Saurabh Mittal, the founder and chairman of Mission Holdings and former vice-chairman and co-founder of Indiabulls, adopts a grounded investment approach that emphasises practical problem solving and building organisations that can remain competitive market leaders in the long term.
Mission Holdings, his private global investment holding company, is based in Singapore and managed by Mission Holdings Management. The firm partners with entrepreneurs by providing both capital and input on strategy and typically takes a majority stake in its core portfolio companies.
Focused on financial services, media, real estate and technology, Mission Holdings is an investor in brands such as ONE Championship, Incendo & BSI Financial Services.
Mittal was previously a senior partner at Noonday, an affiliate of Farallon Capital Management. He holds an MBA from Harvard Business School where he graduated among the top 5 per cent of his class to be a Baker Scholar.
In an interview with DEALSTREETASIA, Mittal talks about the investment approach of his strategic vehicle. He believes in making longer term bets “because good businesses frankly don’t get built in a 3-5 year period, which is a typical exit period”.
How do you see the PE/VC space evolving in India, particularly in the context of China’s “One Belt, One Road” initiative driving infrastructure investments across the Indo-Asia Pacific?
I think the Indian and overall Asian PE/VC space has multiple decades of strong growth ahead of them. The sectors that you invest in are growing in the years ahead, and India is on a very strong growth path for decades to come, as is China and those countries linked with the One Belt initiative.
As you remove trade barriers and increase the flow of trade through these countries, it will only generate opportunities. I see a great ecosystem developing, and Asia has most of the world’s population while only having a small portion of the world’s top companies. China has demonstrated in the last ten years that world-leading companies can emerge out of Asia and I see more of that happening.
You spent a number of years based in the US, mainly in North Carolina and San Francisco. What elements of that experience have shaped your investment thesis with Mission Holdings?
The ground of my investment thesis was developed by more than a decade of experience at Farallon and its affiliate Noonday. Working up the ranks, you develop an understanding of risk and reward and how you value opportunities. Fundamentally, investing is about buying things for much less than what they will be worth.
Nobody’s buying anything because its overvalued. Only momentum people do that. With growth investment or value investing, it’s all the same outcome. Our entire approach is about trying to understand and figure out mispriced opportunities and buy them with conviction. Your understanding and research allow you to have a differentiated view versus what others would have.
This applies equally to both private and public market investments. In private markets, you can influence the outcome a lot more and you can change the policies of the company and pivot. In public markets, you have much less control and sometimes the discounts you need are higher. There’s a little bit of difference in flavour but fundamentally, it is the same approach
You’re a graduate of HBS — a Baker Scholar — and worked on an oil rig to pay your way through it. How did this period of working in that sector shape you?
Fundamentally, it’s important in life, as in investments, to be very grounded. I come from a middle-class family and business school was not something they could have afforded, so I had to find a well-paying job. It was great that I was able to work on an oil rig as a technical engineer.
As an investor, it helps you understand how labour and the machines they operate generate the profits that a business owner enjoys at the end of the day. It’s really important to understand how that works.
Second, starting at the ground really helps you appreciate everyone involved and appreciate every opportunity you get and the progress you make. If I’d started at a high-flying white collar law firm or investment bank I would not have an appreciation for the ground as I do. It would have made me a very different investor.
In terms of the investment strategy, the primary thing I learnt as an engineer on an oil rig is that it’s about problem-solving. It’s about waking up every day and solving problems within a finite amount of time with finite resources in a creative way. That’s what we apply in our private holdings.
Is there any specific corpus of funds that Mission Holdings has for investments and is there any thesis for Asian targets?
We don’t restrict ourselves to Asia or the US. We are global in our investment approach. ONE is an example of this. It may be viewed as an ASEAN or more generally an Asian opportunity but eventually, it is a global sports media property and we want to back things that have the opportunity to rise on a global scale.
This similarly applies to our data analytics business — Incedo — which is restricted to the US geographically. Our management team wants to focus on a single market and really grow until it becomes sustainable and we see it growing across the world. They’re actually signing their first Asian deal this week and have expanded as their capabilities have grown.
I’m not restricting Mission Holdings to any geographic area or financial services – an area that we are watching closely. In an ideal world, our position size would be infinite, but realistically when looking at transactions, our ticket size is flexible and ranges from $5 million to $10 million. I’m happy to consider something up to $100 million, so the entire gamut is there for us.
At Mission Holdings, we like to take concentrated bets that end up as majority stakes where we can work as partners with our entrepreneurs in terms of counselling and guiding them. In the long-term, I value my assets on how much cash flow they make and don’t look to have a score card for pricing on my private data, so for me, realising value is through growth.
I’d say that my approach is similar to what Warren Buffett has at Berkshire Hathaway, where they often own majority stakes and don’t look to sell. The aggregate amount of cash flow they produce over 20 years grows, and that provides you with capital to buy more things. I’d rather see that over a period of 20 years, the earnings power of my company goes from $200 million to $5 billion. That’s what I’d rather do and focus on.
You don’t operate under a traditional fund structure or are limited by the fund cycle. Does this give you flexibility in terms of the investments you explore as there is reduced pressure to exit?
You’re absolutely right. It’s this that allows us to make longer dated bets. Because good businesses frankly don’t get built in a 3-5 year period, which is a typical exit period.
In that, you’re trying to play an arbitrage of either capitalising on a period of growth inflexion. Or for some value, where you can buy it with some debt and sell it when the multiple is up and I’ve paid part of the debt pile off. We are looking to create value and typically acquire a business when it’s still young.
It might be a $50 million or $100 million business. But it’s not a $5 billion business, and our aim is to find that small business and make the journey with it as it grows into that $5 billion business.
Our investment thesis and capital structure allow us to make that journey. We don’t have an LP structure — my wife’s the LP — so that allows for more flexible work. We’re building businesses that can be leaders for the decades to come, not just for the next 5 years.
Big picture question. Traditionally, it’s not easy when a business [Indiabulls] is split. How do you manage that relationship?
That’s the easy part of the thing. As friends, you start a business but its as businessmen that you run it. For us, it was easy and we’ve retained a great relationship and people are doing what they enjoy. My mindset is an American mindset in that founders have a journey that they take and that, at some point, professional management has to run that business.
And I am not that professional management, so I don’t have that Indian promoter mindset. This allows me to express myself in these platforms where I see the next 5 or 10 Indiabulls or Tencents.
Why not look at the last 20 years and see the massive amount of value creation in the world? I then ask: “How can I replicate that given my experience with the growth I’ve had and capital I possess?” It’s actually a better way to express the future, versus continuing to run one business.
Indiabulls was a phenomenal success. Looking at your current portfolio, what is it that you’re bullish on?
Each of my growth platforms is doing well to whatever objectives we’ve set for them. We’re objectives-driven rather than driven by financial outcomes, which happen over time. We look at indicators for every business which are reviewed very sensibly.
Incedo, BSI, and a new acquisition we’ve done in Miami all have objectives. Each has a different role, different genre and different growth path. So Incedo has grown from $0 in revenue a few years back to about a $100 million now.
They’re starting their first deal in Asia. I always look at where the senior management is spending its time and attention over the next five years. That’s the US because they can grow from $100 million to $1 billion in that market and that will be an even better platform than to expand into Europe and Asia. So they’ve become important players in the areas they are in but they can become much bigger and more relevant.
They’re growing at a CAGR north of 70% a year, and this year its projected at 70% to 80% again.
Amidst all the hype, where do you see fintech really going given your bullishness on it?
If you think about the origins of the Indiabulls brokerage business, it was a fintech business. It was a cloud-based, distributed, diversified platform where brokers could use simple interface to log onto the main area and have all the processes (i.e. risk management, trading) cleared centrally.
I look at fintech as just sensibly applying computing business logic to financial services problems. With BSI, they are doing something similar in the mortgage space. It has taken the services aspect of mortgages versus the capital side and tried to use technology to fundamentally change the way those actions happen while keeping the input from one client and the output to one client the same.
SelfScore (a Palo Alto-based fintech startup that Mission Holdings has invested in) is another startup on the credit side where they are targeting the unbanked sector. They are using other signals to process and figure out how to make loans to people who traditionally would not have gotten loans from banks or other institutions. A happy marriage of financial services and technology, two areas I’ve got expertise in.
The fintech buzz is not interesting. Fintech as it fundamentally reworks the inside model of how an institution works is very interesting.
With your exposure to sports media, the last decade has seen the Chinese BATJ majors (Baidu, Alibaba, Tencent & JD.com) making investments in content and media products and developing economies of ecosystems. What’s your take on the Indian and Southeast Asian media space? Will Mission be exploring opportunities in this area?
We’re very focused in our sports media investment vehicle through ONE Championship. ONE encompasses the Asian continent and is a massive opportunity. As an investor, you don’t want to take many small bets but one or two concentrated bets. ONE is a concentrated bet for us and we are all in terms of effort, problem-solving, capital, contacts, experience and partnering with its leadership to grow it.
As for the four internet horsemen [BATJ] you’ve mentioned, I have a lot of respect for them in how they’ve built out an internet ecosystem and how that sustains it from a payments, logistics and consumer behaviour perspective.
In the US, they were building off existing logistics and payment infrastructure. But in China, they’ve developed it from scratch and they’re led by amazing businessmen. Their interest in media is a natural outcome of people understanding that as broadband connectivity improves, consumer behaviour, especially in Millennials, is shifting to consuming time-shifted content rather than fixed temporal content.
Sports is suited for this and this makes it the perfect media trend to build on in Asia. And ONE has been built with the future in mind.
ONE was built to address two massive forces shaping the media vertical globally, which started in the US and North America, then spread to China and is now affecting India. And what we’re seeing is that live sports and sports action are the biggest value and revenue driver in media.
Asia doesn’t have large sports franchises that Europe and North America have, and we’re in the process of developing a large sports franchise with ONE.
In China, there’s been a trend of investing in AR/VR assets and other media-related sectors. How do you see these developments play out in the Asian media space?
AR/VR is a very important augmentation to media and requires better quality broadband and devices. All of these are about augmenting the media experience and within that sphere the best area equipped to leverage on this is sports.
So with ONE, we’ve been discussing how to use it with AR/VR vendors so that we’re future-proof.