start, Sagar quickly realised that the firm’s future lay in providing domain expertise. At a firm retreat, he spoke to his small team of lawyers about the need to specialise in important sec­tors such as municipal, infrastruc­ture, etc. Amit Kapur, partner, JSA, remembers Sagar’s speech well. “He spoke about how the world is chang­ing and the need to be a broad based firm that looks beyond FDI. I was told to look at municipal and infra­structure. I was quite enthused; I got Amar Gupta to take over litigation and I started looking at projects,” he explains.

Kapur has, since that speech, made quite a mark. He is regarded as one of the top lawyers in the power sector, and regularly consults with the gov­ernment on the topic. Sagar’s vision paid off. The firm, with the help of old hands like Kapur, evolved into structured practice areas.

While the firm grew in prac­tice and revenue, it was still a small player; from 1991 to around 2000, JSA had about 34 lawyers, and two offices, Delhi and Bangalore.

Bangalore too was actually the initia­tive of JSA partner Sajai Singh, who was interested in tech law and vol­unteered to set up the office. “Sajai had many contacts in Bangalore. We said, well, that’s one space where we don’t see any specialised areas. Bangalore was low-risk compared to Bombay,” says Sagar, on why his firm chose to expand down south instead of Mumbai. The expansion to Banga­lore also raised the question – could JSA become a national firm?

Bangalore foray

A JSA commissioned client satisfaction survey in 2000 was an eye opener. While the clients lauded the firm for its ethical and management practices, they complained that JSA lacked a presence in Mumbai and the financial markets. Sagar and his team quickly realised that if they had national dreams, they needed a stronger pres­ence in Mumbai. At the time, they only had a small three-person office in the city. “That’s what led to our search for a like minded person and that is how we found Berjis (Desai) and his team,” describes Sagar.

Sagar and Berjis Desai, managing partner, JSA, had been on opposite sides of a matter before and knew of each other. Through a mutual friend, an introduction was made and Sagar inquired if Desai was interested in JSA Mumbai. Desai, who happened to be in talks with another firm at the time, found that he and Sagar instantly connected on what they wanted to do. The finalised on the commercials of the new firm (Desai would become partner and bring
about 16 people with him, including current partners, such as Somasekhar Sundaresan and Gayatri Bhandari) within minutes.

“Bombay was a small office when we joined. It has grown organically. In the first few years we joined, the growth was quite rapid. Then it just happened without effort,” explains Desai. His strategy was to consciously attract people with sector expertise, such as Dina Wadia and Sandeep Mehta from Little & Co, Nitin Potdar from Amarchand, Akshay Chudasama from AZB, and Farhad Sorabjee from the chambers of Atul Setalvad. “They became equity partners, brought their own practice areas and in some cases, we started developing new practice areas like media or competition law, as we went along.”

But how did he lure such
prominent personalities to a barely known firm in Mumbai? Was it the lure of more money perhaps? “Not at all,” claims Desai. “The whole idea of a firm that didn’t belong to any­body was the primary attraction. JSA also offered considerable freedom and flexibility to do what each one pleased, within their sector.” And, as one partner remarked bluntly, “peo­ple were so unhappy in their existing set ups, that it didn’t require much effort to bring them in.”

“I didn’t want to be in a fam­ily kind of structure or where you were always subservient to a family or where the equity structure was skewed,” adds Dina Wadia, partner.

The JSA story is more than just a fairy tale for legal dorks. It is also the story of how Sagar chose to try and build something bigger than an aver­age family controlled law firm; an institution in perpetuity, that would have no place for nepotism and old codgers that refuse to retire. Sagar led by example. After starting in Novem­ber 1991, in April 1998, he took the baby steps of ceding equity in favour of JSA’s two senior-most colleagues. They were inducted as partners with­out paying anything to the firm or Sagar. After the expansion in 2000, the firm once again brainstormed ways to institutionalise this practice. “We said, how do we create some­thing that will outlive us? How do we focus on the people?” says Sagar. The
merger with Desai also gave all the partners an opportunity to structure the institution, with a set retirement age for partners, creating a trust that owned the firm, voting rights, etc.

The result is that JSA partners do not own the firm. Instead, the firm is owned by a trust and all equity part­ners are trustees, upholding the insti­tution. The partners also decided that there would be no pay-in at the time of induction and no pay-out at the time of retirement. Incoming part­ners would not be charged for capital investment or goodwill. Importantly, Sagar also left no space for nepotism. JSA strictly prohibits any sort of famil­ial ties within the firm. No child, sibling, nephew, or any relation what­soever of an existing employee is allowed to work in the firm. (Sadly, love affairs between office colleagues- turned-spouses have resulted in one of the two leaving JSA.)

Kapur describes Sagar’s attitude and the firm’s structure well. “He said if I have to retain talent and grow this as an institution that is larger than me, then I have to accept that different people will come together and they will not be related. They’ll be people of excellence and we will develop something that is larger than anyone. That’s where his openness and his willingness to not control everything has played a big role.” Kapur also credits Desai with being the yin to Sagar’s yang. “They were such a solid fit in providing for each other’s strength and weake- nesses. Neither of them were pursu­ing that this (JSA) should go to my son or daughter as a legacy.”

Perfect example

The retirement age of 60 was a true test for Sagar. In 2013, Sagar surren­dered the last bit of equity he owned (7 per cent odd) and left the firm. And, while he continues in the role of chairman and mentor, he takes no share of profits from the firm and claims to have no active par­ticipation in the firm. “Sagar is the perfect example of doing what eve­ryone preaches. He could have stuck around, but he didn’t. That is truly building an institution,” says Hai- greve Khaitan, managing partner,


Chudasama: honest about recession


Khaitan & Co. “He is forward think­ing and one of the finest people in the community. I really admire him, not just for his work, but also his vision.”

The trust is not the only thing that sets JSA apart. It also has a unique compensation structure that is deter­mined by its compensation commit­tee. “We have a certain methodology, which includes not only experi- ence/position, but also interesting performance criterion,” says Sagar. “There are 6-7 slabs,” elaborates Desai. Seniority is only 5 per cent of the weightage. Other criteria include performance, practice area perform­ance and brand building for the firm among others. The lowest slab is at 1.75 per cent, while the highest slab is at 6.25 per cent, adds Desai. Sagar is particularly proud of the fact that the equity slabs or bands as he calls them, are flexible. Partners can move easily within bands, and “to be spe­cific, when I retired, the difference between me and the next set of part­ners was less than 1 percentage point. We are that flat an organisation.”

Desai, the Mumbai office, the expansion, the time – the combination was a turning point in jSA’s growth chart; from 34 lawyers before Desai, to 50 with Desai in 2003, and his team, to 350 lawyers in 2015. Admittedly, such growth has been the norm for most of the leading law firms.

The peak years saw JSA grow at 40 per cent per year. “We always had some kind of plan – that we would like to be x number of partners, x number of associates in y years. We did that organically and by joining up and taking up other practices. That also brought in heft into geographies where we had a decent presence but made us bigger. We knew that places where you can grow on merit, the sky was the limit,” says Wadia.

The recession and subsequent glo­bal slow down impacted India’s legal industry as well and last year, growth slowed to 17-18 per cent. Partner Akshay Chudasama is honest about the recession and its impact. “A lot of our competitors are completely under­cutting us. It’s a big problem. I’ve gone into matters where we’ve given quotes of x lakh, and our peers from good quality Tier II firms have given quotes for half that amount. You can’t compete with that,” he says.

But Desai was optimistic about the figures for this year, with a new government in place and reforms on the agenda. “Stalled infrastructure projects should boost the industry,” he added. Business from foreign law firms also makes up 20-25 per cent of JSA’s revenues, and the uptick in the global financial markets should help.

The partners also pride themselves on being a transparent organisation. The firm’s accounts, for example, are web-enabled and each partner has access to it at any time from any given place. “It is different from other firms. Unless you’re able to accept that money is not everything, that you will be part of an institution as a trustee and the key is people – it is difficult,” says Chudasama.

Perhaps, it is the transparency or the unique compensation method. But JSA continually boasts of having the lowest attrition rate in the legal industry. “The firm is built around openness to evolve as per your pas­sion and talent,” says Sagar.

Today, the firm is divided into nine practice areas and a practice head (who is also an equity partner)


chairs each area. The firm’s business strategy is carefully crafted around each of these areas. There is a macro plan for every three to five years. And there is an annual budget and business plan for each practice area every year. “For example, in regula­tory and policy practice, there are three equity partners and four to fiv&younger partners. All of us think through questions such as how did we do last year, how do we expect to do this year, do we need more people, etc. It’s about time, economic reality of that industry and how to allocate effectively,” explains Kapur.

Long-term view

Once each practice area has created a plan, it is shared with a peer-sharing counsel, which is made up of all the practice chairs and Desai. All plans are combined to make a firm wide plan, with components such as peo­ple, training, clients and potential rev­enue, explains Chudasama. He also stresses on the importance of hav­ing yearly and long-term plans, citing the downturn in the capital markets over the last few years. These are short terms issues, the plan must be driven by a long-term view, he says.

JSA also regularly engages with its clients to improve on their work, as well as get an objective, out­side review. “We try to marry our resources with opportunities,” says Chudasama. Most clients have glow­ing reviews for their jsa teams. “They
have scale and a large number of pro­fessionals covering different areas to take up complex assignments. At the same time, they are approach­able and nimble enough to respond promptly,” says Atul Nishar, chair­man, Hexaware Technologies Lim­ited. “There is a fine combination of sound legal knowledge and strong business understanding.”

The firm’s executive commit­tee, on the other hand, looks at the administrative side of things, with each member taking on one respon­sibility such as finance,, human resources, technology, etc. Kapur stresses on evolving the firm’s prac­tice, whether by experience, look­ing at peer firms, other service sector or consulting firms, and finding the best solutions.

For now, the focus is on growing the firm. Desai hopes to expand to Ahmedabad next. While he’s happy about the firm’s number one status, when it comes to power or securi­ties practice, he honestly admits that JSA’s M&A practice is not as large as it should be. He also enthused about the dispute resolution team in Mum­bai that JSA has been developing in a big way over the last year.

JSA’s strategy of evolving and cul­tivating nine practice areas has been successful so far. Some, however, see it as too segregated. It is almost as if different teams are merely sharing an umbrella called JSA, comments an industry expert. “There is too much
decentralisation,” admits one of the partners. “And that comes with its fair share of issues.” From the outside, it is easy to imagine a few practice heads walking out with their teams. But the insiders, the equity partners them­selves, are committed to the firm and insist that there are no such issues.

The departure of Sagar had raised similar concerns two years ago. “Everyone obviously respects Sagar, but we are operating pretty much as it is. In fact, we are growing and we’ve made progress. A lot of the questions on the ability of the insti­tution to carry on once Jyoti (Sagar) retires have been resolved,” insists Chudasama.

Some outsiders claim that Sagar’s retirement is not as clean as it seems and he remains involved, if not invested, in many of the firms mat­ters. JSA though, absolutely denies such claims. The other issue is that Desai is up for retirement in one year and once again, JSA will have a new person at its helm. Will the firm be able to carry on without its founding partners? And will it survive a suc­cession contest every few years? “The real challenge will be the kind of structure people want to see. Do they want to see a managing partner as it is now? Somebody will have to emerge as a leader. The younger lot is seeped into the culture, so to speak. But the new lot – how true they stay to the philosophy is a major weakness,” says Desai, bluntly and to the point.

Even then, the younger lot seems prepared for it. “It is not something that is coming up out of the blue,” explains Chudasama. “People have discussed it, deliberated it and pre­pared for it. Our structure is quite benign; so, it is unlikely that we will have problems.”

Desai claims that young legal pro­fessionals are increasingly wary of the family law firm set up. “They would love a model like this. Oil & gas, competition, media and enter­tainment, shipping – a highly spe­cialised firm dealing in specialised vertical practice areas. That will be the strength and USP of the firm, so long as they can stick together.”

♦ SONEERA SANGHVI [email protected]