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January 29, 2007

Recent press mentions

Information and comments from Venture Intelligence was recently featured in Wall Street Journal and Businessweek.

More Coverage

Business Today's special feature on Infrastructure

Business Today has a special article on the infrastructure sector including the financing aspect.

India has started talking about the size of the funds needed to bridge the infrastructure deficit. The size, as can be expected, is gargantuan: $350 billion, or Rs 15,75,000 crore, at last count. How has the figure been arrived at? In the approach paper to the 11th Five Year Plan (2007-2011), the Planning Commission has, perhaps, for the first time, outlined the current investment in infrastructure (including everything from roads to rail to power to airports), and noted that it will need to increase from 4.6 per cent of GDP to around 8 per cent in the 11th Plan period.

...There is a limit to the amount of finance one can mobilise from domestic markets. You have no choice but to go to the international markets," says Ramesh C. Bawa of IL&FS. But as Sanjay Reddy of GVK Group points out, infrastructure finance has become less of an issue especially for ready projects. "We sewed up the funding for Mumbai airport modernisation in 45 days," he adds.

The absence of a steady stream of ready-to-invest bankable projects, or 'cooked projects' as Feedback's Chairman Vinayak Chatterjee likes to call them, is going to be more of an issue. Finance Ministry's Arvind Mayaram, who looks after infrastructure, agrees. "The key issue here is the capacity of the public sector to conceive, develop, process engineer and bid out the public private partnership projects."


Arun Natarajan is the Founder & CEO 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.

January 27, 2007

"India provides powerful opportunities": E*Trade CEO

From interview with Mitchell Caplan, CEO of E*Trade Financial Corp., in Knowledge@Wharton:
E*Trade is eagerly eyeing the corner of the world with the most potential new "drivers" -- the emerging markets of India and China, where economic growth and the popularity of the Internet have created demand for financial services.

But Caplan noted that the two booming nations have little in common, except their large size. In India, E*Trade last October became the largest investor in brokerage giant IL&FS Investmart. (E*Trade is now seeking a controlling interest in the company.) Caplan describes India as a country whose culture celebrates and values entrepreneurship."At the same time that Indians are creating markets, they are creating a middle class, and the opportunities are powerful."

That is a far cry from China, where the economy is strictly regulated by the government and E*Trade has so far taken only limited steps, such as seeking permission for an information-only office in Shanghai. In fact, when Caplan told a financial reporter in Hong Kong about E*Trade's eventual desire to conduct business in China, his contacts told him that he was risking arrest and that he had to "figure out how to smooth things over before you open your mouth again, so you can come back here."


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.

January 21, 2007

Venture Intelligence APEX ’07 photos

Venture Intelligence organized APEX ’07, an annual conclave where the Indian Private Equity industry introspects, brainstorms on the way forward and rewards its best, on January 16, 2007 in Mumbai.

The event brought together well over 100 participants from Private Equity/Venture Capital firms, entrepreneurs and service providers.


More Event Photographs:Slideshow I Individual Snaps

The event was made possible thanks to the sponsorship of ICICI Venture Funds, IDFC Private Equity, UTI Venture Funds, Zephyr Peacock India Fund, Evolvence India Fund, Mosaic Capital and Atherstone Group.

Venture Intelligence APEX ’07 Awards

Venture Intelligence APEX'07, organized in Mumbai on January 16, witnessed the first-of-its-kind awards for the Indian Private Equity and Venture Capital industry. The jury members included some of the most experienced investors in India-focused funds. Co-ordinated by Mr. Jay Jegannathan of Evolvence India Fund, the jury included Ms. Veronica John of Asian Development Bank (ADB), Mr. Brian Lim of CDC Group and Mr. Iyad Malas of International Finance Corporation (IFC).

“The Indian Private Equity and Venture Capital industry has matured rapidly in recent years and emerged as an important partner for Corporate India,” said Mr. Pawan Kumar R, Executive Producer of Venture Intelligence APEX '07. “The Venture Intelligence APEX Awards are a way of recognizing the contribution of the PE/VC industry in helping Indian companies and entrepreneurs achieve newer peaks.”


ICICI Ventures team accepting the award for the Best Late Stage firm. (Left-Right): APEX'07 Keynote Speaker Sanjeev Aggarwal of Helion Ventures, Ravindra.K of ICICI Venture, Jury Coordinator Jay Jegannathan of Evolvence India Fund, Bala Deshpande and Jayanta Banerjee of ICICI Venture.


Vikram Narula of India Value Fund accepts the award for the Best Growth Stage firm.


Satish Mandhana of IDFC PE accepting the Best Early-Stage/Specialized Firm Award


UTI Ventures team led by Raja Kumar KEC (centre), S.N. Rajesh (second from left) and Ajay Mittal (far right), with the firm's award


SIDBI VC President Vipul Mankad with the firm's award

Among PE/VC-backed companies, Suzlon Energy received the Late Stage investment award. The runners-up included GMR Infrastructure (Late Stage investment category), WNS Global (Growth Stage investment category) and Compulink Systems (Early Stage investment category).

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.

“Private Equity-backed cos. growing faster than their peers”: Study

Private Equity- and Venture Capital-backed companies are also adding significantly well-paying jobs to the Indian Economy, the study by Venture Intelligence shows.

Private Equity- and Venture Capital-backed companies are growing significantly faster compared to their non Private Equity-backed peers as well as market indices like the Nifty and CNX Midcap, according to a study released by Venture Intelligence.

The Private Equity Impact report, showcasing the findings of a first-of-its-kind study measuring the Economic Impact of Private Equity and Venture Capital on the Indian economy, also shows that wages at PE/VC-backed companies are growing at a significantly higher rate compared to their peers who are not PE-backed.
  • Sales at publicly-listed PE-backed companies grew at 22.9% over the five year period between 2000 and 2005, compared to 10% at non PE-backed listed firms and 15.8% at Nifty Index companies.
  • Wages at publicly-listed PE-backed companies grew at 32% over the five year period between 2000 and 2005, compared to 6% at non PE-backed listed firms and 16% at Nifty Index companies.
The study was released by Mr. Raman Roy, Founder & Chariman of Quatrro and the “Guru” of the Indian BPO industry. The first copies were received by Ms. Usha Narayanan of SEBI and Mr. Inderbir Singh Dhingra of the World Bank.


Mr. Inderbir Singh Dhingra of the the World Bank and Ms. Usha Naryanan of SEBI receiving copies of the PE Impact report from Mr. Raman Roy of Quatrro BPO

The Private Equity Impact study - conducted by Venture Intelligence with advice and guidance from Prof. Amit Bubna of the Indian School of Business, Hyderabad - measures the economic impact of Private Equity and Venture Capital on the Indian economy using qualitative and quantitative methods.

The Study provides quantitative comparison of PE- and VC-backed companies against their non PE-backed peers and relevant market indices, in terms of key economic parameters like Sales, Profitability, Exports, Wages and Research & Development. It also includes a first-ever qualitative survey of founders of PE/VC-backed private companies, and case studies featuring PE/VC-backed companies from different sectors.

The survey revealed that about 96% of top executives at PE/VC-backed firms believe that without PE/VC financing, their companies would not have existed or would have developed slower. Also, more than 60% of top executives at PE/VC-backed companies surveyed said that the number of employees at their companies had increased after the PE/VC investment.

PE Impact also provides a snapshot of how PE/VC backed companies dominate the list of top companies in the rapidly growing Business Process Outsourcing (BPO) sector. The report features case studies of successful three PE/VC-backed companies – Spectramind (BPO), Arch Pharmalabs (Pharmaceuticals) and Bharti-Airtel (Telecom Services) – showing how these organizations benefited from PE/VC investments and the lessons learnt in the process.

The study was released at Venture Intelligence APEX’07, an annual conclave where the Indian Private Equity industry introspects, brainstorms on the way forward and rewards its best,

The release of the study was followed by a panel discussion featuring successful entrepreneurs who shared their experience in working with Private Equity and Venture Capital firms. Speakers on the panel included Mr. Raman Roy of Quatrro BPO, Mr. Sudhakar Ram of Mastek Software, Mr. Alok Kejriwal of Contests2win, Mr. Sanjeev Bikhchandani of Naukri.com and Mr. Raju Venkatraman of RevIT (now part of FirstSource). The panel was moderated by Raja Kumar K.E.C, MD & CEO of UTI Venture Funds, a leading Bangalore-based Private Equity firm.

The soft copy of the study report can be downloaded here. Email us at research@ventureintelligence.in for printed copies.

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.

January 20, 2007

Ronnie Screwvala and his new plans for UTV

Business Today has an article profile of UTV and its founder Ronnie Screwvala, who, after selling "the teenager-focussed entertainment channel, Hungama TV, to Walt Disney for Rs 135 crore, is already onto his next big venture: a 24X7 Hindi general entertainment channel that will target India's post-teen youth market straddling an age band of 18-25."

But Screwvala is more than a serial media entrepreneur. He's one of the few pioneers who spotted the potential of the television medium in India as early as the 1980s. In 1981, Screwvala launched a three-hour video channel that began showing movies cabled into a clutch of apartments in south Mumbai's affluent Cuffe Parade area. Cable TV was a novel idea then and Screwvala was clearly a first-mover getting into it nearly a decade before others.

There hasn't been any looking back. By the late 1980s, Screwvala had moved into the back end of TV-producing content (then mainly for Doordarshan) as well as selling airtime and syndicated programming. Soon UTV, which he founded in 1990, was making content for the then fledgling cable and satellite TV and landed a breathtaking 520-episode contract from Zee Telefilms.

Sixteen years later, Screwvala and his team are scripting UTV's biggest story ever. "In three years' time," he says, "we want UTV to be a Rs 1,000-crore venture with 35 per cent of the revenue coming from global markets." A tall ambition? After all, UTV's turnover in 2005-06 was only Rs 208 crore, and in the past decade, revenues have never grown more than 15-18 per cent. Achieving Screwvala's ambition would require growing at a compound annual rate of 25 per cent. Is that really doable?

RONNIE'S JOURNEY
It's been a long haul for Screwvala and UTV.
1981: Launches cable network.
1986: Sells it off to a South-based group.
1986-89: Moves into TV content production (mainly for Doordarshan) and airtime sale and syndication.
1990: UTV is incorporated.
1992: Forays into content production for cable and satellite TV; Gets a 520-episode contract from Zee.
1995: NewsCorp invests $5 million; first-ever foreign investment in media in India.
1996: Warburg Pincus invests $5 million; its first investment in India and first media investment in Asia.
1997-98: Launches post-production and animation facilities.
1999: Acquires Vijay TV for Rs 12 crore.
2001: Forays into film production and distribution.
2003: Sells Vijay TV to STAR for Rs 85 crore.
2004: Breaks into mainstream broadcasting with the launch of Hungama TV; also begins international film distribution.
2005: UTV raises around Rs 60 crore through IPO, and gets listed on the BSE.
2006: Hungama sold to Disney for Rs 135 crore; the latter also picks up a 14.9 per cent stake in UTV; total deal size pegged at around Rs 200 crore; Plans launch of India's first-ever general entertainment channel for youth in Hindi.

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.

To JV or not to JV?

Business Today has an article on "India Inc's tryst with joint ventures".
To be sure, right from the Godrej-Procter & Gamble joint venture that came apart in 1996 to the more recent Tata-Birla partnership in Idea Cellular (see JVs that Fell Apart) Indian promoters have walked a thin line between control and losing it. "I think JVs last only for short periods of time. The reason for getting into a JV is that you are looking for an advantage that you do not possess," explains Godrej Group Chairman Adi Godrej. Over the past decade, Godrej was involved in two significant JVs-one with GE for home appliances and the other with P&G for soaps. Both the JVs didn't last, yet Godrej has few regrets. "In the case of the JV with P&G, both of us realised that we were better off on our own. From our perspective, we had the experience of working with an MNC while for them it was about the need to have a presence in India," he recalls.

Another promoter, who has had his share of learnings via JVs, is B.K. Modi, who over the years struck partnerships with global majors like Xerox, Alcatel, Motorola and Olivetti, only to bid goodbye to them some years down the line. Today, Modi's cellular play Spice Communications, where he is the Chairman, has had partners like Australia's Telstra and Distacom in the past. The latest affiliate is Telekom Malaysia, which has picked up 49 per cent in Spice. But Modi today is sitting pretty. Or at least that's what he says. "I will call the shots, even once we go public, after which I will retain a majority holding," he explains. Clearly, Modi has realised that equal stakes ventures-as in those with Xerox and Alcatel in the past-don't go very far.

Sharing the same objectives right from the start is vital in making a JV work. Consider, for instance, the tie-up between Bajaj Electricals and Black & Decker of the US, which was a 50:50 JV. One reason it didn't last is, as Shekhar Bajaj, Chairman & Managing Director, Bajaj Electricals, points out, "The us way of thinking is about high margins while in India, we are looking for a high turnover with low margins." Bajaj adds that an ideal way to go about a JV would be to begin with a licensing agreement, and then gradually extend the scope of the relationship.

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.

Business Today's special feature on Real Estate

Business Today has a special four part section on the current real estate scene in India here, here, here and here.
Devarajan's case typifies the conundrum in the residential sector. And that comprises nearly 90-95 per cent of the real estate sector in India. Commercial realty makes up 4-5 per cent, while retail corners the residual 1 per cent. It is people like Devarajan who fuelled the housing boom in India over the last five years and yet they are now feeling the pinch, the breathtaking rise in prices having outpaced their expectations. Adding to the problem is the supply. There just seems to be not enough new development at the budget end of the spectrum. However, at the same time Rs 1-crore apartments, which were a novelty a few years ago, have lost their shock and awe value.

If genuine buyers are being priced out of the market, then is the price rise sustainable? Is there a correction in real estate prices in the offing? If one were to believe Gaurav Dalmia, Chairman, Landmark Holdings, then a price correction is long overdue. Landmark currently has projects worth Rs 7,500 crore under development. Dalmia is unsure of the real buyers in the market at current prices. "Majority of current buyers are speculators and the prevailing prices are not time tested in the real user marketplace."

His is an increasingly lonely voice in a crescendo which says that though there may be minor corrections in smaller markets, there is no overarching correction in the offing. The case for a price correction needs to be seen in an appropriate context, believes Emaar-MGF's Executive Vice Chairman and MD, Shravan Gupta. The joint venture with the Dubai-based Emaar Properties has placed the biggest bet on Indian real estate in the form of the largest foreign direct investment. "If you take high-end properties in cities such as Delhi, then they are unlikely to correct as prices in that segment are inelastic," he says. However, he does not rule out corrections in the low middle to middle market categories, but they may also take some time to materialise because of the current momentum. "The economy is growing, more wealth is being created and income levels of the salaried class are rising," Gupta adds in support of his argument.

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.

"This time, it's different"

ET-Corporate Dossier section has an article pointing out how VCs like Matrix Partners and Canaan Partners are receiving 50-60 business plans each month. (No link available).
Before the alarm bells start ringing and you start imagining a build-up of another boom and bust cycle a la 2000, rest assured that it's a very different game this time with a different set of participants and a very different environment. It's no longer the rookies and greenhorns chasing big money with their post-exit plans ("I want to retire in the next four years") in place even before the first employee is on board. No longer is it the VCs who want the valuations, valuations and valuations, and worked on a model where eyeballs equalled revenue and the investment philisophy was largely assumption led. And no longer is it an environment where every deliverable is linked to future growth, and the Indian market still a promise.

The entrepreneur this time is a different animal. Most of the new breed fall in 30-50 age group, are highly educated, have solid industry experience, are much more realistic and have a long term view for their ventures. "The quality of entrepreneurs is much much better this time and they are not opportunistic like the last time around," says (Avish Bajaj of Matrix Partners), who successfully co-founded baazee.com during the last wave.

.."It is a different mindset, even if the profile is the same. Now people are prepared for the long haul," says Alok Mittal (of Canaan Partners), who co-founded Jobsahead.com in 2000.

One factor that has spurred many entrepreurial apirants to take that leap of faith has been the general business environment, which has turned decidedly conducive over the last 24 months. Be it a strong domestic market, or newer avenues to access capital, or the regulatory environment, or development of hubs like Gurgaon or Bangalore, all aspects that are required to build a robust entrepreneurial ecosystem are falling in place.

With the middle class fuelling a consumption boom, the domestic market has become attractive. So consumer and related businesses are good bets with fair chances of surviving and thriving. Even the tech space is witnessing a pick-up in start-up activity with centres like Bangalore feeling the buzz again.

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.

Localize and simplify: The Indian Web 2.0 mantra

The Telegraph has an article profiling Indian "Web 2.0" start-ups.
Exciting as all this is, the fact remains that most of these new websites are modelled on popular international formats or rely on providing an interesting mix of various features provided by different popular websites.

Take fropper.com, one of the biggest in the Indian social networking space, that aims to provide integration across the popular youth interests: photos, music, videos and blogging. Given the popularity of existing international sites, the way to differentiate yourself is to go local with a vengeance, feels Navin Mittal of fropper.com (backed by the shaadi.com team).

Indianising the content and making it simpler for a less sophisticated user-base are some of the tactics used by websites that have adapted global formats. Added features also help. Minglebox, for instance, plans to introduce something called MingleMobile to help users “blog from their mobile, upload photos from their camera phones and send announcements of blogs to their friends from wherever they are.”

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.

Where are the cross-border VCs, asks Basab Pradhan

Gridstone Research's Basab Pradhan bemoans the lack of cross-border VCs who understand both the developed world and India well.
Why are flat world startups underserved by the venture industry? Like all startups they need capital, connections (customers, partners, senior hires), and counsel. But it is very rare that you will find a VC who is as familiar with the Indian market as he is with the US market. His expertise, his connections are typically more slanted towards one of the two markets, but not both. So if he has spent his entire career in tech companies and VC firms in the US, his networks are in the technology sector in the US and can help in making introductions to potential customers and partners, but isn’t much help in hiring senior tech personnel in India. If, on the other hand, his background is in the Indian corporate sector or one of the early venture firms in India, he can use his connections to hire senior technology or product executives in India but can gain no market access.

...The entrepreneur will have to compromise – take dumb money or settle for a low valuation. Which is a shame because I think there is great potential in flat world ventures, certainly more than in the small Indian domestic tech market which seems to be getting more press than it deserves.

In case there are VC firms out there that realize the potential in the flat world theme, here’s what they would have to do:

1. Have offices in both India and the US with General Partners in both offices. It is important that the Indian office not be perceived as a satellite office staffed with junior staff.
2. Associate two partners with every flat world investee company. One, in India and one in the US. Assuming only one board seat, the other would be observer. But both would be actively involved in the company. This is a big commitment but believe me, it is worth it.
3. Create a culture of sharing and ‘boundarylessness’ within the firm which allows ideas, connections to flow freely across the globe. This will bring a global perspective to firm partners in both India and the US and make them both look smarter to entrepreneurs.
4. Get used to doing business over video conference, telephone or skype. Its that, or constant jet lag – take your pick. The reassuring handshake will get rarer, unfortunately.
5. Be ready to partner. If you can’t immediately do 1 through 4, do the next best thing – build a network of like minded VCs at the other end of the world who you can co-invest with.

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.

January 19, 2007

Why buyout firms like enterprise software cos.

Hedge fund manager (and former VC) Bill Burnham has an interesting take on why US buyout firms have taken a strong liking for acquiring publicly US software companies.
Rather than targeting fast growing software firms, PE shops typically target "mature" software companies as they not only tend to have lots of cash but they also derive a large percent of their revenues from maintenance revenues. These revenues are seen by private equity investors and, more importantly their lenders, as a stable source of cash flow that can be used to finance lots of debt.

Seven Steps To Carry
The basic private equity software play book goes something like this:

1. Buy software company
2. Do dividend recap in which you simultaneously lever up the balance sheet and dividend out all the cash you just borrowed plus most of the existing cash on the balance sheet.
3. Raise new fund off of massive IRR created by dividend recap.
4. Do lots of acquisitions to make organic growth impossible to discern
5. Raise prices, slash R&D, increase sales and marketing.
6. Take company public/sell it at same PE you bought it for to investor/large company apparently unfamiliar with the concept of enterprise value.
7. Repeat.

Now I admit this is a bit of snarky characterization of PE software deals because software offers some unique scale effects in SG&A, but I think this characterization is probably closer to the truth than a lot of mumbo jumbo about "value add" "synergies", etc.

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.

January 14, 2007

"Base of entrepreneurial pyramid is not very strong" : Ashish Gupta

Ashish Gupta, Managing Director of Helion Ventures, has written an interesting article for ET-Corporate Dossier pointing out the missing pieces in the Indian entrepreneurial ecosystem. (Unfortunately, no online link is available to the article.)


For example, tech-entrepreneurs in the US build in an environment of company creation that makes available hundreds of mentors, best-in-the-world talent, sophisticated attorneys who understand company creation, a large pool of ready customers, and so on. While the pace of evolution is faster it will naturally take sometime to bridge this gap in India.

The number and quality of entrepreneurs are increasing at a breathtaking pace. Many more senior executives are willing to leave their jobs and start companies. Similarly a lot of people who are willing to leave their jobs and start companies. Similarly a lot of people who are recent graduates are willing to take the risk. However, even now most "mid-level" professionals are unwilling to take professional risk. Further, while many people are keen to start companies, most are still not keen to join a start-up. Thus, the apex of the entrepreneurial pyramid is developing quickly but the base to support it is not developing as fast. this will create many start-ups that are unable to scale.

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.

"Danger lurks around the corner": Ashish Dhawan

Ashish Dhawan, founder of ChrysCapital, has written an interesting article for the Corporate Dossier section of Economic Times on why he is bearish in the near-term about returns from Private Equity investing in India. (Unfortunately, no online link is available. Emphasis on the "Real Estate is India's dotcom" (!) para is mine.)


India's P/E multiple is a reflection of the fact that risk aversion is at a cyclical low. Fast money can easily leave the public markets to create a buying opportunity. However, private equity money has a long lockin and therefore the supply of capital is unlikely to diminish, leading to an imbalance that gets perpertuated much longer than in the public markets.

Margin decline: in aggregate, the top 500 listed companies have grown revenues and net profits at 14% and 24% CAGR respectively over the past five years. We all know that in the long term, revenues and profits grow in line with nominal GDP. But margins are now likely to decline as new entrants attack fat profit pools and as existing players expand capacities. I dont believe that 20+% earnings growth will continue despite real GDP growth at 8 to 9%. History shows us that EPS growth is always much lower than anticipated as the business cycle turns.

Financial shenanigans: Real estate is India's dotcom. Both sectors are poised for growth. But the valuation metrics are insane. In the dotcom craze we forgot about earnings and valued companies on eyeballs. Today Indian real estate companies are valued on landbank. Cushman & Wakefield's landbank valuations are no different from Henry Blodget's infamous Amazon valuation. The state of affairs in real estate doesnt suggest a lot of prudence out there, meaning it's time for us to apply our own.

All of us in the private equity industry are aware of these risks and yet our incentives will prioritise quantity over quality in portfolio construction. The recent successes have erased from collective consciousness the ability of risk to turn into loss in the last few years. Private equity is now here to stay in India and will only grow over the long term. However, danger lurks around the corner.

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.

Reva re-charges with VC backing

Businessworld has an article on electric car maker Reva Electric Car Company (RECC) is planning to use its recent $20 million funding from Draper Fisher Jurvetson (DFJ) and Global Environment Fund (GEF) to introduce new models, beef up manufacturing and expand markets in India and overseas.
This year, RECC plans to roll out more than one model — it already has five prototypes ready. “DFJ and GEF have provided us with a global perspective and strategic vision,” says Maini. DFJ, with $3.5 billion in capital commitments worldwide, has invested in electric sports car manufacturer Tesla, energy storage device manufacturer Deeya Energy and photovoltaic solar cells maker Konarka Technologies. Timothy Draper, founder and managing director of DFJ, will join RECC’s board along with H. Jeffrey Leonard, president and CEO, GEF (which invests in clean technology and emerging markets).



What went wrong in the past five years? In 1997-98, when Reva was in the final stages of conceptualisation, its makers factored in the prevailing government subsidy of Rs 1 lakh for electric cars. But, by the time it was introduced in 2001, it had been withdrawn. The price of the two-seater (Rs 2.5 lakh) was almost the same as that of a Maruti 800, India’s cheapest four-wheeler. The target customer segment — working women, professionals, college goers and the retired — was not impressed, even though the cost per km was as low as 40 paise. It had a top speed of about 60 km per hour and a range (distance it can travel on a single charge) of 80 km. Its staggered launch in Bangalore, Hyderabad, Pune, Delhi, and Ahmedabad went unnoticed. Moreover, there were few charging points in these cities. Currently, Reva is available only in Bangalore (RECC is the distributor) and in Ahmedabad (through another dealer).

In Europe, RECC test-marketed its product in 2003 and a UK-based company, Going Green, marketed Reva as G-Wiz in 2004. To date, it has sold more than 800 cars in London — the highest sales recorded by any electric car manufacturer in any city. Its price is competitive at euro 11,000 as against euro 15,000 of its competitor NICE’s Mega City developed by Aixam-Mega group of France. It also offers a better range — 75-80 km — than Mega City (see ‘Global Tally’).
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.

Profile of Jubilant Biosys

Businessworld had an article on how this group company of PE-backed Jubilant Organosys, is transforming from a bioinformatics player into a complete drug discovery services company.

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.

January 13, 2007

The Classic Contrarian

Businessworld has an article on Royal Classic Mills, the Tirupur based make of Classic Polo brand of T-Shirts, which has time and again gone against the in-fashion trend in the Textiles & Garments industry.

In the garment export cluster that is Tirupur, the Royal Classic Group (RCG) is a bit of an oddity. It started out as a garment exporter just like the others, but suddenly changed focus to the domestic market in 2001 though it was doing perfectly well with its exports. Then, in an industry where vertical integration is not in fashion, RCG deliberately went down that route. Finally, while most exporters in Tirupur are focusing on supplying foreign brands, RCG is valiantly trying to create its own brand (Classic Polo). Primarily into making T-shirts, the company has now forayed into denim wear and other men’s apparel (while others are now waking up to the trend) to strike it big even in the face of easily available global names.

Royal Classic is still a medium-sized company — the 15-year-old (it started in 1991) has a turnover of Rs 225 crore, and its T-shirt brand sales add up to Rs 18.39 crore. What is interesting, though, is that it is trying to overturn the conventional business model of textile exports — and it seems to be succeeding.

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.

January 06, 2007

"Our perspective has changed tremendounsly": VCs turned entrepreneurs

Mercury News has an article on VCs-turned-Internet entrepreneurs.
The biggest plus, say these Web entrepreneurs -- each of whom hopes as much as the next company founder to strike it rich -- is knowing what they'll do differently if they return to venture capital. ``I used to sit and nod and think I could fake my way through another meeting with someone,'' said the founder of the online advertising startup. ``As an entrepreneur, I now see you can instantly recognize who doesn't get it, or care.''

Conrad, who has raised $4 million for Sphere and whose investors include Kevin Compton and Doug MacKenzie of Kleiner Perkins, said he'll be more sensitive.

``I think they're will be a place and time when I'll be a VC again, and I'll remember the clueless things I did before,'' including asking a struggling entrepreneur to meet him at his expensive hotel during a cross-country trip, rather than drive to the startup.

``You don't have to be in the trenches with them, but a lot of entrepreneurs resent VCs because they think they're disconnected from reality. Now, I see why.''


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.

"Selling to PE firms becoming a common exit route"

Mercury News has an article on US VCs exiting their invstments by selling them to larger Private Equity firms that are flush with money.
The extent to which private equity and venture capital may begin colliding remains in question. Rothstein points to Beringea-backed Mergermarket, which attracted eight potential bidders earlier this year, half of which were buyout firms, according to Rothstein. The company, which had raised $12 million in venture capital, ultimately sold in August to the international education company Pearson for $192 million, giving Beringea 18 times its investment. But it might have collected less without the private equity interest.

``Even if a private equity firm doesn't buy one of our portfolio companies, they're in there, stirring up trouble and increasing the (sale) price,'' said Rothstein.

Another VC on Sand Hill Road said to expect yet a different approach on the part of private equity firms, suggesting they may begin to ``roll up'' venture-backed companies.

``A lot of companies are doing OK but can't go public on their own,'' said the VC, who asked not to be named because of his firm's current negotiations with two private equity firms. ``If we as VCs try to merge them, it's not going to work because VCs and founders have their own agendas. But a private equity firm can come in, buy the companies, and merge them, and hopefully create something more valuable.''
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.

When the sugar cycle turns...

Businessworld has an article on how Coimbatore-based Sakthi Sugars has successfully riden the upward cycle in sugar prices and how it is preparing for the next inevitable downturn.
It recorded a turnover of Rs 1,003.8 crore and net profits of Rs 94.1 crore in FY 2006 (July 2005-June 2006). It would, therefore, appear surprising that Sakthi Sugars is hell bent on diversifying and reducing its dependence on the sugar operations. The answer lies in the fact that sugar is a cyclical business and the boom could end soon. “It is a 2-4-4 phenomenon,” says M. Manickam, managing director, SSL. This means two years of boom, four of normal business and four of downturn. If Sakthi Sugars wants to show a healthy bottom line, it needs to cut down its dependence on sugar before the cycle turns downwards.



To be fair, the company had realised the need for diversification as early as the 1980s when it tried to get into auto ancillaries business through its subsidiary Sakthi Auto. The logic: when the harvest is good, reap rich dividends; when it is not, offset the losses with the other business. However, it didn’t work out well enough. Hence, SSL’s second go at diversification.

...Manickam agrees that SSL should have gone in for value addition much earlier. “It would probably have made a huge difference if we had more co-generation units three years ago.” SSL also went in for a Rs 400-crore corporate debt restructuring (CDR) scheme in 2003. It restructured its interest rates in September 2006 and refinanced loans at below 10 per cent from the 12.5 per cent it was shelling out earlier. The interest was a drag on its finances and the move will result in a saving of Rs 8 crore-9 crore a year. The debt equity ratio is still a worrying 2.5:1, but the company is targeting a more acceptable 1:1 level in three years.


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.

Profile of Advinus Therapeutics

Businessworld has a glowing profile of Advinus Therapeutics, a pharmaceuticals research and development company founded by former Ranbaxy Labs scientist Rashmi Barbhaiya and backed by the Tata Group.
By August 2006, none other than industrialist Ratan Tata was inaugurating Barbhaiya’s dream project — a drug discovery lab at Pune’s Hinjewadi biotech park. What’s more, the $22-billion Tata Group, among India’s largest, has sunk $30 million for a majority stake in Advinus Therapeutics, which owns the lab. Barbhaiya, with a smaller stake, is CEO and managing director.

...Advinus has partnered with the $22-billion US company Merck in a deal that is potentially worth $150 million in milestone payments. Merck has identified targets (genes, proteins, enzymes, etc., linked to disease) and hits or chemicals that might work on them. Advinus will convert these into experimental drugs and do early human trials on them. Merck will take these trials further. If a drug is commercialised, Advinus gets royalties. This is for metabolic disorders. It is now looking to sew up another deal with Big Pharma in the field of inflammation. Advinus has built a 65-strong team of scientists and a well-equipped discovery lab in Pune in a matter of months. In Bangalore, it has secured 150,000 sq. ft of lab space with scope for expansion. Owned until recently by Tata company Rallis India, this centre is now part of Advinus and houses a 100-plus development team. It offers development services to western pharma and agrochemicals makers in exchange for a fee. The icing on the cake is snagging a majority shareholder in the Tata Group.
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.

"Expect a slowdown in 07": Sumir Chadha of Sequoia India

In an interview to Economic Times, Sumir Chadha, Senior Managing Director of Sequoia Capital India, explains why.


The year 2006 was very good for most of the private equity and venture capital firms but this is unlikely to be replicated this year. The year 2007 might just turn out to be a low investments one, not just for Sequoia but for the entire industry. Also, with a lot of investments last year, it is important that companies and investors give time for these investments to work out. This year may not witness that many deals but will put some of the deals that happened to test. This year will see how many of the deals, struck last year actually turn out to be intelligent investment decisions.

...From an investment perspective, 2006 has been a good year for us. We have made a number of investments and some of them were late stage deals. Idea Cellular, in which we invested $45 million was a big deal that we struck. In fact, we made an investment of $100 million this year and that is quite a lot considering that the funds are long term in nature. Out of the two funds that we have right now, $70 million came from our second fund and $30 million came from our first one. Since we operate in both private equity and venture capital space, this amount of investments is quite a lot.


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.

January 01, 2007

Profile of Tirupur, the booming textile town

Business Today has a detailed profile of life is changing fast for the textile companies in Tirupur (near Coimbatore) two years post the abolition of the global quota regime.
Eighty five per cent of India's readymade garments exports went to the quota countries. There was even a thriving trade in buying quotas from countries like Sri Lanka and Bangaladesh, which had quotas but not the capacity to utilise them. However, the end of the quota regime has heralded a new era for Tirupur.

...In the last 12 months, (Eastman Exports) alone has invested Rs 120 crore in capex. It has a spinning mill with a capacity of 50,000 spindles and its factories can manufacture two lakh T-shirts a day. "The opportunities are huge. And this is only the beginning as Indian players are just finding their feet in the global market. The future is even brighter," says a confident (Nachimuthu Chandran, Managing Director of the Rs 623-crore Eastman Exports).

..Not all companies, however, are focussing on the global market. R. Nagaraj, the soft-spoken owner of the Rs 250-crore (estimated; he refuses to disclose his actual revenues) Ramraj Group, realised the potential of the domestic market early on and is now regarded as India's dhoti king. His two main product are the humble dhoti and shirt. Some companies are also moving up the value chain by building or buying brands.

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.