October 31, 2005

Warburg Pincus-Bharti saga ends; Nets $1.324 Billion for PE firm

The Investment (1999-2001)

Between September 1999 and July 2001, Warburg Pincus invests $292 million in Bharti Tele-Ventures in return for a 19% stake, the first tranche being invested in September 1999. Dalip Phatak and Pulak Prasad of Warburg joined Bharti's board.

Company Valuation: $1.537-B

The IPO (January 2002)

Bharti goes public (which, I assume, diluted Warburg's stake to 15%.)

The Exit (2004-2005)

August 2004: Warburg sells a 3.35% stake for about $208 million.

Company Valuation: $6.210-B

March 2005: Warburg sells another 6% stake for $560 million, marking the largest ever equity deal in a single scrip on an Indian stock exchange.

Company Valuation: $9.333-B

October 2005: Warburg sells its final 5.65% stake to UK-based Vodafone for $847.5 million.

Company Valuation: $15-B or 10 times that when Warburg invested in the company five years ago.

Warburg's total realization: $1.616 Billion - i.e., over 5.5 times its investment amount.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

October 28, 2005

Digital distribution of feature films picks up momentum

Businessworld has an article on the various players that have introduced the digital distribution of movies to cinema theaters across India.



It emphasises more firmly than ever India's position as the digital cinema laboratory of the world. There are now more than half a dozen players trying to roll out digital systems. At over 135 theatres, India is by far one of the largest digital cinema countries in the world along with China and the US. UFO Movies, the brand name under which Valuable hawks its service, has a target of 2,000 theatres by March 2008. If it meets that, it will become the largest film retail chain in India.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

EMS firms beeline to India

Never mind infrastructure issues. Leading global contract Electronics Manufacturing Services (EMS) firms are opening plants in India at a rapid pace. The latest addition to the list is Sanmina-SCI, the third largest, reports Businessworld.





Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

October 23, 2005

"Real Estate Investment Opprtunities in India"

Why are PE and VC firms scurrying to set up real estate focused funds in India?

The streaming video of the presentation on "Real Estate Investment Opprtunities in India" by top executives from Kotak Realty Fund - S Sriniwasan, Executive Director and V. Hari Krishna, Chief Investment Officer - at the TiE Silicon Valley office in July 2005 provides the answers.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

October 21, 2005

Why Warburg Pincus prefers PIPEs

Knowledge@Wharton has an interesting article explaning why Warburg Pincus is bullish on India. After the usual tale and numbers about the firm's investment and hugely profitable partial exit from Bharti Televentures, the article goes on to talk about how and why Warburg prefers to stick to investing in alredy listed companies - aka PIPE (Private Investment in Public Enterprises) deals.

Warburg's other notable holdings in India include Rediff Communication, the country's largest consumer web portal; Gujarat Ambuja Cement; Sintex Industries, an industrial plastic-goods manufacturer with a 60% share of the market for water-storage tanks; Kotak Mahindra, a financial services conglomerate; Nicholas Piramal India, a major pharmaceutical company, and WNS Global Services, a business process outsourcing company.

As the list shows, Warburg's bets in India are hardly reckless. The firm generally sticks to the tried, true, big and stock-market listed. That is rarely a winning strategy for a private equity investor in the United States, but can be in India, where the pent-up demands of a billion people leave plenty of room to grow for even the largest conglomerates. So in India, the investment firm is not spending much time seeking out early-stage companies or funky technology. In fact a couple of its forays into tech were jettisoned. They involved minor investments, under $2 million each, Dalip Pathak (the managing director at Warburg who spearheads the firm's strategy in India) says.

"Larger companies are less risky; listed companies are less risky," he says, citing the transparency afforded by India's capital markets. One other reason to pick big over small, in Pathak's view: Bigger Indian companies are increasingly seeking capital and acquisitions abroad, and if they play foul with Warburg, "they know they will never get investment abroad."


The article points out how competition for such late-stage deals is increasing - from Citibank VC, Carlyle, General Atlantic, etc. One of the new things Warburg is doing in response is "looking to participate in India's raging real estate market".

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

October 20, 2005

Lessons a VC learned from a good exit

Bill Burnham of Celsius Capital has a great post on the lessons he learned from investing in Datapower, a company that was recently acquired by IBM.

The entrepreneur "sometimes" knows his market better
Just after Datapower had launched its first product, a performance oriented appliance, Eugene lobbied for the company to accelerate the launch a second security oriented product that had been planned for a quarter or two in the future. At the time, I remember cautioning Eugene on the potential distractions and costs of having two immature products in the market at the same time. Eugene lobbied hard to take the risk and thankfully he won the day. I say thankfully because not only did the company land a $300K order that quarter for the security product, but it was able to establish significant mindshare in the security space well ahead of its competitors. To this day the security space continues to have the most robust market demand and competitors that failed to quickly launch a security product suffered in the market. The lesson for me in this was that VCs have to be careful not to micro-manage product development in a rapidly emerging market because demand can move very quickly and in unexpected ways.

# Shotgun Weddings Don’t Work.
...The lesson for me as an investor is that you should never insist on making a company hire a specific person a condition of investing as that dramatically raises the potential for conflict. You are much better off investing in advance and helping the company recruit someone great that everyone is 100% confident in.

# VCs can indeed be very unethical.
Prior to raising his first significant round of venture financing, Eugene had raised a seed round from a few individuals and a couple of investment funds, one of whom was a reasonably well known VC fund...Everything was ok until Eugene decided to raise his Series A financing. At that point the VC fund submitted what was clearly a low-ball term sheet and pushed very hard to close it. When Eugene objected to the terms and announced that he would try to generate some alternative offers to see if this was in fact “market” he found that he couldn’t get any traction with other Boston based VCs most of whom would either not meet with Eugene at all or who told him that they would not do the deal without also including the original VC (at the terms they had proposed). Now I don’t know if the original VC had an active campaign to try and discourage other investors from doing the deal, but they obviously knew that new investors would not want to do the deal without them (if the original investors don’t invest that is typically a big warning flag that something is wrong) and used that leverage to try and get a better deal... However after Eugene rejected their term sheet and instead ultimately accepted mine, the VC in question went ahead and not only invested in a competitor, but installed the same executive that they had installed at Datapower at their new investment. Within months, this competitor began spouting very similar marketing messages and appeared to be executing against a carbon copy of Datapower’s product and market roadmap.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

October 13, 2005

"The Infosys of auto components"

Business Today has a detailed profile of Baba Kalyani-led Bharat Forge, including nominating the firm as "the Infosys of the auto components sector".



I couldn't get past a couple of paragraphs myself, but I link it here since auto components is a favored sector among Private Equity/VC firms these days.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

October 09, 2005

Low cost airlines in China and other markets

Of course, everyone knows about the low-cost revolution in the US skies thanks to pioneers like Southwest Airlines and more recent entrants like JetBlue. But how about other countries? Did you know for example, that the Mexican government is set to license five new budget airlines - which would essentially look at competing with long-distance buses? And that in Brazil, low-cost carrier Gol Linhas Aéreas Inteligentes has captured a quarter of that country's air travel in just four years?

A recent Knowledge@Wharton provides a great international perspective - including from the US, Europe and China - on the dynamics of low-cost airline industry.

Some extracts from the article's section on the action in China:
Over the last six months, China's airline industry, which for a decade hadn't registered any new members, showed sudden signs of growth. Three private airlines -- Okay Airlines, Spring Airlines and United Eagle Airlines -- made their debut. Even more notably, Shanghai's Spring Airlines became the first carrier in China to offer low-cost airfares. On July 18, the opening day of the carrier, a flight from Shanghai to Yantai cost 199 yuan (about $24). The move by Spring Airlines -- which is owned by Shanghai Spring Travel Agency, the largest privately-owned travel agency in China -- stirred discussions in the media about low-cost airfares. In April, Thailand's Asia Airline opened its China flights and charged 99 yuan ($12) for a ticket from Xiamen to Bangkok. The move marked the first step by foreign air carriers to launch low-cost services.

...In addition, according to press reports during the World Economic Forum in Beijing in September 2004, CEOs from some of the world's well-known low-cost carriers -- including Asia Airline, Britain's Easy Group and Australia's Qantas -- all said they believed that it's time for them to enter the Chinese market, noting that in developed countries, an air ticket on average represents 0.5% of a passenger's annual income, while in China the ratio is as high as 10% to 15%. This suggests a huge demand from Chinese consumers for low-cost air services.

...The year 2004 saw a record for China's aviation industry in terms of transportation volume, which jumped 35.3% over 2003. A total of 121 million people -- or one in every 10 Chinese -- traveled by air, up 38.1% from a year earlier. Like the rest of China's economy, the air transportation industry has become one of the fastest-growing industries and has attracted attention from carriers throughout the world.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

What motivates a corporate VC?

Until 2004, Intel Capital was probably the sole active corporate VC investing in the Indian technology sector. 2005 has seen the VC arms of Nokia, Cisco, IBM, TI and other hi-tech companies - begin to actively scan the Indian market for potential investments. Add to this, the star of 2004 – contract manufacturer Flextronics – and the active investments by business groups like Godrej and Reliance Capital, it certainly seems as if corporate VCs are going to play an increasingly important role in the Indian technology landscape.

In this context, it is important for Indian entrepreneurs to understand the factors that drive corporate VCs vis-a-vis pure financial investors. A recent Knowledge@Wharton article, quoting the work of Gary Dushnitsky from Wharton and Michael J. Lenox of Duke University, provides some useful pointers.

The authors feel "venture capital is an essential tool available to a corporation to increase its innovativeness".
Corporate venture capital is one leg of a three-legged stool whose other two legs are a strong internal R&D capability and strong alliances with academic or government researchers.

Corporations that have stayed the course with venture investing -- DuPont, Johnson & Johnson, IBM and others -- tend to make equity investments in innovative startup companies with strategic rather than simply financial motives, and in time reap both strategic and financial benefits.


While having an VC arm might be good for large companies, start-ups can often discover that having such strategic investors on board may not always be a great idea.
Over the years, many examples have arisen of disputes between entrepreneurs and their corporate suitors over alleged misappropriation of trade secrets during the process of negotiating a corporate investment or acquisition, according to Dushnitsky. He cites a litany of such disputes: Simple.com versus McAfee.com; CardioVention, now defunct, versus Medtronic; a Stanford University professor versus Rockwell International. "The logic is that in these environments, because you cannot protect your idea, more of the technology is likely to be kept secret," Dushnitsky says.

So, when does it make sense for a start-up to go with a corporate VC?
"When corporate venture capital is least likely to attempt imitation," Dushnitsky writes. Based on a matched sample of 258 entrepreneurial ventures and 74 corporate venture capitalists, he concludes that the probability of a relationship between the two parties "decreases if the products are potential substitutes and increases when the products of the two are complementary."

If the products are potential substitutes, "there are incentives for a corporate venture capitalist to behave opportunistically and copy the venture's novel technology," he writes.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

October 08, 2005

Korea fines five US Private Equity firms

Korea Times reports that the Korean National Tax Service (NTS) has fined five foreign funds - The Carlyle Group, Lone Star, Goldman Sachs, AIG and Westbrook - a total of 214.8 billion won ($209 million) for evading capital gains taxes on profitable exits in the country. The agency also plans to refer several high-ranking officials at these funds for prosecution.

The NTS imposed a 147.3 billion won in taxes on foreign funds with regard to their capital gains from sales of local assets by operating through tax havens abroad and evading taxes by abusing the double taxation avoidance treaty.

Currently, Korea has signed with 62 foreign countries to avoid double taxation. The majority of foreign private equity funds have invested in local equities and real estate properties through their subsidiaries in tax havens, including Malaysia’s Labuan, even though the country is signatory to the international treaty, to avoid paying capital gains and other taxes.

It also imposed 67.5 billion won in penalties, as the funds did not properly pay stock transaction fees and illegally transferred capital gains realized here to their overseas affiliates.

The investigation was prompted largely by public criticism that foreign funds did not pay taxes after they took billions of dollars in capital gains from the acquisition of distressed financial institutions and corporations following the 1997 currency crisis.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

October 03, 2005

Why Bessemer cooled to tech investments in India

Anand Sridharan, Associate at Bessemer Venture Partners’ Mumbai office, has laid claim to the title of “India’s first VC Blogger”, by kicking-off "Seriously Clueless", a new blog at http://radventure.blogspot.com.


Anand Sridharan
(Photo Source : Business Today)


Anand has made a great start by providing readers an insider’s account of how he and his colleagues have localized their firm’s approach to investing in India.

The easy answer would have been to continue doing what we do in the US – invest in early-stage, IP-led, technology companies. As we spent time on the ground, we realized that the ecosystem for such companies – seed funding, mentors, a thriving domestic tech market, critical mass of people with product-lifecycle experience – doesn’t yet exist. At the same time, domestic demand growth is fueling several successful companies in a range of non-tech sectors. These aren’t necessarily IP-led companies, but are certainly built on strong execution and process capabilities.

So, if not tech, what else would interest Bessemer? In a detailed follow up post, Anand provides insights into how is likely to go about finding "the next Bharti".

An extract:
(1) Stick to basic needs
It will take us a while to get to self-actualization needs. Health spas, blogging and other self-indulgent pastimes will remain pastimes, not businesses. Billion $ businesses are most likely in food, clothes, basic infrastructure (roads, houses, health, education), communication, transport, household goods.

(2) Think utility, not fun
Middle-class Indian households are used to an all-encompassing entertainment budget of $1/month/head for unlimited cricket, news, songs and movies. And this even includes the EMI on the TV (in addition to the cable bill and a newspaper subscription). No one is in a hurry to pay $5 a pop for a mobile phone game.

Here’s hoping Anand will continue his initial enthusiasm and great start.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

October 01, 2005

Jaz Banga's Feeva to benefit from San Francisco's free Wi-Fi network

As you might know, the City of San Francisco has invited proposals to set up a community wireless broadband network. Bidders include investor and Internet God Google and ISP firm Earthlink.

One of the bidders is an interesting company called Feeva, Inc. (formerly UnwireNow Inc.) which "is hoping to be able to partner with whichever company wins the city contract", according to a SiliconBeat report. Feeva's software platform allows WiFi providers to serve targeted advertising to users - based on their location. "It's one way that a company such as Google could recoup its costs," the report adds.

According to the SiliconBeat report, Feeva already has a partnership with Google on the two free WiFi hotspots - at the San Francisco Public Library and at Union Square - that it already runs in San Francisco.


Feeva’s Founder & President Jaz Banga with San Francisco Mayor Gavin Newsom at the launch San Francisco’s second official WiFi network at the San Francisco Public Library.

Other members of Feevo's management team include Chairman & CEO Dr. Nitin J. Shah and VP Engineering Brij Patel.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Silicon Valley Bank completes one year in India

The Santa Clara, CA-based Silicon Valley Bank celebrated the first anniversary of its Indian operations by throwing a great dinner and networking event at its Bangalore office. From Silicon Valley VCs to wannabee tech entrepreneurs, all were present in strength.

SVB India Advisors Pvt. Ltd., the Bank's second international subsidiary, has acheived a lot in these 12 short months. With some dozen VCs setting up shop at SVB's Bangalore office, the firm has managed to ensure that the series of US VC delegations that it led (along with TiE) in 2004, translated into some real action. While some of the VCs - like Battery Ventures and Bessemer Venture Partners - have already made their first direct investments in India, more deal-making is set to follow.

SVB, with its special cross-border strengths and its Silicon Valley style alacrity, has made its mark as a valuable new player in the Indian VC-entrepreneur ecosystem.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

The opportunity in the pathology labs business

Businessworld has a roundup of the consolidation and rising investor interest in the pathology labs business.
The Rs 2,000-crore industry in India is going through major change. When Businessworld looked at the pathology industry a year back ('Still In The Lab', 12 July 2004 edition), there were six clear leaders. Now there are four in that league. The top two - SRL Ranbaxy and Metropolis - have increased their lead over the rest, and Pathnet has been bought over by Metropolis. Of the rest, Dr Lal's Path Labs and Wellquest have expanded their reach. The sixth, Thyrocare, has moved off the top table. In the last one year, the number of its collection centres has fallen from 545 to 312.

...The top two groups are also trying their hand at clinical trials. While SRL Ranbaxy has instituted the 80-bed Oscar Clinical Research Centre at the Sunflag Hospital in Faridabad, Metropolis has set up a site management organisation to handle clinical trials at Sri Ramachandra Medical College in Chennai and MS Ramaiah Hospital in Bangalore.

Even with this, the top two are looking at garnering some international business. The next two - Wellquest and Dr Lal's - are emerging as strong domestic players. Wellquest, a chain promoted by Nicholas Piramal, now has a new lab in Delhi, seven other labs, and 60 collection centres. Dr Lal's, in which private equity firm WestBridge Capital has picked up a 26 per cent stake this year, has a central lab, 12 satellite labs and 110 collection centres in and around Delhi.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Global IT services firms and Indian firms face off

The bagging of the $2.2 Billion outsourcing order from ABN Amro Bank by Indian IT services firms TCS, Infosys and Patni, has prompted Businessworld to put the "the Indian IT services firms versus global majors" on its cover.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Business Today's list of Cool Companies

Business Today has published its second annual listing of "Cool Companies" that "are not just successful, but hip and happening".

The list includes wine maker Sula Wines, online advertising services firm Pinstorm, leather goods maker Hidesign and temp workforce provider TeamLease.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.