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December 31, 2006

The mysterious diamond trade

Businessworld has an article on how the diamond jewelry sector and its "mysterious" practices.
Sightholders are a mysterious order of diamond merchants. De Beers’ Diamond Trading Company (DTC) largely sells its rough diamonds only to the sightholders who, in turn, process and release them to the market. They are a crucial and powerful link in the chain of brokers, cutters and wholesalers who drive the $56-billion global retail jewellery trade.

There are 93 DTC sightholders worldwide. Thirty seven of these are Indian. They account for 60 per cent of DTC’s global sales. (DTC controls 50 per cent of the global diamond trade.) They are an exclusive and influential lobby. And they are in the middle of a major metamorphosis. (Shreyas Doshi), for several reasons, is one example of the paradigm shift in the business of diamond trading in India. Unlike the archetype, his business is not based out of Opera House, the diamond district of Mumbai. His firm, Shrenuj & Co., is professionally managed with good corporate governance and risk management features. Moreover, it is a public limited company that trades on the Bombay Stock Exchange.




Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

December 26, 2006

Helion Ventures profiled in The Economist

The Economist has a profile of Helion Ventures.

Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

December 25, 2006

Profile of Tutor Vista

Businessworld has a profile of online tutoring firm, TutorVista, which has quickly attracted $12 million in two rounds of venture funding.
Tutor Vista now has around 2,200 students, most of whom are in the US. It has around 90 students in the UK, and a few scattered in countries including Finland, Turkey, Japan, South Korea, Australia and Canada. Tutor Vista has over 200 tutors as well, largely living in India. Almost all the teachers work from home. Tutor Vista’s office in Electronic City now has 60 people; this team will expand to 100 by the end of the month. It is the equivalent of air traffic control. They work round the clock and monitor the teaching sessions, help in scheduling a session with a teacher, organise standby teachers in case one drops out at the last minute, and also make sure the information technology infrastructure is ready and running all the time.

Ganesh has kept the costs of tuition ridiculously low $100 a month to learn as many subjects as the student wants (Obviously, like eating in a buffet, there is only so much one can learn). In the US, private tuition can cost as much as $40 to $60 an hour. The teacher in India earns Rs 14,000 a month if working full time.

Also, see my earlier reference to a related February 2005 article in Businessworld about similar efforts by other companies like Educomp Datamatics and Career Launcher.

Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Chip Kaye interview to Businessworld

Businessworld had an interview with Charles R. Kaye, co-president of Warburg Pincus, who is credited with hiring the highly successful India team.

We have got 15 people on the ground here and a portfolio well in excess of $1 billion. India represents the largest single exposure we have outside the US. It is probably 10 per cent of the firm’s investments. However, despite some success today, it is still pretty early. The money required to build the infrastructure — residential and commercial — is huge and the number of manufacturing industries that are going to migrate here, especially those with engineering intensity, is also significant. Broadly, the opportunities for investment are huge. It dwarfs anything the private equity industry could ever think about.

...The opportunity in real estate was greater than what we could cover within the scope of our existing private equity fund, especially in the Asian region. So, we have created a separate real estate entity. It will house all our real estate activities in the US, Europe and Asia. We expect it to have an Asian bias, since roughly half of it will be in Asia. Particularly in India and China, real estate is still in its infancy. Take tourist infrastructure, for instance. There are fewer hotel rooms in India than there are in Orlando or Las Vegas or New York. It is still very early in the game.


Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

TV9 treads a different path

Businessworld has a profile of iLabs-backed TV9, the regional language news channel with an unusual positioning.

For those who are wondering what TV9 is and why we are writing about it, check out the rankings for the top 10 news channels over the last two years (see ‘Where TV9 Stands’). TV 9, set up in 2004, is there along with channels that serve much larger audiences — such as Aaj Tak or NDTV India. This means it has managed to get more people to watch Telugu news than other languages. In the Rs 700-crore (advertising) news broadcasting market, that is a big deal. The Rs 30 crore (approx.) ABCL will now test its mettle in many other national and international markets. It will invest about Rs 60 crore in the new domestic channels and Rs 200 crore in the African one. “Several private investors have expressed their interest. We also intend to go public in the next financial year,” says Prakash. Currently, 80 per cent of ABCL is held by iLabs (a venture fund) and Unified Group. Prakash and other five professionals hold the remaining 20 per cent.

...Swearing by the tagline ‘For A Better Society’, the channel takes up issues and concerns related to the common man. In fact, the channel was launched in February 2004 with a campaign highlighting how many villages lack access to safe drinking water in Andhra Pradesh. The campaign ran for six months. “All news bulletins started with this message for more than 15 days,”says Prakash. Subsequently, the state government acknowledged the magnitude of the problem and allocated Rs 125 crore to ensure safe drinking water supply for all villages.

“Currently, about 200 villages are covered and by next year, the problem would be entirely addressed,” he says. “We are not attacking the government. All we intend to do is expose the problem concerning the community and get them addressed.”


Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Market for duty free shopping opens up

Businessworld has an article capturing the opportunity (and action so far) in the setting up of duty-free shops at the newly privatized airports.




Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Will Spentex's big bets pull off?

Following Business Today, Businessworld has a detailed profile of aggressive textiles firm, Spentex Industries.

The process of acquiring the largest capacity has also turned it into a highly leveraged one. This year alone, Spentex has raised Rs 360 crore in term loans and Rs 200 crore in equity. In August, it raised Rs 46.6 crore from the first-ever qualified institutional placement (QIP) in India.

Investors were hopeful that the acquisition spree would drive their investment in Spentex to appreciate sharply in the currently bullish market. Indeed, the news of the Tashkent acquisition had driven Spentex scrip up to almost Rs 73 from the early August level of about Rs 50. But by first week of December, the scrip had fallen back to below Rs 60.

Such indifferent performance is attributed to the sluggish bottomline of the company. “Spentex is growing rapidly but its distributable profits are still not there because of almost Rs 500 crore worth of debt,” points out Sangeeta Tripathi, analyst, Anand Rathi Securities. During the first half of FY07, Spentex’s consolidated net profit was only Rs 0.83 crore, although its operating profit was Rs 39.71 crore. Interest cost for the period was Rs 18 crore, while depreciation write-offs accounted for Rs 13.75 crore of the operating profit. However, once the acquired units start producing at full tilt, interest cost will get spread over a much larger revenue and money will begin to follow through to the investors and the stock will get re-rated then, says Tripathi.


Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

The Naukri story

Business Today has a profile of Sanjeev Bikhchandani, Founder of Naukri.com, post his company's highly successful IPO.
In March 1997, still operating out of his father's garage and with his brother paying for server space in the us, Bikchandani's text-only Naukri.com went live. India had a total of 14,000 internet connections those days, and most of those were text-only connections. Yet, at the end of a year of operations, Naukri had made Rs 2.35 lakh and by the close of 1998-99, it made Rs 18 lakh. Bikhchandani and his collaborators knew they were onto something.

But late in 1999, Bikhchandani started facing new challenges. The internet was on everybody's lips and other companies had begun to enter the sphere of online job listings. Realising that Naukri was competing with rivals with far greater financial muscle, Bikhchandani, who had initially never wanted funding, decided that some money would be essential to survive. Despite several funding offers, he settled on ICICI Ecotec (now merged with ICICI Venture), which valued the firm at Rs 45 crore and took a 15 per cent stake for Rs 7.3 crore. The funding deal was closed in April 2000, days after InfoEdge had declared revenues of Rs 36 lakh for the year 1999-2000. A few months later, the dotcom bust would hit the world.

In late 1999, Bikhchandani made two decisions that would change InfoEdge forever. The first was to accept funding, and the second was to hire Hitesh Oberoi, an IIM-Bangalore and IIT-Delhi grad, who was then heading the regional ice-cream business of Hindustan Lever and had come to Bikhchandani for career advice on whether to join a dotcom from whom he had an offer. Before Oberoi knew, he was heading InfoEdge's marketing operations and one of the first things he did was to adopt an offline business model by recruiting sales people to actually go to companies and make sales.

Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

December 24, 2006

Founder sales gets formalized

San Francisco Chronicle (via Venture Beat) reports on how The Founders Fund has formalized the process of a partial buyout of founders by VC investors through a new class of founder stock called the "FF Class" Stock. (See my earlier posts on this topic here and here.)
Inspired by his personal frustrations as a startup founder, (Sean Parker) came up with a novel arrangement that he hopes will benefit other founders as they build their companies: a new type of stock that allows founders to cash out a small percentage of their stake in a funding round so they don't have to wait until the company is sold or goes public.

Pell, who maxed out credit cards, deferred salary and considered taking out a second mortgage until he could raise serious money and interest from the right investors, says he's relieved that he and his fellow founders don't have to feel rushed to sell the company to get some return on their investment of energy, time and money.

"There is often a tension between venture capitalists and founders. The venture capitalist wants the founders to starve and to have no cash liquidity until the very end. Of course, the founders, unlike the venture capitalists, are putting all of their eggs in one basket," Pell said. "Sean came up with the idea of allowing founders to sell small amounts of their shares along the way so you can have some life-changing effects and reduce your risk and everyone can be aligned for a home run."


Eric Olson weighs in with his support for FF Class stock.

I do think that there are clear benefits to investors especially in the new age of web start-ups where companies don’t need a lot, or any, outside capital to get things moving. The example I go to time and time again is Flickr.

VCs were looking to put money to work in Flickr previous to the Yahoo! acquisition and we all know that some money was left on the table by the founders. Can you blame them though? These were their options (simplified of course):

1. Let a VC or VCs take a bunch of the company away from us, sit on our board and decide where our baby should go and, since they’ll push us to a huge exit, we may possibly never make it and walk away with $0 (while the VC still has a number of portfolio companies and is diversified).
2. We can pocket $20+ million and get nice jobs at Yahoo! as well.

However, if a fund came in and allowed them to have some of their stock set aside and available to convert in a later round/issuance of stock for a small amount of liquidity they may have went for the big win and taken the VC money. In that case the founders would have probably made more and the VCs would have had a winning investment.

With more companies able to start up with no outside investment VCs will need to start innovating and providing incentives to entrepreneurs to get the best deals.



Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

December 18, 2006

"What about India and China?"

Check out this hilarious multimedia holiday card from Blueprint Ventures featuring a successful entrepreneur who thinks he has a good idea of what it takes to be a VC.

Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Second wave of corporate hospitals

Businessworld has a Cover Story on the second wave of corporate hospital chains - with a special focus on the Max, Fortis and Wockhardt groups - who are aggressively expanding their footprints based on the learnings from their initial forays.
Fortis decided to set up its first hospital at Mohali, Chandigarh, a market that didn’t have any other large, tertiary care private hospital. The idea was to attract patients from Himachal Pradesh, Haryana and Punjab. Simultaneously, it planned secondary care centres in other locations, which would be linked to the big Mohali hospital. It was a classic hub and spoke model.

Soon, Fortis realised that though the population in Chandigarh was prosperous, it wasn’t ready to accept a privately run hospital. Patients were used to visiting Post Graduate Institute of Medical Research (PGIMR) or else go to Delhi and sometimes even abroad, for treatment. Equally, the fact that in year one Fortis was just a cardiac care hospital didn’t help. People expected large hospitals to offer all specialties.

Fortis quickly changed tack. One, it built up other specialties and started offering multiple services till the secondary care level at Mohali. Two, it embarked on a brand building exercise to demonstrate its capabilities and create trust. It also figured that time wasn’t ripe yet for the hub and spoke model. Instead, it put up another multispecialty hospital at Amritsar, though smaller than the one at Mohali. And focused on OPD camps in smaller towns and villages. This has turned out to be a win-win for doctors, patients and Fortis. While patients get specialty opinion at no cost, local doctors co-opted in this process become primary care-givers. and start referring their patients to the Mohali hospital. Once the Mohali operations stabilised, Fortis turned its attention to the National Capital Region (NCR).


Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

December 17, 2006

The new Indian MNC

Catalyzed by the wave of acquistions, Business Today has a Cover Story on "India Inc.'s new Indian MNCs". The article includes a profile of Spentex Industries which has grown rapidly through the inorganic route.
Three years ago, its promoters weren't even in the textiles business, running a profitable trading house called CLC Global. Today, Spentex Industries has a total manufacturing capacity of nearly 570,000 spindles in India and Uzbekistan, edging out erstwhile leaders Mahavir Spinning (550,000 spindles). Nearly 85 per cent of that capacity, or 484,000 spindles, has been added via six acquisitions in the past three years. And roughly 40 per cent is accounted for by one overseas buyout, in Uzbekistan, of 220,000 spindles (plus 236 airjet looms). Mukund Choudhary, Managing Director, Spentex Industries, who is credited with much of this creation, shares his rationale for inorganic growth: "Nine out of 10 people who set up greenfield projects fail." More importantly, it's cost-effective too. For instance, Spentex bought the Uzbek facilities with an investment of just 40 per cent of what it would cost to build similar capacities.

...And backing the aggression is financial savvy too. The company has managed to do nearly every kind of financial deal in the last few years, ranging from a buyback to open offers to private equity. Citigroup Venture capital invested $15 million for the Uzbek deal. In August, Spentex also became the first company to raise funds (Rs 46.60 crore) via the newly opened qualified insitiutional placement window from Sundaram Mutual Fund, Goldman Sachs, Voyager Fund and Nikko Asset Management.

Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

ISB to conduct Venture Capitalist Development Programme

The Indian School of Business in Hyderabad is organizing a 6-day Venture Capitalist Development Programme in March 2007 aimed at developing future venture capitalists.

The programme is organised by the Wadhwani Centre for Entrepreneurship Development and the Center for Executive Education at the ISB, in cooperation with the Wadhwani Foundation and the National Entrepreneurship Network.

Faculty: John Mullins, Gerry George (Both professors at London Business School)

Targeted Participants: Professionals seeking to make a career shift to VC; Analyst and Associates at VC/PE firms; CPAs and Lawyers servicing VC/PE firms and their clients; Professionals in commercial banks, insurance companies and other similar fund-of-fund organizations, who manage or advise investment into VC/PE funds.

Dates: March 23-28, 2007, ISB Hyderabad

Fee: Rs 50,000 (after partial scholarship to all. The actual course fee per participant is Rs 150,000 and Rs 100,000 is funded by Wadhwani Foundation). A few need based full scholarships are also available.

Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

December 07, 2006

Tax holidaying in Mauritius

With the little island nation of Mauritius repeatedly being reported in the pink papers as "the largest investor in India" and so many PE and other investors "headquartered" in that country pouring billions into Indian companies, it was bound to attract attention. Especially since some folks in the India government have started to fret about the revenue losses and making noises about reviewing the 'double taxation avoidance treaty' with that country.

Now, in a cover story, Businessworld describes the how and why of operating several shell companies out of "India's favorite tax haven".

Over the past few years, more money has come through the Mauritius route to India than through direct investments from almost any other country. In April-June this year, a total of Rs 4,165 crore came in through Mauritius to India — as against Rs 1,105 crore from the US. By the end of the year, the money flowing in from Mauritius to India could be as high as Rs 15,000 crore. In 2005-06, a total of Rs 11,441 crore came in through this route, more than double the Rs 5,141 crore in 2004-05, which in turn was almost double the Rs 2,609 crore that had come in in 2003-04. Compare that with the relatively piddly Rs 2,210 crore that came in through the US in 2005-06. Investment through Mauritius is over half the total FDI coming into India. Says a senior official: “It is evident more and more routing is taking place through Mauritius.”

Despite noises from some sections of the Indian government, BW does not expect too many changes to the DTAT with Maurutius thanks to powerful vested interests that are have too much invested in/via this route.

Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

December 04, 2006

Is Unitech for real?

As part of a profile of Unitech, the Real Estate company behind the skyrocketing stock, Business Today provides an overview of this booming sector.
In India, real estate companies have traditionally either not listed on the bourses or if they have, then found the discipline required for quarterly reporting of earnings a bit too much. Remember, the other National Capital Region or NCR-based real estate giant DLF delisted from the Bombay Stock Exchange in 1982 and from the Delhi Stock Exchange in 2003. And even the few that remained listed, such as Unitech (it has been listed for 20 years now), attracted poor investor interest. In other words, few scrips, low free floats coupled with the overall opaqueness of the sector and restrictive policies made real estate stocks backbenchers in market performance. Indeed, the Unitech stock was languishing between Rs 100 and Rs 300 for most of 2004.

Easing of policy and regulatory bottlenecks changed the scenario. Allowing foreign direct investment (FDI) in real estate projects was the most crucial driver of a re-rating of the entire sector. In February 2005, the government decided to allow FDI up to 100 per cent under the automatic route in townships, housing, built-up infrastructure and construction projects.

Sanjay Chandra, Unitech's 34-year-old Managing Director, sums up the change: "Till a year ago, real estate was a totally ignored sector. We never used to get any investor meeting requests. Now, we have a full-fledged investor relations department since there are at least 30-40 requests per month, mostly from foreign institutional investors." Another issue that provided fillip to the sector was the high-decibel marketing of the abortive IPO of Unitech's competitor and peer in NCR, DLF. "Whenever there is a large public issue in a sector, there is a rub-off on other sector stocks as well," says S. Ramesh, coo, Kotak Investment Bank, who was involved with the now-postponed DLF initial public offer.




Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Changing face of investment banking in India

Businessworld has a cover story on the investment banking industry which is riding high on the wave of global shopping by Indian companies.

The ‘India is hot’ story is attracting international investment banks, all with deep pockets and strong balance sheets, like bees to a honey pot. Some big names include Goldman Sachs (after parting ways with the Kotak group earlier this year), Merrill Lynch (which increased its stake in the Indian JV to 90 per cent from 40 per cent), Lehman Brothers (after leaving the country at the turn of the century) and Credit Suisse (which has had some run-ins with the regulators in recent times).

Meanwhile, the home-bred players, from Kotak to Kampani to Karvy, are leveraging the increased integration with global markets, a new-found freedom in structuring and financing cross-border transactions and a booming domestic economy to find new, profitable opportunities. These are culminating in deals like Thomas Cook where Indian i-bankers straddled the entire transaction value chain.


Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

December 02, 2006

Real Estate Connect

Venture Intelligence organized Real Estate Connect, a roundtable focused on opportunities and challenges for Private Equity investing in Real Estate Projects, on November 23 in Bangalore. The conference brought together Private Equity funds and developers that have raised or are planning to raise Private Equity capital.

Check out the post event newsletter and photos (slideshow and individual snaps)

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 30, 2006

Global Real Estate Hotspots

Knowledge@Wharton has an article based on a panel discussion on destinations for global real estate investors. According to the panel, emerging real estate markets in India and China along with recovering property industries in Germany and Japan, are the most attractive.
(Wharton real estate professor Peter Linneman) described panelist Surendra Hiranandani, managing director and founder of the Hiranandani Group in Mumbai, as extremely popular these days with the hordes of real estate investors trekking to India to investigate its hot property market. "There's an image that, in India, the streets are paved with gold. What's the reality?" Linneman asked.

According to Hiranandani, the Indian economy only began to open up in 1991 compared to China, where free-market reforms began to take hold in 1979. The effects of those changes are just now beginning to become evident in India. He also noted that the capital coming into India is generating greater transparency in business. "When capital is scarce, people find nefarious ways of raising it. The availability of capital automatically makes it more transparent."

Meanwhile, Hiranandani said, a new generation in India is open to free-market reforms. He pointed out that Bill Gates displaced Mahatma Gandhi as the most respected person among Indians in a recent poll. In addition, India is a young country, with an average age of just 24 and vast potential to grow. "There is a huge supply gap. It's definitely an underexploited market." He said the best opportunities are in residential and hospitality development. Large Singapore-based firms have been building office developments, which means that sector may be overbuilt.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 25, 2006

Indian pharma cos. strike more drug discovery deals with MNCs

Businessworld has a cover story on the new drug discovery partnerships being created between Indian life sciences firms and MNCs.
Last week, Nicholas Piramal signed an agreement with the UK drug discovery firm Morvus Technology. Nicholas Piramal will use the technology of Morvus to develop drugs in areas such as cancer, diabetes and arthritis. We could shrug it off as a routine development, but for two reasons. One, it is the third R&D collaboration agreement that Nicholas Piramal has signed with an overseas company in the last year and a half. Two, it is the sixth R&D collaboration between an Indian and a foreign company within the last three months. Several more are being negotiated and will be signed within a few months, say sources. Have the Indian pharma and biotech companies found a new strategy for drug discovery and development?

...Last year, Nicholas Piramal made a strategic investment in the Canadian firm Biosyntech, a company that makes gels for regenerative medicine. This year, Dr. Reddy’s formed two partnerships with UK-based firms: with Argenta for developing Asthma drugs, and Clin Tech for commercialising its anticancer molecule. Last month, Syngene, the services subsidiary of Biocon, signed a deal with the Swedish firm Innate Pharmaceuticals to collaborate on drug development. Then came the Nicholas Piramal and Connexios deals.

As we wrote this, more partnerships were being discussed and a few would be announced soon. Nicholas Piramal is discussing another partnership. Two services companies, Advinus and Jubilant Biosys, are also set to sign collaboration agreements soon. All these partnerships involve one novel thing: adding to the work of someone else with no clear idea of the returns. The money being spent is small in some cases and large in others, but for the Indian company the conceptual leap involved in a real collaboration has been big every time. It is now clear to many Indian companies that doing drug discovery research alone is probably not going to give good results, unless one is very lucky.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Wanted: India specific VC models

Based on his impressions upon attending TiECon Delhi, Basab Pradhan feels India needs a unique model for the venture business. "VCs and entrepreneurs, who take a cookie-cutter approach to it, are in for a rude shock," he says.
- Unlike in the Valley, Web 2.0 has no relevance to the Indian domestic market. Internet penetration is low (5.4%), broadband is lower (<0.5%). Even if you include use at work, account sharing and internet cafes, the consumer internet is a tiny market. It may be interesting for some compelling ideas or if someone wants to bet on growth. But in my opinion, it is not going to attract much investment unless there is a broader ‘global Indian’ or a ‘click and mortar’ play.

- Mobile however is hugely interesting. Mobile penetration in India is twice that of the internet and is growing at rates close to 50%. There are opportunities to develop mobile applications that the developed world never needed because of high internet penetration. Booking a cinema ticket in the US is probably done 95% of the times over an internet connection and 5% on a cell phone screen. In India it may be totally different. This also holds out the opportunity that Indian startups may develop mobile applications for the Indian market and then take them to Europe and other developed markets.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 24, 2006

Paymate, Ji Grahak or mChq: Take your pick

Guest post by Deepak Srinath:

Mobile payments or m-payment are not new buzz in India; attempts at creating m-payment solutions go as far back as 1999 and has even seen some VC investment in the space. However, the market was clearly not ready for it and m-payment was more a conceptual experiment than any real paradigm shifting opportunity. The second coming of mobile payments in recent months is an entirely different story. It has the backing of a 135 million user base that is growing at 5% a month, and a retail economy that is poised to take off into stratosphere.

m-payment is a broad term for any mechanism that allows a user to make a payment for a service or goods, or transfer money to another person using a mobile phone. The m-payment solution typically works in conjunction with an existing bank account or credit card the user holds.

The basic hygiene factors for an effective m-payment solution are:

- Ease of use
- Maximum device support to cover a large user base
- Support for a number of banks or credit cards
- Security
- Large merchant base

m-payment providers in India

The m-payment space in India has seen two recent investments by leading VC’s. Sherpalo Ventures and Kleiner Perkins Caufield & Byers, two of Silicon Valley’s most reputed venture capital firms invested about $5 million in Paymate, a Mumbai based m-payments solution provider and Helion Ventures invested $2.2 million in Ji Grahak, a Bangalore based m-payments company.

Paymate and Ji Grahak offer very different solutions and a comparison is shown below:

Paymate

Ji Grahak

SMS based, no GPRS connection needed

Needs GPRS and a java client to be downloaded

Currently available only for Citibank credit or debit card customers

Currently available for any credit card holder

Works on almost every phone model in India

Works only on high end java phones

No need to enter and submit credit/debit card details on the phone

Need to enter credit card details at least once on the phone

Current model will only work for online purchases

Current model seems online focused

Person to person payments currently not supported

Person to person payments currently not supported



The fact that Paymate works on any phone model with SMS capability, does not require the user to hold a credit card and works without GPRS makes it appear to be a more compelling proposition. Moreover, Paymate does not require the user to enter or submit card or account details over the phone, another huge benefit in India where consumers are only just beginning to become comfortable with using their credit cards online. The advantage Ji Grahak enjoys - for now - is that it supports any credit card and is not restricted to Citibank customers.

In the long run, as data usage in India becomes more widespread (GPRS), the Ji Grahak solution offers a much more secure infrastructure for payments than Paymate’s simplistic SMS based solution. Moreover, a Java client on the phone also provides scalability in terms of exchange of information with Point of Sale (POS) systems to purchase goods in physical retail stores should Ji Grhak go that way.

While the Paymate model seems to be in tune with Indian market needs, it still needs to address several issues in order to have a chance of success. For starters, the current model only supports on-line retailing, i.e, the user browses a web site such as rediff.com and decides to buy an item. When the user reaches the purchase screen she is presented with the option of paying via her mobile phone and enters her mobile phone number and clicks submit. If the user is a pre-registered Paymate user, then an sms is sent to the users phone with the item code and the user needs to reply with the item code and PIN number to confirm the purchase. Secondly, SMS is inherently not very secure and it’s not uncommon for messages to get lost or remain undelivered.

The biggest hurdle faced by both Paymate and Ji Grahak is extending the model beyond online retailing to physical store retailing. The big advantage of m-payments in the Indian context is that it takes advantage of high mobile penetration to provide an effective alternative payment method to cash. So what exactly is the benefit of solutions that merely displace the last click of an online browse and buy transaction?

And from an investor’s point of view, what is the revenue model for m-payment providers? Both Paymate and Ji Grahak are free of charge to the user; does the merchant pay them for every transaction? Can they break even with only online merchants?

A third m-payment solution, mChq, and has been around for over a year now. This is again SMS based but the transaction process is one where the retailer/merchant sends an SMS mentioning the amount to the customer. The customer enters his/her personalized PIN number and sends an SMS back to the retailer acknowledging the amount to be paid. Both the parties then get a confirmatory SMS indicating the completion of the transaction. The mChq solution addresses physical retailing more effectively than Paymate or Ji Grahak. mChq pilots were launched by ICICI bank and Visa cards and SBI also launched a solution on the platform subsequently.

Are m-payment solution providers a good investment opportunity for VC’s?

There is no big m-payment success story anywhere in the world today, barring maybe Japan. Having said that, India probably has the best chance of producing an m-payment success story. Market factors for an alternative payment mechanism to cash are clearly evident – high mobile penetration even in tier-2 and 3 cities, relatively low credit card penetration (98% of transactions in India are cash and cheque), a relatively low internet user base and rising middle class consumption and disposable income.

The biggest challenge will remain consumer adoption. The market is large enough to support 3-4 m-payment solution providers with different solutions that cater to different consumer segments. Moreover, competition is essential to create consumer and merchant adoption on a mass scale. Several m-payment solutions are likely to emerge in the next few years in India, as the market evolves and lessons are learnt. From a VC investment perspective, a solution that effectively addresses the hygiene factor of m-payment and then goes that extra mile, and a management team that has strong networks with the banking community are certainly worth taking a closer look at.

Deepak Srinath has been involved in the mobile VAS space for over 4 years in various roles. Apart from Product Management and Business Development roles with July Systems, he has also had several consulting assignments on mobile VAS for media and investement firms in India, US and the UK. Deepak is also an advisor to Viedea, a consultancy that offers fund raising advisory services to start up's and can be reached at dsrinath04@gmail.com

November 19, 2006

SEZ: Sizzle or fizzle?

Businessworld has a detailed cover story - here, here and here - on the Special Economic Zone (SEZ) business including the challenges of making money on these ventures.

SEZ builders must have the capacity to inject the capital early and wait for returns — it takes a minimum of eight years to take the project into the payback stage. This is where the serious players will score over the speculators. Their returns will be far higher than those who parcelled out the land earlier. “IRRs of 35 per cent are not unheard of. The average IRR could be 20-25 per cent,” says Magazine. After this, the final annuity phase becomes easy. Here, the SEZ generates a steady stream of income and needs minimum management. Utilities and facilities management are, perhaps, the only requirements.

...Unfortunately, many SEZ builders see this more as a grand realty development opportunity than as an infrastructure business — buy, build, sell. That model may bring profits in the short to medium term, but is unlikely to help the nation’s objectives of investment and export promotion. On the contrary, they could wreck India’s SEZ dreams by increasing competition and affecting the profitability of the serious players. They may also leave investors with bitter experiences or may simply unproductively lock up land. “Large numbers of SEZs will limit the success of all zones,” observes a Feedback report. It believes that only a few zones near metros will be successful. The rest will be a drain. “Only 25 per cent of the projects will see the light of the day,” says Gupta.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

First cut view of Reliance's retain plans

Businessworld has an article on Reliance Fresh, the Anil Ambani group's venture into the neighbourhood convenience store business.

Eleven stores were up and running by the end of last week and 100 more will spring up before the end of the year. The plan is to have 3,000 Reliance Fresh outlets soon. (Several other formats in categories including apparel, electronics, etc., will follow soon.)

Sources say that Reliance believes each Reliance Fresh outlet could earn annual revenues of Rs 3 crore. That’s a sale per sq. ft of roughly Rs 12,500. Industry sources say this is in line with what other chains have achieved in the past. For instance, at its peak FoodWorld had managed a Rs 300-crore turnover on its 80 stores. The average size of a store was about 3,000 sq. ft — or sales of Rs 12,500 per sq. ft.

If Reliance Fresh can match that, the 3,000-outlet chain could be in line to clock revenues of about Rs 9,000 crore.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

The kids wear market

Businessworld provides some interesting numbers about the market for children's garments as part of an article on suiting specialist Raymond's entry into this segment.

The kids apparel market in India is worth about Rs 27,000 crore of which only about Rs 500 crore goes to the organised sector, growing at an average of 20 per cent against the 30-35 per cent for the overall industry. So far, the organised market was dominated by Lakhani-owned Gini & Jony Apparels with a 30 per cent market share, followed by Weekender Kids and Ruff Kids. Clearly, there is space for more organised players to come in and take a larger bite of the market.

That is what Raymond plans to do. With prices ranging from Rs 299-999 against Rs 295-2,000 for Gini & Jony. ZAPP! is clearly aiming for volumes. Whether it can deliver on the target depends on what Raymond brings to the consumer at a lower price. It is doing the usual things. For example, it has tied up with Warner Brothers for the ‘Superman’ brand of clothing in India. Besides exclusive stores, it plans to be present in large format stores like Lifestyle and Shoppers’ Stop. Gini & Jony, too, has a tie-up with Pantaloons and Shoppers’ Stop, which gives it wider distribution.


Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Naukri by numbers

Businessworld has a short review of the financials of Info Edge, India's first pure play online services company to go public.
Info Edge, which gets most of its revenues and profit from recruitment classifieds services through Naukri.com, has been growing at a scorching pace. In fact, thanks to the growth this fiscal, the IPO valuation drops by almost a third to 34 times based on annualised June quarter earnings. In the three year period between FY03 and FY06, the company’s revenues have grown at a compounded average rate of 110 per cent. Profit before tax (PBT) has grown at an even higher rate of 191 per cent in the same period.

What’s also important to note about Info Edge is that it operates at a reasonably high level of profitability. Both in FY06 and in the first quarter of the current fiscal, the company has reported a PBT margin of over 25 per cent.
Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Buyouts feature in Corporate Dossier

Economic Times' Corporate Dossier supplement has a four-part feature on buyouts in India and how they initial few deals have fared. (Part 1, part 2, part 3 and part 4.)
Infomedia is expected to show a very significant increase in revenue and profits in FY 2007, and will double its profits this year. The erstwhile ACC refractories, now Ace Refractories , is expecting to grow revenues by more than 20%, with exports growing by about 40%.

Meanwhile revenues at VA Tech WABAG are expected to grow at a rate of 30% over last year. MBOs, by the nature of their creation, are a high-risk category. And managing the MBO can be a tricky issue. As the Actis-PTL and Tata Infomedia-ICICI Venture buyouts have shown, existing managements can pose a problem.

...Things are also finally falling in place at Punjab Tractors, which saw a bitter battle for control with the previous CEO Yash Mahajan, till last year. Finally, Actis and the Burmans of Dabur now control the board, and the company has a new chairman in PD Narang of Dabur, and a new CEO too, in P Sivaram, the former CFO who has been pushed up to lead the tractor company.
Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Mike Moritz interview to Business Today

Business Today recently published an interview with Sequoia Capital's Mike Moritz.
I think American investors today understand that a lot of money has rushed into India and the shrewder American investors are pulling back. The shrewdest investments and shrewdest investors in India will be sitting on their wallets. Because of their very justifiable concern that this is already a very overheated market....

...With the exception of a very short list, venture capital as a category has been a very disappointing place for most people to invest for a long period of time. And for some reason, I think there is a whole conspiracy around the venture business of people conspiring to fool investors and prospective investors into thinking that they are going to make a lot of money by being an investor in venture capital, while the history of the last 30 years shows that you will not unless you are with a very short list of firms.

...we would always want the founders to look back and feel that one of the best decisions they made in the evolution of their company was to have Sequoia as their partner. This means, therefore, that we're helping them in ways that go beyond just writing a cheque. I don't want to (exaggerate) the extent of our contribution because I think all companies that prosper do so because of the founding management. But there are a variety of ways we can help-in recruiting more people, with relationships with other entities that they want to do business with, which as a small company they would have trouble doing. We think of ourselves as extensions of the company, while not confusing the difference between being an investor and management.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Online travel portals: Can we hear the crash already?

Anurag Gupta has analyzed the economics of the online travel services sector and the results are not very encouraging for the half-a-dozen VC-backed startups in this space. This will remain so even if there is a strong growth in the overall market size in the years since that is likely to be negated by the entry of travel agencies (like Thomas Cook) and foreign online brands (like Expedia).
I estimate that close to 1,00,000 Air tickets are being sold every day in India. Out of this nearly 20,000 are being sold online. Online tickets are sold by Online Travel Portals / Agents & Directly by the Airlines Websites. Out of this 20,000 I believe that Online Travel portals are selling around 4-5000 tickets per day.

At an average ticket value of Rs. 3,000 the total revenue (Gross revenue) earned by Online Travel Portals from sale of Airline Tickets would be in the range of Rs 430-540 Crores. The portals would be getting a net commission ranging from 0.5% to 7.5% from various Airlines. At an average commission rate of 3-4%, the net revenue would be between Rs. 13-22 crores.

The Air Tickets business would be forming almost 90% of the total revenues of the online travel portals. 10% revenues would be coming from Hotel bookings, Taxi rentals Packages etc. The margins on these products would be much higher going up to almost 20%. This would give them another Rs 10 crore in net revenues. This makes the total business size around 25-30 crores in net revenues.

Looks like we will see early sellouts of some of the VC-backed start-ups to overseas entrants.

Update: Obviously, VCs can't hear any signs of a crash. Battery Ventures has joined Sequoia in investing a $15 million second round into Travelguru.

Mark Sherman, general partner at Battery Ventures, has a formula worked out based on the value of ticketing ($30 billion annually, growing 10 percent year on year), how much of it will go online in a couple of years (20 to 30 percent), industry size in 10 years ($50 billion), and how much booking will be done online ($12.5 billion).

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 18, 2006

"Buyout firms aren't cartelizing"

Recent months have witnessed large buyouts in the US (like in the case of Harrah’s, HCA and Univision) where there was only one bidder - in the form of a syndicate of buyout firms. Now, PE Hub reports that the shareholders of some of these companies have filed a suit against the leading PE firms (including Apollo Management, Bain Capital, Blackstone Group, Carlyle Group, Clayton, Dubilier & Rice, Providence Equity Partners, Silver Lake Partners, Texas Pacific Group, T.H. Lee Partners and Warburg Pincus) accusing them of cartelizing.

Interestingly, PE Week editor Dan Primack has come out in defense of the PE firms based on a recent deal in which two syndicates competed against each other.
This class-action lawsuit has a timing problem. Namely, today’s announcement that Clear Channel Communications has agreed to be bought for around $26.7 billion (including assumed debt) by Bain Capital, Thomas H. Lee Partners and a group of its lending partners.

This was no inside job, with Bain and TH Lee coming from the outside lane to knock off the favored team of Blackstone, KKR and Providence Equity Partners. And guess what Bain, TH Lee, Blackstone, KKR and Providence all have in common, besides an interest in owning Clear Channel? They each are named as co-defendants in the conspiracy lawsuit.

Just to make my point redundantly clear: These firms are being accused of anti-competitive behavior, despite having spent the past month in fierce competition for one of the largest leveraged buyouts in history. Apparently the quid pro quo got lost in translation.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 10, 2006

Should you lead or follow?

At a time when we are witnessing several follow-on financing rounds in India, Fred Wilson has an post on why his firm prefers to be the lead investor in the companies they invest in.
- Lead investing allows Union Square Ventures to establish the capital and governance structures for our portfolio companies. Once these are set, they are hard to change. And every firm has a preferred way to approach governance and capital structures. So the best way to get them the way you want them is to be there when they are set up. That means leading the first venture capital round.

- Lead investing allows Union Square Ventures and the entrepreneur to establish a positive VC/entrepreneur relationship. That relationship is critical to the long term success of the company and getting it right early on is easier than trying to fix it later on. Coming into a Series B or Series C round where there is a dysfunctional investor/founder relationship is a recipe for disaster.

...- Lead investing allows Union Square Ventures to get to our target ownership or at least establish a path to get to it in future rounds. When you invest in the later rounds, there are already a number of investors who have the right to maintain their ownership levels so it is often hard to obtain a significant ownership percentage in those rounds.

...- Lead investing allows Union Square Ventures to build "franchise value" in the successful investments we have made. We don't and wouldn't claim to have done the really hard company building work that entrepreneurs do. But as the lead investor, it will often be true that we were the earliest and most active venture capital firm in the deal. So when a company has a susccessful exit, like delicious did last year, the venture firm most closely associated with the company gains some "franchise value" as well.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Online Video is booming: Mary Meeker

Morgan Stanley's Internet analyst Mary Meeker presented an update to her "State of the Internet" presentation at the Web 2.0 conference earlier this week.

I had linked to her 2005 presentation with comments here.

This time around she focuses on how the online video momentum is "building and building".
~60% of Internet traffic may be P2P file sharing of unmonetized video — ramp in tagging (for search) + partnerships + monetization – note recent moves by likes of ABC / CBS / FOX / NBA / Sony / Warner / Universal / Google / Yahoo!. Challenges (especially related to copyright and infrastructure stress) are significant, but over time, consumer demand should rule and content creators should benefit

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 09, 2006

Top sectors in Indian manufacturing

Business Today has a detailed and well researched feature on top performing sectors within the Indian manufacturing industry.
There are a handful of industries in India that have begun to become globally competitive because a) they have honed their process skills to a great extent, b) have the advantage of being vertically integrated, or c) have been able to tap into the global supply chain of large customers. One test of global competitiveness is the ability to withstand foreign competition in home markets. Another, the bigger test, is the ability to compete with a multitude of suppliers in international markets and win. Apply the second test, and the number of industries that can be considered globally competitive shrinks-to, by expert consensus, five. Which are these? In alphabetical order, auto components, electricals and electronics, pharmaceuticals, textiles, and specialty chemicals.


Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Prospects for Indian Social Networking Sites

In the wake of the YouTube acquisition, Economic Times has a feature on Indian online social networking startups and their prospects.

Sources say six other start-ups are looking to join the ranks of existing sites such as Yo4ya.com, humsubka.com, zhoom.in, meravideo .com, yaari.com and fropper.com to roll out their versions of social networking channels in India. "This is one of the most interesting areas since globally also it has been quite a major hit with very large exits. We are very keen to make investments in this space in India," said Alok Mittal, India head Canaan Partners.

Though the idea is clearly to sell-out after building a certain scale, skeptics feel there is a good chance that some of the start-ups may fail to create a sound business model. In the online space, a proven business model, besides being profitable, needs to focus on innovation and creativity. Video and music are some elements that are essential, not just the text messaging which is being adopted by most start-ups .




Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 06, 2006

Online real estate listing services

Business Today has an article on online real estate-focused classified sites like 99acres, magicbricks, indiaproperties, etc.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 05, 2006

Profile of Pawan Ruia

Businessworld has a profile of buy-and-turnaround specialist Pawan Ruia.

A merchant banker by profession (he is a chartered accountant and has also studied cost accountancy, company secretaryship and law), he worked for Shaw Wallace and Hindustan Lever for about a year before venturing out on his own. His first business move came when he bought two small-scale units, a ceramics unit in the 1980s and a chemicals unit in the 1990s. His father Shyam Lal, who earlier worked for a chemicals company in Renukoot, oversaw their operations. But when Shyam Lal passed away, Ruia shut them down. Later, in 1995, he set up Ruia Cotex, a cotton mill.

...Ruia’s interest in dead companies may appear unnatural, but there is a method to his madness. “Both Jessop and Dunlop have high brand value. They have their basic equipment in place. They also have employment-ready staff. It’s that much easier to create value from them than starting afresh,” he says. Besides, Dunlop has an asset base of Rs 1,500 crore and Jessop, around Rs 1,200 crore.

With Jessop back in the black, Dunlop on the road to recovery, and Falcon Tyres — a two-wheeler tyre maker he bought from Jumbo along with Dunlop — making sound profits (Rs 6 crore in 2006), Ruia’s infrastructure foray is gathering steam. He recently bought Hirakud Cables, a manufacturer of transmission towers, and IDCOL, a steel rolling mill, both, not surprisingly, ailing units of the Orissa government.


Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

November 04, 2006

How Indian SMEs finance themselves

Knowledge@Wharton reports on an academic study "Financing Firms in India".
The study...challenges the conventional wisdom among academics and public policy experts that corruption automatically impedes economic advancement of developing countries, according to Wharton finance professor Franklin Allen, one of the authors of the study.

"Small- and medium-size Indian companies have found ways to get around [the limitations of the country's financial and legal systems]," says co-author Sankar De, clinical professor and executive director of the Center for Analytical Finance at the Indian School of Business in Hyderabad. "They depend on informal mechanisms for dispute resolution. They lend and borrow from each other. In many ways, they bypass formal financial markets and courts of law."

...The three most important financing channels for these firms during their start-up and growth periods are founders' family and friends, trade credits and loans from financial institutions, such as state-owned banks and banks specialized in lending to small- and medium-size firms. These include the Small Industry Development Bank of India and State Financial Corporations (SFCs). A "trade credit" often involves nothing more than one firm lending a hand to another by giving a customer more time to pay an invoice or by doing a special deal to help a supplier in a time of need, according to Allen. However, credit availability is not uniform across the surveyed firms, and the market for bank credit is clearly relationship-driven. Over 70% of the respondents said that their firms had to meet operating and profitability criteria to obtain their largest loans, while the median "monitoring" frequency of the banks (when bank employees contact borrowers about loans) is once per quarter.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Businessworld's youth survey

Businessworld has a cover story based on a survey of 5,485 young people surveyed across 15 Indian cities such as Kochi, Jaipur or Bangalore.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Real Estate BPO firm NTrust

Businessworld has a short profile of NTrust, a provider of outsourcing services to US Real Estate companies.

NTrust, floated in 2002, has built a $12 million business in the lease administration space. And it hopes to step up revenues to $16 million by 2007.

...Says Srikanth Ramachandran, president and CEO, NTrust: “Only 25 per cent of the US lease administration agreements are documented online.” Which means there is a large outsourcing market to exploit. Real estate agreements require skills like accounting for rent calculation and retailer-builder profit sharing agreements, as well as understanding lease classes and long-term lease payments.

...“An employee in the US is paid $60 per hour and in India the cost comes down to $20 a day. There is enormous cost and time saving.”

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

MRO business takes off

Businessworld has an article on the growth of the aircraft maintenance, repair and overhaul (MRO) business in India.
There are about 300-odd third-party MRO units worldwide, of which more than 65 are located in the Asia-Pacific region. But none in India. Even the existing in-house units have a long way to go before they will meet global standards. For now, the domestic market and sheer growth prediction is in itself a sizeable market to cater to. A look at the numbers.

Assuming 1,000 aircraft in 2012 (both commercial and business), there would be a need for roughly, 50,000 weekly checks, 3,500 A level checks, and millions of night halts. Corroborates Prasad: “Given 52 weeks in a year, we expect 50,000 weekly checks. An aircraft undergoes a check after 600 flying hours. And even if an aircraft flies the minimum of 12-14 hours a day, on an average it flies nothing less than 2,500 hours annually, which implies that one aircraft will go for a check 3-4 times a year.”



Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Why Moser Baer is getting into solar cells

Businessworld has an article on why the Warburg Pincus-backed CD/DVD maker, Moser Baer, is diversifying into the solar cells business.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

October 30, 2006

Guruji and the future of "other" search engines

Venture Capitalist Bill Burnham recently argued that it would be futile for start-ups to try and compete with Google, Yahoo and MSN ("GYM") in the core Internet search space.
Any start-up trying to displace Google, Yahoo, or even MSN or Ask (or for that matter any VC trying to fund them) should just get in their car (or hop on a plane) and go look at Google’s new server farms at The Dales in Oregon. And if that doesn’t convince them they should head up the Columbia river a bit and check out Microsoft and Yahoo’s digs. The costs to compete in core search , are now simply to high.

According to him, search innovation will increasingly be about applications and not about the core infrastructure. In fact, he suggests start-ups build these applications on top of the core infrastructure already created by the larger guys.
One can imagine a world in the not to distant future in which an application designer can easily leverage the billions of dollars being spent by Google, Yahoo et. al., by having programmatic access to what is essentially a custom crawl list and a highly filtered index. In this way search engines, in some respects, may become an infrastructure layer not too dissimilar from the telecommunications networks and internet standards that they themselves are built upon.

For start-ups, having core search become just another part of the Internet’s infrastructure is actually great news. This frees them from the huge capital costs required to build a competitive core search platform and instead lets them focus on building a great consumer/enterprise application. The possibilities here are endless and will undoubtedly result in far more innovations than if search engines remained closed systems.

In this "it's all over" scenario, it is good to see Guruji.com making a strong bet that there is room to create an alternative to the GYM by going local. (Guruji's recent $7 million funding from Sequoia Capital has triggered off a lot of chatter in the Indian blogosphere. See here, here and here.)

It would obviously be very interesting to track this company.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

October 29, 2006

Rudra Tech's anti-virus software attracts attention

Business Today has a short profile of Chennai-based Rudra Technologies, a company that has come up with an innovative anti-virus software.

Imagine a virus that locks up the files on your pc and then demands a ransom for unlocking them. You're better off just imagining-many users in the West actually woke up one fine day with their PCs flashing ransom notes of a few hundred dollars. Players like Symantec, McAfee, AVG and Sophos, who make up the global $8 billion (Rs 36,800 crore) anti-virus market, have been pulling out all stops to deal with such attacks. But success has been limited. That's because "the anti-virus software available today is reactive rather than proactive,'' says N.S. Basker, Managing Director, Rudra Technologies, a Chennai-based maker of anti-virus software. This means there is always a lag between the time a virus is identified and before an anti-virus software patch can be designed; in between millions of PCs are disabled.


Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Classic Polo's rising focus on branded garments

Business Today has a short profile of Tirupur-based textiles firm Royal Classic Mills and its aquisition led plans to carve a share for itself in the branded apparel segment.
To improve margins, Royal Classic decided to venture into branded apparel retailing in 2001. In February 2001, the company launched Classic Polo initially in the tee-shirt segment. Today, it has expanded its portfolio of offerings to include shirts and trousers; sports apparel has just been launched under the same brand, and denim wear is on the anvil. Classic Polo alone is a Rs 35 crore brand at ex-factory prices. The company currently has 23 exclusive outlets and sells through another 1,200 multi-brand outlets across the country.

In July 2004, Royal Classic acquired innerwear brand Smash for an undisclosed price. Now the company is on the prowl again looking to acquire brands in the "Rs 15-20 crore range," says Sivaram. "Our intention is to emerge as a major player in the branded apparel wear segment across the country," he adds.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

'Toll policy held back by disagreements'

Businessworld has an article on how disagreements between the Planning Commission and the Department of Road Transport and Highways is holding back India's policy on toll roads.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

India's Natural Gas market

Businessworld has an article on how the uncertain supply of natural gas is affecting India's power and industry requirements.



Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

October 28, 2006

Canaan Partners launched "Entrepreneurial Challenge"

Canaan Partners has launched "Entrepreneurial Challenge", a value-added Business Plan contest, in partnership with TiE.

"The objective is to identify entrepreneurs who have made a start and can now scale fast with a little bit of help," says Alok Mittal of Canaan. "It has been my experience that most business plan events end on the day the competition ends. By bringing the right partners in place, we will attempt to provide mentorship and capital support to businesses, and try and make the event finals a starting point rather than a culmination."

Click Here for more information.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

October 27, 2006

Online Video Rental Services

Anurag Gupta and Amit Ranjan have analysis of the various online movie rental start-ups in India.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

October 23, 2006

Going global: At what cost?

As Indian companies forge ahead with mega acquisitions overseas, Forex expert A. V. Rajwade striks a note of caution via his Business Standard column. He provides examples of other cross-border acqusitions - Lenovo's acquisition of IBM's PC business and BenQ's acquisition of Siemens' mobile handset manufacturing plants in Germany - which have not provided positive results for the acquirers.

Quite possibly, India’s outward direct investment could exceed the FDI inflow in the current fiscal year. And, we are supposed to be a poor, capital hungry country! Clearly, a huge amount of our risk capital seems to find the climate abroad very attractive, even as intending foreign investors in India continue to be deterred by our labour laws, our bureaucracy and our infrastructure. While lauding the entrepreneurial instincts of the Indian businessmen, I am not quite able to overlook certain recent cases of developing countries taking over businesses abroad.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

October 22, 2006

How one foreign retailer is getting around India's FDI limits - legally

Businessworld has an article describing how Australian retailer Woolworth has structured a partnership with the Tatas that allows it to tap the Indian consumer durables market without having to enter into a local joint venture or franchisee relationship.
Woolworths may not be selling anything directly to Indian consumers, but it will have unhindered access to the Indian market through its partner, Tata group’s Infiniti Retail.

This is how it works. Infiniti will set up Croma, a chain of consumer electronics outlets across India.

...Woolworths, on its part, has set up Woolworths India, a sourcing company in India. This company will source and supply all the consumer electronics that will sit on Croma’s shelves. Croma will buy all its merchandise only from Woolworths India and the latter will not sell its products to any other company. “What we have is two companies working jointly as one unit,” says Roger Corbett, independent consultant and former CEO, Woolworths. It will sell to Infiniti at a fixed profit margin already agreed upon by both parties. That’s Woolworths part of the bargain.

Together, they have created Indian retail’s most innovative business model.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

The success of QIPs

Businessworld has an article on the success of qualified institutional placements (QIPs), a new instrument introduced by SEBI for helping Indian companies raise funds through private placements within the country.
Going by the current demand and the strong pipeline of issues, QIPs are the latest revolution in the capital markets. Although all issues so far have been straightforward equity issuances, merchant bankers say convertible issues will be on their way. Kotak Mahindra Capital, which handled the two biggest issues in this category, believes QIPs, along with book-building, are the biggest product introductions in the primary markets since 1999.

The main reason issuers preferred overseas markets earlier was the tedious and time-consuming process involved with secondary issues in India. Follow-on public offerings (FPOs) and rights issues can take as much as four months because almost all the procedures including documentation and regulatory approval are similar to an initial public offering (IPO). Besides, in the case of FPOs and rights issues, retail investors also have to be catered to. The problem is that the issue would have to be at a discount to the prevailing market price, or else retail investors wouldn’t participate in the issue; they would rather buy from the market. The other option, preferential allotments, carries a one-year lock in for investors. Due to the price risk involved, there are few takers among institutional investors for preferential allotments.

QIPs do not have a lock-in — the only stipulation is investors must not liquidate their holding through off-market transactions. Besides, no prior regulatory approval is required for a QIP issue document placed with institutional investors, hence, the time taken for the completion of an issue is lower. Zia Mody, AZB Partners, explains the rationale for lesser regulation: “The understanding is that since such an issue is made with sophisticated investors, the same level of regulation for public issues involving retail investors is not required.” Further, pricing need not be at a significant discount to the prevailing market price, since institutional investors would be content with assured allotment at current market rates. In fact, merchant bankers point out that in the QIP issues, the pricing has been almost at par with prevailing market prices.

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Rajesh Jain interview in K@W: The future of the Indian Internet is mobile

Extracts from Rajesh Jain (of Indiaworld fame)'s interview to Knowledge@Wharton:

Extracts from Jain's interview to Knowledge@Wharton.
For me, three words help define the mobile Internet. They are: now, near and new. "Now" is about what is happening right now in real time. Wherever I am, I can find the latest cricket scores or the top news stories because my mobile phone is always with me. "Near" is about location -- it can be as small as a neighborhood or it could be a city. If I'm about to take a flight this evening, could I get an alert on my mobile phone if the flight is delayed? Some of this is starting to happen, but it needs to happen a lot more. It could make a real difference to people's lives. Finally, "new" is about new stuff in which I might be interested. Just as a search engine like Google is a good way to find material that has been published in the past, the mobile phone is a great way to keep in touch with future or incremental content. If there is a sale, it should be possible for my book store to send me an alert and suggest business books that I might find interesting.

...The telecom companies and mobile operators need to start looking at value-added services. Average revenues per user are falling even though the customer base is growing dramatically, and there is enough room for growth. The user base of 100 million today will probably grow to 250 million in the next couple of years. What is important now is that operators should start thinking about creating an ecosystem that allows content providers and software companies to thrive in this environment. That is what NTT DoCoMo did in Japan with its i-Mode service -- it built out the ecosystem.

Operators are in a strong position. They have a virtual monopoly and they can control what users of their services can access through data connectivity. What they should realize is that by opening up and by enabling innovative services to come up, the usage of these services and therefore their revenues will increase. Here, again, studying the i-Mode example could be productive. The challenge for operators is that today 85% to 90% of their revenues still come primarily from voice services. They are primarily focused on customer acquisition right now. They see the user base growing to 250 million in a few years, and they are trying to figure out how to capture 25% of that market. As a result, though a lot of new services are coming up, not much attention is being paid to that. This whole ecosystem approach is what is missing in India.
Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

October 20, 2006

Mobile VAS Connect - Bangalore; Dec 12, 2006

The Mobile VAS sector has emerged as one of the favorite sectors among venture capitalists. However, there are several significant challenges facing the sector - including in the basic business models bring adopted, skewed relationships with operators, etc.

In this context, Venture Intelligence Mobile VAS Connect, scheduled for December 12 in Bangalore, presents an ideal platform for leading Venture Capital investors and top executives from Mobile VAS companies to network, discuss and share best practices.

Confirmed panelists include top executives from Sequoia Capital India, mportal, Nazara Technologies, Helion Ventures, Paymate, ACL Wireless, Phoneytunes, etc.

Who Should Attend?
• Venture Capital funds looking to invest in IT and Mobile Services companies
• IT and Mobile VAS companies planning to raise VC financing

For more information, click here

Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

October 18, 2006

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Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.