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October 30, 2007

GMR gears up for global growth

Business Today has an article on the management recast at the infrastructure focused GMR Group.
The company is looking at other segments to expand its global reach; it is eyeing coal mines in both South East Asia and South Africa to integrate its power business backwards and it is also eyeing other airport projects in West Asia and other fast growing economies. "The competition is much tougher on the global stage. There, we are up against large global infrastructure players and, possibly, some of our partners," says Rao. GMR has already experienced both of these when a consortium it was part of beat half-a-dozen others (including Frapport, its partner for the under-construction Hyderabad International Airport) to win the contract to upgrade the Sabiha Gocken Airport in Istanbul, Turkey. "We have demonstrated our capabilities in delivering projects on time in India across our businesses. Now, we want to take the next step," says G.B.S. Raju, Chairman, Corporate and Internal Services, GMR, who also oversees the company's overseas forays.

Before it can make a global splash, Rao has taken steps to put sufficient management and operational bandwidth in place. Over the last six months, the group has worked with consulting firm McKinsey & Co. to recast its top management and sharpen its focus in each of the segments it is present in. Following this, in early September, Rao took on a less hands-on approach to the company, by becoming GMR's Group Chairman and appointed four business chairmen to drive the company's growth. He has also started the process of appointing CEOs for each of its units, who will be responsible for running the day-to-day affairs of the individual businesses. "The business chairmen will have a strategic role and I will only intervene in exceptional circumstances," says Rao, "but, this is not my first step into retirement; there is a long way to go for us." While professionalism may be GMR's new mantra, the company is not going to lose its family moorings so quickly (See "We want to be a global company").

Rao, who started three decades ago as a jute yarn manufacturer in Rajam, Andhra Pradesh, has transformed the company into one of the best known names in Indian infrastructure. It now boasts a top line of Rs 1,700 crore, but Rao's ambitions are much larger. He is targeting operational assets worth $10.5 billion (Rs 42,000 crore) in four years, compared to Rs 14,000 crore now. Already, the Hyderabad and Delhi airports, managed by GMR, handle a third of the country's air traffic; its power stations generate around 4,000 mw of power and it has built and operates 450-500 km of roads across the country.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Searching for the true Indian VCs – A LP’s Perspective

The following article, by Anand Sunderji, originally appeared in the latest quarterly India VC Report.

Recently, a well known venture fund announced their India plans. However, further information revealed that while the fund plans to be loyal to its venture capital strategy offshore, in India they would largely concentrate on growth capital. Needless to say, something about India makes traditional venture capital funds veer off their beaten path.

Several funds that look exclusively at venture capital deals outside India, have changed track when operating in India and have been dabbling in what would be called growth capital deals or even larger ticket transactions. “Venture” firms are now entering sectors as varied as manufacturing, hospitality and auto components. This was, however, not always the case.

The late 1990s witnessed a surge in venture capital activity in India. Venture capitalists largely looked to replicate the Silicon valley success stories on the Indian subcontinent. Start-ups that looked to bring U.S. success stories to India found favor with the venture funds. Several bad investments and a technology bust later, the U.S. model for Indian market was no longer an accepted path. The 1999-2000 debacle led the venture capital movement to take a beating and the survivors to severely realign their strategies and portfolios away from high risk early stage investing. Today, as the Indian private equity is seeing a veritable boom, the venture capital segment in India still remains underserved.

But the burst of the technology bubble is not the only reason for the dwindled venture capital industry. While the private equity is the current media darling, the Indian entrepreneur’s familiarity with the concept still remains rather basic. Also, Indian firms apply for their initial round of financing at a much advanced stage of development. Hence, as the entrepreneur looks for capital for his/her fledgling enterprise, venture capital does not feature among the available options.

This makes one wonder that if the venture firms are doing the growth deals, who is taking care of the venture capital requirements in the country? The venture space in India, as it exists today, consists mainly of local teams, usually with successful entrepreneurial track records. These venture capitalists are mainly looking to fund business plans that cater to unmet local demands and are tuned to the domestic business environment, quite unlike the preferred models of the 1990s. Typical investments include the travel services company Flightraja/Via with its wide network of local travel agents and the multimedia and animation company DQ, both of which exploit niche demand and talent available locally.

Also bridging the gap to an extent have been angel investors. Groups such as the Indian Angels and Mumbai-based Mumbai Angels have to their credit investors who helped create landmark brands such as Indiabulls. These groups largely consist of successful entrepreneurs that have the experience and expertise, in addition to the capital, to help budding entrepreneurs set up their businesses.

The last few years have seen an increase in reported deals, diversified across sectors (beyond technology) as well region (beyond Bangalore). The investor’s work, however, remains cut out for him. With the traditional venture players doing big ticket deals, we need to dig deeper to find the true venture capitalist with the deal pipeline and the talent to find the next big story.

Anand Sunderji, Director and Head of Asset Management at Thomas Weisel International in Mumbai (which manages a Private Equity Fund-of-Funds for India with an active interest in the Venture Capital segment), provides an overview of the VC landscape from a Limited Partner’s perspective. He can be reached at asunderji (at)

The opportunity and economics of intergrated townships

Business Today has an article on the business and economics of integrated townships.
At present, there is no one format that is being adopted by developers, although the key drivers seem to be common: It is either mass housing requirements or demand for commercial space. Therefore, the townships promise to come in all shapes and sizes. The 390-acre Kolkata West International City in West Howrah primarily offers plotted development, while the Mahindra World City in Chennai offers both commercial and residential space (although dwelling units are yet to come up). In fact, Infosys Technologies, which has built a sprawling campus in the Mahindra special economic zone (SEZ), hopes to employ 35,000 people when the facility is fully occupied. Magarpatta City in Pune is built on 400 acres of agricultural land and offers the walk-to-work concept to its residents, and the Dankuni Township near Kolkata is expected to have one of the largest planned developments involving public-private partnership and also cater to the needs of the industrial sector.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Are spin-outs the way to go?

The following article, by N. Sriram, originally appeared in the latest quarterly India VC Report

On May 4, 2006, when all commercial activity in Bangalore came to a standstill thanks to a general strike (“bandh”), Rajiv Mody, Chairman and CEO of Sasken Communication, and Sudhir Sethi, Managing Partner of IDG Ventures India, met to discuss an innovative idea: is it possible to spot product areas where Sasken was not adequately realizing the potential and spin them out into a separate corporate entity?

Over the next six months, after considerable research and several meetings later, five areas were identified as worthy of spinning off from the Bangalore-based provider of embedded communications technology solutions. After some more filtering, machine-to-machine (M2M) communication emerged as the top contender segment that Sasken should spin out. Between November 2006 and April 2007, the business plan was firmed up, potential customers and markets were identified. The next step was to pick advisors, employees and, of course, the CEO.

In June 2007, Sasken and IDG announced that they were together investing $6 million in the new entity christened ConnectM Technology Solutions. Kumar Prabhas, a senior executive at Sasken, was named ConnectM’s CEO.

In a sense, ConnectM has been given everything it needs to succeed on a platter. Even a potential exit strategy for the VC - since Sasken has reserved the right to fold ConnectM into itself.

Spin-outs like this indeed seem to be a convenient solution for a key problem facing VCs in India: how to put larger sums of money to work in a situation where the average start-up requires far less than the $5 million or more that their fund sizes dictate they deploy per deal.

There however seems to be one key problem: in a spin-out situation, who exactly is the entrepreneur - with “fire-in-the-belly” and all that – who is supposed to be the heart of any successful startup?

Sudhir Sethi of IDG counters this, saying that a senior executive, when made a CEO, realizes the opportunity to create a large company and works as aggressively as an entrepreneur. In ConnectM’s case, Prabhas was picked as the CEO after short-listing candidates from outside Sasken as well.

Sethi also suggests that the issue be looked at from a different angle: how should a medium size company grow? And points out that the spin-out route provides an alternative, without the company losing market leadership. "Also, the time taken to complete the quality cycle will be reduced", he says pointing out that ConnectM, within three months of inception, has completed the execution of a project precisely because it hit the ground running.

Explains Prabhas, ConnectM’s CEO, "The rationale was to explore verticals outside of telecom, while still leveraging the communication expertise, global reach and mature policy and processes of Sasken. All ConnectM offerings are new, as they address vertical markets that Sasken never addressed."

ConnectM’s progress will indeed be interesting to watch.

What do you think about the opportunity to do spin-outs in India? Do send us your views at

Update on the Indiabulls phenomenon

Business Today has a cover story on the 8-year-old company, which enjoys a market cap of over Rs.29,000 crores, is rapidly expanding into territories beyond its original domain of online broking.
"The consumer finance business is 10 times the size of broking. If corporate growth is expected at 15 per cent, financial services will grow at 30 per cent. And in the next 10 years we will grow 10 times in the consumer finance business from $3 billion to $30 billion (in market cap)," says Gehlaut, who after working with petroleum and energy giant Halliburton in the us came to India to start a mining and earth moving business. In October 1999, along with Rattan and Mittal, Gehlaut started Indiabulls after acquiring a Delhi brokerage.

...The real estate push also gives Indiabulls an opportunity to diversify into another sunrise sector, that of organised retailing. Here, the promoters are exploring formats like hypermarkets and multiplex-cum-mall, and are busy acquiring properties for this purpose. Gehlaut has earmarked Rs 1,500 crore for this project, and has been busy acquiring land via auctions in cities like Madurai, Jodhpur, Hyderabad, Agra and Kanpur. "Financial services, real estate and retail are the key sectors for growth that will deliver double-digit growth over the next 20 years. Retail is a missing piece in our pie and we are seeing it as a definite business option as the sector coincides with the real estate story," says Rattan, the 35-year-old CFO of the group, who worked as an operations manager for Schlumberger before co-founding Indiabulls.

The article also touches upon an hitherto unknown (to me) facet of Indiabulls: one of its promoters actually is closely associated with the US-based hedge fund Farallon Capital which has been pouring significant dollops of money into the company. (Farallon also, to my knowledge, has no other India investments outside of Indiabulls.)
Saurabh Mittal, the promoter based in the US, is a partner and portfolio manager at Noonday Asset Management in the US. Before that, Mittal had joined Farallon in 2001 (after co-founding Indiabulls), the same hedge fund that today has an exposure of Rs 365 crore in the group. Mittal may no longer be with Farallon, but Noonday manages its money. Dalal Street veterans question the ethics of a promoter also being a manager of the funds that find their way into the same company.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

October 26, 2007

Deal Alert: 3i invests $80 M in steel pipe co. Welspun Gujarat

Edited extracts from the 3i press release:

UK-headquartered 3i has invested US$80 million for a 6.6% stake in Welspun Gujarat Stahl Rohren Ltd (“Welspun”) through a purchase of secondary shares in the company. Welspun Gujarat is the flagship company of the Welspun Group, led by Mr. B.K. Goenka, and is listed on the Indian and Luxembourg Stock Exchanges.

The company is one of the world’s largest manufacturers of line pipes used by the oil & gas sector and is in the midst of executing an ambitious expansion plan including adding new capacity, backward integration into manufacture of plates and coils and establishing an overseas presence with a facility in the US. The company counts the world’s largest oil & gas companies, including Exxon Mobil, Chevron and Saudi Aramco, as its customers. Post completion of the Company’s expansion plans, it will have a total capacity of 1.75 million tonnes per annum, up from 1 million tonnes per annum currently.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Deal Alert: Havells to raise $110 M from Warburg Pincus

Edited extracts from the Warburg Pincus press release:

Electrical and power distribution equipment company Havells India has announced that Warburg Pincus is investing $110 million in the company. Havells will issue fresh shares and warrants to Warburg Pincus, representing approximately 11.2% of the fully diluted share capital of the company.

Earlier this year, Havells acquired Dutch-based SLI Sylvania's lighting business to enhance their global presence. Warburg Pincus’ investment will be utilised to partly retire the debt raised during the Sylvania acquisition, and in strengthening the company’s manufacturing capacity and distribution network to address the Indian market.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

October 21, 2007

Deal Alert: Tejas raises $24 M from Goldman Sachs

Bangalore-based Tejas Networks, a provider of optical technology based telecom equipment, had announced that it has attracted $24 million in new equity financing from Goldman Sachs. The company will use proceeds of the financing to significantly grow its business and invest aggressively in R&D for developing new products.

The Fabindia story

Business Today has an profile of Fabindia, a retailer of ethnic ware, which recently raised a round of Private Equity funding.
Fabindia is recasting its supply chain, setting up dozens of "supply-region companies" that will gradually take over its entire supply chain in a particular region; these companies will also offer shareholding to Fabindia's suppliers in line with the vision plan articulated by Managing Director William Bissell (40), who sees himself as a champion of free market in the NGO- and government-dominated handicrafts sector.

For a company that owns India's most successful and chic brand of handloom garments and handicrafts, that's only one of many exciting developments taking place-Fabindia has opened 37 stores in the last 18 months; sales have been growing at a CAGR of 40-50 per cent over the last three years; and margins are so attractive that investors are queuing up with their cheque books.

Bissell, who is married to an Indian, says Fabindia's emphasis on utility and contemporariness, rather than beauty and quaintness, have created "sustainable demand". Result: customers buy a product because they need it, not because they think it's beautiful. "Fabindia's regular customers tend to be Indians who are not insecure about their identity; who appreciate the fact that they have an extraordinary culture and that a handmade product has an intrinsic value, not an externally imposed price of a big brand, inflated manifold by advertising and packaging," says Bissell. Then, given that its "basic" line of garments starts at a price point of Rs 150, Fabindia has become synonymous with "affordable chic".

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Are REITs the right way?

A Businessworld article discusses how real estate companies like DLF and Unitech are raising money via REIT listings overseas and raises questions on whether such issues are fair to their domestic shareholders.

For instance, the promoters of DLF, India’s largest private land bank owner, have filed a prospectus for floating a REIT in Singapore. DLF Asset (DAL), their offshore entity, has already acquired assets of 5.3 million sq. ft of commercial office space from DLF, the publicly-listed Indian firm. An additional 6 million sq. ft will be sold to DAL at regular intervals over the next couple of years. It is 1.8 per cent of DLF’s total land bank of roughly 615 million sq. ft. “Singapore’s investors have a great penchant for REITs,” says Saurabh Chawla, vice-president of finance and investor relations at DLF. “In addition, Singapore is a great place for pan-Asia property deals.”

...Once its REIT gets listed on the Singapore exchange, there will be a public valuation of the 5.3 million sq. ft of commercial office space sold by DLF to DAL. Only then will investors be able to determine whether DLF’s asset sale to its promoter-owned entity was at the right price, or it went cheap.

Indian shareholders invested in DLF or Unitech’s listed entities in India will not benefit directly from REITs. In the case of DLF, it is the promoter and private equity owners of DAL who will profit the most. Similarly, Unitech Corporate Park is owned by shareholders in the AIM market.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

October 19, 2007

Crush on Cross-Border Continues

Here is the full text of my article for the Economic Times-Corporate Dossier (issued dated October 19, 2007)

Despite the liquidity crunch in the US and Europe, Indian companies are stepping on the accelerator when it comes to acquiring overseas companies. Indian companies have closed over 60 outbound acquisitions worth over $4 billion during the latest quarter – i.e., amidst the “sub-prime crisis”. These included 15 deals that cost over $50 million and six that with tags of over $200 million!

Click Here for a table on top outbound acquisitions during the latest quarter.

So, why the hurry? One answer is the opportunity presented by the near absence of competition from LBO (Leveraged Buyout) firms. With lenders turning off the taps for cheap debt, LBO firms are no longer able to outbid strategic buyers with ease. This could be prompting the strategy and M&A heads at Indian companies to think what’s a few basis points here and there when the lack of alternative buyers can shave off a few millions on the target’s price? Plus, an ever rising rupee is only making overseas assets that much cheaper to acquire. We are hoping to get more insights on what makes cross-border acquisitions tick from a host of experts – including from companies like Suzlon Energy, Spentex Industries, Geometric Software, Take Solutions, UTI Ventures and others - at the Venture Intelligence M&A Summit in Mumbai on October 25.

New Sources of Liquidity
Private Equity firms exited their investments in 34 companies during the first six months of 2007 via M&A deals compared to just 26 such exits during the entire of 2006. The rising number of M&A exits is driven by two trends. The first - and slightly older trend – is that of MNCs acquiring companies in India to “hit the ground running” in terms of market access and capabilities. While this has been driving acquisitions the IT & ITES industry (think IBM-Daksh, EDS-Mphasis, etc.), what’s new this year is the acquisition by MNCs in consumer targeting businesses – good examples being Hershey’s acquisition of Godrej Foods and Norway-based Orkla Foods’ acquisition of MTR Foods.

The other – newer – trend is the rising acquisitions of PE-backed companies by other PE firms. The number of such deals, known in PE industry parlance as “secondary sales”, is growing thanks to the ever increasing number of new PE firms entering the market. And it is giving existing funds a nice source of liquidity for their investments. Last year, we had witnessed several such deals in IT & ITES companies including SAIF’s buyout of Baring India from CSS Group and Carlyle providing liquidity to Euronet Ventures from Allsec Technologies. This year the trend has again moved beyond IT exemplified by the acquisition of APIDC VC’s stake in Hyderabad-based port management firm Ocean Sparkle by India Equity Partners.

It is not just strategic acquirers and new PE entrants that are providing liquidity to existing PE & VC firms. A new category of investors - Special Purpose Acquisition Corporations or SPACs – are promising to open up another avenue on the exits front. (SPACs, also called “blank check” companies - are newly-formed companies without assets, whose sole purpose is to acquire an unidentified company in a targeted industry.)

Several India-focused SPACs have raised (or filed to raise) capital via IPOs on the US and European exchanges and are scouring the country for acquisition opportunities. They include the Phoenix India Acquisition Corp., Global Services Partners Acquisition Corp. and TransTech Partners (all of which are IT focused); Trans-India Acquisition Corp. (which is focused on Life Sciences) and Millennium India Acquisition Company (which has a broader focus including financial services, healthcare, infrastructure, retail and hospitality).

Malaysia-based PE firm Navis Capital, which had developed a strong taste for Indian food and restaurant businesses, has found an exit route for its investments in three such companies – Mars Restaurant, SkyGourmet Catering and Nirula’s – via a sale to India Hospitality Corp, a SPAC listed on the London AIM exchange.

Tail piece
Build to flip or build to last? Using an interesting analogy, K. Ganesh, Founder & CEO of TutorVista and a serial entrepreneur who has successfully exited three ventures, provided an answer to this eternal start-up question while speaking at a recent Venture Intelligence conference. Ganesh compared building a company to that of building a house.

Depending on whether you plan to sell the house or rent it out or live in it, you would build and furnish the property differently. Similarly, depending on their vision for their businesses, the approach of entrepreneurs who planned to exit the business after building value over a few years would vary from that of others who intend to pass it on to their children. However – whether a company is built to last or flip - in order to create a significantly valuable business, it is critical for an entrepreneur to be passionate about the core idea and willing to “bet his or her life on it”.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Will the subprime mess affect Indian PE?

I wrote the following article for Economic Times-Corporate Dossier (issue dated September 7, 2007).

The financial crisis triggered off the by the US sub-prime mortgage meltdown, is already impacting Private Equity investing in North America and Europe. And depending on how our public equity markets react, it will impact the PE scene in India too. But, the nature of the impact is likely to be very different from that in the US and Europe. Because, PE in India is quite different from Private Equity in the Western world.

While (unfortunately) there are many definitions of Private Equity, PE in the US and Europe is commonly used to refer to buyout investments and especially, leveraged buyouts (LBO) which involve taking on significant portions of debt to acquire (often) publicly listed companies – with a view to improving profitability and taking them public again (or selling them off) a few years later. With the sub-prime crisis raging, PE firms will find it very difficult to access cheap debt from banks – and reports have emerged on how the financing for several mega deals in the US and Europe have been placed on hold.

In India, on the other hand, buyouts (let alone large LBOs) form a very small part of the PE market. Out of the 302 PE investments in India that Venture Intelligence had tracked in 2006, only 14 investments (i.e., less than 5%) were of the buyout variety. And only one of these deals – the KKR-led buyout of Flextronics Software - was valued at over $100 million. Even without including the 22% of PE investments which went to listed companies, an overwhelming 75% off all PE investments in India went into unlisted companies in various stages of their growth.

Given this context, how is the latest financial market turmoil likely to affect PE investments in India? The 2001 downturn had witnessed several global PE investors bidding goodbye to Mumbai. This time around, a key source of strength is that almost 40% of all PE investments in India originates from “India-dedicated funds” - i.e., pools of capital which have been mandated to be invested exclusively in this country. This means that, even (in the unlikely event) of players like Blackstone and Kleiner Perkins losing appetite for emerging markets investing, there is significant “dry powder” at firms like ChrysCapital and Sequoia Capital India which has to find a home in India over the next few years.

In fact, with less competition from their foreign counterparts (including hedge funds), these India-dedicated funds which have raised their funds recently, would probably be licking their chops to investing in a climate where they could enter companies at attractive valuations compared to what has been possible over the last two years.

Google as the go to guy
If you are a fund manager trying to raise a Venture Capital fund targeting young technology companies in India, it’s become clear that the Googleplex in Mountain View, CA should be your first stopping point. While globally, Google is known for buying out young companies or products, the online search giant seems to be playing India indirectly - at least for now. Google has invested into three early-stage VC funds - VentureEast TeNet Fund, Seed Fund and Erasmic Fund. And if that wasn’t enough, it has also joined the India Angel Network - a group of successful entrepreneurs who invest in start-ups - as an institutional member.

Deal-making ADAG style
In 2002, California-based “managed Ethernet provider” Yipes Communications, unable to meet its financial obligations, had filed for bankruptcy - after reportedly burning through almost $290 million in venture capital. Post its 2002 reorganization, investors like Crosslink Capital, Norwest Venture Partners, JPMorgan Partners and Sprout Group poured in an additional $94 million into the company – which seems to have paid off on July 16 when Reliance Communications subsidiary, Flag Telecom, announced that it had bought Yipes for $300 million dollar in cash. (Flag Telecom itself had filed for bankruptcy before Reliance had acquired it in 2003.) Interestingly, on July 20, Reliance Communications announced that it had received about $338 million by selling a 5% stake in its tower infrastructure arm Reliance Telecom Infrastructure, to a group of financial investors. That’s $338 million in and $300 million out in four days! Coincidence or clever financing?

Going for Broking
PE investors are making a firm bet that young Indians will not be spending all their pay packets at the shopping malls, but will direct some of it towards investments in the stock markets. And who would be the immediate beneficiary of this? Well, the neighborhood – or is it, the one-mouse-click-away? – stock broker, of course. Last week’s $35 million investment by Baring Private Equity in Cochin-based JRG Securities marks the eighth such investment so far this year, compared to just three deals in the whole of 2006.

At the recent Venture Intelligence conference on IT Services and BPO, we had invited a panel of experts to answer the question “Can a KPO ever IPO?” (as against having to sell out to larger BPO firms). Chandu Nair, Founder of Scope eKnowledge, started his answer with the following memorable line: “In a strong wind, even turkeys can fly!”

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Exit Deal Alert: Sequoia Capital India notches up another exit as Cognizant acquires marketRx

Cognizant to pay about $135 million in cash as Sequoia Capital India reaps fourth exit in almost as many months from its WestBridge Capital avatar investments.

Edited extracts from Cognizant's press release:

Nasdaq-listed Cognizant Technology Solutions Corporation, a leading provider of global IT and business process outsourcing services, today announced that it has signed a definitive agreement to acquire marketRx, a India- and US-based provider of analytics and related software services to global Life Sciences companies in the pharmaceutical, biotechnology and medical devices segments. Cognizant will pay approximately $135 million in cash, which will be funded from current cash reserves.

marketRx combines analytics, market research and software services to provide scalable, web-based solutions in three functional areas for Life Sciences companies: Sales Management & Operations, Brand Marketing & Product Management and Market Research. marketRx's client base includes 75 Life Sciences customers, including all of the largest 20 pharmaceutical companies and 4 out of the top 5 biotech companies.

For a more in-depth "beyond the press release" analysis of this exit, subscribe to Venture Intelligence newsletters and reports.

Deal Alert: IDFC PE leads $100 M investment in Moser Baer's solar cell subsidiary

Edited extracts from the press release:

Moser Baer to raise $100 million in its wholly owned photovoltaic subsidiary

• $100 million to be raised from a consortium led by IDFC Private Equity, consisting of GIC Special Investments, IDFC & CDC Group plc.

• Proceeds to partially fund Moser Baer’s overall plans to expand photovoltaic (PV) capacity to 500MW by 2010

• A structured transaction to position the PV subsidiary for a potential IPO on an international exchange.

New Delhi-based Moser Baer, India's largest and the world’s second largest optical storage media manufacturer announced today that it has received the approval of its Board of Directors to raise $100 million (Rs. 400 crores) in its wholly owned photovoltaic subsidiary. The investment will be made by a consortium of investors led by IDFC Private Equity, a private equity fund focused on the infrastructure space in India; together with GIC Special Investments, a private equity arm the Singapore's foreign reserves; CDC Group plc (the UK government owned emerging markets fund of funds investor) and Infrastructure Development Finance Company (IDFC), India’s leading infrastructure development and finance company.

Moser Baer’s photovoltaic subsidiary will use the proceeds to partially finance its overall plans to increase capacity to 500 MW by 2010 – making it one of the largest players in the global photovoltaic industry. Additionally, the transaction will position the photovoltaic subsidiary for a listing on an international exchange.

"While the photovoltaic business has recently commenced commercial operations, this innovative deal has set a minimum threshold valuation for the photovoltaic business at US$1 billion," said Mr Ratul Puri, Executive Director, Moser Baer.

Ravi Khanna, CEO of the PV Business added "Moser Baer is implementing a differentiated strategy in the high growth global photovoltaic business. The company through its wholly owned subsidiaries is leveraging existing capabilities to create differentiation in silicon technology and also straddling multiple new, potential disruptive technologies to provide optimized products to customers/installations across the world."

Mr. Prakash Karnik, Managing Director – Investments, IDFC Private Equity, commented, "The global photovoltaic industry will continue to experience rapid growth, especially with the increased focus on cost reduction and improving system efficiencies. Access to new technologies, having clear roadmaps, to challenge grid parity pricing will be one of the key competitive advantages in the emerging PV space in the long term. Given the global environmental concerns, we at IDFC Private Equity are pleased to make an investment in the green infrastructure space”.

Globally, given the rapid growth of the photovoltaic industry, there is currently a shortage of silicon wafers, a key raw material for the photovoltaic industry. Moser Baer has implemented a flexible three pronged model for securing raw material supply through a mix of strategic investments in silicon manufacturing, long term wafer supply contracts and spot purchases. The company’s photovoltaic manufacturing capacities for crystalline silicon, concentrator and thin film technologies are coming up in one of India’s first renewable SEZ’s in Greater Noida.

About Moser Baer India: Moser Baer, headquartered in New Delhi, India, was established in 1983. The company has successfully developed cutting edge technologies for recordable optical media, constantly innovating and introducing new products and process. The company currently has over 6,000 full-time employees and multiple manufacturing facilities in the suburbs of New Delhi. The company services it's customers through 6 marketing offices and subsidiaries/affiliates in India, the US, Europe and Japan. An emphasis on high quality products and services has enabled Moser Baer to emerge as one of India's leading technology companies. Moser Baer, through its wholly owned subsidiaries is in the business of manufacturing photovoltaic cells and modules by straddling multiple technologies including crystalline silicon, concentrator, nano technologies and thin films. Website:

About IDFC Private Equity (IDFC PE): IDFC PE is the leading infrastructure focused private equity investor in India. It manages funds of Rs. 28,500 million (US$ 630 million). Some investments of IDFC PE include GMR Infrastructure (exited), Gujarat State Petronet, Chalet Hotels, Hotel Leelaventures (exited), Delhi International Airport, L&T Infrastructure Developers, Manipal Health Systems, Gujarat Pipavav Port and Krishna Godavari Gas Network.

About GIC Special Investments ("GIC SI"): GIC SI was set up in 1982 as the private equity investment arm of the Government of Singapore Investment Corporation Pte Ltd and manages a diversified global portfolio of investments in venture capital and private equity funds, as well as direct investments in private companies. Its investments over the years have covered the areas of leveraged buyouts, venture capital, growth capital, mezzanine financing, distressed situations and other special situation investments. Since inception, it has invested in over 400 fund partnerships and companies. Today, GIC SI ranks as one of the largest private equity investors worldwide.

About CDC Group plc (CDC): CDC is a government-owned fund of funds with net assets of £2bn. It uses its own balance sheet to invest in private equity funds focused on the emerging markets of Asia, Africa and Latin America, with particular emphasis on South Asia and sub-Saharan Africa. CDC’s mission is to generate wealth by providing capital for investment in sustainable and responsibly managed private sector businesses. It has committed capital to over 80 funds invested in Africa, Asia and Latin America. It currently has US$1.8bn committed to over 30 fund managers, 11 of which have a focus on India.

October 15, 2007

VC Interview: Bob Kondamoori of Sandalwood Partners

N. Sriram interviewed Bob Kondamoori, Founding Managing Director of Sandalwood Partners for the US-IVCA/Venture Intelligence quarterly report. Some extracts:

What differentiates Sandalwood Partners from other VCs?
We are focusing on early stage investments. Most of the VCs we see here are doing later stage investments where valuations are very rich and competition fierce. We are looking at investing in companies at product development stage so that we can help them tune the product to the world market. Secondly, we are also more product-centric than service-centric. We are not going after IT Services companies or BPOs.

Are you looking at India and China together as one block for investments?
We are really India-centric. But since we are product-centric company and one of our partners is in China, we look at China for support in manufacturing, until Indian manufacturing takes off.

What are the revenue requirements for a company to seek support from you?
Out first investment was based on just a PowerPoint presentation. We committed $10 million and in two years, the company had $40 million in revenues. If you look at the track record of our partners, we have invested in concept-stage companies and taken them through the growth curve till acquisition or IPO stage.

Are you open to investing in any sector?
We invest in areas where we can add value. So we are very specific about our sectors. Our partners and advisors should have deep domain knowledge of the sectors in which we are investing. Right now we are focusing on two sectors: technology and alternative energy.

You have chosen to invest in semiconductors segment, which doesn’t seem to be a hot among too many VCs. What drives you to invest there?
If you look at the track record of our partners, we have invested in more than 40 semiconductor design companies and returned more than $20 billion. So we are very comfortable in that space.

When you go into semiconductors, the key thing is you have to be very technology savvy. You cannot be only an investment banker to identify companies in that segment. Our backgrounds lend us the advantage of being comfortable in this niche market. And we know India’s strengths in this area. For example, the microchip that runs Apple iPod was made in India.

There is very little tolerance for flops in this segment. At the board meeting level, we go into excruciating details about the product. You should have been a designer to be an investor here. The company is looking for your inputs on selection of tools, design, etc.

You also seem to have got involved in policy making in semiconductors segment. Does that give you an advantage?
We are early market players and understand the market. It helps to understand the government’s views about the business segment, to work with the government and build relationships there. It also gives a certain advantage to our portfolio companies.

Have you made any investments in alternative energy yet?
We have not made any investments yet. But we are definitely evaluating companies in that space.

What is your outlook on the Indian VC market for the next 3-5 years?
The market is incredibly hot. The people are very entrepreneurial, very talented and sharp. I wouldn’t be surprised if in the next ten years, the next Google or Microsoft is born out of India.

How did you get into the VC business?
I was born in India, went to the US to study, stayed and then joined the workforce. From 1995 onwards, my luck changed. I acquired a sort of Midas touch. Every company I was associated with, did extremely well. The first company went public notching up $300 million in market cap.

Then I invested in two companies, each was acquired by Intel for cash. So one after the other, the luck continued to be good, people were taking notice. Since the VC world is a ‘by invitation only’ business, I got invited to join a fund which was a seed investor in Ramp Networks, a company promoted by me. After several interviews, I decided that it was something that I wanted to try out and hence joined them in 2000. I was a partner with Charter Venture Capital, a $ 400 million fund, for nearly five years. I was involved in more than 150 investments across four funds, and about 60 of them have been gone for IPOs.

Do you have any role model in business?
Not really. I am from the school of Hard Knocks. I had founded a handful of companies which were all successful. So entrepreneurship runs in the blood. But I wish I had a role model. It would have perhaps made my life much easier.

Having said that, I have tremendous respect for anyone who is an entrepreneur. I admire Narayana Murthy, a tremendous person.

What according to you is a perfect investment?
You don’t invest in business plans and companies. You invest in people and their ability to execute and deliver. Perfect investment is nothing but a perfect team, the right gene pool. At the early stage, we have a board meeting every 30 days. If the team commits itself to doing something in the meeting, they have to get it done. It is all about saying and doing it.

Typically, when we invest in a company, it is a company that does not need investment. The entrepreneurs involved have it all in them to build the company. All they are looking for is a catalyst and a little mentorship.

If someone comes to us only for money, we usually don’t invest. The team should have deep experience and knowledge. If a first time entrepreneur insists on being the CEO, we back out, unless we are convinced that he has the experience.

We are also keen that the entrepreneur acquire our expertise and our networks to grow the business because we are confident that he will not embarrass us. That is the true value that we bring in. The entrepreneur also sees the point that our dollar is equal to five of someone else’s dollar.

What are the key lessons you have learnt in the time you have spent in this business?
When I was in Charter Capital, I used to see about 5,000-7,000 business plans a year. I would filter them by 10X based on the sectors that we wanted to invest in. So after the first filtering, the number would stand at 500 or so. It would be reduced by another 10X based on the gene pool, the team, etc. That would bring the number to about 40 of which we will invest in about 8 companies.

What is the lesson that I learnt in that kind of universe? Entrepreneurs have incredible passion. The first reaction when they see a model that is working, be it a search engine or a chip design, is that ‘I can do it better’. They dissect an existing model in thousand ways and we get a hundred business plans on how they will be able to beat Google. They are also fantastic salesmen. It is easy to get carried away. But I have to remain pragmatic and very, very objective when it is very difficult not to get swayed.

If I invest in a concept that is unlikely to succeed, then the entrepreneur is going to chase a dream for five years of his life and he could completely fail. What we lose is some money, but he loses something vastly precious – years of his life. Saying ‘no’ to a passionate entrepreneur is very, very difficult but we have to do it, if we think it is in their own good. Not to get sold to passion is the biggest lesson I have learnt as a VC.

October 14, 2007

Bupen Shah and the art of building products out of India

There has recently been a lot of discussion whether it is worth bothering to build products offshore in India - especially products targeted at US consumers and especially out of Bangalore.

With the acquisition of Sling Media (the creators of the much publicized Slingbox) for a pretty decent sum of $380 million by EchoStar (an existing investor in the company), Sling co-founder Bhupen Shah seems to have put the debate to rest.

Ryan McIntyre of Mobius Venture Capital, the first external investor in Sling, has this to say (emphasis mine) about Bhupen:
After the Sling Series A closed in October 2004, it was off to the races. They went from a demo prototype to a finished piece of hardware on the shelves at thousands of stores (mainly BestBuy and CompUSA at launch) in less than nine months, launching the product on June 30th, 2005. Much of the credit for this amazing achievement goes to Bhupen Shah, Sling co-founder and CTO, who managed a transoceanic team between San Mateo and Bangalore that churned out hardware, software and firmware in record time.

So, who is Bupen Shah?

Here are snippets of his profile from the Sling and DiTango web sites (emphasis mine).

Bhupen Shah has over 22 years of experience in technology development, product development, and engineering management in embedded digital media and communication solutions at Emuzed, Dazzle, RealChip, Philips Semiconductors, IBM and others. Over his career, Bhupen has on four occasions successfully built cost-effective India-based development organizations.

Bhupen joins Sling Media as a co-founder following the acquisition of DiTango by Sling Media. Prior to founding DiTango, Bhupen co-founded Emuzed Inc. (acquired by Flextronics in 2004), initially serving as COO and EVP of Engineering. Bhupen played a key role in building and managing development team in Bangalore, India. His team delivered PC and embedded digital media products to worldwide tier-1 OEMs. Later as CTO and VP of Marketing, Bhupen focused in technology evangelism, marketing and pre-sales activities resulting in design wins with tier-1 OEMs worldwide.

Bhupen was also a key contributor and VP of Software at Dazzle, the first company to deliver video capture devices for the consumer market at retail. Dazzle was acquired by SCM Microsystems. Bhupen holds a Masters of Science in Computer Science and Electrical Engineering from the University of Michigan, Ann Arbor.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

October 07, 2007

Profile of Wind Power firm Suzlon Energy

Businessworld has a cover story on wind energy firm Suzlon Energy and its founder Tulsi Tanti.
Tanti has also made bold strategic decisions that have changed the way the entire industry works. Suzlon’s competitors largely outsource the various windmill components — the gear box, blades and generators — then assemble the turbines locally and supply them to customers. These buyers were mostly interested in the 80 per cent depreciation available on the capital investment that the turbines brought them. Some wind turbine makers such as NEPC Micon faced problems of execution. MNCs such as Vestas and Enercon, too, did not maintain machines after the initial sale.

...Tanti, smart enough to seize an opportunity when he saw one, decided to sell end-to-end solutions to customers unlike his competitors. This wasn’t easy. “Tanti took the risk of investing in identifying large wind tracts, studying the zones over a two-year period, setting up the wind farms and then selling them to corporates,” says S.D. Singh, CEO of Chennai’s Vestas RRB, a key competitor of Suzlon in India. Suzlon began handling entire projects from inception; from assembly of the machine, to operations, to maintenance.

Suzlon’s $600-million (Rs 2,460-crore) acquisition of gear box manufacturer Hansen Transmission was also a strategic masterstroke. One of the biggest concerns for wind energy companies in this booming market is a serious shortage of components. “This has strained the ability of manufacturers to meet demand, especially in gearboxes and large bearings,” says Brandon Owens, director of the Global Power Group, Cambridge Energy Research Associates. Enter Hansen, which will ply Suzlon with much needed components such as gear boxes, rotor blades and generators. Meanwhile, Suzlon is also building a forging and foundry unit in India to meet requirements of smaller components in the supply chain. In a short period of time, the company has essentially occupied all possible places on both the supply as well as the value chain — an astonishing feat considering its humble beginnings.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

October 04, 2007

Crush on Cross-Border: M&A Summit '07, Oct 25 at Mumbai

Indian entrepreneurs are looking outwards like never before in their goal to create truly global businesses. And M&A is proving to be a popular tool in this pursuit.

The ever increasing number and size of overseas companies being acquired clearly demonstrates India Inc.’s rising confidence and vigor to plant its flags around the globe. However, amidst all the euphoria surrounding global acquisitions, there are several key questions that need effective addressing to ensure that such deals create long term value.

In this context, Venture Intelligence presents Crush on Cross-Border, an unique M&A Summit that brings together entrepreneurs, top executives and investors to network, discuss and share best practices on the acquisition of overseas companies.

Speakers at the summit include:

- Manu Parpia, Geometric Software
- HR Srinivasan, Take Solutions
- Gopal Srinivasan, TVS Group
- SN Rajesh, UTI Ventures
- Mukund Choudhary, Spentex Industries
- R. Chandrasekar, Suzlon Energy
- Subramaniam Durgashankar, Mahindra & Mahindra*
- Shiv Dayal, Langham Capital
- Aluri Rao, ICICI Venture*

Other companies we have invited speakers from include Asian Paints, Bharat Forge, Jubilant Organosys, Ranbaxy, Rain Calcining, Symphony Services, Tata Sons, United Phosphorus, Wipro and Wockhardt.

For more information about the conference, click here.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

VC Market

The following companies are seeking capital for starting-up / expanding their operations:

07-09-26-1: Bangalore based website for buying and selling of IT products seeks <$1-M for promotion and opening of retail outlets.

07-09-26-2: New Delhi based provider of financial services to low income people by leveraging mobile phones and other technology tools seeks <$5-M for expansion. Founding team members have earlier worked at PayPal and a leading Mobile VAS firm.

07-09-26-3: Mumbai based advertising and design company seeks <$10,000.

07-09-26-4: Bangalore based Recruitment Process Outsourcing company - focused on streamlining recruitment of fresh hires for IT & ITES companies - seeks <$100,000 for expansion.

07-09-26-5: Noida based outsourced software product engineering firm seeks <$1-M for expansion.

For more information about any of these companies, investors - who are subscribers to the Venture Intelligence service - can email the company code to To learn about our subscription services for investors, please visit our web site.

Are you an entrepreneur seeking capital? List your company in the Venture Intelligence VC Market using the form here

October 02, 2007

The opportunity in training CRO professionals

Are CRO training shops likely to ride on the coattails of the boom in the Clinical Research Outsourcing sector? Businessworld has an article on the mushrooming of such shops.
New Delhi’s Institute of Clinical Research India (ICRI) is a good example. Started in 2004, with about 100 students, it currently trains eight times as many across India, says Dean S.K. Gupta. Five hundred of these are enrolled in a two-year master’s degree programme costing Rs 5,40,000, comparable to what is charged by India’s premier business schools. The rest are pursuing part-time diplomas, costing about Rs 1 lakh. Gupta says the institute turned down hundreds of students across various courses this year. ICRI is in four metros and plans to expand to another two in 2008. Other schools that BW spoke to also report increasing demand. They are also in expansion mode.

Surprisingly, employers are still complaining. There is very little difference between a fresh graduate and one trained from some of these schools, they say. “Not more than 10 per cent are suitable for an entry-level job,” says Arun Bhatt, president of ClinInvent, a Mumbai-based CRO. “Many of them have gone through the text book but when it comes to communication, confidence, and abilities they are just are not there.” Employers whom BW spoke to identified some key problems. One is the absence of practical training. Their biggest complaint is that students, for all their ability to recite from the rulebook, have no ‘on-ground’ experience. Take the example of a clinical trial monitor — the person who is most in touch with the investigator doing a trial, to ensure that it is done the right way. The average age of a monitor today is about 25. But investigators in leading hospitals can be as old as their teachers, even older. “Making the head of a department work to your needs requires a lot of assertiveness,” says Clinpharm’s Tamhankar. And this is put to the acid test only in a real trial, which schools don’t or can’t expose students to.

The absence of applied learning is a problem that has long plagued India’s education system. Employers have surmounted it the only way they know — on-the-job training. But in an industry as complex as this one — where patient safety and company reputations hang in the balance — companies don’t take any chances. “Sponsors (pharma companies whose drugs are being tested) only want monitors with experience,” says Vasudeo Ginde, managing director of Mumbai’s iGate Clinical Research. “It is difficult for me to stick my neck out and say I’ll put the freshers there.”

Click Here for a chart on the players in this field.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

The business of amusement parks

Business Today has an article on the (tough) business of running amusement parks.
The amusement parks business ain't fun-or at least, that's the India story of amusement parks for you. It's a roller coaster ride for most like Kishkinta in Chennai, which has not yet broken even after 12 years in business. Those who have managed to make a success story out of such ventures, like Nicco Park in Kolkata, have no magic formula to offer-except that they have successfully managed to tweak their business model to make it work for them. Then there are newer players like Adventure Island in Delhi, and Wonder La in Bangalore, who might just redefine the business of fun parks in India with signature rides that measure up to global standards.

Sample some hits 'n' misses. Half-a-dozen amusement parks sprang up across Bangalore over the last five years and at least two of them have gone out of business, including Crazy Water Amusement Park set up back in 1994 and more recently Sammy's Dreamland, which was shuttered after a child was killed in a mishap on the site a few years ago. The Jalavihar water project in Hyderabad, planned for launch in 2000, finally opened in May this year after almost not making it.

...For Nicco Parks and Resorts (NPRL), the business model has changed more than once over the years and is still evolving. When eastern India's first Theme Amusement Park was thrown open in October 1991, the scope for family outdoor activities in Kolkata was limited to watching movies and cricket matches. So it was an instant hit. But now, it's a different story altogether. Now the revenue model doesn't only rest on pricing (entry fee and fees for various rides) but on various other factors like sponsorship, co-branding activities, schemes and carrying out projects for other entrepreneurs on a turnkey basis.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Review of the aviation industry

Business Today has a special feature on the aviation industry including on why carriers are competing for international routes and infrastructure related challenges.
The thing that the industry is most sore about is the cost of aviation turbine fuel (ATF), which makes up 40-45 per cent of an airline's operating costs. According to the Federation of Indian Airlines (FIA), the average domestic price of ATF is 60-70 per cent higher than that at regional aviation hubs in Singapore and Dubai (See The Killer Cost). Even the discounted price of ATF for international operations is 40 per cent higher than prices elsewhere. The ATF pricing issue, according to the 10-month-old FIA, is quite complicated. "It is not just central duties, but state sales taxes and the lack of transparency in ATF pricing that are huge contributing factors," says Amitabh Kumar, Executive Director, FIA.

It seems the airports bid out rights, with the successful bidder paying a throughput fee. Kumar says that recent bids have seen ridiculous throughput fees that inevitably get passed on to the customers, i.e., the airlines. "If there was rationalisation in the prices of ATF, I'm pretty sure the airlines won't be making the huge losses they are today," says Kumar.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.