Knowledge Partners


 Basiz Fund Service    Economic Laws Practice    Avalon Consulting  

 Spark Capital    Tatva Legal   

February 27, 2006

Budget analysis by ELP

Mumbai- and Delhi-based law firm Economic Laws Practice (also a Venture Intelligence India Knowledge Partner) has made available a quick analysis of the 2006-07 budget on a special web site.

The documents available for download include "Exise - Customs Tariff Rates", "Indirect Tax Budget Analysis", "Kelkar Report - Scoreboard" and "Sectoral Analysis".

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

Why VCs need to watch out for hedge funds

Bill Burnham has a detailed analysis on how hedge funds, having invaded the territory of Private Equity funds, can "rapidly gain a major presence in Silicon Valley".

Not only do they have the capital, but they have the economics that should allow them to recruit many of the top performing partners, especially the younger generation of “up and coming” partners that are on the losing side of the fee and profit skew. The ironic thing is that most hedge funds will probably do this as almost an afterthought. With some funds having gross exposures in the tens of billions of dollars, they could dedicate just a few percent of their assets to venture and become a major player overnight. While the direct returns on such funds probably wouldn’t move their own needles, the private market information flow that the hedge funds would gain access to could be worth a few hundred basis points of edge on their public holdings.

Is this relevant to India? Given that most VC firms in India - including some of the Silicon Valley VCs - currently prefer investing in late-stage and pre-IPO companies (typically, the turf of Private Equity firms in mature economies), the danger of clashing with hedge funds indeed seems real. And, by the way, the list of investors in the example that Burnham provides to illistrate how hedge funds are "dipping their toes in the late stage end of the VC market" - the recent $130 million financing raised by San Francisco-based payment systems developer Pay By Touch - includes Farallon Capital, which continues to pour dollops of capital into Mumbai-based Indiabulls and its group companies.

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

February 26, 2006

Ram Shriram, John Doerr, Ray Lane presentations in Bangalore

The TiE Bangalore chapter has made the presentations made by angel investor Ram Shriram and KPCB's John Doerr and Ray Lane at its "Entrepreneurship - yesterday today and tomorrow" event on January 31 availble for download from its web site.

Relationship Capital: John Doerr

Consumer Internet Web 2.0: Ram Shriram

KPCB in the Software Industry: Ray Lane

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

"Revitalizing manufacturing is the key to tackling poverty"

As part of a special Business Today issue on "25 Challenges for India", economist Lord Meghnad Desai argues that crearting manufacturing jobs is the key to eradicating poverty in India.
A massive employment creation programme, not employment guarantee is needed. No country has grown rich without taking its rural population off the farms and putting it into factories. India has to tackle that urgently. The stagnation in manufacturing has to be reversed. This can only be done if manufacturing is growing at high double-digit rates. China doubled its manufacturing labour force from 53 million to 103 million in 20 years from 1981 to 2002. Its manufacturing value-added grew eight times over that period at 25 per cent per annum, while India managed only 6 per cent. India can double its manufacturing employment in the next 20 years, if not faster. The resources can be raised if policies are improved. It requires:
* A drastic cut in budget deficits of the Centre and states. Cut non-plan expenditure, which was at Rs 3,52,748 crore by 2003-04, while plan expenditure was only Rs 1,21,507. There was more non-plan expenditure on the capital account than plan expenditure!
* A simpler and faster FDI entry procedure; and
* A drastic change in labour laws to make hiring workers less expensive.

Domestic savings of 25 per cent plus a net government saving of another five per cent and FDI of 10 per cent can lift the economy to those heights. This is something the business community can get its teeth into. Only employment growth in manufacturing offers unskilled rural labour any hope of a permanent route out of poverty. It is time to grasp it.

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

February 25, 2006

Making India the #1 FDI Destination in the World

As part of a special Business Today issue on "25 Challenges for India", Anand Mahindra, Vice Chairman and Managing Director of Mahindra & Mahindra, makes a clear case for attracting Foreign Direct Investment (FDI) into India and ways to about this task.

We cannot, and must not, let our GDP growth rate slip below 8 per cent. We must understand that no amount of improvement in our customer-friendliness and easing of regulations will help, unless we are growing at a rate that makes the world sit up and take notice. Arguably, there are many areas in which our regulatory framework is superior to China's. But it is steroidal growth which keeps the legions of investors coming. For this, the political leadership, from the Prime Minster down, must make it an unequivocal virtue to pursue GDP growth targets.

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

February 20, 2006

TiE-DFJ business plan contest selects two winners

Rajan reports that the "India Venture Challenge" national level business plan competition organized by Draper Fisher Jurvetson (DFJ) and TiE (The Indus Entrepreneurs) has selected two companies as joint winners. The two companies - Dr. Girish Saraph-led Vegayan Systems (Mumbai) and Mukesh Hegde-led NCE Technologies (Bangalore) - which shared the $150,000 prize money, were selected from among the 10 short listed finalists which presented their business plans to a eminent panel of judges at an event conducted at the Indian School of Business (ISB) at Hyderabad on February 20.



A press release from DFJ-TiE says that the contest attracted 125 entrepreneurial teams from across India, representing both new ventures and existing early stage businesses.

The panel of judges evaluating the 10 finalists included Sarath Naru of APIDC, Ranjan Chak of Oak Investments, Raj Atluru and Mohan Lakhamraju of DFJ, N.S. Raghavan of Nadathur Holdings, Srini Raju of ILabs and Professor Chandrashekhar of ISB.

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

February 19, 2006

"Foreign buyout firms will move on if India doesn't suit them"

In an interview to Business Today, Texas Pacific Group's David Bonderman, points out - repeatedly - that while India is a hot market right now for large global buyout PE firms like TPG, they wouldn't hestitate to move on to other markets if Indian government regulations, company valuations and other factors don't suit their liking.

First of all, the Indian government seems to be in two minds as to whether it wants to encourage foreign investment or not. You have industries like retail, where foreign investment isn't permitted (Editor's note: This interview took place before the government allowed 51 per cent FDI in the case of single-brand retailers) and industries like banking, where it is permitted but only up to 10 per cent (Editor's note: In public sector banks). If you go to almost any other country in the world, they don't have those restrictions. That does keep down the size of deals. The other thing is that since most of the Indian groups are family-controlled, there isn't really the same opportunity to do full buyouts that you might see elsewhere.

...The advantage that big funds like TPG, Carlyle and Blackstone have is that we don't have to invest in India. We are available to invest in India, we think India is doing well and it's a place we'd like to invest in, but if there are not opportunities or if we think the pricing is wrong, we'll invest in China, Japan or Indonesia.

...If India continues to have its economy perform well, and if the government pursues reforms and the infrastructure gets better, I think there will be lots of enthusiasm (about India). India is the flavour of the month at the moment, but it will not be the flavour of the month at all times.

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

February 14, 2006

Internet cos. are back (on the cover of business magazines)

Businessworld has a cover story titled "Internet business grows big" with some interesting facts and figures.
The total Internet business is big — worth over Rs 2,200 crore. About Rs 500 crore comes from advertising, ecommerce (not including billings) and other revenues. Add in access charges at a minimum of Rs 200 per month, and multiply it with the 7 million-odd subscriber base. What you get is over Rs 1,700 crore being spent just to get on to the Internet. The revenues for the four big classified sites is Rs 200 crore. But nobody has an inkling about the numbers for several other categories such as mobile content or broking.

...(Sanjeev Bikhchandani, the CEO of online jobs web site Naukri.com) leads a pack of a dozen-odd entrepreneurs who suddenly find themselves being chased by investors. Deep Kalra, founder and CEO of Makemytrip, says that he has met more VCs in the last three months than in the last five years. And Alok Kejriwal, CEO, Contests2win, says that he is back to meeting a VC a week for the first time since 2000.

...Global investors and Internet giants have India on their radar because they know that 65 per cent of Indians will be 15-35 years of age a decade from now. The youngest population translates into the largest Web space (research shows that younger people are more likely to be online). That India has the lowest broadband prices worldwide ($4-$5 monthly) and is seeing one of the world’s fastest growing mobile revolutions tells them that the ‘always on Indian’ is inevitable. They have seen that happening to China. Over the next 3-5 years, they expect to see it in India.

...Classifieds
...In India, two categories in particular have been successful — jobs and matrimony. The combined turnover of the four biggest players (Naukri, Monster India, Shaadi and BharatMatrimony) is touching Rs 200 crore. These two categories have seen remarkable growth in the last five years, and that is leading to newer challenges. Take Naukri, which has grown 100 per cent in each of the last seven years. Five years ago, the focus was to build a database of resumes. Today, it has a database of five million resumes (growing by 8,000 daily), and its next step is to enhance service offerings like better response management, advanced search tools, etc.

Companies that have found success in jobs and matrimony are now using their understanding of the online classifieds business to enter new categories. Murugavel Janakiraman, founder-CEO of BharatMatrimony, diversified into jobs (Clickjobs) and real estate (Indiaproperty) in December 2005 and now plans to launch an automobile portal. Bikhchandani has also diversified into matrimonial (Jeevansaathi) and real estate (99acres). Both Janakiraman and Bikhchandani are now trying to become the default portal of choice for all classified categories. Categories like real estate, automobiles and education will be the next to go online, further eating into print revenues.

...The Challenges
One, there is no vernacular content, so all the 40 million users are English-speaking. That brings us dangerously close to saturating the universe of Indians speaking English. To add the next 40 million users, the Internet has to turn vernacular.


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

Broadband connections touch 1 M, Mobile user base crosses 80 M

ContentSutra has summarized the highlights of Telecom Regulatory Authority of India (TRAI) Press Release on mobile and broadband usage:

- Total number of mobile users in the country as of January 2006 is 80.61 million
- Gross telecom user base is around 130 million, so teledensity nears 12 per cent in January compared to 11.43 per cent in February
- Broadband base touches one million (the broadband target as of December 2005 was 3 million - so massively fallen short)
- Total Internet subscribers base crosses 7.5 million (the total net users, acording to IAMAI, is 38.5 million). To be fair, total net subscriber target of 6 million by December 2005 was exceeded

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

Study predicts "degraded future returns" for US Venture Capital

A new academic study paints a not-too-rosy picture for the US VC industry. According to the researchers, the US VC industry has undergone a fundamental transformation ever since the early 1990s when pension funds started to significantly invest in the sector.

"As a result, the US VC industry has transformed into a supply-driven market. We estimate that even after the bubble burst, the VC industry is still inflated and predict degraded future returns," according to the paper's abstract. "Moreover, we project that if pension funds, such as CALPERS and the like, and other institutional investors will further increase their allocation for venture capital investments it will turn out counterproductive and further degrade the performance of the VC industry in view of the limited pool of fundable deals". Ouch!

Looks like Naukri.com might soon have US VCs applying as more than just investors in the company!

Hat tip: Paul Kedrosky

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

February 07, 2006

Fixing US Venture Capital

Peter Rip of Leapfrog Ventures has a nice post on why the traditional Venture Capital model in the US is broken and how to fix it.
Venture capital is a three parameter problem. Buy low, Sell High, Sell at the Right Time. Most people seem to have ignored the third parameter. Time-to-exit used to be 4-6 years. Then it collapsed to 2 years in the Bubble. Now it seems pretty much infinite. Divide by Zero and get infinite IRR. Divide by infinity and get -100% IRR. The proof is left to the Investor.

With even the "bluest of the blue" Silicon Valley VC firms – some of whose partners are famous for saying they will never invest in companies they cannot drive to - starting to make direct investments in (relatively mature) Indian companies, it sure seems as if the drying up of exits in the US is changing a lot of rules in the business.

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

Fixing US Venture Capital

Peter Rip of Leapfrog Ventures has a nice post on why the traditional Venture Capital model in the US is broken and how to fix it.
Venture capital is a three parameter problem. Buy low, Sell High, Sell at the Right Time. Most people seem to have ignored the third parameter. Time-to-exit used to be 4-6 years. Then it collapsed to 2 years in the Bubble. Now it seems pretty much infinite. Divide by Zero and get infinite IRR. Divide by infinity and get -100% IRR. The proof is left to the Investor.

With even the "bluest of the blue" Silicon Valley VC firms starting to make direct investments in (relatively mature) Indian companies, it sure seems as if the drying up of exits in the US is changing a lot of rules in the business.

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

"India to account for 6.5% of global semiconductor revenues by 2015"

The India Semiconductor Association has released a study predicting the semiconductor and embedded design market in India will grow from the current $3.25 billion to $43.07 billion by 2015. The study forecasts that consumption of electronics equipment in India will reach $363 billion by 2015. The semiconductor component of that total will be $36.3 billion.

"At $36.3 billion, India will account for 6.5 percent of global semiconductor revenues. This is by no means a small market," said Rajendra Khare, managing director of Broadcom India in a Red Herring article.

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