Inventurus Knowledge Solutions, a company promoted by Sachin Gupta and the late Rakesh Jhunjhunwala in 2006, is expected to list in the next 2 weeks.  The grape vine has the IPO valuation of the company pegged at between 20000-25000 Cr. If we take the mid-point of that range, the original investment has compounded ~ 340x for the Jhunjhunwala family in the last 17 years, an IRR of 41%. This adds to the long list of 100 bagger returns generated by him. 

Why can’t more of us be like him? Other than the ability to see the future with more clarity, what attitude is needed to earn such returns?

Stillness by deliberate choice.

In the 17 years between the first cheque and today, not a single Inventurus share has been sold by the Jhunjhunwala family.

Selling a company early in its life cycle which is executing well just because of valuation concerns is a long-term error, but one that makes us feel and look good short term.  Why is it an error? Because you cannot buy back illiquid positions once sold in the quantity you want at the price you want.

The short-term pain of underperformance – when a highly valued position needs to come back to fair value and may not generate any return for a few years – is the pain one needs to endure if one is playing for 100x returns.  Not easy for anyone.  And admittedly, very hard for a third party money manager. 

Back “mission oriented” promoters

In early-stage companies that have done very well, the common pattern is a “mission oriented” promoter – those consumed by a desire to create wealth for themselves by solving a market need, not by rent seeking or cutting corners. Their personal wealth is not the primary or sole motivator.  You can recognize how these people stand out from others in their industry when you meet them. Sachin Gupta is one such promoter.

Don’t navigate storms by abandoning ship.

Storms are inevitable. Timings are unknowable. If one is on sturdy boats, you just must wait for the storm to pass. Jumping to the in-vogue theme and switching sectors on what is moving now is optimizing for shorter term time horizons.

The original plan was for Inventurus to break even with a 25 Cr infusion. However, the global financial crisis struck in early 2008 and the company too went through its learning curve.  The company finally became self-financing at about 80 Cr peak funding.  As the opportunity was intact and the promoter could be trusted, Rakesh Bhaiya stayed the course and funded the incremental burn.    

But what is the thin line on “patience” vs “correcting an error” and moving on? Recognizing a structural issue vs a short-term earnings challenge is a matter of judgement which comes from experience.  There is no template. You can never be sure. Only get better with time.

The invisible hand of Karma

The incremental financing above was done by Rakesh Bhaiya via Debt. He could have infused more Equity in the business, but he chose not to do so as that would dilute the “promoters” who needed to have adequate skin in the game to stay motivated.  Hence, the promoters and the original small investors were never diluted while he carried disproportionate risk of Debt Financing.  This trust was repaid manifold by the promoter.  Karma works.