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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.