Fort Worth billionaire Bass backs India tea startup

Texas billionaire Robert Bass during a news conference at the National Business Aviation Association (NBAA) Business Aviation Convention & Exhibition in Orlando, Florida, in 2014. Bass is backing a startup Indian tea business that he says "is trying to bring tea distribution from literally 19th century to 21st.” Bloomberg photo by Phelan M. Ebenhack.

The unusual partnership between a Texas billionaire and an Indian entrepreneur began with a mutual appreciation for tea.

Robert M. Bass, the storied 67-year-old investor, disliked the bitterness of coffee but had a hard time finding a good cup of tea. Kaushal Dugar, a 32-year-old who grew up in the tea country of northeastern India, was trying to bring modern practices like online sales to centuries-old plantations.

When Bass first read about Dugar’s startup in mid-2014 and its claims to have access to prized teas from places like Darjeeling, he went online right away to give it a try. Before long, Bass became an investor in his company Teabox and something of a mentor for Dugar.

“The company is trying to bring tea distribution from literally 19th century to 21st,” Bass said in a telephone interview from Fort Worth, Texas. “I think that’s fascinating.”

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Bass put money into the company when it raised $6 million from investors that also included Jafco Asia Co., Accel Partners and Dragoneer Investment Group. For founder and chief executive officer Dugar, the support from Bass has given him a secret weapon in his three-year journey to disrupt India’s $4.8 billion premium tea market.

Dugar’s background is as different from Bass’s as coffee is to tea. Dugar was born and raised in Siliguri, in the foothills of the Himalayas. A 15-minute uphill drive from his house, the landscape changes to dense forests shrouded in clouds and spotted with tea plantations. He learned the trade from his father, who supplied tea gardens with everything they needed, including machines, parts and irrigation equipment. He worked from six in the morning until late at night, seven days a week.

Bass, scion of a wealthy oil family in Fort Worth, built an incubator of sorts for the modern private-equity business as he recruited for his family office. In the 1980s, Bass hired David Bonderman and Jim Coulter, who went on to cofound Texas Pacific Group, now TPG Capital. Colony Capital’s Thomas Barrack formed his firm in 1991 after managing money for Bass, while John Grayken teamed up with Bass before setting up Lone Star Funds.

Bass and Dugar were brought together by Accel Partners, the Palo Alto, California-based venture capital firm that had provided seed capital of $1 million to Teabox. Bass knew Accel in Silicon Valley, who helped introduce the two.

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“Mr. Bass was all white hair in rimless glasses,” Dugar said, recalling their first encounter when he visited Bass’s office to pitch his startup in September 2014. “He came across not so much as a multibillionaire but a really nice guy who knows more about tea than anyone.”

During an hour-long meeting, Bass gave him detailed feedback on merchandising and marketing, including what packaging stickers should look like. Bass also suggested adding a couple of lines of tasting notes (think wine), which Dugar implemented.

The company has a strategic edge over more traditional companies.

“Indian tea supply chain mainly consists of intermediaries such as auction houses, carrying and forwarding agents and wholesalers, which Teabox bypasses by working directly with plantations in India and Nepal,” said Sanjeev Raikar, a market research analyst at Euromonitor International in Bengaluru, the city previously known as Bangalore.

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Bass’ interest in Teabox goes beyond tea. Like many global investors, he believes investors should allocate capital relative to the size of the economy and population. He’s more bullish about India than China these days.

“I have always felt that India has advantages over China,” Bass said. “With China’s wage rates escalating to the point that it is becoming less competitive, India, with its rule of law and widespread English speaking, has a great opportunity.”

Through his private-equity firm Oak Hill Capital Partners, Bass has invested in Indian companies such as Genpact and Exlservice Holdings, which got their start as outsourcing companies for U.S. firms.

Growing up, Dugar didn’t see his future in tea. The industry hadn’t changed much for almost 200 years since the British brought Chinese tea plants to the country to gain influence over global trade.

He left home at 18, earning a degree from Singapore Management University and then working as a corporate finance consultant at KPMG. He returned to India after nine years and began to see the ubiquitous plants and antiquated business in a different way.

“If things didn’t change for 200 years, that means things are inefficient,” Dugar said. “So if you could do things efficiently, I thought you could create opportunities for a viable business.”

Tea, with its many health benefits, was becoming popular globally. As he started exploring, Dugar discovered a Japanese firm was buying teas from his area at $30 per kilogram and selling them online for as much as $700 per kilogram.

“I realized that there is money to be made,” he said.

In 2012, he founded Teabox and began to tap into all he had learned from his father. Now, with 65 employees in Siliguri and Bengaluru, Teabox works with 150 plantations in Darjeeling, Assam and Nepal. Teas go to the firm’s cold storage within 48 hours of production where they are vacuum packed and shipped to customers around the world in about a week, according to Dugar. Traditionally it takes three to six months for the teas to reach consumers.

For now, Dugar’s challenge is to grab a bigger share of India’s $4.8 billion premium tea market, equivalent to 80 million kilograms of premium tea that can be exported out of the country. In the past three years, Teabox has sold 60,000 kilograms of tea in 91 countries, less than 1 percent of the market. He plans to add teas from Sri Lanka in 2016.

As for Bass, he is also trying to break into the business jet market. Aerion Corp., the supersonic-jet maker that he’s been backing since 2002, has started taking orders of the AS2 aircraft at a price of $120 million.

So what advice does Bass have for aspiring entrepreneurs? “To work very hard on your business plan and make sure that your goals are realistic,” he said.

Christopher Langner and Keat Kian Koh contributed.