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November 28, 2007

Countering hedge fund invasion

In an article appearing in AltAssets, James Kelly of US-based law firm Nixon Peabody LLP, talks about the increasing "hybrid" strategies adopted by hedge funds and how PE firms need to counter this. While the article is written based on the US context, parts of it are relevant for other rapidly maturing markets like India - where hedge funds like Galleon, DE Shaw, Passport, Quantum, etc. are becoming increasingly active in traditional PE turf - as well.
In our view, hybrid funds will likely begin to play a bigger role in the middle market. As money continues to pour into private equity funds and hedge funds alike, these funds find themselves in bidding wars as competition for deals rapidly increases. Further, as the markets have become more efficient and the role of transactional intermediaries has increased, proprietary deals are becoming rarer and auctions commonplace. Aside from the obvious intangible currencies of operating focus and expertise, timing, and track record, the hybrid flexibility of a particular firm may add additional currency to the mix, allowing bidders to get creative to win bids, since valuation is not the only driver.


As we have seen, large hedge funds are already using side pockets to engage in middle-market buy-out activity. These hedge funds (as hybrid funds in this capacity) are attractive to targets as they provide financing without usually demanding control of the target, in contrast to venture capitalists and private equity firms, which more often require significant minority holder protections or complete control. A hybrid fund can justify lower returns in an investment it views as conservative to diversify its main return-generating activities such as traditional hedge fund investments in public securities. This may make hybrid funds more competitive in auctions where they are bidding against traditional mid-market private equity firms that typically seek higher returns.


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.

Will Dubai avoid the "skyscraper curse"?

Bloomberg columnist William Pesek has an interesting theory on the correlation between tallest-building projects and financial crises.
It happened in Kuala Lumpur in 1997, Chicago in 1974, New York in 1930 and in biblical times with the Tower of Babel. A bizarre coincidence perhaps, yet humankind's propensity for architectural overreach has been a reliable omen of meltdowns. Taiwan, which in 2004 became home to the tallest building, was arguably affected. Its economy didn't implode, so much as it's disappearing....

...The thing about record-breaking skyscrapers is that they can say as much about hubris as wealth, ambition and technology. Is Dubai a development miracle? Or is it the center of an Arabian asset bubble tied to surging oil prices?

At least for the moment, it would appear to be the former.

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.

November 27, 2007

VC Market

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

07-11-21-1: Hyderabad based company seeks <$1 M in angel investment for their upcoming real estate portal.

07-11-21-2: Kolkata based Enterprise software company seeks <$1 M for marketing and promotion of ERP product targeted at Manufacturers, Exporters and Retailers.

07-11-21-3: Panchkula, HR based company providing agricultural financing and support services in the areas of land cultivation, marketing, IT applications, decision support systems, outsourcing services, capacity building etc. to farmers and lending institutions seeks <$5 M for expansion.

07-11-21-4: Bangalore based battery maker, with over 25 years of experience in the industry, seeks about $5 M to set up manufacturing of Lithium ion batteries used in electric vehicles scooters and cars.

07-11-21-5: Niligiris, TN-based floriculture and horticulture firm seeks $2.25 M for expansion and diversification.


For more information about any of these companies, investors - who are subscribers to the Venture Intelligence service - can email the company code to vcmarket@ventureintelligence.in. To learn about our subscription services for investors, please visit our web site.

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

November 25, 2007

Why Ramzan is crucial for Carrom Board exports

Business Today has an off-beat article on the business of exporting carrom boards.
This unmatched frenzy at Meerut, a sports goods manufacturing hub of India, is triggered by the preparations for the Holy month of Ramzan in the Gulf countries. Sales of carrom boards in countries such as Saudi Arabia, UAE, Kuwait, and Bahrain increase by almost 50 per cent in the month of Ramzan, the fasting period that culminates in Id-Ul-Fitr, the biggest festival for Muslims. “During this period, the timing of the offices changes in the Gulf countries. People work from 9 in the evening till 4:30 in the morning and keep their shops closed during the daytime. Since playing cards is considered haram (profane), people prefer to play carrom that is considered a great leisure activity for the entire family,” says Anil Mahajan, Director, Himco International, an export unit based in Meerut.

Anil Mahajan is one of the 300-odd manufacturers of carrom boards, bulk of whose business happens two months preceding Ramzan. For the minuscule Rs 30-crore industry, three-fourths of the business is generated by the Gulf countries. “While carrom boards are exported all through the year, the order books swell in the month preceding Ramzan when bulk orders from the Gulf countries start coming. All the orders are dispatched 15 days prior to Ramzan,” he adds.

Traditionally as well, Arab countries account for a large chunk of the total carrom board exports from India. Says Kuldip Mahajan, Proprietor, Hind Sports, a manufacturer with more than five decades of experience in carrom board making: “This is both because of the huge numbers of expatriates from South Asia diaspora such as India, Pakistan, Bangladesh, Nepal and Sri Lanka there, and also because of the increasing local market for the product.” Mahajan exported over 6,000 units of carrom boards before Ramzan this year as against an average of 4,000 units in the rest of the months.
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.

Business Today's Cool Companies listing

Business Today has published its latest annual listing of "hip and happening" companies. This year's list includes a VC firm - APIDC-Ventureast. Other cool companies include two Canaan Partners back companies Cellcast (Mobile VAS) and TechTribe (online business networking).
For a fund that goes by the name of Apidc Venture Capital, its seven partners are anything but old fashioned. One is a blues guitarist who’s done gigs at blues bars in Chicago; another is an amateur bartender who can knock up deadly margaritas and mojitos; the third has an abiding passion for interior decoration, the fourth is a meditation expert, the fifth is a long-distance runner, the sixth has co-founded an art gallery, and the seventh founded a ‘Heart of a Child Foundation’ with Sylvester Stallone as one of its patrons.

But guess what? That’s not the reason why APIDCVC—managed by Sarath Naru, Chandra Shekhar Reddy Kundur, Aditya Kapil, Ramesh Alur, Raghuveer Mendu, Venkatadri Bobba and Siddhartha Das—is on our Cool list this year. Rather, the Hyderabad-based firm is on the list because, despite being a public-private partnership (until last year, the Andhra government owned 49 per cent of the firm, but its stake is down to a token 1 per cent; the rest is owned by Ventureast promoted by the management team), it thinks very differently as a VC. “Our model,” explains Naru, “is very much based on the businesses and technologies that are relevant to India and on having multiple funds with a pioneering focus in each.”

As a result, APIDCVC, which will soon call itself Ventureast, has been the first to launch an incubation fund, the first biotech fund, and the first micro-equity fund. With funds of Rs 1,200 crore ($300 million) under management, APIDCVC may not be the biggest VC firm around. But with investments in small and relatively unknown organisations such as Naturol Bioenergy, Ocean Sparkle, Cecelia Healthcare and Sapala Organics, it bravely goes where most other VCs fear to tread.

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.

Hollywood's growing fondness for Indian films

Business Today has an article on how Hollywood studios are now aggressively tapping into the regional language market in India.
Thus far, Hollywood studios have had only a peripheral presence in India, sticking to the traditional business of distributing their own—and sometimes, independently made films— in the country. Result: Hollywood’s share of the Indian film entertainment pie is a minuscule 3-4 per cent. But the big money lies in producing and distributing local films, and that is the path that some of the big boys of Hollywood are now taking.

...Hollywood first began testing the waters in the regional language market with dubbed versions of its English hits. The trend started with Jurassic Park in 1994. This was followed by Titanic in 1998. The success of these two films—the dubbed versions contributed as much as 25 to 40 per cent of their gross collections in India—highlighted the potential of the market. These were followed by Spiderman and Spiderman 2, Godzilla and Casino Royale, all of which reported multimillion dollar collections, thanks mainly to their dubbed versions. According to SPRI figures, 50 per cent to 60 per cent of its revenues in India come from dubbed versions of Hollywood movies. From there to local film production is, thus, a natural progression.

The obvious attraction is the size of the Indian market. The revenues of the Indian film industry, which were at Rs 5,990 crore in 2004, are expected to touch Rs 9,680 crore this year and grow further to Rs 17,500 crore by 2011, according to a projection by Pricewaterhouse-Coopers. Throw in television, home video rentals and film-related merchandising, and the pie is clearly too large for any serious player to ignore. Result: Sony, Viacom-Paramount, Time-Warner, Walt Disney, and Fox are sitting up and taking notice. Only Universal Studios has not yet announced any India plans.
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.

"Indian ports require a sea change"

Businessworld has an article on private participation in Indian port development.
Ever since India struck its first privatisation deal in 1996 when Nhava Sheva International Container Terminal was awarded to global port operator P&O (since bought by Dubai Ports), Indian ports have attracted Rs 7,585 crore in private investment: an average of Rs 700-plus crore a year. That’s still a trickle compared to the Rs 7,000 crore per year required in the next five years, but it has helped. The average turnaround time for Indian ports has improved from 5.23 days in 1998-99 to 3.5 days now.

Then, efficiency has taken a hit, even in Jawaharlal Nehru Port Trust (JNPT), which handles more than half the containers being shipped to India, despite two of its terminals being privatised.

Ramnath Iyer, director at Delhi-based Crisil Risk and Infrastructure Solutions, says the average time a ship has to wait before docking on to a berth at JNPT, the most efficient port, is 10 hours. In Singapore, the waiting period is zero; in Colombo, it is just two hours. The time taken for a ship to unload and leave the berth — the turnaround time — in JNPT is 1.98 days, in Singapore just 12 hours, and in Colombo, 15 hours.



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.

Online bill payment firms make a comeback

With Clearstone Ventures and SIDBI Ventures investing into BillDesk and the Battery Ventures and Greylock combine backing TechProcess (the new avatar of ICICI Venture backed BillJunction), online bill aggregation companies have made a comeback on VC radar screens. Businessworld has an article on the trends in this space and business models of these firms.
“There are only two aggregators in India, and their business models are very different,” says Shalini Mehta, executive vice-president for retail liabilities and branch banking at Kotak Mahindra Bank. “The business for aggregators has grown only over the past two years. Last year, it was estimated that only 300,000 online payments were made. But this year, the number could go to 1.8 million.”

Mumbai’s BillDesk and Tech Process Solutions (TPS) are the two aggregators ploughing this lonely, potentially fertile furrow. Ever since broadband took off in India two years ago, both the companies are waiting for billers, such as utilities and mobile service providers, to get more people to pay online.

...In a study conducted by the IAMAI, 51 per cent of the 3,000 people interviewed were comfortable paying in cash, and 37 per cent preferred to pay by cheque. However, Srinivasu believes although individuals could be shying away from using the internet to pay bills, the number of companies paying bills online is on the rise.



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.

Inputs to farmers via SMS

Businessworld has an article on a SMS-based service for farmers.
UK-based financial information and news provider Reuters Plc and Mumbai-based Multi Commodities Exchange of India (MCX), who are already empowering farmers by providing real-time agri-related information, believe food production could be revolutionised by integrating rather than sidelining middlemen. “The middleman is a key player and need not be wiped out,” says Anjani Sinha, director of MCX, which is setting up electronic mandis (wholesale markets) across the country to help farmers garner information. “He could help the farmer get produce to mandis that offer better prices.” For now, Reuters is helping farmers in Maharashtra do that through its SMS-based service, Reuters Market Light, which provides information on cropping patterns, mandi prices, weather updates and other agri-related information. In the process, it is indirectly helping sustain the middleman by ensuring that farmers go to those offering the most competitive prices.

Why SMS? “Mobile subscriptions are growing in rural regions,” says Amit Mehra, managing director of Reuters Market Light. “We can use this as an opportunity to provide information to farmers.” The service already has 4,500 subscribers in Maharashtra, with farmers receiving data in Hindi, Marathi or English. Mehra says farmers are keen as they can leverage the service to bargain with middlemen. Reuters has information coming in from 25 mandis across Maharashtra (the state has 293 in all), secured from the Maharashtra State Agricultural Marketing Board.

In 2006, an Indian Market Research Bureau study of 1,500 Maharashtra farmers who were given timely market information found that price realisation increased by 30 per cent when compared with farming without such information. Not surprisingly, the study also found that farmers were willing to pay for information. Subscribers to Reuters Market Light, for instance, pay Rs 60 per month per crop for text messages to be sent to them every day on weather and crop prices.
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.

Apparel shopping as family entertainment

McKinsey Quarterly has an article comparing shopping for apparel across India, China and Brazil.
Indians devote roughly the same share of their income to apparel as do Chinese and Brazilians. But the country’s lower per capita income levels mean overall spending on apparel is significantly lower, and the habits of Indian shoppers present intriguing challenges for multinationals eyeing the market.1 For starters, nearly 40 percent of the mass-market Indian shoppers2 we surveyed said that their most important shopping occasions revolved around special events, such as weddings and annual religious festivals—a figure dramatically higher than the one for shoppers in the other emerging markets we studied. Furthermore, to a greater extent than elsewhere, shopping is a family activity in India: nearly 70 percent of its shoppers always go to stores with family, and 74 percent—more than twice the average of Brazil, China, and Russia—view shopping as the best way to spend time with family. The preference for family-oriented shopping is consistent across age groups, income segments, regions, and city sizes.

As in many markets, in India women are the primary decision makers in apparel purchases for the entire family. But India’s men also have an important role: indeed, half of our survey respondents said that their husbands had a major influence on which stores they frequented—a proportion far higher than the one for Brazil (3 percent), China (8 percent), and Russia (18 percent). What’s more, India is unusual in that the market for men’s apparel is larger than the women’s market, where traditional Indian apparel still dominates. Mass-market apparel retailers must therefore find formats and merchandising approaches that will attract shoppers seeking apparel not only for special occasions but also appealing to the entire family.


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.

November 20, 2007

VC Market

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

07-11-07-1: Mumbai based online service for MBA aspirants and students seeks <$100,000 for expansion.

07-11-07-02: Hyderabad based HR Services firm specializing in offering recruiting, payroll and time & billing solutions seeks <$1 M for expansion across India and Middle East

07-11-07-3: Vijayawada based bio-fertilizer manufacturing company seeks <$5 M for adding new products and marketing.

07-11-07-4: Bangalore based Hotel and Resort chain, focusing on the mid market segment, seeks <$5 Million to ease leverage and acquire real estate for future expansion.

07-10-03-1: Mumbai based logistics services company seeks <$100,000 for expansion.

07-10-03-2: Kakinada based real estate developer seeks <$1 M for investment into real estate projects.

07-10-03-3: Mumbai based entrepreneur seeks <$100,000 to develop an interactive matrimonial website.

07-10-03-4: Ludhiana based auto components company specializing in fine blanked components and other big precision automotive assemblies seeks <$5 M for expansion.

07-10-03-5: Mumbai based, 18-year-old manufacturer and exporter of Home Care Products seeks <$100,000 for expansion and marketing.

07-10-10-3: Bangalore based maker of condition specific nutrition products seeks <$1 M for investing into filing international patents, production facilities and marketing in the US.

07-10-10-4: Bhopal headquartered operator of city specific portals seeks <$5 M for expansion.

07-10-10-5: Bhubaneshwar based entrepreneur developing a unique retailing system seeks <$5 M for development.

07-10-17-1: Mangalore based firm that designs and manufactures robots for agricultural and industrial applications seeks <$1 million for augmenting manufacturing facilities and setting up R&D facilities. The company is also open to a Joint Venture.

07-10-24-2: Pune based entrepreneur seeks <$1 million for setting up plant to manufacture alloy wheels for passenger cars catering to both OEM and after market requirements.

07-10-24-3: Dubai based software products company specializing in retail and hospitality solutions seeks JV/M&A opportunities to expand to the Indian market.

For more information about any of these companies, investors - who are subscribers to the Venture Intelligence service - can email the company code to vcmarket@ventureintelligence.in. To learn about our subscription services for investors, please visit our web site.

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

November 18, 2007

Why Battery is keen on media deals

Battery Ventures' Ramneek Gupta and Mark Sherman have published an article on the Indian media landscape and themes their firm would be keen to invest in.

TV and Print are the two largest sectors in Indian Media with $4.25B and $3B in revenues respectively. Additionally, TV is expected to grow at a CAGR of 26% over the next 5 years.TV accounted for ~43% of the total media market in 2005, a share that is expected to grow to 55% by 2010.

We will be looking to leverage this mindshare with opportunities along the following key themes in India:

1. Local Advertising and infrastructure – There are very few mass media avenues available for local advertisers in India today with the exception of Print. We believe there will be tremendous equity value creation in this space in the near-term.

2. Audience measurement systems – Infrastructure and Data services companies focused on audience measurement that allow the advertisers to measure the efficacy of their advertising campaigns is another huge area of opportunity in India. Systems that can enable audience measurement across mediums (from TV to Print to Radio) will be key to the growth of advertising revenues in India.

3. Niche content / channels – With the growth and maturing of the audience in India, niche content channels focused on Education, Real Estate, Financial Services, Women, Wellness, etc. will be another key area of opportunity in India.

4. Intersection with Mobile / Internet – Convergence between new media (mobile and Internet) and old media (TV, Print and Radio) will give rise to new business models for customer acquisition, retention and monetization.
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.

November 08, 2007

Multiplexes: The New Game in Tinsel Town

Businessworld article on the business of Bollywood points out how multiplexes, while accounting for just 4% of the 13,000 screens in India, generate 30% of the box office collections.
It is the exhibition end that is emerging as Bollywood’s most modern arena. Multiplexes, expectedly, have led the charge. Over the last 5-6 years, aided by waivers offered on entertainment tax by various state governments, multiplexes have grown as part of the new mall culture. Today, multiplexes offer 450 screens at 130 locations with 140,000 seats per show. Of the 13,000 screens in the country, the multiplexes’ share is only 4 per cent. Yet, they have transformed film entertainment by generating nearly 25-30 per cent of the Rs 3,000 crore annual box office revenue. Furthermore, by offering a high quality viewing experience with comfortable seating, and a package of food, beverages and gaming, multiplexes are a whole new show in filmed entertainment.

The multiplex business is dominated by six corporate groups — Adlabs, PVR Cinemas, INOX Leisure, Shringar Cinemas, Cinemax and Fun Republic, most of which are listed entities that follow fairly transparent accounting practices. “With an occupancy of 35-40 per cent, we were able to go into the black with a Rs 9.8 crore profit for FY2007, from an earlier loss of Rs 4.9 crore,” said Shravan Shroff, ED of Shringar Cinemas.

This transformation in film exhibition is also driven by aggressive adoption of digitalisation by companies such as Pyramid Samira who are putting up a chain of digital theatres in south India. Simultaneously, Apollo Group subsidiary UFO Moviez is retrofitting theatres in small towns and rural centres to allow for satellite delivery of movies. “The industry has been losing huge revenue as new launches reach smaller towns often a month later. Besides a loss of box office revenue, this encourages piracy,” says Sanjay Gaikwad, UFO’s CEO. So far, 900 screens have been digitalised at a cost of Rs 110 crore. Increasingly, filmmakers are turning to a combination of print and satellite digital releases. For instance, Heyy Babyy was released on 364 UFO digital screens and 325 traditional print screens, says Gaikwad.

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.

Ajay Shah on Private Equity

Extract from economist Ajay Shah's column in the Business Standard argues for removing the tax and regulatory irritants for PE investments in India:

The investments in place today might generate 1,000 exits over the next four years. On average, the PE industry will produce one company per weekday! Some of these exits would be through an IPO; the others would involve sale to an existing listed company. In either event, this would give growth of the overall market capitalisation of India and grow the modern sector of the economy.

A key feature of PE funds is that they have a substantial shareholding in the investee company — sometimes even a majority stake. This is a sea change in the governance environment when compared with the usual Indian family run company, where the CEO has job security owing to owning over 50 per cent of the shares. PE funds, in contrast, exert substantial control, and sometimes even sack the CEO. This pressure helps to improve the performance of the company. Once the Indian listed space has hundreds of companies which have experienced a few years of PE investment, this would lead to an improvement in the corporate governance climate in the country.

Indian capital controls matter greatly. The bulk of the money coming into this field is from foreign investors, particularly after the mistakes of Budget 2007, which restricted tax passthrough for PE funds for domestic investors. Investee companies are now often planned out as a global business doing outbound FDI very early in the game. Sometimes, investee companies are being structured as offshore firms so as to avoid Indian capital controls. Global PE funds are setting up operations in India, and their ability to do so critically depends on an environment which is supportive to global firms operating branches here and moving money across the boundary. A strong effort is required, on solving mistakes of tax policy and capital controls, so as to enable private equity to impact on India’s growth.

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.

November 01, 2007

Deal Alert: IDFC PE invests Rs. 35 crores in water management co. Doshion



Edited extracts from the press release:

Water management company Doshion Limited has raised Rs. 350 million from IDFC Private Equity (via its IDFC PE Fund II). Doshion has a pan-India presence and has executed projects - in sectors like water purification, waste water and effluent treatment - in over forty countries across the world. The company was founded by its Chairman Dhirajlal Doshi in 1978 and is managed by his sons, headed by Ashit Doshi (Managing Director) and backed by a team of professionals.

The money raised from IDFC Private Equity will be used to fuel further growth, including acquiring niche companies in the areas of design and fabrication of water treatment plants and for bidding for upcoming BOT and BOOT projects in the water segment.

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.