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March 31, 2007

Vinod Khosla's portfolio of renewable energy startups

The Deal Blogs has an article providing a listing of Khosla Ventures' portfolio companies based on a recent speech by VK.

Most of the companies are based around the general themes of making coal, materials, efficiency and oil more efficient. Then, he further refines them by grouping his investments according to the type of energy that the portfolio companies are trying to improve or harness. Here are the specific investment themes and companies that fall into each category:

1) Cellulosic - Mascoma, Celunol, Range Fuels, 1 stealth startup

2) Future Fuels - LS9, Gevo, Amyris Biotechnologies, Coskata Energy

3) Efficiency - Transonic Combustion, GroupIV Semiconductor, 1 stealth startup

4) Homes - Living Homes, Global Homes

5) Natural Gas - Great Point Energy

6) Solar - Stion, Ausra

7) Tools - Nanostellar, Codon Devices, Praj

8) Water - 2 stealth startup

9) Plastic - Segetis, 1 stealth startup

10) Corn/Sugar Fuels - Altra, Cilion, Hawaii Bio


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 sample issues of Venture Intelligence India newsletters and reports.

Case Study on YouTube

Deepak Thomas and Vineet Buch have published a case study on YouTube.

The reasons behind Google’s acquisition seem quite intuitive. YouTube falls in line with Google’s strategy of converting user visits to its properties into contextual advertising revenue. YouTube’s huge user-base combined with its own user base gives Google formidable market power and the ability to influence consumer behavior. Also, while the prospect of YouTube being acquired by one of the media giants was slim, the acquisition did serve to deter competitors like Yahoo from making further inroads into the online video-sharing market.

For Sequoia Capital, YouTube’s main investor, the investment turned out to be a huge success. Sequoia had initially invested $3.5 million at a pre-money valuation of $15 million and another $8 million in a second round of funding. Sequoia is estimated to have owned approximately 30% of YouTube, for a stake valued at $495M. This represents a 43X return on invested capital in less than 2 years time. Sequoia was chosen by the YouTube founders due to pre-existing relationships and the fact that Sequoia apparently ‘got’ the concept of YouTube early on. According to YouTube co-founder Jawed Karim, during YouTube’s Series A fundraising process Sequoia impressed the YouTube team by having Sequoia’s entire staff experiment with the YouTube product.

Was the $1.65B acquisition price justified? Revenue projections for YouTube have not been disclosed, however Fred Wilson has estimated YouTube’s revenue figures potential at $400 million annual revenue, $150 million net annual revenue. Another revenue analysis pegs current monthly revenues at $7.5M. The newly announced revenue-sharing model that rewards users who upload content, only serves to muddy the valuation picture even further.


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.

The party's on at corporate law firms as well

Economic Times has an article on how corporate law firms are benefiting from the boom in PE and M&A deals.

Industry observers believe that the revenues at India’s leading law firms which operate in this space like FoxMandal Little, AZB & Partners, Amarchand Mangaldas, Majmudar & Co, DSK Legal and Mulla & Mulla have gone up considerably. They believe many firms will hit record earnings numbers this year. Cyril Shroff, managing partner of Amarchand Mangaldas said: ”We see more private equity deals and inbound-outbound corporate activity in 2007. ”

So when and where exactly does a law firm come into the picture during a deal? Akil Hirani, managing partner, Majmudar & Co says that there are three primary occasions when law firms are always present: term sheet signing, due diligence and during the final negotiation and contract document signing. That the business is booming can be seen by the activity at the firm these days. Mr Hirani says that these days when they are closing deals there could be up to 20 people working on his floor till the wee hours of the morning whereas two years ago there seldom were more than two or three people burning the midnight oil.

“In 2007, law firms are expected to record a revenue growth of 30% to 40% as against revenues in 2006. There are more opportunities for bigger law firms as the size of M&A deals gets bigger. Next year, the growth and revenues will be more than 50%,” said Som Mandal of FoxMandal Little.


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.

March 27, 2007

"There's no short-cutting the VC process"

Speaking at Internet & Mobile Connect, Probir Roy, Co-founder & Director of Paymate, described how his company went about raising venture capital and the challenges during the process.

Saying that it took Paymate a total of 10 months from the time of active scouting for VC funding and eight months from the first meeting with the eventual investors, Roy broke down the time it took for various stages of the capital raising process. “The initial meeting to term sheet took 10 weeks. From the term-sheet to definitive agreement/shareholders agreement took six months,” he said. The money remittance however happened within four months of the terms sheet - prior to any formal agreement being signed up. “Don’t be daunted by paperwork, there is nothing you can do about it,” Roy added.


Probir Roy of Paymate

Pointing out how even a leading VC firm like Kleiner Perkins does not carry much name recall in India, Roy emphasized the importance of the VC investor being on the ground full-time in India. He advised VCs to turnaround quickly with their decisions to the entrepreneurs – even if their answer is a no. Mutual respect is very crucial aspect in the entrepreneur-VC relationship, Roy said.

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.

"Communication, Entertainment and Information: Order of Preference for M-VAS Cos."

Speaking at Internet & Mobile Connect, Alok Mittal, Executive Director of Canaan Partners, emphasized the need for Mobile VAS companies to “own the customer” as well as directly create demand for their applications. This would be the best way for them to get a larger share of the consumer’s spending. “We are seeing companies in India that get a 50:50 revenue share with operators as long as they have something unique to offer and they own the customer.”


Alok Mittal of Canaan Partners (Right)

Communication, Entertainment and Information would be his order of preference among services in the mobile sector, Mittal said. Pointing out that the sheer number of communication applications on the mobile platform was very limited compared to the Internet – including in terms of group communication, publishing, etc - Mittal said there was plenty of scope for entrepreneurs to come up with innovative products and services in this area. As a firm, Canaan would look more favorably at platform-oriented companies rather than those dependent on a single application.


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.

"Performance of Internet businesses better than perception"

Speaking at Internet & Mobile Connect, Avnish Bajaj, Managing Director of Matrix Partners India, said said how while in 1999-2000, perception of Internet-based businesses was ahead of reality, over the past few years, it has been the other way around. “Since investors have had such a negative perception, today we have a situation where while the audience is clearly there, there is a lack of compelling services and content.” He pointed out how India is among the few markets in the world where traditional media companies have latched on to the Internet quite early and ensured there wasn’t enough time for strong stand-alone businesses to emerge.


Avnish Bajaj of Matrix Partners India


There is more opportunity for utilitarian applications in the Indian context than self-actualization ones, Bajaj added. Pointing to the success of the Indian Railways’ online ticket booking service, he said as long as there are compelling enough applications, companies can build significant businesses by serving consumers who would pay even small amounts like Rs.50 a month.

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.

Internet & Mobile Connect - Post Event Info

Venture Intelligence organized “Internet & Mobile Connect”, a roundtable focused on opportunities and challenges for Venture Capital investing in Internet-based services and Mobile Value Added Services companies. The event, which was held on March 15 in Mumbai, brought together over 150 participants.

The event was sponsored by leading Venture Capital firm Canaan Partners.

You can view the post event newsletter here.


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.

March 25, 2007

"Real Estate firms looking beyond bank (and black) financing"

Economic Times has an article on the changing face of real estate financing in India.

The availability of clean money is perhaps the single biggest reason for the cleaning up of the sector. "The change in the financing pattern has altered the Indian real estate sector dramatically. The sector which was once fully dependent on a single source of financing - bank credit - has suddenly witnessed a flood of funds from various avenues like foreign funds and public offerings," says Balaji Rao.

It is estimated that over $4-5 billion FDI has been pumped into the sector in 2006 while during the 2005-06 the bank credit to the sector touched Rs 2,60,223 crore against Rs 1,45,605 crore in the previous year. This change has been driven by listed and unlisted real estate companies and private real estate funds catering to institutional investors, and a heightened focus on Indian real estate by leading international property consultants and commercial banks. And more than $8 billion worth of foreign real estate funds have been raised to invest in India.

...To meet such mammoth demand, real estate players could not have just taken money from informal sources and have had to either raise money from global funds or list their companies on the stock exchange. In either case, they are subject to tight scrutiny. And the best part is that the new kids on the block have been unafraid of accepting that transparency. Ritesh Vohra, director investments, Yatra Capital , a Euronext listed property fund, says that the entry of foreign funds into the Indian market brought two major changes into the sector. One, the emergence of mid-size developers with large scale real estate projects which usually taken up by a handful of big players and that has added depth to the market. Two, the developers are now more transparent and introducing some level of corporate governance in their companies. "The developers are more open now. They are ready to show their books of accounts, title documents and sharing the cash flow details. Indian real estate firms are now ready to opt for good corporate governance standards and inducting the representatives for funds as directors on the company boards," he says. Yatra Capital has concluded three real estate deals in the Indian market.

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.

March 19, 2007

Kiva marries microfinance to the Internet

Mohammed Yunus started it with Grameen Bank. Now, most banks in India and other parts of the developing world have embraced microfinace and profit from it.

But, has anyone come up with significant innovation to the basic model for microfinance that Yunus created? The answer was "hardly any" until Silicon Valley-based Kiva - led by its President and former PayPal executive Premal Shah - which has married the power of the Internet - and the keenness of technology companies to help out entrepreneurs in less-developed countries - to microfinance.

Kiva has been receiving a lot of positive press. Here's how SJ Mercury News describes the service:
Here's how Kiva, 'unity' in Swahili, works: Lenders visit Kiva's Web site to find entrepreneurs from developing countries looking for a small loan. Kiva posts the entrepreneurs' funding needs and pictures online with the help of 38 local microfinance institutions around the world.

Anyone willing to lend as little as $25 - perhaps to Peter Muchiri, a furniture maker in Kenya who needs carpentry materials, or Roza Boguckaya of Tajikistan, who wants to expand her bakery - does so through the site, where they can also track the entrepreneur's progress as they repay their loans, typically over a one-year period.

To date, nearly 40,000 people have used Kiva to lend money to 5,000 borrowers in transactions totaling $3.3 million. No one has defaulted on their loan, though 10 percent are falling behind on their payment schedules.

It's a remarkably simple system that highlights the power of online communities. Yet just as remarkable is how adeptly Kiva has harnessed the collective power of the Silicon Valley tech community.

Among the growing number of companies providing Kiva with free services are Google, PayPal, Microsoft and MySpace. And more outfits want in, including San Francisco start-ups Automattic, which produces blogging software, and Xanga, a host of online diaries and journals.


Here's a picture of the Kiva process according to the organization's web site.


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.

March 18, 2007

Why did Marketics sell out?

Analytics outsourcing firms, though highly profitable, cannot scale beyond a stage. This is why pioneering marketing analytics outsourcing firm Marketics - with estimated revenues of $5-6 million and highly profitable - chose to sell out (for $65 million to WNS), according to an Economic Times analysis quoting K. Ganesh, angel investor in the company who earlier founded BPO firm CustomerAsset (acquired by ICICI OneSource).
“Indian analytics companies are facing a significant challenge in scaling up. It is easy to get to $4-6 million but extremely difficult to get to $40 million,” says Jaswinder S Chadha, CEO, marketRx, a New Jersey based analytics and market research firm.

The analytics business in India is relatively new and has a handful of players like Marketics, Fractal, Pharmac and Kandor. Industry experts say that barring a few companies like Evalueserve (estimated revenues $30-40 million) and marketRx ($40 million), the rest are still small.

“Can an analytics firm grow to $100 million? Yes. Can it grow to a billion dollars? The answer is no,” says Ganesh. He says analytics unlike the BPO or IT services is not inherently scalable. “We started both businesses in CustomerAsset at the same time, in the second year the analytics business was doing only $10,000 a month but our call centre business had gone up to $700,000 per month,” says Ganesh.

The analytics business may be small but it is highly profitable. It is the high profitability of the business, which has attracted companies like WNS to it. Analytics gets billing rates of $20-120 per hour compared to BPO business, which has rates of $8-13 per hour.


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.

New incubation program: dreamZhunt

Chennai-based IT services company SGS Technologie has launched a "business idea contest" called dreamZhunt.

"The contest is focussed at IT professionals who are looking to kick-start their first business," informs Manoj Kumar.G, one of the event's organizers and Business Manager with SGS Technologie. The event sponsors will provide seed-funding of up to $100,000 per selected company, he says.

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.

Podcasting with Kiruba

Kiruba Shankar interviewed me for a podcast. Check it out!

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.

March 11, 2007

"The Loser's Curse"

Fred Wilson has an interesting post on how a VC who has lost money on a company will never again invest in the sector even though things might work out differently in a new investment (due to the latest market dynamics, a different management, etc.).
The loser's curse is when you fail at something so badly that you never want to try it again even if there are other and better ways to do it that may result in a better outcome.

...At Flatiron we backed a company called Smallworld Sports which was one of the leading fantasy sports services in 1999. The year before we invested they had done something like a million in revenue and made money. We invested a lot of money in them, I can't remember exactly how much but it was between $5mm and $10mm. The year after we invested, they did about the same amount of revenue and lost well over $5mm. Venture capital killed that company and it was sold for pennies on the diollar to The Sporting News.

Never again.

I realize that times have changed. Games and sports on the web are bigger than ever. Social networking brings an important new component to the fantasy sports equation. A different management team and business model might make a big difference.
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.

Roomali With A View, Dal Fryday and other BangaloreRestaurants.com

Givent that one survey has found that IT professionals spend US$1bn annually on “eating out, it is not probably not surprising that some IT industry executives in Bangalore have decided that they might as well get a share of this spend.

Business Today has an article on some of the IT industry executives - including some full-timers and some moonligthers - turned restaurateurs. (The IT industry connection also explains why most of these restaurants have "offbeat" names reminiscent of dotcoms.)

The article also has a "box item" former venture capitalist Kiran Nadkarni (JumpStartUp and Draper International), who now runs the Kaati Zone chain.
At Mast Kalandar,..Gupta and her techie husband Gaurav Jain are content catering to the ever-burgeoning demand for clean, hygienic north Indian food from the hundreds of it companies around its four units. "We have used some retail expertise we picked up previously (Wipro Technologies, TCS and Vensys, an Australian it company where Jain worked closely with Pizza Hut) and have even put in place a retail matrix to run our business," says Gupta. While she manages the kitchen and back-end of the restaurant, her husband looks after marketing and customer services. The matrix allows them to keep tabs on each of their units and manage supply chain, logistics and even unexpected demand for extra staff easily. Kapoor even has a web-enabled system that allows him to log in remotely to check on Roomali With A View's operations.

Given the crowd at these outlets (when we visited Mast Kalandar at 1.10 p.m., we found the place packed; at Roomali With A View, patrons, ranging from large families to groups of techies, crowd the place in the evening), these code jocks have clearly got their strategy spot on. However, all of them are quick to admit that running a restaurant is a difficult business and that they are only just coming to grips with it. Biswas of Biryani Merchant, for instance, has tied up with Collabrant Incubators, a firm that specialises in taking over and scaling high-potential businesses, to try and ramp it up from just one restaurant and a handful of kiosks to 300 restaurants nationwide. Under this arrangement, Biswas will continue to be part of the management of this chain, but the responsibility of scaling up the business now lies with Collabrant Incubators, a Bangalore-based business strategy and incubation services provider. "In the long term, our business requires scale and some capital infusion to be successful," he argues, adding that he hopes to close around Rs 9-10 crore in funding soon.
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.

March 05, 2007

VC Market

The following companies are seeking capital for starting-up / expanding their operations:

07-03-07-1: Pune-based entrepreneur seeks <$10,000 for commercialization of his innovative method of production of Bio-Diesel from fat that is washed off while cleaning equipments in dairies.

07-02-28-1: US- and India-based publishing BPO firm is looking for <$1 million for its B2B online financial service.

07-02-28-2: Mumbai-based online and mobile Car Pool Service seeks $1-5 million.

For more information about any of these companies, investors can email the company code to vcmarket@ventureintelligence.in

Are you an entrepreneur seeking capital? List your company in the Venture Intelligence VC Market using the form here

March 04, 2007

The hotel room shortage - and boom - in India

Businessworld has an interesting article on the opportunity and challenges facing the Indian hotel industry - including the current acute shortage of rooms, the supply rush to fill the gap, the real estate connection

..there is a big supply rush coming. Many real estate developers and funds have rushed in to fill the supply gap. However, the hotel opportunity is not simply lying there for investors to pick up. Real estate prices are exorbitantly high, regulations for hotel construction are restrictive and there is acute shortage of good staff, with most flocking towards other sectors such as aviation. All these paint a not so rosy picture.

...Among homegrown hoteliers, Indian Hotels is showing the most appetite for rapid expansion in the utilitarian hotels segment. Roots Corporation is targeting 100 hotels over the next decade, of which 10 will become operational this year. It is also bidding for upgrading and taking over the operations of the existing Yatri Niwas hotels of the Indian Railways and also set up similar hotels at 11 locations on a build, operate, transfer (BOT) basis. Patu Keswani, former COO (business group hotels), Taj group, is also in the game. Propped up by Rs 330 crore in private equity from Warburg Pincus and Kotak, he already operates Lemon Tree hotels in Gurgaon, Pune, and Goa and, plans to have 19 budget and mid-range properties with 2,400 rooms operating across the country. Five-star hotels are also coming up in significant numbers, but of the new supply, nearly half the rooms will be in budget and mid-range hotels compared to about 23 per cent for five-stars.

...Given the steep land costs, restrictive government rules and regulations, and rising wage costs, at least half the promised 100,000-plus rooms may not be built, not in the current wave at least, according to Keswani. And some hotel projects may not be carried through once room rates begin to soften with increase in supply. Also, many may be rendered very risky because of high costs especially if mainly financed by debt. He predicts a 15-20 per cent correction in room rates across the board as a big lump of room supply comes to the market during 2008-09.


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.

The IT industry's impact on the Indian economy

Based on an online survey of over 42,000 IT professionals, CLSA has come out with an interesting report, - titled "Chain Reactions" - about the impact of the growth of the IT industry on the Indian economy.

Where IT makes an impact

! From FY08CL, India’s IT exports are set to exceed its net oil imports.

! The IT sector will pick up over 80% of India’s employable engineers and 60% IT-employable graduates –addressing one-third of the urban employment challenge.

! We estimate that each IT job will create at least 1.4 other jobs in the economy.

! We forecast IT to account for 20-25% of Indian GDP expansion over FY07-10; transform Indian cities; and, as the sector matures, drive innovation in the country.

Spending trends among IT professionals

! IT alone can absorb 70-75% of residential and two-thirds of forecast commercial
FY07-10 real estate demand. Realty demand forecasts seem conservative.

! We see the segment supporting two-thirds of five-star hotel-room additions and one-third of budget hotel expansion over FY07-10.

! We predict IT professionals will personally fund 20% of incremental domestic travel.

! An important contributor to financial services development, IT workers account 20% of online trading accounts, and 12% of credit cards.

! IT workers will also drive 17% of new home loans over FY07-10CL.

! They will also account for 13% of car sales; 16% of A+B-segment car sales; and one-third of demand for multiplexes over FY07-10CL.

As they age, as they earn

! We see further spikes in consumption trends for the 28-35 age bracket –particularly home/car ownership, and healthcare and leisure spending.

! IT professionals spend US$1bn annually on “eating out” and nearly US$700m annual healthcare costs.

! All these areas will get a boost in coming years – we estimate 500,000 IT professionals will move into this age group in the next three to four years.

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.

State of Indian Life Sciences industry

Business Today has a special feature on the Indian Life Sciences industry including the generics, contract research, original drug development and biotech sectors.
Mid-January, Mumbai-based Nicholas Piramal announced a deal with giant Eli Lilly to develop a patented molecule. The $100-million deal requires Nicholas Piramal to take the molecule (meant to treat metabolic disorders better) through clinical development phases I to II. In return, the Indian partner will get milestone-linked payments (which, hopefully, will total to $100 million), besides the right to market the drug in India and some other parts of South East Asia.

Why is Lilly, which has better labs and vastly bigger R&D budgets, turning to a small Indian company to develop drugs for it? The answer has to do with what's happening in the global pharmaceutical industry. Finding blockbuster drugs has got a lot harder, even as costs of R&D and compliance have steadily climbed. Various estimates put the cost of developing a drug in the US at between $800 million and $1 billion. The Piramal deal, if it bears fruit, will be a steal for Lilly. Actually, it's just the sort of win-win arrangement that's fuelling the growth of an entire industry-that of outsourced contract research and manufacturing (cram). "Timeline, affordability and confidentiality are some of the factors working in favour of companies like ours," says S.P. Vasireddi, Chairman & Managing Director, Vimta Labs, one of India's leading clinical research organisations (CROs).

In 2005, the cram market was estimated, by ASSOCHAM, at $532.10 million, of which manufacturing accounted for 84 per cent and research the rest. The outsourced clinical trials piece, in comparison, was worth $100 million. If McKinsey's numbers are anything to go by, then the market is set to explode. The consulting firm expects revenues from outsourced clinical trials to touch $1 billion and cram to zoom to $900 million. "With an increasing number of cram agreements, the target is likely to be hit," says Anil K. Agarwal, ASSOCHAM's outgoing President. Agrees J.R. Vyas, Founder and CEO, Dishman Pharmaceuticals & Chemicals: "My company is looking at a 40 per cent growth in 2006-07."

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.

March 03, 2007

Primer on AIM listing

AltAssets has a downloadable backgrounder
, by law firm King Stubb & Kasiva, on Indian companies looking to list on the UK's AIM market.

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.

Actis goes gaga on the Indian consumer boom

UK-based PE firm Actis' India managers sing paens to the Indian consumer boom in the article for AltAssets.
With 1,000 new cars a day crowding onto the streets of India, and one million passenger vehicles sold in the 12 months to March 2006, there is very real evidence of escalating consumer demand, driven by increasing affluence, available credit and a growing propensity to spend. Yet at the other end of the scale India is still home to some of the world’s poorest people.

...What’s more, growth in this sector is also being fuelled by the climbers, who represent 37% of India’s households, not to mention the aspirers who are joining the market economy for the first time.

...It is the young working populations that drive personal consumption. These are the individuals that are driving the purchases of televisions, cars and mobile phones. It is this group that has made a generational leap built on buying now – possibly using a new brand of credit card that just did not exist in India a decade ago – so they can pay tomorrow. Meanwhile, money is going further as competition for consumer spend is rising, leading to static and often falling prices for typical purchases. This is manifested by the purchasing power of the rupee, where its PPP (purchasing power parity) value is about 80% more than the prevailing exchange rate.


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.

Is the media celebrating Silicon Valley VCs a bit too much?

This PEHub article on a man - "Anand Lyer Vaidyanathan" (persumably, Anand Iyer Vaidyanathan) - arrested for repeatedly tresspassing Seqouia Capital's Sand Hill Road office seems to indicate as much.
Sequoia posted a job opening for an early stage associate on its website at the end of November, one that Vaidyanathan decided to apply for on December 7. Sequoia’s private investigator responded to him via email, outlining in no uncertain terms that Vaidyanathan should not contact Sequoia. Vaidyanathan responded “I thank you for your offer. I appreciate your timely action. I accept your offer of employment,” court documents show.

On December 11, Vaidyanathan returned to Sequoia’s offices and was again arrested for trespassing, according to the PI’s testimony.

Vaidyanathan, formerly a student at Iowa State University, had sent Sequoia several hand-written letters offering the firm the opportunity to invest in two startups, A@stra Impact and Silicorn. He had also requested that the firm apply for an “investor’s green card” for him, the documents show.

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.

March 02, 2007

Sarbox and Private Equity

Blackstone CEO Stephen A. Schwarzman pointed out how buy out firms are benefiting from Sarbanes Oxley regulations at the recent Wharton Private Equity and Venture Capital Conference. Knowledge@Wharton has an article based on his presentation at the event:
Public companies are now increasingly open to private equity advances. Sarbanes-Oxley and other regulatory and accounting rules are making some CEOs eager to work for private equity owners. Executives are also tired of the pressure to make quarterly numbers for the benefit of Wall Street analysts. "This is a transformation from 10 years ago when people in the buyout world were regarded as marginal, and becoming the CEO of a publicly traded company was an apogee moment."

Boards and executives are so concerned with Sarbanes-Oxley and compliance that they take very little risk in running their companies. Board members now come to meetings with their own lawyers, Schwarzman said, adding that accounting changes limiting write-offs for extraordinary events, such as plant closings or layoffs, prevent corporate executives from taking steps to enhance their business for fear that their earnings will take a major hit. "We have a bit of a broken system right now and the solution for these frustrated managers is to sell their businesses to private equity."


(Interestingly, Schwarzman also said at the event that the party time for buyout firms was probably nearing its end. He foresses the rise in interest rates and an overdue relaxation in Sarbox regulations tilting the field back in favor of strategic investors.)

The same article has David Brandon who took over as Domino's CEO post its buyout by a group of PE firms led by Bain Capital providing a slightly contrary view that life as a public company CEO was not too different from that under PE firms.
Brandon stressed the importance of working in partnership with private equity owners. "The ability to work with the sponsor company in a spirit of trust and fairness is what it's all about." Bain exhibited its faith in him when it allowed Brandon to make the call on when to go public, he said. "I believe management teams are the ones that have to pay back debt and take the company public. We are responsible. We can't be reluctant partners."

Brandon noted that he has now taken two companies public -- one before Enron and one after. "This time around was dramatically different." The process was harder and independent directors -- he serves on three other boards -- now have a "bunker mentality." New committee structures, Sarbanes-Oxley and whopping fees paid to auditors all make for more "moving parts" in running a public company. "It's changed how I allocate my time, but I don't think that, in and of itself, is going to make every company run back and become private."

Brandon recalled that after Domino's went public, he was often asked whether it was difficult to meet Wall Street's quarterly expectations. His response: "Have you ever looked at the expectations of those Bain guys? It wasn't like I was with a bunch of wimps who didn't care. They and their investors had thresholds. So whether I'm trying to ... satisfy and impress Bain, or show results for public investors, to me it's all kind of the same thing. It's all about performance."

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.

Speaker list for Internet & Mobile Connect - Mumbai, March 15

Over 15 leading VC investors and top executives from Online Services and Mobile VAS companies will be speaking at the event. The speaker list includes:
Murugavel Janakiraman, Bharatmatrimony.com
Alok Mittal, Canaan Partners
Alok Kejriwal, Contests2win.com
Ashish Gupta, Helion VC
Manik Arora, IDG Ventures India
Anurag Dod, Guruji.com
Avnish Bajaj, Matrix Partners
Sanjay Swamy, mChek
Nitish Mittersain, Nazara Tech
Sandeep Singhal, Nexus India Capital
Arvind Rao, OnMobile
Probir Roy, Paymate
Rajesh Sawhney, Reliance Entertainment
Ravi Adusumalli, SAIF Partners
Mahesh Murthy, Seed Fund
Sandeep Murthy, Sherpalo Ventures
Ashwin Damera, Travelguru

For more information about the event, please visit http://ventureintelligence.in/ev150307.htm

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.

Should VCs buy out angels?

Interesting discussion at VentureWoods between Deepak Shenoy and Roshan D'Silva on this "perennial topic". Here are their first posts (in the comments section):


Deepak Shenoy said,

Alok, true - there is reason to think about why one wants to exit. As a stock market investor, I have made decisions to sell companies at (say) 400% profits, when the company went on towards 1000% of what I bought - yet, I wasn’t sulking in a corner. Because a) 400% is pretty nice and b) I’d reached that comfort level of profits.

Angels may not want to stay the distance, which could be much longer than their cash needs, and if the current valuation is attractive enough for them to exit. As individuals I would imagine that angel investors are the kinds that put in Rs. 10 lakhs to Rs. 50 lakhs in a business - and honestly, there are a number of such people who have this kind of cash lying idle in bank accounts (idle = they don’t need it right now). Such people can be angels, but they won’t be because VCs won’t let them book profits until the final exit, years away. Which again they have no control over because further rounds have diluted their stake too much.

The US has a huge background of such deal flow, but it’s absent in India. I was hoping a VC would take the lead and say that they would fund angel exits here (even partially so) and more angels would come out of the woodwork. We need those angels, if only to make more companies VC worthy…


Roshan D'Silva said,


Hi Deepak,

I think the angels you’re referring to are probably those that fall into one of the two categories:-
1. Purely financial a.k.a the family rich
2. People whose net worth does not afford them the luxury to ‘angel’ - (20k - 100k usd in the bank wanting to angel?? ;-) )

They typically make the usual mistakes - getting in at too low a valuation, adding no value, bickering, neglecting paperwork etc. etc. Category 2 usually in a few years realizes that they’re not in the ‘zone’ and go into other asset classes. For Category 1, it really does not matter.

The really good angels are very focussed on getting their portfolio companies funded and typically their angel rounds are done as debt convertible into equity at a discount to the subsequent round valuation. This also eliminates any negotiation between the angel and the founder and motivates them both to do ‘fair deals’.

For companies (trying to raise money) or VCs (wanting to invest in a company) who is stuck with angels of categories 1 &2 I would never suggest providing an exit to the angels. I would rather make the founder take on debt (which could come from the VC or a new ‘real’ angel) and let him/her negotiate to buy out these guys before the VC round. If the founder’s unwilling to do so, I would want to think along Alok’s lines.

Of course, I’m talking about ‘real’ VC’s investing in ‘real’ companies that can exit at 100mn+ numbers.

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.