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.
  • Housing.com 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 busineses 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? Now, start wondering 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.
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 (http://www.ventureintelligence.com), 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 ShopClues.com 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
sesha@basizfa.com
http://www.basizfa.com

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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.

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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Deal Alert: YourNest to pick up 20% in GolfLAN.com for Rs.2-Cr

YourNest, via YourNest Angel Fund-Scheme I, is to invest up to INR 2 crore for a 20 % stake in Delhi-based GolfLAN Technology Solutions Pvt Ltd which runs golflan.com, an online community for golfers. The fund will subscribe to 92,212 Series A Compulsorily Convertible Preference Shares and 100 Equity shares at INR 217 each aggregating to INR 2 Cr, regulatory filings reveal. The target company has created an ESOP Pool which would constitute 15% of the share capital of the company on a fully diluted basis. Sunil Goyal of YourNest joined the board of the target in February 2015. 

GolfLAN offers subscription based membership to golfers which allows them to play golf in various countries as well as e-tails golfing equipment. It clocked revenues of INR 1.43-Cr in FY14 compared to INR 60 Lakhs in FY13.

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.

Deal Alert: RVCF invests in mobile card payments firm Mosambee

Rajasthan Venture Capital Fund (RVCF) has invested in Synergistic Financial Networks Pvt. Ltd which owns Mosambee, a Mumbai-based provider of mobile card payment services. Mosambee, founded in 2008 by Alok Arora, Bhushan Thaker & Sameer Chugh, enables mobile phones to function as card reading machines for real-time bill payments. The company plans to have over 250,000 users across India in the next two to three years and a presence in 10 geographies within the next 12 months. 

From the Venture Intelligence PE Deal database: In April 2013, Mosambee had raised INR 4 Cr from SIDBI VC. (Subscribers to the database can login to view the valuation, deal structuring and other transaction details.) 

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.