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October 29, 2009

The 'Beating Street Estimates' game

The Associated Press (via NY Times) has an article explaining how so many US companies regularly manage "to beat analysts' estimates":
Corporate America has a habit of low-balling the earnings forecasts used by analysts to determine their estimates. That way, the bar is lower, and companies can easily jump over when the quarter's results are announced -- even if profits and revenues have fallen off a cliff.

...Beating expectations generally gives share prices a quick lift, but the news can mislead investors about the real state of the business -- and just how far this economic recovery has to go. In fact, of the companies reporting third-quarter results so far, 60 percent have posted lower net income compared with a year ago.

...A study of stock returns from 1994-2007 concluded that analyst forecasts were the second-most influential force on price movements. Management forecasts topped the list, according to Beverly Walther, an accounting professor at Northwestern University's Kellogg School of Management who co-authored a newly released report.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Have women on your board? Here's the cash...

From The New York Times:
Naissance Capital, based in Zurich, will start the Women’s Leadership Fund in January, which will invest in companies whose boards include women. It also plans to take minority stakes in companies without women on their boards and to use its ownership to encourage changes.

R. James Breiding, a co-founder of Naissance Capital and a former director of Rothschild Corporate Finance, said the fund was created after several studies showed a correlation between the number of female directors and a company’s performance.

...Naissance has lined up $200 million from institutional investors and individuals to invest in 30 to 40 companies around the world, and plans to increase the size of the fund eventually to about $2 billion. The minimum investment for the fund is $100,000. Naissance, which was founded in 1999 and specializes in what it calls “niche investment opportunities,” is one of a handful of firms that have created funds over the last three years to invest in companies with female senior executives.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

"It's all coming together for Reva"

The New York Times has an article on electric car maker Reva.
Last month, the company won an important stamp of approval when General Motors said it would use Reva’s technology in the electric version of its Chevrolet Spark, a small car whose conventional gasoline version G.M. sells here already. The electric version of the Spark is expected to go on sale in India by the end of next year, according to G.M. officials.

...Mr. Maini said electric cars have to be small and affordable to succeed in places like India and Europe, where most car trips are short and involve stop-and-go driving, unlike in the United States where commuters can drive 50 miles or more a day, mostly on highways...In Europe, the higher-end model (of the NXR) will sell for about 15,000 euros, or $22,000, not including batteries, which the company will lease for a monthly fee.

...“I have been doing this for 15 years, and I have never seen everything come together like I have” now, said Mr. (Chetan) Maini, the 39-year-old vice chairman and chief technology officer of Reva. The company is jointly owned by his family; AEV L.L.C., a small technology company based near Los Angeles; and two venture capital firms.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

October 27, 2009

Deal Alert: A2Z Maintenance acquires controlling stake in CNCS Facility Solutions

Edited excerpts from Press Release:

Gurgaon-based facilities management and EPC firm A2Z Maintenance and Engineering Services has acquired a controlling stake in CNCS Facility Solutions, a Mumbai-based facilities management services company. One World Resources acted as the sole financial advisor to CNCS in this transaction.

The investment will allow A2Z, whose investors include India Equity Partners, Beacon India Private Equity Fund and Rakesh Jhunjhunwala, to expand the presence of its facilities management services business in Western India.

ContentSutra interview with Nimbus' Harish Thawani

ContentSutra interviewed Nimbus Communications' Chairman Harish Thawani, in the context of the PE-backed firm's renewal of its contract to broadcast test and one-day cricket matches played in India.

What is the per match rate you are paying and is the case that this time there are fewer matches?


Again, it depends on the exchange rate and other factors, but it is about Rs31 crore. The number of matches are about 15% lower at this stage. The schedule is subject to change and we have left enough flexibility in the deal to work around future changes.

What does the deal mean for Nimbus? Are you looking to raise cash?

We are not looking to raise money. We had a third round of investments in 2009 by our existing investors 3I, Cisco and Oman International Fund. The focus is on growing Neo Cricket. The channel will soon be available also in Europe and North America. We already have a very strong presence across Asia. We are also planning two new channels.

Do you think that ODIs will suffer due to the popularity of the 20/20 format?

That is the biggest myth ever. Cricket between countries have a 150-year history. You cannot replace that with a few seasons of a new format. The fad of 20/20 cricket will pass. Ratings show that IPL season 2 was 17% lower than the first edition. And you know what is happening with Champions League T20. So there is no question about diminishing popularity of ODIs.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

October 26, 2009

Forbes' profile of the Co. behind Mainland China

Forbes India has a profile of Speciality Restaurants, the company behind Mainland China and other restaurants.
(Anjan Chatterjee) has 52 restaurants (spread across eight brands including Mainland China, Sigree and Oh! Calcutta) across 11 cities including three abroad — Beijing, London and Dhaka. Now he wants to spread to tier-II towns and in some ways be a pan-Indian fine-dining restaurant chain.

Chatterjee’s company Speciality Restaurants Pvt. Ltd. (SRPL) and SAIF Partners (Softbank Asia Infrastructure Fund), an investor in SRPL, are busy scripting the new plan. They are looking at a listing on the stock market next year. It depends on the number of acquisitions. They want to expand the chain to 100 restaurants before the initial public offering.

...Apart from processes, fine-dining restaurants have to deliver an experience rather than just a meal. “If a restaurant can make Rs. 800 on an average bill, then the margins can be 20-25 percent, else they drop to 10-15 percent. Also, very few locations in India are both lunch as well as dinner places. So a restaurant has to make its money from one dining occasion,” says Milind Kothare, CEO, mKons Consulting, a hospitality consulting company.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Deal Alert: Nutraceuticals firm Deccan Healthcare raises Rs.15-Cr from Nexus Ventures

Edited extracts from the press release:



Deccan Healthcare, an innovative products company in the Indian health and wellness market, has received a Rs 15 crore investment from Nexus Venture Partners. Sandeep Singhal of Nexus Ventures will join the Deccan Healthcare board.

Deccan Healthcare has developed, through intensive R&D, a variety of nutraceutical products which boost immunity and address chronic ailments. The key products include a flaxseed-based vegetarian Omega-3 which they sell under the OxyFlax and Nulife-ISB brand. It is useful for cardiac care, bone health, diabetes prevention, and is also anti carcinogenic and anti-inflammatory.

Speaking about the funding, Mr Minto Gupta, Founder & CEO, Deccan Healthcare said, “We at Deccan Healthcare are happy to be associated with Nexus Venture Partners. The funding will help us enhance our R&D efforts and our expansion plans. Deccan is launching a variety of nutraceuticals addressing specific life-style problems and will also explore export opportunities.”

Sandeep Singhal of Nexus Venture Partners said, “The Indian nutraceuticals market is over a billion dollars growing at 30-40% per annum. Mr. Gupta is a passionate entrepreneur who has built Deccan into a leader in the Omega-3 market and is now expanding into a variety of nutritional supplements.”

October 22, 2009

Forbes India profile of Gitanjali Gems

From the Forbes India profile:
He is aiming to be the world’s biggest jewelry retailer, growing bigger than Tiffany, which had net sales of $2.86 billion last year and has over 200 exclusive stores; at the same time, create a group full of well known brands, something on the lines of LVMH, which owns 50 brands netting it over 17 billion euros in revenue in 2008. For Gitanjali, Choksi unabashedly talks of revenues of $5 billion from his 60-odd brands, from the current consolidated sales of $1.2 billion in the next “few years.”

...Though most of the growth in the jewelry business came in recent years, Choksi saw the writing on the wall pretty early. Choksi realized that he was in the lowest end of the value chain, whereas more than 70 percent of the additional value accrued to the companies that sold those diamonds in branded jewelry. According to the International Diamond and Jewelry Exchange, or IDEX, in 2006-07, rough diamonds of $7 billion in the mines were worth $19.8 billion after they were cut and polished by the likes of Gitanjali. They value increased exponentially to $73 billion when they got sold in stores across the world.

The initial public offering (IPO) in 2006 was a particularly difficult affair. Its two lead managers, known names in the financial world, backed out in the last minute citing “reputation” problems with the diamond industry. Gitanjali went ahead with the IPO with a new lead manager and mopped up the targeted Rs. 330 crore. A year later, the same two lead managers came back and asked to be part of Gitanjali’s latest fund raising initiatives — a $110 million foreign currency convertible bond and a $180 million global depository receipt. They were politely refused. Gitanjali had made a statement.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

October 21, 2009

Deal Alert: Evolva Biotech raises $28-M in first closing of Series B financing



Evolva Biotech, a Switzerland- and India-based drug discovery firm, has raised CHF 28 million (about US$27.8 million) in the first closing of its second round ("Series B") financing round. The financing is part of Evolva’s preparations to merge with Swiss stock exchange listed company Arpida, though the funds are committed independent of the proposed merger. The Series B financing is led by current investor Aravis and new investors Auriga Partners, Vinci Capital-Renaissance PME and Wellington Partners. BioMedInvest and an undisclosed private investor participated as co-investors in the first closing, as well as Evolva's existing investors Astellas Venture, Dansk Innovation, Novartis Bioventures and Sunstone Capital.

In 2005, Hyderabad, AP-based APIDC Biotech Fund (now Ventureast) had participated in Evolva's first round investment. Other investors in the round included Novartis Ventures, Astellas Ventures, Danish Innovation Investment, Seed Capital and Sunstone Capital.

More information is available in the Press Release.

"Real ARPUs are 25% higher"

In an article for Business Standard, Unitech Wireless's Chairman Sanjay Chandra says that despite the profitability issues in the short-term, the industry's size will double in five years.
ARPU numbers as reported by players currently are understated. The historical subscriber-linked spectrum allocation methodology used by the regulator in India incentivises operators to take advantage of flexibility in reporting churn and hence overstate the number of subscribers. The real subscriber number in India is estimated to be 20-30 per cent lower than that reported. This implies that the real ARPU is 25-35 per cent higher than that reported. At a 25 per cent higher ARPU, the per subscriber and per tower economics suddenly seem much more viable.

Two, the total size of industry in terms of revenue is expected to more than double from the current $22-25 billion to over $50 billion in five years. In addition, the cost of new operations is much lower now than that of existing operations because:
1. a matured industry offers a much more aggressively outsourced model for passive infrastructure, IT, GSM equipment etc;
2. further cost efficiencies are being tapped (through active network sharing, for example). Hence, the annual revenue threshold for running a profitable venture has come down significantly. Even a 5-8 per cent market share of the $50 billion industry can easily support a profitable pan-India operation with current price trends.

Finally, pricing and subsequently margin pressure in an industry that has 12-plus operators only means that consolidation is imminent. In addition, the economics of scale for spectrum usage at the 4.4 MHz level that new operators have been initially allotted are tremendous. Doubling spectrum from here much more than doubles the subscriber carrying capacity. Therefore, spectrum consolidation will change value economics substantially. As a result, consolidation will lead to emergence of viable and much more value-creating operations.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

MediaNama interview with CEO of Mobile TV firm Apalya Tech

MediaNama has an interview with Vamshi Reddy CEO of Hyderabad-based Apalya Technologies, which recently closed a round of venture funding.

What are your key costs? How much are you looking to invest in infrastructure?

Our key costs are primarily spread across R&D and infrastructure, and most of our expenditure will be on network, infrastructure deployment for the 3G rollout and R&D. Out investment on 3G rollout depends on when 3G takes off. We are loking to invest anywhere between 25 to 30% of the money raised in the next one year.

..how does the revenue model work in this space?

Revenue models are purely on a revenue share: there is a share between us and the operator, and we, in turn, have all the agreements with all the content providers. We have currently a partnership with almost 70 TV channels.

What do you think would be the size of the mobile TV market in India right now?

If you look at today it’s not big enough but we are expecting that to dramatically change with 3G coming in. With our scale we are able to sustain. We are a team of almost 40 – 50 people in Hyderbad and we have a whole backbone set-up in India where we are delivering the content to operators. It is not minuscule, but definitely not big enough for what we foresee with with 3G coming in. In fact if you look at the recent Champions League, Mobile ESPN which has been the perimeter brand involve there and the commercials were running of mobile ESPN was completely powered by us .

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

October 19, 2009

K-12 spells big bucks

As part of its Cover Story on Education, Business Today has an article on how private ventures are now increasingly targeting the K-12 segment.
Six months ago, Manipal K-12 broke new ground by taking over Sharada School, Mysore. “We offer two choices to managements of schools that fit our business model. They can either pay us to manage their schools professionally or transfer management responsibilities,” says (CEO Meena Ganesh). The firm has also taken over four schools in Nepal recently. She plans to manage 100 K-12 schools and set up six International schools in the next five years.

...The K-12 (Kindergarten to Class 12) is estimated to be worth half the $42-billion (Rs 2,01,600 crore) private education market in India and growing fast enough to double in a decade. Analysts expect the share of average household spend on education to increase from the present seven per cent to nine per cent by 2018. Technopak, a consulting firm, sees enrollments in K-12 growing to 351 million, requiring an additional 34 million seats by 2018. This equals Rs 3,91,000 crore at Rs 1.15 lakh a seat. Brokerage firm IDFC-SSKI Securities is more bullish: it expects private spending on education to grow by 14 per cent, creating a $80 billion (Rs 3,84,000 crore) market by 2012.

With such numbers in the air, the K-12 space has attracted big names like Educomp, IMS Learning Resources, Career Launcher and Shamrock. Like retail chains on an expansion spree, they have even set targets for buying out schools or building new ones.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Key Issues in Education Ventures

At a time when Education has become the hottest sector for private investment, Raghav Gupta of Technopak Advisors highlights, in an article for Business Today, the key issues to evaluate when venturing into this field.
Market Assessment: A pragmatic assessment of the “catchment” in each segment of education is important, from the standpoint of achieving required student enrollment, before planning an investment. The catchment (in this case the travel time to and from the institute) for a pre-school student should be 30 minutes, for a K-12 day school 60 minutes, and for a residential school, this would be five hours. Demand for a vocational training institute originates from within city premises, with few students travelling across cities for enrollment. A university or a higher education institute would ideally attract students from all parts of India as well as South Asia, the Middle East and Africa and, therefore, matters would be being dictated by the quality of education on offer and the reputation of the institute.

Key Financials: Setting up an educational institution requires access to large amounts of capital. A regular K-12 school, built over 2 acres of land with a capacity of 2,100 students, would require an investment of around Rs 15 crore and so would an MBA institute spread over 1.5 acres with a capacity of 240 students. An engineering college with a capacity of 1,600 students spread over 10 acres of land, on the other hand, would require an investment of Rs 100 crore. Similarly, the project cost for setting up a private university over 300 acres of land, with a capacity of 40,000 students, may be around Rs 1,500 crore. In these ventures, financial returns are attractive, with EBITDA levels of over 30 per cent and project IRRs ranging from 25-35 per cent levels.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Price of Education sans Enterprise

In an article for Business Today, Gopal Jain of PE firm Gaja Capital, makes a passionate case for encouraging private enterprise in Education.
The education sector is reserved for not-for profit (NFP) entities and this ensures adverse selection by blocking conscientious entrepreneurs who are unwilling to operate for-profit (FP) businesses under the guise of NFP as most currently do.

...The cap on revenues through price controls on fee and constant government sponsored inflation of expenses by obligating compliance with pay commission hikes, etc., are huge stumbling blocks...Institutional funding is unavailable: NFPs involve huge off-balance sheet settlements, rendering them out of bounds for institutional lenders and financiers.

...We can argue endlessly, but we don’t have 300 years to perfect a welfare state, like the western countries did. India’s poor understand that education is the mantra behind their emancipation and they are not willing to wait. Some 175 strife-riddled districts in India are proof of their impatience. Are we waiting for more?

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Profile of facilities management firm BVG

Business Today has a profile of PE-backed facilities management firm BVG India.
(Hanmant R Gaikwad) is the man who founded Bharat Vikas Group (BVG) India, one of the country’s largest facilities management companies based out of Chinchwad near Pune. BVG India provides non-core activities such as mechanised housekeeping, landscaping & gardening, and security services to private and government institutions with the help of a 16,000-strong ready-to-move and trained and pan-India workforce.

...At Tata Motors, Gaikwad would on a regular—and informal—basis supply the company with youth from Satara whenever it was looking for people. The breakthrough came when Tata Motors was on the look out for a housekeeping contractor for its mintnew Indica plant. Gaikwad proposed that the contract be given to BVP. Tata Motors agreed. That’s when BVP began operations in 1997 as a housekeeping company with just eight employees.

In three years, BVP had grown into a 200-strong outfit, with Tata Motors as its only client. In 2000, Gaikwad called it a day at Tata Motors, converted the foundation into a deemed limited company, renamed it BVG India and extended its operations to include services such as landscaping & gardening, security services and transport & logistics.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

October 15, 2009

Interview with Rishi Navani of Matrix Partners India

Venture Intelligence recently spoke to Rishi Navani, co-founder and Managing Director at Matrix Partners India. The firm, which has a special focus on domestic consumption, has announced three investments in the past 12 months – a new Rs.100 crore investment into education firm FIITJEE and follow on investments into online classifieds firm Quikr (a spin out from eBay India) and prepaid cash card firm ItzCash (part of the Essel Group).


Venture Intelligence: In the post-financial meltdown scenario what is your reading of both the growth equity and VC space?

Rishi Navani: In the growth equity segment, we are in a situation where capital has dried up - particularly from hedge fund investors and investment banks. For companies that are profitable there is definitely capital available, but there are less pockets but the pricing has certainly rationalized compared to 2007.

In the VC segment, lots of people have invested in companies where they have to spend a lot to time to see if those companies go anywhere. While the environment is picking up, it has become lot more strained particularly in VC and it is very hard to get early stage funding right now.

VI: Will we see the sheer number of funds in the market returning to the 2007 levels any time soon?

RN: On the VC side specifically, there is a higher degree of skepticism around the venture asset class, which will reduce the appetite for VC in India. Also, the biggest pocket of capital for the venture capital industry is mainly the US and there has been a significant retreat and retrench in venture capital there. Earlier, people were able to raise $600-800 million funds in the US; those are now becoming $300 million dollar funds. It was really the excess $300 million they were allocating to India, China and other geographies. Now that the excess does not exist and they have limited capital for the US market, they may not want to stretch out into India and other places.

VI: On the growth equity side, what are the key challenges?

Rishi: Valuations are still a challenge, but that will only subside over a period of time and there are more people building companies and the depth in the market increases. The amount of money and the irrationality has definitely reduced. Lot of the irrationality in growth equity was driven by hedge funds and investment banks. That capital has retreated significantly.

VI: There has always been an interest in Education but now we are seeing deals come through. Do you see any danger of overheating as the theme is played up?

RN: That’s a constant danger in India. But just because five more people are interested doesn’t mean the sector is going to grow that much faster.

VI: Beyond education what other sectors do you feel are attractive?

RN: We are focused on basic need sectors such as healthcare, education, financial services and infrastructure.

VI: Does infrastructure fit into your broad consumer theme?

RN: Our theme is consumption; power consumption, for example, very much fits into our theme. The way to think about is, if India is consuming in any shape, size and form we are interested. How much infrastructure would we end up having in our portfolio? I don’t know – but if I had to guess, I would say 10-20%.

VI: In most of your first round investments, you have been the sole investor. Is that something that you will continue to do going forward as well?

RN: There has to be a capital need that justifies bringing in another investor or there must be a specific value-add that the investor brings to the table. Otherwise, there is no reason to bring in outside investors right at the outset.

VI: Another contrasting feature about Matrix is that you have stayed away from the listed universe? Will that change?

RN: It’s not a no-no, but we have stayed away from it consciously.

VI: Is Early Stage something that you have moved completely away from? For instance, would you invest in another Asklaila - in terms of the company’s stage of development?

RN: It is unlikely we would be first round investors in Early Stage companies. So, we would do an Asklaila equivalent - but a couple of years post the stage when we entered that company.

VI: From your point of view, what is unique about Matrix’s positioning vis-à-vis attracting dealflow?

RN: There are various parts to positioning - the people, the culture you create, how you interact with entrepreneurs; it’s a variety of things. We work really hard to find good investment opportunities and we work very close with entrepreneurs post investment. And we tend to be very independent in our thinking of what we want to and what we don’t want to do. We don’t spend a lot of time on what others are doing.

The full version of this interview appears in the latest Venture Intelligence India Roundup Quarterly Private Equity Report

Interview with Kranthi Vistakula, Founder of Dhama Apparels

One of the more interesting start-ups to receive VC funding this year has been Dhama Apparel Innovations which provides apparel with variable heating / cooling to people living and working in difficult climatic environments. N. Sriram of Venture Intelligence recently spoke with Kranthi Kiran Vistakula, Dhama’s Founder & CEO who is an alumnus of the Massachusetts Institute of Technology.




Venture Intelligence: You have a biotech and engineering background from MIT. Why did you switch to doing an apparel start-up?


Kranthi Vistakula:
While living in Boston (USA), the weather was either cold or hot…I never felt comfortable. Since I could not find any functional apparel in the market, I started developing one for my use. That is how the whole idea started.

VI: Dhama is now targeting to sell temperature-controlled apparel to defense forces. Don’t soldiers have these kinds of apparels already?

KV: They do have. But they are very heavy. Our apparel weighs around 1 kg. The apparel soldiers wear now weighs about 5 kg. We are reducing their weight for better performance.

VI: How did you fund your company initially?

KV: Dhama Apparel Innovations was founded in January 2008. Initially, we got a government grant through the techno-entrepreneur promotion programme of the DSIR (Department of Scientific and Industrial Research). We got almost US$130,000 through the grant. The VC funding happened in 2009.

VI: Why did you decide to go for VC funding this year?

KV: We decided to commercialize the product. VC funding helps here because VCs bring in good networking and contacts. The VC funding will be used to expand the product line, finishing testing trials, etc.

VI: How easy or difficult was it to raise the VC round?

KV: We started to look for VC funding in November 2008 and we were able to successfully raise funds in June 2009. We made multiple presentations to many firms but when Reliance Technology Ventures and Mumbai Angels came in, the funding was wrapped up in a month.

VI: What was the most challenging task when you were raising funds?

KV: Not much seed level funding happens in India. Being a start-up, that was the biggest challenge. The other challenge was that there are few product development companies in India. VCs find it easier to fund service companies. When you are a product development company, they perceive high risks.

VI: Is the funding hesitation because products that look great in the research lab lose their sheen when they actually hit the market?

KV: That could be one of the reasons. The other reason is that the risk factor is pretty high. Even if the product is extremely good, the market adoption may not be as good. In service industry, you can revamp your strategy overnight. In a product company, you cannot do that. It’s a time-consuming process. If I change my strategy, it will take at least 3-4 months to be effective and there is a lot of risk involved in that process. I see this as a major risk.

VI: Besides money, what other value do your VCs bring to the table?

KV: They are helping me in marketing, and are providing lots of support in terms of contacts, etc. We went to Reliance Tech Ventures and Mumbai Angels because they are aggressive and not hands off.

VI: What has been the key takeaways for you so far (both in launching the business and VC fund raising)?


KV: One key lesson I have learnt is you always overshoot the budget by 20-30%. Unexpected costs pop up in every direction, every month. Initially you might think this is not significant, but it will turn out to be significant. Secondly, choosing the right investor is critical. It is not all about the money; it is the support that counts.

VI: Do you have any advice for entrepreneurs in fund raising, - particularly for companies in the product development area?

KV: If the VC is taking too much time to decide, let go of him. Find someone else. If they take two months or more to respond, it is really unlikely that they will fund you. Selecting the right investment partner is crucial for an entrepreneur in product development.

This interview appeared originally in the quarterly edition of the GIVCA-Venture Intelligence India Venture Capital Report

Why Gold Loans are shining bright

The New York Times has an article on why Gold Loans are far from being anachronistic in India. So much so that international PE/VC firms like Sequoia Capital are invested into Gold financing companies.
Pawnbrokers and money lenders have long operated in India’s back alleys, making loans against jewelry to families in distress, at interest rates of 30 percent or more. But gold loans made by banks and finance companies are different. Rates are lower — 14 to 30 percent — and their businesses are regulated.

...Manappuram, a pioneer in the business, made $730 million in gold loans last year — up from $397 million a year earlier. Muthoot Finance, a privately held firm, says its lending is growing at 60 percent a year. By contrast, total outstanding bank loans to the private sector increased 16 percent last year, year over year, and have been essentially flat so far this year.

...Gold loans, so far at least, have very low defaults — companies say fewer than 1 percent of borrowers fail to repay. Most jewelry is reclaimed in less than four months....Executives say their business has grown because new financing methods and economic liberalization have made it easier for them to raise money. Securitization has made it possible for lenders here to quickly “redeploy” money.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

October 13, 2009

The Need & Opportunity for Vocational Training

In an article for Business Standard, Arvind Singhal of Technopak points out why the real transformational opportunity in Indian Education is in the vocational training segment.
Vocational training, unfortunately, does not enjoy the same glamour and, therefore, it is very likely that despite having the largest young workforce in the world, India will be faced with chronic shortages in just about every category of skill-based trade jobs. Even more tragic, from India’s perspective, would be the missed opportunity in being the number one supplier of skilled trade labour to the developed and some developing countries even as many such countries, especially those in Western Europe, are faced with rapidly aging populations and fast declining birth rates, leaving them woefully short of all kinds of labour—farm workers, electricians, plumbers, masons, fitters, healthcare givers, machinery operators, cooks/chefs and the like.

It would help to look at some hard data to put this challenge and the big opportunity for India, should it choose to grasp it, in the right perspective. Of the estimated 455 million jobs in India in 2008, almost 90 per cent (about 410 million) were skill-based. About 255 million of these are related directly to farming, but then the rest (about 155 million) include myriad vocations relating to retail trade, manufacturing, construction, travel and tourism, hospitality and food services, and healthcare. These statistics by themselves are not remarkable at all. The first of the many shocks that follow is the fact that as many as 87 per cent of these 410 million skill-based workers received no vocational training at all, either formally or through hereditary channels. Just about 2.35 per cent have received some formal vocational training. Worse, just about 1.30 per cent of the current workforce are enrolled in some kind of formal vocational training. About 3.75 per cent receive their training through hereditary sources, but this will also drop as the future generations may not want to pursue their family vocations.

These dismal statistics are due a totally inexcusable dereliction on the part of Central as well as state governments, decade after decade and government after government, of their responsibility to create trade-based training infrastructure across the country. The current landscape of vocational training in India comprises just about 5,500 Industrial Training Institutes (ITIs) and 1,745 Polytechnics, compared to 500,000 similar institutes in China. Further, the US boasts about 1,500 trade training programmes compared to India’s measly 171. India’s current vocational training infrastructure caters to just 2.5 million annually, whereas the country is adding almost 18 million to its population every year. Even more critically, India has to move millions from farming jobs to non-farming jobs if it has to give itself any chance of improving the plight of the 255 million desperately poor engaged in farming. It is estimated that only 5 per cent of the youth are vocationally trained in any single skill in India, compared to 96 per cent in Korea and even 22 per cent in Botswana.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

October 09, 2009

Profie of D.light Design

The Mint has a profile of VC-backed D.light Design which markets solar lanterns and other energy-efficient products in India and other developing countries.
Pursuing an MBA at Stanford University, US (2005-07), Goldman took a course in “entrepreneurial design for extreme affordability” at the university’s new design school. As part of a team of five students, he came up with a rough prototype for a solar-powered LED lantern. The big boost came when they won the prestigious Venture Challenge contest for the best business idea and received funding of $250,000 (Rs1.25 crore now) in 2007. Turning down attractive job offers, Goldman, his partner Ned Tozun and three others set up D.light Design, based out of a garage in Palo Alto, California.

Soon, Goldman was coming to India every four months, travelling to villages in eastern Uttar Pradesh. In January 2008, D.light decided to shift its headquarters to India. Their reason—it is a huge and complex market that is evolving rapidly. “It was time to get out of the bubble and get into the reality of UP, Bihar and India,” he says.

Currently, D.light has two products in the market—Nova, a durable solar house light that also has a charger for mobile phones; and Solata, a solar study light. Four months into his Indian stint, Goldman realized, “India is not a market—it is a dozen markets.”

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

October 07, 2009

Tracking Vavasi, the unknown bidder in the $14-B Zain Tele deal

The web site of the Vavasi Group, which is leading the $13.7 billion bid for the Kharafi family's stake in Kuwait’s largest telecom operator Zain, says it was incorporated in India in 2001 and has interests including Telecommunications and Renewable Energy. The Economic Times now has a report based on its journalists' meeting with the little-known group's Managing Director Farid Arifuddin. Extracts from the ET report:
This civil engineer hails from Vavasi at Dharwad district in Karnataka. “We have no turnover as such as we are an R&D set up,” he informs coolly, adding that the group employs about 80 people. The company has two major arms—telecom and renewable energy. It has two telecom firms, namely, Vavasi Telegence and Next Generation Telecommunications India. “We are conducting next-generation (NGN) trials with the government of India in Bhopal. We want the NGN technology to emerge out of India, as GSM came out of Europe,” says Mr Arifuddin. Vavasi Telegence had applied for a universal service access licence in 2007, but is yet to receive it.

...Although he says that the company was started 10 years ago, it was registered only in 2001 under the Registrar of Companies (RoC), Delhi as Vavasi Telegence Pvt Ltd.... Its renewable energy arm is planning an integrated silicon complex in Rajasthan to produce solar photovoltaic cells, Mr Arifuddin says.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Deal Alert: Commodity trading software firm Eka raises $10-M from Nexus Ventures

Edited extracts from the press release:



Eka Software Solutions, a provider of software for multi-commodity trade and risk management, has raised $10 million from Nexus Venture Partners (formerly Nexus India Capital). Eka was earlier seed funded by the GP Group, a conglomerate with interests across shipping, manufacturing, real estate development and hospitality.

Talking about the new funding, Mr. Manav Garg, Founder & CEO, Eka Solutions says, “Eka is very well positioned to take advantage of the growing need for commodity trade and risk management software. Our products, technology and team are highly regarded in the market, and the rapid expansion in our customer base is testimony to this. The new funding will allow us to further enhance our technical, support and sales capabilities, and help capitalize on current opportunities to accelerate our growth“.

Eka’s products have been deployed by some of the major players in the global commodity market, enabling them to better manage their operations in complex, volatile, 24x7 global markets. The offerings help buyers, sellers and traders of commodities better manage their business across physical trading, risk management, derivatives, logistics, inventory and P&L. Eka’s clients include AWB, CHS, Louis Dreyfus and others who have deployed its products across a cross section of businesses, commodities and geographies. Eka was recently selected by Nasscom, India’s premier trade body and the chamber of commerce of the IT-BPO industries, as one of India’s top 10 emerging software companies.

“Our investment in Eka reflects the high degree of confidence we have in the management of the company and the soundness of the business model," says Sandeep Singhal of Nexus Venture Partners, who will join Eka’s Board of Directors. “Eka has created a product that solves real customer pain area. Given the high demand for sophisticated products that meet complex risk management requirements of firms in the global commodity markets, Eka is very well positioned for greater success. We now look forward to working closely with the team to help take Eka to the next level.”

About Nexus Venture Partners

Nexus Venture Partners is one of the Top Venture Capital Firms in India focused on investing in innovative early to growth stage companies with a strong India connection. It has recently been named as one of only two firms from India in the Red Herring Top 100 Global Venture Capital firms. Started in 2006, Nexus Venture Partners is a group of successful entrepreneurs with extensive investing experience in entrepreneurs in India and globally. Nexus truly understands the unique challenges faced by entrepreneurs and are aware that it takes more than capital for a company to succeed. Each entrepreneur Nexus partners with has access to the entire team in India and Silicon Valley for help in recruiting talent, forging new alliances, opening doors to new customers, shaping the strategy and connecting with best of breed advisors or board members.

With funds of $320 million under management, Nexus has an active portfolio of over 20 companies. Nexus invests in companies across sectors - technology, consumer services, media, energy, agribusiness, outsourced services, internet and mobile. Some of the companies that Nexus has invested in include Komli (Internet ad network), Suminter (Organic farming), Dlight (Solar Lights), Kirusa (Voice SMS), DimDim (Open Source Web Conferencing), Mapmyindia (Digital Navigation), Unicon (Financial Services) and Netmagic (Internet managed service provider). Investors in Nexus include leading university endowments, foundations and sovereign funds. For more details please visit http://www.nexusvp.com/