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August 25, 2016

RBL Bank: PE Backed IPO Analysis



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Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


August 24, 2016

What's Next for Fintech?

Data from the Venture Intelligence Venture Capital Deals Database shows that, even in 2015, when E-Commerce/Online Retail was ruling the roost (grabbing over 45% of the investments), Fintech investments had accounted for as much as 15% of the VC investment pie.

An Economic Times survey of VCs published last week found Fintech to be the most favoured sector for investments in the next 6 to 12 months. Venture Intelligence data shows that Fintech investment have been picking up after falling for two quarters following the high in Q3'15. Clearly, this is one sector where VCs are becoming more and more comfortable to deploy their "dry powder" (or uninvested capital). 


Among the most active VC investors in the sector include Accel India (MoneyView, Quiklo, Scripbox), Sequoia Capital India (Mobikwik, Cleartax) and Kalaari Capital (CreditVidya, Active.ai). Social VC or Impact Investors are also enthusiastic with Aspada Investments picking up stakes in NeoGrowth and CapitalFloat and Omidyar Network in Scripbox and NeoGrowth.



Significant startups in fintech sectors which raised funding in H1'16 include:

1. Payments: ftcash, Mobikwik and QwikCilver

2. Marketplaces for Mutual Funds & Insurance products:  Scripbox, EasyPolicy, TurtleMint

3. SME Lending: LendingKart, NeoGrowth (apart from Capital Float, which owing to it being originally founded in 1993, technically does not qualify as a startup).



What's Driving the Fintech Momentum?

With much dissatisfaction against incumbent lending institutions and large gap between formal lending supply and credit demand in the country, VCs seem poised to invest heavily in disruptive startups of all flavours - B2B, B2C and P2P - in the lending segment .


With the Microfinance crisis fresh in memory, VCs have not been too venturesome in backing peer-to-peer lenders thus far. Even though it has not been without criticism, the fact that the RBI has put out a consultation paper on P2P lending seems to have eased fears on any ham-handed action. The Government of India for its part has been putting in several enabling infrastructure elements in place - including Aadhaar, JAM Scheme (pdf), Unified Payment Interface (pdf), etc - that Fintech companies, along with other players, can exploit.

What do you think is the future for Fintech in India? Chime in the comments.

To track Deal Action in the Fintech space


Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.

How to Trigger Explosion of the Angel Investment Market in India? Ask for Less!

Prajakt Raut of Applyfi feels more startups need to ask for INR 50 lakh cheques versus wasting precious time trying to raise INR 3 Cr in their first angel round.
For investors to be comfortable investing upwards of (INR 3 Cr) as a first cheque in a startup would need the startup to have some amount of organisational maturity and some early-evidence that the concept, market opportunity, value proposition, pricing, business model, marketing programme, sales programme, product/service delivery, etc. are tested and that the results appear to be encouraging. However, most startups tend to seek this larger investment even when they are not yet fully ready with the evidence. Such startups will find it much easier and much faster to close a $74.3K (INR 50 Lakhs) round, which in most cases will be adequate to build a foundation that will allow them to raise a much larger next round.
Why Do Most Startups Seek Larger Round For First Round Investing?
Perhaps because that’s the perceived ‘sweet spot’ of investors for seed/angel rounds. And it is also true that we have fewer options for startups to raise $74.3K than we have for them to raise the larger amount. It is rare to see such a small deal in the Indian startup space. And we need to change that for a range of reasons that, in my view, are important to strengthen and expand the early-stage entrepreneurial ecosystem in India. Often, startups hesitate to raise smaller rounds as they worry about valuation and dilution. However, instruments like convertible notes and other options like claw back can easily address this concern. In my view, if startups start seeking (INR 50 Lakhs to INR 1 Cr), the investor ecosystem will find ways to service these smaller deals.
Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.



August 23, 2016

The Colorful Story of Div Turakhia & the Media.Net Exit

On August 23, Dubai and New York-based ad-tech firm Media.net announced its acquisition by Chinese Consortium led by Zhiyong Zhang, the chairman of Beijing Miteno Communication Technology Co. Ltd, in an all-cash transaction valued at about USD 900 million. Promoted by serial entrepreneur Divyank Turakhia, Media.net reported revenues of USD 232 million in 2015. With seven offices worldwide, Media.net has more than 800 employees, up from 650 in 2015.

What is Media.net?

Media.net basically does for Yahoo, what Google's Adsense software does for the search giant.

Who is Div Turakhia?

The Media.net press release provides a short profile:
Div Turakhia has had several lucrative exits prior to this deal. In 2014, Endurance International Group (NASDAQ:EIGI) bought four brands that he co-founded with his brother, Bhavin Turakhia, for approximately $160M. Div Turakhia started his first internet business in 1996 at age 14, made his first $1M at 18, first $100M at 23, and now crossed his first $1B at the age of 34. 

A BackChannel article provides a much more colorful one:
After building a business to license ad-matching technology to domain publishers, he reached out to Yahoo. Carol Bartz was then the CEO of Yahoo. Div already had a relationship with Yahoo through an earlier business, and he offered to do for the company what AdSense did for Google — to build a network that would decide which ads were placed in a page’s ad spots, based on the subject matter of the web page that the user is reading.
Powered by the data Div had collected, his ad network did a better job of drawing an audience to Yahoo’s ads, pleasing its advertisers. The following year, Yahoo signed an exclusive deal with Div that prevented him from selling his company to Google, or working with the search giant. In exchange, Div had the right to call his company a Yahoo network. Media.net became so crucial to Yahoo’s business that the company considered buying it three times.
...Zhiyong Zhang, Chairman, Beijing Miteno Communication Technology saw opportunity in the company’s massive, profitable American ad business; Media.net reported $232 million in sales this year, more than half of which came from mobile ads and nearly all of which came from U.S. advertisers. More important, the company has developed technology that doesn’t yet exist in China, where the online advertising market is more nascent. This excites Div. He’ll continue to run businesses with his brother, but he will also run Media.net as part of Miteno and hopes, in the process, to learn more about how to build a business in China.
Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A and their Valuations in India.


Government Standing Up to Foster Startups: Archana Khosla, Vertices Partners

“The most important thing is this: to sacrifice what you are now for what you can become tomorrow”
― Shannon L. Alder
Gone are the days of uncertainty and incertitude on the benefits promised under the Startup India Action Plan, as the Central Government is persistently coming out with answers in the form of circulars and notices, notifying and confirming the benefits proposed therein. The Government has been doing chores to concoct a policy structure aiming to ease the regulatory abode for startups in India.

Earlier this year, in the month of January (2016), the aspiring Startup India maneuver was initiated with the Startup India Action Plan (“Action Plan”), revealing perks and ideas to advance innovations and startup ecosystems in India. The Action Plan has proposed to simplify existing complex and long drawn procedures for matters such as company registration, labour law compliances and income tax for a certain number of years for startups. 

Subsequently, few of the propositions have been implemented by various Ministries and Departments, which are discussed below.

Eligibility Criteria for Startups to Avail the Benefits:

For an entity (whether a Private Limited Company, a Registered Partnership Firm or a Limited Liability Partnership) to be identified as a startup, the following checkpoints should be adhered to:



The entity would need to be a stand-alone firm and a splitting of an already existing conglomerate would not be considered as a startup for these purposes.

Launch of Startup India Web Portal/Mobile:

The Department of Industrial Policy and Promotion (DIPP) launched the Startup India web portal (http://startupindia.gov.in/) and the mobile application (Startup India) enclosing all the information concerning the Action Plan and the notifications issued by the Government Ministries for the same, in April 2016. The portal/app provides on-the-go accessibility for registering of startups with relevant agencies of the Government, tracking the status of the application, filing of compliances, collaboration with various startup ecosystem partners and applying for various schemes.

Government Benefits:

For availing various benefits under different Government schemes inclusive of schemes cited in the Action Plan, an entity needs to get recognized as a ‘startup’ by applying on the Startup India App/portal with any of the 6 (six) documents as specified by the Ministry of Commerce and Industry. The portal/app caters to the startups with a real time recognition certificate, which will save the startup a lot of time.

In relation to the proposal in the Action Plan pertaining to providing financial support to startups through Fund of Funds, as per news reports, the Small Industries Development Bank of India (“SIDBI”) has sanctioned INR 1,000 Crores to 30 SEBI registered venture capital funds.

Another compelling stride initiated by the Government is to trim the regulatory burden on startups by keeping the compliance cost low. As the regulatory formalities requiring compliance with sundry labour laws and environment laws are sluggish and arduous, often new and small entities are oblivious of nuances of the issues and can be subjected to intrusive action by governing agencies. The notice dated 12th January, 2016, issued by the Ministry of Labour and Employment addresses the aforesaid issue affirming that startups in the first year of setting up may be asked to only submit an online self-declaration without any inspections under the labour legislations viz. Building and Other Construction Workers Act,1996, Inter-State Migrant Workmen Act,1979, Payment of Gratuity Act,1972 and Contract Labour Act,1970 which requires entities to be inspected by inspectors. Further, from second year onwards up to third year, entities may be taken up for inspection only when a credible complaint is filed in writing and approved by a senior official. Identical steps have been taken to boost startups inciting apprentices.

Further, earlier the benefits pertaining to 20% (twenty percent) mandatory procurement from Micro and Small Enterprises (MSME) could only be availed of if certain eligibility criteria’s, like prior experience or prior turnover were met. In light of the fact that startups are normally MSME’s, they were not able to participate due to strenuous eligibility criteria attached to the tenders. In relation to this, pursuant to the proposal in the Action Plan, to equip leverage to the startups which are generally not at par with the accomplished entrepreneurs, the Government has eased out the norms of Public Procurement vide a circular dated 10th March, 2016, by relaxing the condition of prior turnover and prior experience with respect to MSME’s in all public procurements, subject to meeting of quality and technical specifications.

Intellectual Property Benefits/ Protection:

To promote awareness and adoption of intellectual property rights (“IPRs”) by startups and encourage them in protecting and commercializing the IPRs, the Government has come out with “The Scheme for Startup Intellectual Property Protection” (SIPP), to facilitate filing of Patents, Trademarks and Designs by innovative startups. Some of the focal points in the scheme are:
  • Fast tracking of startup patent applications
  • Panel of facilitators (like advocates and trademark/patent agents) to assist in filing of IP applications, wherein     the Government will bear the facilitation cost
  • Rebate on filing of application

Currently the scheme is launched on a pilot basis for a year.

In order to obtain tax and IPR related benefits, a startup is required to be certified as an eligible business from the ‘Inter Ministerial Board’ of Certification led by the DIPP.

Economic Benefits:

The Government also proposes to provide certain tax exemptions with effect from April 1, 2017, for the benefit of budding entrepreneurs and startups, by amending and introducing certain new sections via the Finance Act, 2016. Some of the key propositions in this regard are:

  • Providing tax exemption on capital gains arising from the transfer of long-term capital assets during the year, in the event the transferor/assessee invests the whole or part of such capital gains, within a period of six months from the transfer, towards subscription of unit or units of funds (as recognized by the Government) issued before April 1, 2019, which funds would in turn invest in startups.
  • Providing tax exemption on capital gains arising from transfer of a residential property, if such capital gains are invested towards subscription of shares of a startup.
  • Allowing startups to deduct 100% of the profits and gains derived from the eligible business of a startup, while computing the total income of such startup, which deduction may, at the option of the startup be claimed for any three consecutive assessment years out of 5 years, beginning from the year when the startup is incorporated.

With the pro-activeness of the Government towards the Action Plan, it is a refreshing change in terms of creating a sense of positivity amongst the entrepreneurs staring up and they are in fact quite optimistic about the fact that once this Action Plan is streamlined and implemented in its entirety, the entrepreneurs will be able to unleash their full potential and explore their talent and ideas without being anxious of the sword of intricate compliances hanging over their heads.

In the words of Horace, “begin, be bold and venture to be wise.”

This is a guest post by Archana Khosla, Founder Partner, Vertices Partners & assisted by Ketki Saxena, Paralegal, Vertices Partners.

Disclaimer: This is a guest post. The statements, opinions and data contained in these publications are solely those of the individual authors and contributors and not of iamwire and the editor(s)

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.

How the fintech sector is gearing up for digital disruption: Article by Vinayak Burman, Vertices Partners


By seizing the opportunities that disruption presents and leveraging hard times into greater success through outworking/outinnovating/outthinking and outworking everyone around you, this just might be the richest time of your life so far” – Robin S. Sharma

The term financial technology (fintech) has been adapted to herald the digitalisation of the financial services sector and the emergence of innovative and disruptive technologies within and for financial services. Technological innovations focusing on the financial industry have led to a rapidly growing new fintech ecosystem. The fintech industry has transformed from a sluggish sector to a luminous sector. It is seeing a boom in investment activity as new technology and changing customer behaviour transform financial services. The financial services industry today is more focused on technology innovation than it has been at any other point in its history and hence the country is witnessing a major shift in financial services as it enters the digital age.

Just as smartphone messaging applications surpassed all telecom operators in scale, fintech is poised to become the next sector ripe for radical change and is being remodelled by entrepreneurs for entrepreneurs. Startups are addressing emerging fintech sectors including payments; mobile-wallets, trading and investing; online non-banking finance companies, customer engagement; personal financial planning and wealth management; banking and insurance; P2P lending and crowdfunding, innovations in financial literacy and education, retail banking, investment and more.

Backed by venture financing, many companies are causing a disruption in financial services. The business of fintech is less geographically concentrated than that of brick-and-mortar financial institutions. The benefits associated with new payment technologies, including multi-channel payment solutions, lower processing costs, reduced checkout times and better understanding of customer behaviour, have seen a number of investors and non-banks invest heavily in this segment.

Fintech startups have also enjoyed funding through various sources. State Bank of India recently announced a plan to set up a Rs 200-crore fund to back fintech startups and Axis Bank announced an innovation hub where it will tie up with fintech startups. While there are venture capital firms who have been focused on investing in fintech startups, there are big players who are increasingly focusing on this sector to make strategic investments.

Fintech core sub-sectors

Broadly, the fintech sector can be divided into four sub-sectors.

1. Payments (digital wallets and small finance bank): Payment banks, P2P lending

2. Investments (crowdfunding and personal finance management): Investment, empowered investors and process externalization, robo-advisory

3. Financing (micro-loans, credit facilities and remittance/SME financing): Lending, remittances, market platforms

4. Financial research and data analysis: Risk assessment, decision making, and credit score

Technological advancements

Fintech in India is moving into every segment of the financial services ecosystem. While overall adoption levels vary, almost every segment is growing rapidly. India has a large and growing digital populace, Internet penetration has increased dramatically over the past five years and e-commerce is growing thanks to proliferation of mobile Internet.

Also, modern methods of data analysis, social media and the migration of data onto the cloud have created a hotspot moment for fintech companies looking to complement and challenge existing traditional financial services providers. The fintech startups are leveraging technology advancements to offer innovative and disruptive solutions for specific subsectors. In doing so, they are providing new products to service existing needs and disintermediate incumbent firms. Online lending marketplaces have emerged as an industry with players offering faster credit to various stakeholders.

The plethora of fintech startups entering the market is changing financial services as a vertical itself. Financial institutions’ direct competitors no longer represent the biggest challenge, as technological advancements, the emergence of disruptive products, changing consumer behaviour and the growing fragmentation of the sector are applying significant pressure. For traditional retail banks to work efficiently and enhance their business value in a disruptive environment, it is necessary that they proactively embrace the digital revolution.

The next set of cutting-edge technology to disrupt the fintech space could well be Artificial Intelligence, which can identify trends and classify customer profiles through automation. It could assess risk profile, map sales and advise a financial plan to customers on the basis of their risk appetite. Artificial Intelligence could influence the complete cycle from data to decisions for all financial services.

Initiatives by government and regulators

The fintech sector has seen various initiatives from the government and regulators: Unified Payments Interface, Bharat Bill Payments System, eKYC, Prepaid Payment Instruments, Jan Dhan Yojana, Digital India, mobile-based digital signature, Aadhaar number, digital locker, digital consent, payment banks and small finance banks. In combination, these real-time digital services will enable startups to digitise and simplify everything from bank account creation to security, from voting and subsidy distribution to tax filing and refunds across the world.

The implementation challenge

The fintech ecosystem provides services at speed, accuracy and convenience but there is threat to confidentiality of data. Fintech companies must maintain reasonable procedures to protect sensitive information of the stakeholders. The steps taken to pre-empt privacy and data security threats are of paramount importance in establishing the legal compliance. The determination of data security is highly sector specific, and depends on the nature and size of the fintech sector.

Conclusion

To conclude, globally, fintech is considered a threat to the formal banking systems’ profitability. A digital revolution will definitely affect certain financial products, as fintech drives prices down and erodes lenders’ margins. Fintech companies have the potential to add tremendous value to the financial services ecosystem. The success for the financial services sector will be in in collaboration with fintech and not in competition.

Reserve Bank of India deputy governor SS Mundra indicated as much recently. “The way technology is developing, nothing is impossible. Technology is both a disruptor and an enabler, and banks will have to leverage it to their advantage,” he said.

Clearly, this is a unique opportunity for traditional financial institutions to partner with disruptive players and introduce services and products ensuring efficient delivery of all the services.

Considering the positive environment with respect to fintech companies followed by the thrust on building the fintech ecosystem, a lot of activity can be expected in coming years and is likely to intensify the investment in the sector.

Vinayak Burman is founder partner at boutique law firm Vertices Partners. With inputs from Vishal Mehta, associate manager, Vertices Partners.

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.

August 22, 2016

RBI Proposes To Expand The Investment Arms For FPIs: Article by Archana Khosla of Vertices Partners


Following the Union Budget 2016-17, RBI plans to expand the investment ambit for FPIs by allowing them to put capital in unlisted debt securities as well as in securitized debt instruments

In a move to accelerate the country's corporate debt market and to attract infusion of global funds into capital markets, the Reserve Bank of India (RBI) has recently proposed to allow Foreign Portfolio Investors (FPIs) to invest in unlisted debt securities and securitised debt instruments.

As per extant rules of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, FPIs are qualified to invest only in listed or to-be-listed debt securities. Investment in unlisted debt securities is permitted only in case of companies engaged in the infrastructure sector. Also, at present, Investment by FPIs in securitised debt instruments is forbidden.

In this regard, on 29th February 2016, the Finance Minister of India, Mr. Arun Jaitly had presented the Union Budget 2016-17, wherein, inter alia, he had discussed the measures for deepening of Corporate Bond Market. Therein it was announced that "Investment basket of foreign portfolio investors will be expanded to include unlisted debt securities and pass through securities issued by securitisation SPVs."

Following the Union Budget 2016-17, RBI plans to expand the investment ambit for FPIs by allowing them to put capital in unlisted debt securities as well as in securitized debt instruments. Accordingly, RBI has released a draft circular elucidating the proposed directives. 

As per the proposed directive, FPIs can invest in the primary issues of non-convertible debentures/bonds by a public company issued in demat form. However, the said relaxation is fastened with an admonition that borrowing companies cannot employ such bond proceeds for real estate activities, purchase of land, investing in capital market or on-lending to other entities. 

The custodian banks of FPIs shall warrant compliance with this condition based on an undertaking from the issuing company. 

The proposed directives also permit FPIs to invest in select cluster of debt instruments passed on to other borrowers, known as 'Securitised Debt Instruments' in market parlance. According to the proposal, FPIs can invest in any certificate or instrument issued by a special purpose vehicle (SPV) set up for securitisation of asset/s where banks, financial institutions or non-banking finance companies are originators; and any certificate or instrument issued and listed in terms of the SEBI 'Regulations on Public Offer and Listing of Securitised Debt Instruments, 2008'.

The said proposal, if implemented, is expected to aid in the development of corporate bond market and to pull more foreign funds into capital markets.

Archana Khosla is founder partner, Vertices Partners

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.

What VCs Do; How Long They Work; On What; etc

Microsoft Ventures head Mukund Mohan has posted some extracts from an US academic paper on "How Do Venture Capitalists Make Decisions?". Some highlights: 

VC-backed Cos Dominate the IPO Scene
Roughly one-half of all true IPOs are VC-backed even though fewer than one quarter of 1% of companies receive venture financing

10% of VC investments are made w/o any introductions! 

Over 30% of investments are generated through professional networks. Another 20% are referred by other investors and 8% from a portfolio company. Almost 30% are proactively self-generated. Only 10% come inbound from company management.

VCs invest in 2.5% of the companies they consider. 

The median firm closes about 4 deals per year. For each deal in which a VC firm eventually invests or closes, the firm considers roughly 151+ potential opportunities

VCs want 5x return on their investments. 

The average required IRR is 31%. Late-stage and larger VCs require lower IRRs of 28% to 29% while smaller and early-stage VCs have higher IRR requirements. The same pattern holds in cash-on-cash multiples, with an average multiple of 5.5 and a median of 5 required on average, with higher multiples for early-stage and small funds

What Term Sheets terms Entrepreurs Can Negotiate

73% of the vcs (ie predominantly most!) don't need (or demand) Full-ratchet anti-dilution protection rights

55% don't need Redemption Rights

47% don't need Participation Rights

19% of VCs don't need Pro-rata Rights 

As for Option Pool Rights, "VCs were most comfortable negotiating these rights"

VC Firms are Leaner than Most Startups they Fund
The average VC firm in our survey employs 14 people, 5 of whom are senior partners in decision-making positions.

How Long do VCs work? And how they split their time.

VC’s report working an average of 55 hours per week.
VC firms spend the single largest amount of time working with their portfolio companies, 18 hours a week.
Consistent with the importance of sourcing and selecting potential deals, sourcing is the second most important activity, at 15 hours per week. 
Networking is the fourth most important at 7 hours per week

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.

E-Commerce Malaise: Is GMV or Valuation Expectation the Real Villain?

The Lessons E-Commerce Entrepreneurs & Investors Should Learn from their Microfinance Peers

In an article for Economic Times, Private Equity investor Vivek Singla points why blaming the measurement parameter Gross Merchandise Value (GMV) for the ills of the E-Commerce is not productive. He recommends E-Comm Entrepreneurs and Investors take a leaf out of how the Microfinance industry emerged from its regulatory crisis - by resetting their valuation expectations.

For the investors, one of the reasons behind the sharp reversal in sentiment is the build-up in bitterness against the GMV, with many now labelling it as a pure vanity metric...instead of being dismissive about the GMV and e-tailing at large, investors should augment the gross dollar spend with deep dive into the business performance. After all, GMV is an important component of the due diligence checklist, but not the only one. 
...most international GMV based trailing multiples fall below 1×. On the other hand, the valuations for Indian unicorns were reported to have peaked out at around 2-3× trailing GMVs sometime last year, at significant premiums to those ascribed to the larger global counterparts. There is a good likelihood that the Indian multiples would converge with the global ones once the growth ebbs, leaving scope for further derating. For instance, Jabong was taken out for 0.5× last twelve months (LTM) revenue by Flipkart in July this year, much lower than the global LTM revenue multiples.  
So, try as they may, the marketplaces wouldn’t be able to sidestep the valuation recalibration. But valuation crunches don’t have to be the poison pill for the industry. Take the microfinance example. The Andhra Pradesh crisis of 2011 had pushed the industry to the brink of closure. Had either the microfinance institutions not acquiesced to valuation downrounds in the aftermath of the event or the investors stopped believing in the business, microfinance would have become history. But sense prevailed and those who accepted the paradigm shift and realigned their focus on portfolio reconstruction and geographical expansion are reaping the rewards today. 
Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


August 21, 2016

Proposed norms for P2P lending: A setback for cash-poor but promising startups? Article by Archana Khosla of Vertices Partners

“The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.” -Albert Einstein

True to what Einstein said, comes the moment when financial services as a sector in this country sees a new regimen. Peer to peer (P2P) lending can be stated to be a form of crowd-funding that brings individual borrowers and lenders together to raise or lend unsecured loans without a middleman. The P2P lending marketplace is an alliance between technology and finance. It functions through an online platform, which matches the borrowers with the relevant lenders, thereby reducing the traditional banking formalities to a great extent. The P2P platforms do not lend themselves but act as pure facilitators to both the loan-seeker and the loan-giver.

The P2P industry is steadily becoming a viable alternative to traditional bank loans and is slowly but surely going to emerge as a competitor to the traditional banking system. Although nascent in India and not significant in value yet, P2P lending has gained immense popularity as an alternate form of lending in the past few years. 

The salient features of P2P lending are:
  • It works through online platform
  • It connects lenders and borrower
  • It allows easier approval of loans
  • Borrower can be individuals as well as legal persons
  • It acts as a facilitator between the loan-seeker and the loan-giver.
It would be erroneous to construe this concept as new in India since it has been practiced for ages. Even in this day and age, most individuals depend on their friends and families for short-term loans. The P2P platform has just elucidated and formalised this age-old practice of taking loans from friends and family and facilitated the addition of unknown individuals within its ambit; and the integration of technology has made it effortless and seamless in getting quick desired results. 

Reserve Bank of India to regulate P2P:
The Reserve Bank of India (RBI), on April 28, 2016, has released a consultation paper on P2P lending and proposed to bring such platforms under its purview by defining them as non-banking finance companies (NBFCs). Before issuing its consultation paper, the RBI had conducted a study on the different models and regulations applicable to P2P lending sector in different countries globally. It is treated as a banking activity by some countries and as an intermediary activity in some others, while some countries have prohibited it altogether. After interpreting and analysing each of the business models adopted by various countries, the RBI espoused the “intermediary” model as best suited to India’s financial and economic environment. 

According to the RBI, it is judicious to regulate the P2P business because of the impact it can have on traditional banking channels and NBFCs and its potential to disrupt the financial sector. The proposed regulations are expected to strike a balance between over regulation and under regulation. Over regulation may slow down the business of P2P industry. Under regulation may carry the risk of bad practices being embraced by segment players, which may be detrimental to the entire sector. 

Proposed regulations:
  • P2P companies can be registered only as an intermediary and their role is limited to bringing the borrower and lender together.
  • The companies must have a minimum capital of Rs 2 crore.
  • The platforms may have to adhere to a leverage ratio so that they do not expand with indiscriminate leverage.
  • P2P lenders cannot take on the functions of a bank and can neither seek nor keep deposits.
  • Prevent/ eliminate the threat of money laundering funds moving directly from the lender’s bank account to the borrower’s bank account.
  • P2P platforms cannot assure returns.
  • P2P companies will need to adhere to the requisite regulations on advertisement.
  • Prohibition on transactions between residents and non-residents.
  • Prudential limits on maximum contribution by a lender to a borrower/segment of activity.
  • P2P platforms may be required to have a “brick-and-mortar” presence in India.
  • Platforms will need to submit regular reports on their financial position, loans arranged each quarter, complaints, along with other details to RBI.
  • Since RBI can only regulate companies and co-operative societies (and not individuals, proprietorships, partnerships or limited liability partnerships), all P2P platforms may have to be structured as companies.
  • The platforms will have to guarantee confidentiality of customer data.
  • Loan recovery practices of the P2P platforms will need to adhere to existing guidelines on NBFC’s recovery practices.
Although the consultation paper has received a reasonably warm welcome from the P2P segment players, a few edicts there may prove to be a major setback for cash-poor but promising startups. 

P2P companies are principally matchmakers for borrowers and lenders without the lending and borrowing getting reflected on their balance sheets. Therefore, the proposal to mandate capital requirement of Rs 2 crore does not appear desirable. Such excessive capital requirements will merely act as a blockade for new startups. It will also adversely affect a startup's ability to bring in innovation in areas of matching algorithms and ascertainment of credit risk profile. It would be desirable if minimum capital requirement is linked to the quantity of loans outstanding by the platform. Further, if the lending and borrowing are not reflected in the P2P company’s balance sheet, adherence to a leverage ratio to that extent is a measure that needs more contemplation from an applicability perspective. 

Secondly, most P2P startups are more of e-finance platforms, therefore the requirement of “brick-and-mortar” presence in India may prove to be inconvenient for such startups.

Additionally, the following issues also need the attention of the concerned regulator.
  • Ceiling on the rate of interest that a lender can charge and on the commission that a platform can collect not prescribed.
  • Money to move directly from lender’s account to borrower’s account without an “escrow account” or “nodal account”.
RBI has invited feedback from various stakeholders on its discussion paper till May 31, 2016. The feedback and comments of stakeholders will aid RBI finalise the regulations to track and systematise P2P lending in India. Once P2P lending is streamlined and the risk cover for such alternate lending is rationalised for the lender and borrower, the P2P lending sector would unleash its full potential as a sought-after alternate lending system, which will be beneficial for the common man who wishes to seek quick finance without undergoing the hardships of the traditional rigmarole. 

Archana Khosla is founder partner, Vertices Partners. The article includes inputs from Nirav Punjani, associate, Vertices Partners. 

August 17, 2016

SP Apparels: PE Backed IPO Analysis


Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


Mint article on the woes of investors in Franklin Templeton PE Strategy

A Mint article chronicles the returns (or the lack of it) for investors in Franklin Templeton Private Equity Strategy, which was raised from domestic investors in 2008. According to the article, investors could end up making a return of just 0.26% from the fund which raised Rs.490 crore from about 1,000 investors (each of whom was required to invest a minimum of Rs.40 lakh). Extract:


Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.

KKR India's manufacturing bets pay off: Business Standard

A Business Standard article quotes Venture Intelligence data on KKR's Investments & Exits in India:


(Note: Investors in the $1.25 Billion investment in Bharti Infratel include Investment Corporation of Dubai, AIF Capital, India Equity Partners, Macquarie, Temasek, Goldman Sachs)

Click here to read more.

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.

Stellaris may raise $10 million from Software Giant SAP SE: Mint

A Mint article titled Stellaris may raise $10 million from SAP quotes Venture Intelligence data on Venture Capital Investments in 2016:
According to data from Venture Intelligence, venture capital investments in the first six months of 2016 were down to $634 million from $958 million in the same period last year.
Other Excerpts from the Article:

Goyal was the COO of SAP India Pvt. Ltd from January 2010 to December 2012, according to his LinkedIn profile. Overall, he spent almost nine years at SAP.

On 3 August, The Economic Times reported that Infosys Ltd has begun talks with Stellaris to invest in its fund. The software services company could invest up to $15 million in the fund, which is raising funds from both local and global investors, the paper reported. Infosys will be investing from its $500 million Infosys Innovation Fund, set apart for early-stage investments, and it will be the second such deal by the company, the report said. In December 2015, it backed Silicon Valley-based early-stage venture capital firm Vertex Ventures.

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


Arpwood-controlled Senvion to buy Kenersys from Bharat Forge founders: The Economic Times

An Economic Times article titled Arpwood-controlled Senvion to buy Kenersys from Bharat Forge founders  quotes Venture Intelligence data on transactions in the Renewable Sector:
India's renewable space has seen a spurt in the last 12-18 months. Last year, the sector witnessed 14 transactions including valuing about $2.27 billion, according to data from Venture Intelligence, a deal tracker.
You may also be interested in:

1. Further Consolidation in the Renewable Energy space?



Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


August 16, 2016

Media Mention: South China Morning Post on rising interest of Chinese investors in Indian startups

South China Morning Post uses Venture Intelligence data to quantify the rising interest of Chinese VC and Strategic Investors for Indian startups.
According to venture capital tracker Venture Intelligence, from January 2015 to April this year, several investors including Alibaba and Tencent committed more than US$1.1 billion to Indian start-ups. 
... “We feel India’s internet sector will be the next big market after China; it is a hot area for Chinese investors,” said Eric Shu, a senior manager at Chinese venture capital firm Incapital. “In some ways India promises better potential as a market because it is better connected with the Western world and [Indians] can speak English. We believe many successful internet business models in China can be replicated in India,” added Shu. 
...“India’s huge population, rapidly developing economy, English-speaking labour force, superb information technology and IT sector outsourcing services are the elements that attract us to invest in India,” said Tao Li, the CEO of tech company Apus Group.
Related post: Chinese Takeover of Indian Startups?

Keep track of how all the Chinese plans pan out: 

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.

August 10, 2016

PE funds set to make three-times return in RBL IPO: Business Standard


A Business Standard article quotes Venture Intelligence data on investments in RBL Bank:


The article also quotes Arun Natarajan, Founder of Venture Intelligence:

"The selling PE funds had invested over five years ago, which is considered the higher end of a typical holding period for a fund. So, it is not surprising that they are selling as part of the IPO to showcase a good exit to their investors. The fact that the remaining PE investors in the company, who had entered since 2011, are staying invested is a good sign of their confidence in the post-IPO prospects of the bank," said Arun Natarajan, founder of Venture Intelligence. 

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


August 09, 2016

VC Funds Continue To Raise Money Despite Startup Slowdown: BusinessWorld

A BusinessWorld article titled VC Funds Continue To Raise Money Despite Startup Slowdown quotes Venture Intelligence Fund raising data:

The number of venture capital (VC) funds raised so far this year is one-third of what was raised last year. As per data available with research firm Venture Intelligence, as many as 10 VC funds have been raised in the January-July period this year, while the number was way higher at 33 in the same period last year. Some of the VC funds that have been closed this year include those by Accel ($500 million), Aavishkaar ($300 million), IDG Ventures India ($200 million) , Infuse Ventures ($150 million) and Nirvana Ventures ($100 million). The total amount raised by these 10 VC funds this year stand at $1402 million, 62% lower than that of last year where funds worth $3662 million were closed. 

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.

August 08, 2016

Dilip Buildcon: PE-Backed IPO Analysis



Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


August 05, 2016

Is TN nearing its AP moment in Microfinance? : Scroll

A Scroll article titled A tsunami of debt is building up in Tamil Nadu – and no one knows where it is headed writes about rising level of debts in Tamil Nadu with signs of stress heading to a mass default. 

In 2001, the average annual income of these families was Rs 16,000 and average debt at Rs 10,000. Come 2016, annual income has risen five-fold to Rs 80,000. Average debt, however, stands at Rs 2,50,000. This is a 25-fold increase.




Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


August 01, 2016

Ovum gets Rs 33 crore from Norwest, IL&FS Invest: The Economic Times

An ET article quotes Venture Intelligence data on investments in Healthcare space:
The maternity and child care healthcare sector has seen increasing interest from venture capitalists, with close to $100 million dollars invested in the sector in less than a year, according to Venture Intelligence. 
In December last year, maternity care chain Cloudnine Hospital raised an investment of Rs 400 crore from India Value Fund. Cloudnine's early investor Matrix Partners India made a seven times return when it made a partial exit from the company, piquing more interest the space. 
Earlier this month, TPG Growth invested $33 million (Rs 220 crore) in Rhea Healthcare Pvt. Ltd, which runs a chain of mother- and child-care hospitals under the brand Motherhood. 
Related:

Trends to Watch out in Healthcare


Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


July 31, 2016

PE-Backed IPO Analysis: Advanced Enzymes



Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


July 29, 2016

First time Fund managers: Mint

A Mint article quotes Venture Intelligence data from our Funds Database, covering first-time fund managers in the market:


Trends quoted in the article:

1. First-time fund managers are wooing LPs as anchor investors by offering them sweeter deals -  fee or carry discount.

2. LPs look un-favourably on team breakouts. When partner-level fund managers walk out of established firms, it reflects poorly on all parties.

3. Separately-managed accounts, mandates established by a single LP and one investment manager are on the rise.

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.


July 28, 2016

PE realty funds flock to residential projects: Business Standard

A Business Standard article quotes Venture Intelligence data on Real Estate investments in India.
According to Chennai-based PE investment data provider Venture Intelligence, PE funds invested $1,047 million in residential real estate across 24 deals in the first six months of the year, against $221 million invested in commercial properties across two transactions. Last year, PE funds invested $2,936 million in residential real estate across 61 deals, against eight transactions worth $979 million for commercial real estate. In the previous two years, PE investments in commercial properties were higher at $717 million (2014) and $991 million (2013) against investment in residential real estate at $671 million and $429 million, respectively.


"In the first wave of PE investments in real estate in India, global investors burnt their fingers with equity investments in residential projects here," says Arun Natarajan, founder and CEO at Venture Intelligence. "This saw domestic funds coming up with more cautious approach to invest in projects through structured debt," he adds.

Related Reading:


Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.