CerraCap Ventures LLC co-founders Saurabh Ranjan and Saurabh Suri decided to try a different model when they began the venture capital firm in 2015.
Not only did they open an office in Costa Mesa instead of Silicon Valley, they decided to seek a hit in each of a handful of investments, rather than the typical VC model of spreading investments among 50 to 70 companies with the hope of three or four home runs.
The approach didn’t convince everyone, though. After the firm attempted to raise $50 million, investors expressed skepticism, so the partners decided they had to prove themselves on a smaller scale.
“We created a proof-of-concept fund of $5 million and showed how we can grow it,” Suri said. A couple of early investments are now “going through the roof.”
Today, the firm has almost $40 million in assets under management, a relatively small amount in the VC world.
What the founders have going for them is a deep background in tech and a couple of investments that appear to be home runs. The value of the companies they’ve invested in already tops $700 million.
It also helps that it has an advisory board of well-known names. Members and investors include John C. Cushman, co-chairman of real estate services giant Cushman & Wakefield Inc. (NYSE: CWK), and Vicente Fox, former president of Mexico.
Another member is Jeff Brown, owner of Corona del Mar-based Brown Equity Partners LLC, and whose capital partners are affiliates of Fort Worth, Texas, billionaire Edward P. Bass. Brown, who’s been in venture capital for 30 years, said the pair’s strategy is different than what’s typical for the industry.
“They are not just investing money,” he said in an interview. “They take toehold positions in companies and bring a strategic value add through their backgrounds. They’ve got some big hits.”
It’s received investments from family offices and prominent individuals, including basketball star Kevin Durant.
India Natives
Ranjan, who grew up in New Delhi, India, started his career at Cadence Design Systems Inc. (Nasdaq: CDNS), from which he visited Indian colleges to recruit students. At Cadence, he estimated he’s hired 3,000 people in three years. Ranjan learned it wasn’t just intelligence that was important but also employees who could get along with workers from other cultures, such as the U.S. and France, where the company had operations.
Ranjan worked at a variety of other companies, often traveling the world, before landing in Irvine. In 2004, he jumped at the chance to join the then-small Aliso Viejo-based firm UST Global Inc.
UST builds customized applications where its edge is speed and cost, said Ranjan, who knew where to look in India for labor that would cost a third of other parts of the country.
When asked how UST could get business from retail giants like Walmart Inc., Ranjan said the key wasn’t asking for a contract of, say, $20 million or $30 million.
“We would ask them, ‘Give us a chance. Give us one opportunity,’” he recalled. Then Ranjan, who was chief operating officer, would assign his best programmers to deliver the product.
Suri arrived at UST in 2006. He’d worked in his native India before making his way to England, where he studied at Redding and Cambridge. “I’m not a doctor because I ran out of money” before completing coursework, he said.
Suri said he worked in almost every role at UST. “In times of war, even cooks become generals.” He described himself as “the nerd of the outfit” and “the poor guy with the clipboard.”
Suri eventually took over UST’s investment unit—in-house venture capital—where he learned firsthand how to spot winning investments.
He has two key criteria on investment opportunities: technology and people.
“People are way more important, especially in the early stages,” Suri said. “It’s the mettle of the people [that tells you] whether the startup will grow or not. Technology is secondary.”
By the time the pair left UST in 2015, it had grown from under $50 million in annual sales to almost $1 billion and 15,000 employees.
Early VCers
CerraCap calls itself an early-stage venture capital firm that invests from $500,000 to $2.5 million in companies valued at $3 million to $25 million. It invests from the incubation level to later C rounds, Ranjan said. Ranjan is CerraCap’s chief executive, Suri chief investment officer.
It targets business-to-business companies in healthcare, artificial intelligence and cybersecurity, because the partners know those areas well.
After they learn of technology problems facing a company, CerraCap starts searching for software engineers or companies that can solve the issue. In that way, the companies they invest in aren’t getting just introductions but also purchase orders, Ranjan said.
“Once you know what the problems are, you can find the best companies to take care of those problems,” Suri said.
Among its home runs are health testing company Viome Inc. and internet security firm Deep Instinct (see separate story, this page).
No to Silicon Valley
The two said it’s not so important anymore to be in Silicon Valley, pointing out hotbeds of innovation occurring in places like London, Singapore and Tel Aviv.
Ranjan said computer engineers in Estonia are hungrier to change the world than Stanford students. Suri noted the first mobile-payment system was in Kenya and that the best cybersecurity is coming out of Israel. Healthcare in Southeast Asia is “phenomenal.”
“We disagree with synergy only in Silicon Valley,” Suri said.
“It doesn’t matter where you are. It matters where the innovation is and where the buyer is.”
