April 09, 2014

Deal Alert: Unitus Seed Fund invests in dental chain Smile Merchants

Seed-stage impact investor Unitus Seed Fund has led an equity investment in Smile Merchants, a chain of dental clinics focused on providing affordable dental care services. A brand of Free3 Healthcare Pvt. Ltd., Smile Merchants is a chain of dental clinics targeting tier-2 and 3 cities, towns and villages. Co-founded in 2012 by Dr. Rushi Trivedi, Dr. Alpesh Chaudhari and Dr. C.M. Pandey, Smile Merchants has scaled to four clinics in and around Bhiwandi, a city near Mumbai. It operates on a 3-tier hub-and-spoke model - with hub clinics in tier-2 and 3 cities, mini-hubs in smaller towns, and low cost spoke clinics in villages.  

Unitus Capital was the financial advisor and Impact Law Ventures was the legal advisor to Unitus Seed Fund. 

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.

Legal Corner by Trilegal: India’s New M&A Guidelines Dampen Hopes of Market Consolidation

The guidelines for telecom mergers and acquisitions are being touted as a harbinger of market consolidation in India. But a closer reading suggests they leave a lot to be desired. 

In the weeks preceding its official release in February 2014, the mergers and acquisitions guidelines for telecommunications services (M&AGuidelines) were projected as beingvital totheprocess of consolidation in India’ssaturated telecom market, which featuresthirteen operators across twenty-two telecom circles. But shoddy drafting,insufficient incentives and latent ambiguities in the guidelines maydeter telecom companies from exploring any immediate partnerships. 

In particular, telecom operators have been put off by the requirement to pay, at the time of a merger or acquisition,the market-determined rates for any spectrum obtainedthrough the erstwhile 'first-come-first- served' system. Under this system, a fixed 'entry fee'was collected by the government from each operator for a given amount of spectrum (4.4 Mhzfor GSM and 2.5 Mhzfor CDMA)which was bundled with the relevant telecom license. Post-2008, operators were forced to bid for spectrum in a highly competitive open auction. In light of this policy change, the Guidelines state that any spectrum that a target company(i.e. the company being acquired)has obtained by paying only the entry fee, will have to be revalued on the basis of the latest auction-derived price. The differential fee (i.e. the difference between the entry fee paid and the auction-derived price for that spectrum) must be paid to the government upon merging. 

With respect to the payment of the differential fee, the M&A Guidelines impose this obligation only on the spectrum held by the target entity. This would seem to imply that if the acquiring entity has not paid for spectrum at market rates, there would be no requirement to rectify therevenue shortfallfor spectrumthat it holds. That apart, there is some confusion on the lock-in period applicable to shares of the resultantentity, pursuant to a merger or acquisition. It is not clear from the language of the M&A Guidelines whether the lock-in timer will restart from the date of the mergeror if it is a continuation of the three year period, starting from the date of the auction. 

Besides the differential fee, the government has also prescribed payment of a one-time feefor any spectrumheld by an operator over and above the spectrum that was administratively allocated along with the license. Given the disputes over the payment of this fee, the Guidelines state that the merged entity will need to submit a bank guarantee for the amount claimed by the government,pending a final decision by the courts on whether the fee is payable by operators. 

The M&A Guidelines have also made it tougher for bigger incumbent operators, such as Bharti Airtel and Vodafone, to merge amongst themselves. The cap on market share for the resultant entity, in terms of revenue and subscriber base, has been fixed at 50 percent in any given band.If the merged entity breaches this limit, it will have to remediate it within a year’s time. However, there is sufficient leeway for the bigger operators to merge their operations with smaller operators, while remaining within the market cap. 

While the M&A guidelines are a welcome addition to the Indian telecom regulatory framework, it falls short of being the catalyst for consolidation that industry stakeholders had anticipated. But the future is not entirely bleak. The Telecom Regulatory Authority of India recently recommended that spectrum trading should be permitted, which would allow operators to buy and sell airwaves according to their needs. In the context of mergers and acquisitions, liberal spectrum trading norms may allow investors to value an operator’s business separately from its spectrum, paving the way for bigger operators to acquire smaller operators and new entrants to exit the industry based on such assessments. 

Authors: This article has been authored by Kosturi Ghosh, who is a partner and Amlan Mohanty, who is an associate at the Bangalore office of Trilegal. Kosturi heads the corporate practice group in Bangalore and her area of expertise is private equity and venture capital investments. 

Disclaimer: The contents of this article are intended for informational purposes only and do not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. 

April 08, 2014

Deal Alert: Ah! Ventures, VentureNursery Angels, Calcutta Angels invest in crowdfunding service Catapooolt

ah! Angels,Calcutta Angels, VentureNursery Angels and some leading industry professionals have made a seed investment in crowdfunding and community engagement platform Catapoolt. CLUB ah!, helped facilitate this deal between Calcutta Angels, VentureNursery Angels and its own angel network, ah! Ventures. 

A graduate of VentureNursery’s Season 3 program, Catapoolt is now endeavouring to leverage the power of Crowdfunding in unique project categories including sports, politics, social enterprises and start-ups apart from creative projects.

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 07, 2014

Sun keeps media in the dark on the Ranbaxy deal

"Sun Pharma bought Ranbaxy for $4 Billion? Holy Shit!" It was clear that this Private Equity fund manager hadn't heard of the deal as of 9.30 am on Monday, April 7. "It's indeed the top story in the Venture Intelligence Deal Digest Daily Newsletter that is just being sent out," said yours truly. No journalist had managed to squeeze in anything about the deal as of Monday morning. Thankfully, a colleague noticed the BSE release filed by Sun Pharma before we went to press. And it was clear that our newsletter was the first instance that a lot of subscribers were hearing about the mega transaction.

Given that both the buyer and seller are publicly traded, this is exactly how it should be - ie, the stock exchanges should be the first to hear about the deal. Contrast this with the number of times another transaction involving a listed company - the buyout of hydel assets of Jaypee Group's by Abu Dhabi's Taqa - got reported in the media before the official deal announcement. So much so, when the deal was officially announced it was news to nobody. Such leaking seems endemic among most infrastructure sector company transactions. The Sun-Ranbaxy deal has clearly shown the even mega transactions can be kept quiet until closure. Hope the infra companies learn how.

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 03, 2014

Why LPs don't care about lowering the 2-and-20 Private Equity Fund Fee Structure

Private Equity International (PEI) has used Bain Capital's new fund raising to provide an interesting take on why the decades old Private Equity fund fee structure of "2 and 20" (2% of the fund size as annual fees and 20% "carry" or profit share) has barely come down despite the financial crisis and why LPs ultimately don't care enough about them.  Extract from the article titled "Bain and the great fee debate":
For years, Bain has been one of the few outliers to the prevailing 2-and-20 model, charging 2-and-30 instead  - and with some success, given that it raised five funds this way. This time round, however, it decided to offer LPs three options: a 1.5 percent management fee with 20 percent carry and a 7 percent preferred return, a 1 percent management fee with 30 percent carry and a 7 percent preferred return, or a 0.5 percent management fee with 30 percent carry and no preferred return.

Since LPs have long complained that management fees are too high, especially for the bigger funds (it was the most commonly cited sticking point in negotiations in our Perspectives investor survey last year), you’d expect them to go for the second or third option. But our LP source suggested that in practice, most investors would go for option one – because it’s “closest to market terms”. If he’s right, the net outcome may well be that one of the industry's only outliers ends up looking a lot more like everybody else.

...Indeed, however much investors grumble about fees, it doesn’t seem to affect their investment decisions all that much. And as long as LPs are not voting with their feet, GPs have little incentive to do anything about it. As Ed Hall, a partner at King & Wood Mallesons SJ Berwin, told us recently: “Investors don't generally select a fund because it has lower-than-market fees, so GPs don't generally have anything to gain by lowering [them].” At the moment, good funds can get away with charging pretty much what they want, while investors are unlikely to back weak funds just because they get a good deal on fees. So it’s hard to see the status quo changing any time soon.

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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Will Dr.Rajan wake up to the Exodus of SaaS Startups?

As an email addict, I'm only happy to have my credit card get charged automatically by Google (for extra storage) and Boomerang (a cute little Gmail management tool) - both US-based companies who (understandably for them, unfortunately for me) bill me in US Dollars. I wish we at Venture Intelligence could charge our customers the same way for accessing our database services. But thanks to the RBI, it looks like we can't - unless we re-incorporate in Singapore or Delaware, USA. As today's Economic Times article indicates, this combined with the 0% Capital Gains tax (on sale of shares in private companies) in Singapore just makes the proposition almost a no brainer and explains why so many of the venture capital-backed SaaS/Cloud-based businesses are rushing out.
Software product companies are also stymied by a RBI mandate - meant to protect credit card users- that prevent companies from debiting money without the customer approving every transaction. Enterprise software maker FreshDesk recognised this roadblock early and chose to register the company in the United States right from inception in 2010. Its development operations are in Chennai. The company now has over 18,000 clients, including Pearson and Unicef. "This mandate defeats the entire business model," said 38-yearold cofounder Girish Mathrubootham who did not want to lose customers who would have found the process tiresome.

But data analytics startup Profoundis wasn't so lucky. "Our retention rates went down to 30% as opposed to an industry standard of 80%. We were forced to register in Delaware last month," said Jofin Joseph, the 25-year-old cofounder of Profoundis which expects to earn revenue of about Rs2 crore next fiscal. The relatively low chances of big-ticket exits for investors who back India-based companies are also proving to be a deterrent for many startups.

"All things being equal, lawyers prefer to recommend a New York or Singapore-based startup over an Indian company to the clients looking for an acquisition," said Vaibhav Parikh, a partner at law firm Nishith Desai Associates. To address this perception issue, GamePlan, an Indore-based company which makes software for the construction sector, also incorporated a separate venture in Delaware, United States, called True Intelligence Technologies.
Tsk tsk.

Now that the rupee is appreciating (remember the day Dr.Raghuram Rajan took over?), interest rate hikes have been paused and the long talked about new banking licenses announced, hopefully Dr.Rajan will turn his attention to the small tweak that will alleviate the plight (flight?) of  startups (including that of poor old VI, of course) from the country. (The capital gains tax of course will have to wait for the next Next FinMin.)

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 02, 2014

Deal Alert: ElasticBox Secures $9M In Funding led by Nexus Venture Partners

ElasticBox, the company that enables developers and enterprises to create, deploy and manage applications quickly and easily, is announcing that it has closed a nine million dollar Series A funding round. The Series A investment comes from Nexus Venture Partners and Intel Capital, who also participated in the company's seed funding round with a16z seed and Sierra Ventures. 

“The cloud has fundamentally improved how people access and use infrastructure. But developing cloud based applications is still a lengthy, expensive and broken process that is stuck in the dark ages, like way back in the days of bare metal,” said CEO and co-founder of ElasticBox, Ravi Srivatsav. “ElasticBox empowers the developer with preconfigured Boxes that they can mix and match to create applications - similar to the way a DJ blends beats and samples to create new music. It brings Dr. Dre-like creativity to enterprise application development.”

ElasticBox has introduced a modular way to develop applications in the cloud through a new approach, using Boxes. Boxes are encapsulated, fully configured components of your application architecture that can be combined to create and run applications in the cloud. 

Here is a look at what you can do on the ElasticBox platform:
  • Create Boxes or choose from a library or a catalog of publicly available boxes (like NGINX, Python, MongoDB, Hadoop, Ruby, etc.)
  • Stack and reuse Boxes to quickly and easily create multi-tier applications. 
  • Tweak Boxes to customize for any particular need.
  • Share Boxes for collaboration and quick deployment. 
  • Move your applications anywhere. Companies can develop applications in one cloud, test in another and then deploy in another cloud -- liberating applications from being locked into a single cloud.
  • Update a Box and sync to any application that uses that Box. No need to update the applications individually. '
 “There have been two pivotal moments in enterprise infrastructure development: the creation and implementation of the virtual machine, and the rise of cloud services,” said Jishnu Bhattacharjee, Managing Director at Nexus Venture Partners. “ElasticBox is now overhauling enterprise application development, deployment and management within this cloud in what we think is the biggest step in cloud innovation since VMware and Amazon Web Services. We are thrilled to have partnered with an exceptional team to help build this category-defining company.” 

“ElasticBox’s pioneering work removes the complexity and cost associated with developing, deploying and managing apps in the cloud and truly delivers the promise of cloud elasticity to enterprises,” said Arvind Sodhani, president of Intel Capital and executive vice president of Intel Corp. “We look forward to helping Ravi and team accelerate their growth with enterprises around the world.” 

The rise of business applications

It may not be commonly known, but most enterprises – of all industries, from Finance, to Pharma, to Coffee – develop hundreds or thousands of applications internally to support business processes and create competitive advantage. ElasticBox empowers these enterprises to build better applications faster, which then helps them innovate more quickly. Netflix is one such company. "ElasticBox has provided us with the technology that we had been looking for, but had never found a great solution," said VP of IT Operations at Netflix, Mike D. Kail. "With ElasticBox we are able to both create custom Boxes as well as leverage their preconfigured Boxes to deploy our internal applications, which allows us to focus on innovation instead of orchestration." 

About ElasticBox 

Founded in 2011, ElasticBox streamlines the development, deployment, and management of applications for any cloud. ElasticBox is pioneering a simplified, modular, service-based application development structure, where fully configured components of application architecture are encapsulated as “Boxes” and made available as a service. Boxes are reusable, and fully mobile across cloud environments. To create a multi-tier application architecture, simply “stack” these Boxes. The result? Application development, deployment, and management for the cloud are now seamless.

ElasticBox’s investors include: Nexus Venture Partners, Intel Capital, a16z seed and Sierra Ventures. 

About Nexus Venture Partners

Nexus Venture Partners (www.nexusvp.com) is India’s most successful venture capital fund, with offices in Silicon Valley and India. Nexus’ team consists of entrepreneurs who have founded and scaled large global companies. The team has invested in a variety of companies leading to numerous successful public offerings and M&A transactions. It has over $600M under management with an active portfolio of over 50 companies across Technology, Internet, Media, Consumer and Business Services sectors. The Nexus team plays an active role in helping entrepreneurs and management teams build market-leading businesses. Nexus investments include Cloud.com (acquired by Citrix), Gluster (acquired by Red Hat), Pubmatic, DimDim (acquired by Salesforce), Kaltura, Druva, Aryaka,Snapdeal.com and Netmagic (acquired by NTT). 

About Intel Capital

Intel Capital, Intel's global investment and M&A organization, makes equity investments in innovative technology start-ups and companies worldwide. Intel Capital invests in a broad range of companies offering hardware, software, and services targeting enterprise, mobility, consumer Internet, digital media and semiconductor manufacturing. Since 1991, Intel Capital has invested more than US$11 billion in over 1,339 companies in 55 countries. In that timeframe, 206 portfolio companies have gone public on various exchanges around the world and 344 were acquired or participated in a merger. In 2013, Intel Capital invested US$333 million in 146 investments with approximately 49 percent of funds invested outside North America. For more information on Intel Capital and its differentiated advantages, visit www.intelcapital.com or follow @Intelcapital. 

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 01, 2014

External environmental challenges faced by startups in India

Entrepreneurs like Sanjiv Bikhchandani of Naukri, Murugavel Janakiraman of Matrimony, the Bansals of Flipkart;  VSS Mani  of Justdial, etc. deserve massive admiration. What they have achieved is more like conquering Everest. Good to know that once they have climbed the peak, the environment also helps protect "their" turf. From a blog post by Dev Khare of Lightspeed Ventures (emphasis mine):
Many of India's successful startups have navigated a maze of challenges, creating leading brands and sustaining for long periods of time. Correspondingly, it is much harder in India, relative to the US/Europe, for competition to unseat leading brands.

...
Startups need large markets (Rs 2500cr+ or $500 million+) to get large and succeed.  This is hard to find in India, perhaps due to early consumer demand, unorganized markets, regional differences or foreign substitutes.  For example, digital advertising is a roughly $400 million annual business here, with mobile at 10% of that. To access and maintain growth, almost every new startup here needs to increase their focus on creating and evangelizing their category versus just focusing on their own startup's growth.
Some examples of overcoming this challenge include:
  • spending large amounts of capital to create a category (eg ecommerce, OTA, wireless telecom).
  • expanding into adjacent markets (eg Info Edge, which expanded from jobs into matrimonials, real-estate, education etc.).
  • building or piloting in India and transplanting to the US (eg Zoho)
  • aggregating several emerging markets outside India, perhaps before proceeding to Western Europe and the US (eg InMobi, iFlex, Subex).
  • attacking a large spend base (eg Micromax for hardware, Cafe Coffee Day for coffee/tea/snacks, BillDesk for bill payment).
Many brands in India are created from execution reliability at scale rather than product differentiation.  Brands  in India are disproportionately more valuable as they represent a trusted provider of products or services - think about the enduring value of the Tata brand in multiple unrelated categories.  As one consequence, I believe more startups should think about brand-building here in India relative to if they were in the US.

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.

Infra sector investments by SWFs & Pensions; IT deals buoy Q1’14 PE investments to $2.3 B

Deal Value almost doubles compared to year ago; Flat compared to Oct-Dec’13 quarter

Private Equity firms invested about $2,273 million across 89 deals during the quarter ended March 2014, according to early data from Venture Intelligence (http://www.ventureintelligence.in), a research service focused on private company financials, transactions and valuations in India. The investment amount was almost twice that invested in the same period last year ($1,179 million across 103 transactions) and marginally higher than that invested during the immediate previous quarter ($2,221 million being invested across 86 transactions). Note: The above figures do not include PE investments in Real Estate.
 
There were five PE investments worth $100 million or more (with three above $200 million) during Q1’14 compared to just one such transaction in the same period last year and seven during the immediate previous quarter, the Venture Intelligence analysis showed.

The top two PE transactions during Q1’14 involved Canadian and Middle Eastern investors teaming up to invest into infrastructure operating companies in India.
Canadian pension funds - Canada Pension Plan Investment Board (CPPIB) and Caisse de depot et placement du Quebec (CDPQ) - teamed up with Omani sovereign wealth fund State General Reserve Fund (SGRF) agreed to invest a total of Rs.2,000 crore in L&T IDPL, the infrastructure development arm of engineering major Larsen & Toubro. The second largest PE deal during Q1'14 featured Canadian pension fund PSP Investments (along with IDFC PE) partnering Abu Dhabi's National Energy Company (Taqa) to buy out two hydel power plants operated by Jaiprakash Power Ventures in the state of Himachal Pradesh. (PSP and IDFC will put up a total of Rs.1,960 crore for their 39% and 10% stake respectively, while Taqa will own 51%.)

The next four largest transactions were from the IT & ITES industry including the $260 million buyout of the Aditya Birla Group’s BPO unit Minacs by CX Partners and Capital Square Partners; the $143 million fifth round raised by e-commerce firm Snapdeal.com (led by strategic investor eBay along with existing VC investors) and General Atlantic’s $100 million commitment to healthcare software firm Citius IT. eBay again teamed up with existing PE/VC investors  to provide $90 million in follow-on financing to online classified services firm Quikr. While IT & ITES companies accounted for $895 million, Energy and Engg. & Construction companies vaulted to the second and third favourite spots attracting $414 million and $324 million respectively, the Venture Intelligence data showed.

Venture Capital type investments accounted 51 deals (or 57% of the investments in volume terms) during Q1’14. Late Stage companies accounted for 14% of the PE investments, while listed company investments accounted for 12%.
 
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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March 31, 2014

Deal Alert: Rajasthan Venture Capital Fund (RVCF) invests in Pune based SoftTech Engineers Pvt. Ltd.

RVCF has invested for significant minority stake from SME Tech Fund in Pune based SoftTech Engineers Pvt. Ltd., which is India’s leading Civil, Construction and Infrastructure ERP Software Product Company. SoftTech Engineers has array software products under the names of AutoDCR, Opticon, PWIMS. Various leading Municipal Corporation, Government Departments of Various States, Architects and Builders are using the products developed by the company in India and Gulf countries. 

Commenting on the transaction Mr. Vijay Gupta, CEO, SoftTech Engineers said that “The Company has been witnessing growth from both its institutional clients including the Municipal Corporations in various States, Government Departments, etc and private markets wherein Builders and Architects and construction companies have shown demand for such software products developed by SoftTech Engineers . The capital infusement from RVCF II will help the company increase sales and marketing -specially overseas; develop new products and enhance the existing products”. 

Mr.Girish Gupta CEO RVCF said that “the company has tremendous experience in Civil Construction and Infrastructure ERP Software Products and the infusement will help company to spread its wings both in new territories and product offerings. . SoftTech product AutoDCR has received excellent response from Urban Local Bodies. 

As a result of this investment Mr. Girish Gupta, CEO will join the Board of Directors of company. 

ABOUT RVCF

Rajasthan Venture Capital Fund is mandated to operate on pan-India basis. It manages two SEBI registered domestic venture capital funds - RVCF Fund I & SME TECH FUND – RVCF Trust II and invests in IT/ITes, education, healthcare, agro products, auto components and other growth sectors. For details may visit : http://www.rvcf.org 

ABOUT SOFT TECH More details on SoftTech are available on its website: http://www.softtech-engr.com/


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.