May 27, 2015

What does Lee Fixel of Tiger Global know about India that local VCs don't?

Lee Fixel, Partner & Head of Venture Capital

Riding on its early and aggressive bets in the E-Commerce segment, New York-based Tiger Global Management currently enjoys a “lion’s share” of the mindshare in the Indian Venture Capital ecosystem. At the Venture Intelligence APEX’15 PE/VC Summit in March, the Tiger name was brought up by various speakers. One VC candidly admitted: If there is one foreign investor who knows the Indian Internet & Mobile landscape better than us locals, it’s him” (meaning Lee Fixel, the head of Tiger’s VC operations). A mid-market Private Equity investor wistfully remarked: “While we will never be good at it as the Tigers of the world, we really need to figure out this E-Commerce thing - if we are to produce supernormal returns for our investors”.
Given how it has - almost single handedly - re-ignited excitement in the Indian Venture Capital segment, Tiger is clearly the investor everyone wants to follow. Here therefore is some essential reading on what Tiger has been up to in the country between April 2007 and April 2015:

What is Tiger Global’s most successful investment in India?

Flipkart is clearly Tiger’s biggest bet in India. Despite being an early investor in the company, Tiger has continued to participate in the mega rounds Flipkart raised in 2014-15 at ballooning valuations. From an exit standpoint however, local search firm Justdial stands out. In what was its first investment in India, Tiger had invested INR 74 crore in the then privately held Justdial (and followed it up with an additional INR 27 crore in July 2009). In four tranches - between Dec-14 and May-15 - Tiger completed exited Justdial realizing INR 1,331 crore or over 13 times its investment of INR 101 crore.

Wow! Was Tiger the first PE/VC investor in Justdial?
Nope. SAIF Partners had picked up a 19.5% stake for about INR 55 Cr in Oct-06 (and had co-invested smaller amounts - with Tiger and Sequoia Capital India - in later rounds).

Have Tiger and SAIF partnered in other successful deals?

In Sep-07, Tiger Global joined SAIF and other existing investors in online travel firm MakeMyTrip. (SAIF had originally invested in the company in 2005.) MakeMyTrip went public on the Nasdaq in 2010, resulting in strong returns (read: upwards of 10x) for its investors and triggering, what many consider, the Second Internet Gold Rush in India.

Which are the other companies in which SAIF and Tiger have co-invested?

In 2009, Tiger had invested in the National Stock Exchange - in which SAIF had invested in 2007. Post that, Tiger and SAIF have not invested together again.

National Stock Exchange? In May 2015, when reporting Tiger’s investment in “tea cafe” chain Chaayos, some publications described it as Tiger’s “rare” (and even as the first) non-tech investment. Has Tiger actually made investments in sectors outside of Internet & Mobile?

Historically, yes: Apart from NSE (in Oct-09) and Chaayos, the list includes: power producer Asian Genco (Aug-07); test preparation company T.I.M.E (Jan-08) and vocational education company IIJT (Aug-08)

What’s the status of Tiger’s other non-tech investments?
Tiger sold its stake in IIJT to HR Services firm Teamlease in 2010 - at a significant loss. The rest of the companies are un-exited.

Oops. But isn’t NSE a good bet?

In Oct 2013, Private Equity investors in the exchange - including Tiger - were reported to have sent a note to the NSE management - via a law firm - demanding the exchange go public and/or issue more dividends. The “request”, according to another report, however had not seemed to have found much purchase.

Hmmm. If not SAIF, which Indian VC firm has Tiger partnered with the most?

Accel India by a long margin - Tiger has co-invested with Accel in at least nine Internet companies (either as a follow-on investor or as part of the first round itself). The list of companies includes, among others, Flipkart, Myntra, CommonFloor and Freshdesk. In the taxi segment however they chose to part ways - in 2012, Tiger went with Ola, while Accel backed Taxiforsure (TFS) - only to see the companies come together in 2015 (as Ola acquired TFS).

Who are the investors that Tiger has partnered with more recently?

Among Hedge Funds, Steadview Capital has joined Tiger for recent rounds in Flipkart, Ola, Policybazaaar and Quikr. Family Office PremjiInvest, that had invested into Myntra in Feb-14 (just prior to its acquisition by Flipkart), joined Tiger and Steadview in a new round for online insurance marketplace Policybazaar in Mar-15. In the VC segment, with its vigorous return to early stage companies in 2015, Tiger is actively partnering up firms active in Consumer Internet sectors. Sequoia Capital India had Tiger join it as the new investor in local e-commerce logistics company Grofers (Apr-15), following mobile gaming firm Moonfrog Labs (Mar-15) and Ola (which Sequoia had joined in Jul-14).

Lightspeed Ventures had Tiger join it in Mar-15 as a follow-on investor in fashion e-tailer and as a co-investor in the first round for LocalOye (Apr-15). Matrix Partners India, which had followed Tiger as an investor in Ola, had preceded it in women’s fashion e-tailer Helion Ventures, whose two early e-commerce co-investments with Tiger - Letsbuy and Exclusively - got absorbed  into Flipkart and Myntra respectively, in 2015 witnessed Tiger making a follow-on investment in another of its e-tail portfolio companies,

Are there prominent VC firms which do not have a high overlap with Tiger (in terms of their portfolios)?

Apart from SAIF, Kalaari Capital and Nexus Ventures (except for two of its portfolio companies - Delhivery and - both of which Tiger entered in 2015) stand out in this regard. (Incidentally, Kalaari and Nexus were the first and second VC investors in Flipkart rival Inventus Capital (which had invested in Policybazaar in Apr-13) and IDG Ventures India (which had partnered with Tiger at Myntra in  2011) are also lean in terms of Tiger overlap.

Does Tiger depend on other VC funds for its deal flow?

Mostly Tiger has been a co-investor or a follow-on investor. The rare exceptions include e-jeweler (starting in Feb-11), Ola’s first round (in Apr-12)  and online gaming firm Rummycircle (where Tiger had partnered an individual investor in Apr-11).

How did the Tiger investment in happen?

Speaking at a conference, founder Mithun Sacheti said the investor had reached out to him over LinkedIn! Between Feb-11 and Jan-15, the company has raised four rounds of capital - all from Tiger.  And not for want of trying (to get other investors interested). According to Sacheti, the maturity and understanding that Tiger has - from having seen e-commerce businesses evolve in other parts of the world - is lacking in purely India-based investors.

Does Lee Fixel actually joins the board of Tiger’s Indian portfolio companies?

Yes. He personally sits on the boards of the following half-a-dozen companies: Ola,, Commonfloor, Hike, Culturealley and Relevant E-Solutions.

Is there anyone from Tiger on the ground in India?

Managing Director Kalyan Krishnamurthy, formerly based out of Singapore, is reported to have recently shifted to Bangalore to oversee Tiger’s growing India portfolio. He sits on the boards of and Grofers. A former eBay Asia executive, Kalyan had also served as an interim CFO at Flipkart (on deputation from Tiger) in 2013-14.

How much has Tiger actually invested in India?

Tiger has invested an estimated $1.3 Billion in India-based companies over the last eight years. The number of companies it has invested in has crossed 40 with new companies being added each month. In the first five months of 2015, it has added a dozen new companies including Quikr, Grofer, Delhivery, Culture Machine, Moonfrog Labs, MoneyView, CultureAlley, ChargeBee, Vedantu, Chaayos, Relevant E-Solutions and News in Shorts..

Where is all this India data about Tiger Global coming from?

From the Venture Intelligence PE/VC Deal database - India’s longest serving and most reliable source of data on PE/VC transactions. Including the really really juicy stuff like valuations and return multiples.  If you already subscribe, just login, click on the “Directory” tab and search for “Tiger”. Or just click this direct link.

Don’t subscribe? Ask for a free demo & trial now!
Where can I get more free background about Tiger?
Naughty you! Head over to the Venture Intelligence Blog Post “Worried about Tiger Cubs & other Hedge Funds in Indian StartUp territory? Now, start thinking about the Grand Cubs.” But make sure to head to the Venture Intelligence PE/VC database for the real stuff - like what kind of valuations is Tiger offering companies for the Series A deals it’s doing in 2015, etc.

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

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April 29, 2015

Declaration of Independents: A New Venture Funding Model Without the Exit Pressure is a new experiment (in the US) that provides equity like capital to founders in return for cash distributions from profits instead of needing to sell out or taking their company public.

The philosophy:
There’s a mythology that entrepreneurs need to take VC money to hit the big time. While it’s true that some companies really do need outside capital, there are many examples of great companies that have reached revenues of hundreds of millions of dollars, or even gone public, without ever taking in capital, or taking it in only at a late stage, when they’d already created a high valuation by bootstrapping the company.
...Like cement, the cultural foundation for new projects and companies sets early. Those who focus on raising outside capital and achieving fundable milestones have a very difficult time getting off that VC treadmill. Those who focus on creating value for customers and generating positive cash flow from the very beginning are able to make their own decisions independent of competing outside interests.
Can companies today who plan to stay independent and bootstrap their business be competitive in a world awash with Silicon Valley startups and Sand Hill Road cash? Can we build a new kind of startup community that values independence and a DIY work ethic?
The Methodology:
Traditionally, technology investors only get their money out when you sell out (another term for this is a “Liquidity Event”). An investment from IdVC doesn’t preclude you from selling, but in the event you stay independent, our investment will get paid out as distributions from cashflow over time.  
...Initially, we will get 80% of those distributions while the founders take 20% until our initial investment has been returned 2x. At 2x the model flips to 80% to founders, 20% to until we’ve received 5x our investment. Distributions to are capped at 5x. 
Only if and when you choose to raise more money from traditional investors or sell out do we become shareholders in your company.
More detailed summary of the terms are spelt out here. A model for how the cash distribution will work is here.

More about the "Declaration of Independents" by Bryce Robeters here.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private company transactions, valuations and financials in India. Click Here to learn about Venture Intelligence products that help entrepreneurs Reach Out to Investors, Research Competition, Learn from Experienced Entrepreneurs and Interact with Peers. Includes the Free Deal Digest Weekly Newsletter: India's First & Most Exhaustive Transactions Newsletter.
Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

April 24, 2015

From Unicorn to Oxymoron - Tech Startup Frenzy Spurs New Lexicon. "Private IPO" being the Latest.

Q: What do you call a $100 million plus investment by Hedge Funds, Mutual Funds and other typically  public market investors, in Startup companies? 

A: "A Private IPO" (to put a small spin on term coined by Josh Kopelman, CEO of US-based First Round Capital)

Q: Isn't IPO short for Initial Public Offering?

A: Well, fuddy duddy, welcome to Tech (Bubble / Not Bubble / Bubble / Not Bubble) Land. As of now, anything - including seeming Oxymora - goes.

In these unusual times, Indian startups dominate list of cases cited by investors in Asia and other parts of the world. Here's an extract (emphasis mine) from a post titled "Alert: Venture Capital Tsunami in South Asia" by Piyush Chaplot, Partner at Singapore-based Innosight Ventures :
Strategic investors such as Softbank, Rakuten, Alibaba, Naspers, etc. are throwing money as if there is no tomorrow. Sovereign Wealth Funds such as GIC, Temasek, QIA and Khazanah want their share of the pie. Even Private Equity firms do not want to be left behind.  Lets look at some mind numbing data first to feel the intensity of this tsunami:
  • Flipkart raised 3 massive rounds from Series F ($210M), G ($1B), H ($700M) in a 7 month span between May and Dec 2014.
  • Ola raised Series C ($41.5M), D ($210M) and E ($400M) in 10 months between Jul 2014 to Apr 2015.
  • Snapdeal raised more than $727M between May and Oct 2014.
  • Grabtaxi raised 4 rounds of funding from Series A, B ($15M), C ($65M) & D ($250M) in a 9 month period between Apr and Dec 2014.
  • Tokopedia raised $100M in Oct 2014.
  • raised $18M, $19M and $100M between Apr and Nov 2014.
  • PayTM parent One97 raised $635M from Alibaba and SAIF partners in Jan 2015.
...I can never comprehend how a startup moves from Series A to Series D in 9 months. Such sudden influx obviously causes ripple effects. Early stage valuations are going through the roof...The race is now on to  reach a billion dollar valuation in the shortest amount of time. Hate to say this but to a certain extent these funding rounds now decide who is going to be the winner. Taxiforsure lost its battle against Ola not because their product or team were not great. But because, they did not raise such quantums at the right time. 
Kopelman too has warned about the dangers of the Private IPOs. Extracts from his post (emphasis mine):
I don’t think we’ll fully understand or appreciate the impact of the “private IPO” phenomenon for another decade, or at least until a full cycle plays out.

In my opinion, there isn’t nearly enough focus on “low frequency trading.” Public companies reprice daily. Private companies don’t have to reprice for years on end.

One key benefit of low-frequency trading in private companies is a long-term focus. It removes arbitrary time constraints on growth and profits.

...By relying on private financing events as “comps,” we risk pricing new financings (and creating new unicorns) based on stale valuations.
Sage advice indeed.

But who's listening? 

Who's got the time?

There goes the bell for adding the next $100 Million to the Venture Intelligence Deal Digest Newsletters and PE/VC Deals Database!

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

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Capitulation! E-Commerce FOMO catches up with the Best of Indian PE/VC Funds

The discussions at Venture Intelligence APEX'15 PE/VC Summit demonstrated how the latest E-Commerce wave - including the FOMO (Fear of Missing Out) factor - is challenging the convictions of some veteran PE/VC fund managers.

Veteran 1:
The key is to remain disciplined. Even if you have not managed to find a new investment opportunity for 24 months (because the valuations are unreasonable or whatever) and there is investor pressure to justify the fees they are paying you, it is important to back your conviction and not lose discipline.
Veteran 2:
Investments are a question of timing. I can keep investing in safe businesses that I understand well and continue to make steady returns. But the opportunity to make extraordinary returns comes only a few times and, as a fund manager, I'm paid to get those extraordinary returns. So, like it or not, I need to figure out how to get on to the E-Commerce bandwagon!
Come April, one of the leading VC firms in the country - which has very publicly stayed away from E-Commerce bets thus far -  seems to have completely capitulated. And is announcing hundreds of crores of investments in e-tailers each week.

A sizzling beginning to the summer indeed. Keep track of all the action via the Venture Intelligence Deal Digest Newsletters and PE/VC Deals Database.

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the Free Deal Digest Weekly: India's First & Most Exhaustive Transactions Newsletter.

April 22, 2015

Worried about Tiger Cubs & other Hedge Funds in Indian StartUp territory? Now, start thinking about the Grand Cubs.

Economic Times has an article quoting some worried voices on Hedge Funds adventuring into startup territory:
Hedge funds, which have fuelled frenzied deal-making in Indian internet companies and stoked valuations to stratospheric levels, are moving down the food chain to take positions in younger, smaller startups. 
Early-stage startups such as Zop-Now, Vserv and MobiKwik have got hedge funds to bet on them. But as these investors plant themselves firmly in India's startup landscape, analysts as well as entrepreneurs are wary about the funds' potential to abruptly pull out in a crisis, as they did during the econom ic downturn that began in 2008.
...The entry of these high-risk appetite investors and the rising pace of deal-making reminds some investors about previous peaks in investment cycles.
...“From 2006 to 2008, we saw prop books and hedge funds say that they will be in India for the long run, some even having teams on the ground. But after 2008, we did not see most of them in the country,“ said Anand Prasanna, director of US-based investment firm Morgan Creek Capital.

Parag Dhol of Inventus Capital had also made a dire prediction on the trend at the Venture Intelligence APEX'15 PE/VC Summit:
"The transactions of recent months, where investors who used to talk to only companies that are EBITDA positive, are now writing cheques to companies that have hardly any revenues, is going to lead to lot of pain." 
Like most trends in the Indian market, the hedge-funds-investing-in-startups also seems to have been imported from Silicon Valley. Extract from a Reuters report of more than a year back:
Tiger Global Management, part private equity manager and part hedge fund manager, has emerged as among the most prominent of a growing club of Wall Street financiers now eyeing technology start-ups. They include hedge funds such as Coatue Management and Valiant Capital Management; private equity groups such as Rizvi Traverse Management and TPG; and mutual fund giants BlackRock, Fidelity and T. Rowe Price.
...Tiger Global, a so-called "Tiger Cub" because of its ties to investor Julian Robertson and his once-highflying hedge fund Tiger Management, has quietly taken one of the largest positions of the newcomers, technology investors say. 
Tiger Global of course has been on the prowl in India for a few years now and, the dream run of Flipkart in 2013-14 and its healthy exit from Justdial, is attracting fellow hedgies in droves to Indian shores. Of course, only time will tell how exactly the 2014-15 wave plays out (compared to the 2000-01 and 2007-08 ones).

Given that Tiger Global is clearly at the vanguard of the hedgie trend (both in Silicon Valley and in India), a little bit more context on the firm would be clearly useful to have. More from the Reuters story quoted above:
Founded in 2000 with $25 million by Chase Coleman, a protégé of Robertson's, Tiger has earned the respect of Silicon Valley denizens, in part through its highly profitable investment in Facebook. 
...While the firm has long been active in venture-backed companies, particularly internationally, it has recently stepped up the pace in Silicon Valley...People familiar with the matter say that Lee Fixel, who co-runs Tiger's venture-growth business with Scott Shleifer, has been particularly active in the firm's venture-backed deals. 
Wikipedia provides more context on Tiger Management founder Julian Roberston and the "Tiger Cubs" (which includes Tiger Global):
After closing (down) his fund in 2000, Robertson kept his hand in the hedge fund business by supporting and financing upcoming hedge fund managers (38 in total as of September 2009), in return for a stake in their fund management companies. Apart from those, many of the analysts and managers Robertson employed and mentored at Tiger Management, including Chris Shumway, Lee Ainslie and Ole Andreas Halvorsen went out on their own and are now running some of the best-known hedge fund firms, called "Tiger Cubs". These include funds such as Viking Global, Tiger Legatus, Blue Ridge Capital, JAT Capital Management, Tiger Global, Maverick Capital, among others.
According to an Octa Finance profile, Tiger managed more than $21 billion as of April 2014. The hedge fund, which invests only a small percentage of its assets in (public) equities and options, had between 11-25 clients.  Its returns over the last seven years have been:

2007: 71%
2008: -26%
2009: 1%.
2011: 45%
2012: 23%
2013: 14%
2014: 17%

Even as some of the other Tiger Cub names are becoming more familiar in the Indian startup context, there are a now a few former Tiger Global managers that have also set their sites on India. An interview with one such "Tiger Grand Cub" is here.

Wonder what the grand cubs will accomplish? Well, there's a saying in Tamil that goes like this:
If the mother (tiger) leaps 8 feet, the cub will leap 16 feet. (The progeny is always assumed to be more accomplished than the previous generation because they have the experience of the parent to drink from.)
Whatever the distance covered by the cubs and grand cubs in Indian Private Equity / Venture Capital territory, rely on the Venture Intelligence - with its on ground presence in India since 2002 and deal data since 1998 - for the measurement!

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the Free Deal Digest Weekly: India's First & Most Exhaustive Transactions Newsletter.

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April 01, 2015

Private Equity investments tick up 20% YOY to $2.65 Billion in Q1’15

Pause in Mega E-Commerce deals sends QoQ value down 36% 

Private Equity firms invested about $2,646 million across 124 deals during the quarter ended March 2015, according to early data from Venture Intelligence (, a research service focused on private company financials, transactions and their valuations. The investment amount was 20% higher than that invested in the same period last year ($2,212 million across 132 transactions), but 36% lower than the immediate previous quarter (which, on the back of blockbuster deals in E-Commerce companies had witnessed $4,120 million being invested across 112 transactions). Note: All figures in this note are exclusive of PE investments in Real Estate.

There were six PE investments worth $100 million or more during Q1’15 compared to four such transactions in the same period last year and eight during the immediate previous quarter, the Venture Intelligence analysis showed. The largest investment during Q1’15 was IFC’s $260 million commitment to microfinancier-turned-bank license holder Bandhan Financial Services. Another microfinance firm Ujjivan Financial Services attracted a $100 million (INR 600 crore) investment from a clutch of investors including CDC Group, IFC and CX Partners. Two large hospital operators – Manipal Health Enterprises and Medanta Medicity – attracted $100 million plus rounds. While Manipal attracted INR 900 crore ($150 million) from TPG Capital, Medanta attracted INR 700 crore (about $114 million) from Temasek (via a secondary purchase from Punj Lloyd). The largest E-Commerce deal reported in Q1’15 was the $100 million fourth round raised by led by Tiger Global (a key investor in rival Flipkart).

The Power sector too witnessed a return of interest with IDFC Alternatives committing INR 500 crore (about $81 million) to an SPV of Diligent Power executing a 1,200-Mw thermal power project in Chhattisgarh and Actis announcing a SPV of its own – Ostro Energy – to focus on renewable power projects. Transactions like Carlyle’s buyout of financial services firm Destimoney (from erstwhile majority owner New Silk Route) as well as Ujjivan (in which half of the investment went to exiting investors including Sequoia Capital India) marked a return of significant sized secondary transactions between Private Equity firms.

While IT & ITES companies accounted for 32% of the value pie (attracting $836 million across 71 deals) during Q1’15, BFSI (Banking, Financial Services and Insurance) companies followed closely at 31% (attracting $816 million across 12 deals). They were followed by Healthcare & Lifesciences companies ($392 million across nine transactions) and Energy companies ($207 million across 6 transactions).

The Venture Capital segment (defined as investments of up to $20 million in companies that have been active for less than 10 years) accounted for 68 of the PE transactions or 55% of volume pie during Q1’15. Late Stage companies (including mature companies like Bandhan, Manipal Health, Medanta and Ujjivan) attracted 27 investments and accounted for 45% of the pie in terms of value during the period. Listed company investments (“PIPE” deals) accounted for 8% of the pie in value terms (and 6% in volume terms). Venture Capital investments of Q1’15 were dominated by follow-on rounds in companies like online video content firm Culture Machine ($18 million round led by Tiger Global), food ordering app Tinyowl ($16.25 million led by Matrix Partners India) and QSR chain Faasos ($16 million round led by Lightbox). Listed companies that attracted PE investments too were topped by BFSI companies like Magma Fincorp (INR 500 crore or about $80 million from India Value Fund, Leapfrog and KKR) and M&M Financial (about $42 million from Temasek).

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the Free Deal Digest Weekly: India's First & Most Exhaustive Transactions Newsletter.

March 30, 2015

Deal Alert: Aspada invests Rs. 20 Cr in horticulture firm INI Farms

Aspada Investment Company has made a commitment of INR 20 Crores to Mumbai-based InI Farms Pvt Ltd which operates across fresh fruit value chains in crops such as pomegranate and banana. The company provides farm extension services for small-hold farmers coupled with post harvest management and processing for both domestic consumption and export markets. Aspada’s investment will allow the company to continue to build scale in the pomegranate and banana business units while expanding into other fruit categories. 

The company has previously received venture investments from Unilazer Ventures and Aavishkaar along with angel investors like Pavan Vaish and Ashish Gupta.

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the Free Deal Digest Weekly: India's First & Most Exhaustive Transactions Newsletter.

March 24, 2015

Deal Update: Ennovent and Upaya Social Ventures invest in Anant Learning

Ennovent Impact Investment Holding and Upaya Social Ventures have made a seed investment in Delhi based Anant Learning & Development. Anant Learning has been working amongst communities in the skill building space. With the primary focus on post training space in impact analysis, employment/livelihood facilitation, mapping of skilled manpower and assessments, the company has pioneered a technology-based post placement tracking and impact analysis tool enabling real time access to data collected from the field.

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the Free Deal Digest Weekly: India's First & Most Exhaustive Transactions Newsletter.

March 23, 2015

Impact of Finance Bill 2015 on Private Equity in India

By Sesh AV, Managing Director, Basiz Fund Services

The finance bill of 2015, proposed by Shri.Arun Jaitley has made some important big bang reforms for the Private Equity & Venture capital Industry in India. An Industry that invests into the entrepreneurial community every year, has finally been recognized by the government as one of the important contributors to “The Make in India” Programme.

I would opine that this bill gives impetus to channeling domestic capital to vehicles like Alternate Investment Funds, that invest into risky areas that need venture and growth capital by introducing a level playing field between domestic and foreign capital.

However there are shortcomings still, which one would hope will be considered for suitable rectification / modification. 

Analysis of impact on Private Equity & Venture Capital industry  in India:

Foreign investment allowed in AIF

The bill proposes to allow foreign investment into AIF. However a 10% withholding tax on distributions made by the AIF puts foreign investments at a disadvantage while coming through domestic AIF v/s an offshore fund. Clearly there needs to be a parity to ensure equal footing. 

Income received by funds from the portfolio companies to be free of TDS

This is a good move as funds by themselves have been declared to be tax pass through. Thus it reduces an administrative hassle of accounting for TDS and claiming it later. 

Pass through for CAT 1& II fundsNo pass through for capital loss to investors, it needs to be utilized by the fund
This has been one of the most important reform moves as far as the Industry is concerned. The Industry has made quite a few representation over the years and finally they have been heard. This introduces parity between domestic and offshore funds at a practical level. Such pass through facility existed only for venture capital firms earlier and based on approval from the Income Tax department. This will be an auto pass through facility. 

However the pass through facility has been diluted to some extent by a withholding tax. There is a school of thought that the withholding tax however can be claimed as credit during the filing of returns by the investor. An important point to be noted is that losses cannot be allocated to investors. Thus investors with long term capital gains in their personal portfolio cannot aim to offset it from the allocation of long term capital loss from the fund/AIF.

No distribution tax on distributions made by the fund, however there is a withholding tax 

This is a very significant move as, distributions made by the fund will not attract a DDT as applicable to corporate that distribute their surpluses. 

 • 10% Withholding tax on distributions made by funds to unit holders other than business income 

This clause in the finance bill has been certainly been a dilution to many positive moves. However considering that that it a withholding and entitled to credit at the hands of the investors while filing their returns may at the most be a timing difference and a administrative hassle. The 10 % withholding/TDS is applicable only to non business gains or income. Most of the funds do not indulge themselves in trade or commerce and thus it looks like they will be able to gain benefit for all of their distributions 

Business income is however not defined

This could lead to litigation's due to differing definitions between the revenue and the assess on income characterizations. This lack of clarity has been going on for a while and has not been resolved. The question is “What constitutes business income for a fund? Common knowledge points out to any income from trade or commerce. However authorities have taken a view earlier that the fund itself is in the business of investing and hence all income/ gains are business incomes. There is a potential that 10% withholding may be applicable to exempt incomes like dividends and capital gains from listed portfolios 

Safe Harbour norms for offshore fund managers established to prevent a permanent establishment.

However the conditions stated to be exempt from permanent establishment do not seem to be practical given how offshore funds work. It however seems that funds that have only capital gains as return on investment, may be able to take advantage of the status by having fund managers located in India. Clarity is needed and there will be a wait until the fine print emerges. A discussion with players in the Industry does not seem to suggest that there will be a rush to relocate fund managers to India. The reform while being brilliant in its intention to get fund managers into the country, has many riders like “connected persons” which may make implementation tough. 

Deferment of GAAR to 2017

This is welcome step and has been discussed for many years now. However a lot of clarity will need to emerge on actual rules on the ground. 

Tax on Indirect transfers

They have been very clearly clarified to prevent unnecessary litigation. This brings in immense relief. For tax on Indirect transfer the Indian assets should form more than 50% of the total assets of the offshore entity and value of Indian assets should be more than Rs 10 Cr. Further small shareholders in offshore funds owning less than 5% of the offshore fund or 5 % of the underlying fund that holds the Indian assets will be exempted from the definition of indirect transfer. There are also stringent reporting requirements on the Indian portfolio company that has a offshore fund/entity as its investor to report any change in shareholding of its offshore investors/entity without any reference to minimum threshold. 

MAT on FPI long term capital gains removed.

However there is MAT on short term gains and income. It however seems that there is still a MAT on offshore entities/funds and the exemption is only for FPI’s.

Sesh A.V. is a member of the Institute of Chartered Accountants of India and the MD of Basiz Fund Service Pvt Ltd, a $13.6 bn in assets under administration fund administrator that services PEVC funds, hedge funds, family offices & foundations globally and in India. His Contact Information:

Sesh A.V ACA
Managing Director
Basiz Fund Services Pvt. Ltd
M: +918286008554

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March 18, 2015

Why TaxiForSure had to sell out

Mint has a blow-by-blow account. Hats off to Raghunandan G for being so open.

Extracts from the article - that reminded me a lot of the John Maynard Keynes quote "Markets can remain irrational longer than you can remain solvent":
Ola’s rival, across town, TFS, was watching the firm’s every move closely. Ola’s logic was clear. The company had raised Rs.250 crore in a round of funding in July 2014 and was burning money to get more customers and drivers on its platform. In the process, it was losing as much as Rs.200 on every ride. 
...On 1 November, TFS decided to play the game. It came up with a simple strategy. Thanks to the higher per km rates, consumers weren’t using the service for short distance travel. So, at the consumer end, TFS dropped rates. To Rs.49 for the first 4km and then Rs.14 per km. But at the driver’s end, it needed to incentivize drivers to pick up rides. So it held on to the old rates for drivers (Rs.200 for the first 10km). So if a customer was paying Rs.49 for a 4km run, the driver would still receive Rs.200. To put it simply, TFS was losing Rs.150 per ride.  
...Things looked good.  In early 2014, skeptics had questioned the size and scale of the Indian taxi aggregation business, but with SoftBank’s $210 million investment in Ola, almost overnight, the market was validated. Everyone agreed that it was a multi-billion-dollar opportunity. Private equity and hedge funds in the US and Hong Kong were excited. “We were bleeding,” says Raghu, “but we took a call to get aggressive. We saw a 4X jump and our investors were so happy. It was amazing. So many investors were interested in participating. And everybody was telling me, this is amazing Raghu, this is great. We can put in a large sum of money.”
Looking forward to the day when cab drivers will turn around at the end of a ride and give me cash for giving them my business. That would be Uber Cool.

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