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Showing posts from May, 2008

Deal Analysis: HSBC’s acquisition of retail broking firm IL&FS Investsmart

By Girirajan. M & Pawan Kumar. R; Venture Intelligence

Deal Summary. HSBC has entered into agreements to acquire stakes held by Promoters - E*Trade (43.85%) and IL&FS (29.36%) - in IL&FS Investsmart Limited (IIL), a publicly listed retail brokerage. The offer, at Rs. 200/share, values IIL at $330 million. In addition, IL&FS is to be paid an additional $19 million as part of a three year non-compete agreement. HSBC is also in the process of making an open offer for additional 20% stake as per Indian securities laws.

About IIL. IIL was founded in October 1997 as a subsidiary of Infrastructure Leasing & Financial Services (IL&FS) to focus on capital market related activities. It currently has almost 1.4 lakh customers across 133 cities and towns across India. The company went public in July 2005.

In November 2004, Private Equity firm SAIF Partners and US-based online broking firm E*Trade had picked up a combined 34% stake in IIL by investing $14.2 million. (Incident…

"Cold chains becoming a hot opportunity"

Business Today has an article on how a slew of companies are setting up cold chain infrastructure across India service the needs of modern retailers.
The business rationale for entering a country like India is visible in the numbers. Consider: India is the leading producer of fruits in the world—at 32 million tonnes (MT) annually, that translates into 8 per cent of global production; in vegetables, it is second in the world (after China), producing 71 MT per year, which gives the country a 15 per cent share of the world market. Now for the bad news: As high as 40 per cent of the fruits and vegetables grown in India (that’s some 40 MT—worth a staggering $13 billion) gets wasted. In fact, India’s waste is huge enough to feed countries like Brazil and Vietnam. The reason for this colossal wastage is the yawning gaps in the cold chain, or even the absence of a cold chain to preserve fruits and vegetables. Such infrastructure is virtually non-existent, cold storage capacities are insuffici…

The Business & Economics of the IPL

Business Today cover story on the business of the highly popular Indian Premier League (IPL) cricket tournament which now has Private Equity investors interested.

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.

Interview with Squadron Capital CEO

AltAssets has an interesting interview with David G Pierce, CEO of Asia-focused Private Equity Fund of Funds Squadron Capital.

On the firm's due diligence process:
The private equity industry in the Asia Pacific region has seen enormous growth in a relatively short space of time, as have most of the economies in which we invest. We, of course, look deeply at return information, but it is important, especially in countries like China and India that have seen such rapid growth, to determine whether an investment involved true value creation by the general partner or is just a case of "the rising tide lifting all boats".

...Track record is very important for us, but the reality in Asia is that track records are often very brief. We also look at the quality of the team, the quality of the structure, their skill set and whether they conform to global best practice. Essentially, we look at whether their fund aligns the interests of the general partner, its team and the fund's…

Avnish Bajaj of Matrix Partners on Internet cos.

Outlook Business has an interview with Avnish Bajaj of Matrix Partners India, who earlier founded auctions web site Baazee.com, on investments in Internet-based services.
If you just go through the players and see who has done extremely well versus those who have not, you’ll see the difference. The ones who stuck to what they did best and didn’t try to do too many at that time, have worked. Then, management teams that had a great visionary on the top or had a core team of 5-6 people who hung together have gone the distance. Flexibility has been another big factor. The last few years of the Internet have been a hell of a journey. It has gone from being hyped to non-existent. Companies like Naukri and Baazee decided to advertise on television during the slowdown, a time when it was unheard of Internet companies to advertise on TV. That gave these companies credibility. Add to that flexibility in business models. Companies moved offline, some did acquisitions and all that helped. And fina…

"Water is a bigger priority than global warming"

At the recent Top Ten Tech Trends event organized by the US-based Churchill Club, Joe Schoendorf, Partner at Accel Partners and Vinod Khosla, Founder, Khosla Ventures made the following interesting comments on this topic: (Source: Tech Trader Daily)

Water tech will replace global warming as a global priority. The world is running out of usable water and (this) will kill millions more in our lifetime than global warming. Darfur could go down as the first water war of the 21st century. And with 2 million deaths, might not make the top 10 list. One billion of 6 billion people do not have healthy water. We’re losing close to 1 million people a year under 5 years old due to dirty water. Imagine a 60 year drought in this state. Within 15 years, will be up to 3 billion people with a water problem. 70% of water (is) used for agriculture; 90% (by) developed countries. If nano technology can work, and can figure out desalinization, (it) can prevent many wars over the next 30 years. (We are) miss…

The Credit Crisis & Ways of the Market Explained

Comics John Bird and John Fortune have a hilarious video that explains how "markets work" and why it is only correct for regulators to bail out investment banks whose actions have caused havoc in the financial markets.

Here's how the skit starts (hat tip: Paul Kedrosky):

John Bird: You have to remember a couple of things about the market. They are made of very sharp and sophisticated people, some of the greatest brains in the world. And the second thing you have to remember is that the financial markets, to use the common phrase, are driven by sentiment.

John Fortune: What does that mean?

John Bird: What does that mean. Well. Things are just going on as normally in the markets, and then, suddenly, out of the blue, one of these very sharp and sophisticated people says, "MY GOD! SOMETHING AWFUL IS GOING TO HAPPEN! We've lost everything! My God, what are we going to do?"

John Fortune: Shall I jump out of the window?

John Bird: Shall I jump out of the…

“We are keen to invest in IT Products and Media cos.” – Interview with Niren Shah of Norwest

N. Sriram of Venture Intelligence recently spoke to Niren Shah, Managing Director of Norwest Venture Partners, who heads the Silicon Valley firm’s India investments out of Mumbai.



Niren was earlier CFO and Director of Operations at Baazee.com and joined eBay as part of its acquisition of the Baazee in 2004. Before joining Baazee in 2000, Niren was part of KPMG India’s Corporate Finance arm.

What is Norwest’s overall strategy for direct investments in India?
We have got about six investments in India and if you count cross border investments (i.e., cos. with back-end operations in India) there are about 22 . And we are looking at more direct investments.

We are basically a very broad fund. We can invest anything from US$ 1-2 million to US$30-35 million. We started off in India with late stage investments. We are now going to be doing few early stage deals apart from looking at late stage investments.

Norwest was a very active investor in 2006, but then went quiet. Why?
That’s incorrect; we …

Doing Due Diligence on VCs

These days, there is a lot of good advice online – see examples here and here – on raising Venture Capital in the Indian context.

A lot of knowledgeable persons advice entrepreneurs to do due diligence on a VC firm before accepting their money. For instance, here’s US-based investor Bill Burnham on his blog: One of the more unfair aspects of VC fundraising process is that VCs are allowed to take months probing every orifice of your company, but entrepreneurs are expected to make one of the most important decisions of their life in a week or two and often with little or no information. There’s no good reason for this and all entrepreneurs would be well served by taking some time to do some basic due diligence on any investor who has offered them a term sheet.

I suggest, at a minimum, talking to at least two entrepreneurs that the VC has funded and then talking through with the VC (about) A) all the deals they have done and what happened to them (and) B) the current status of their fun…

Lesson from the PurpleYogi

I just read VC Bill Burnham's post on the lessons he learnt from his investment in Stratify. An Internet-era company that was originally founded as PurpleYogi, the company has several Indian connections: it was incubated at IIT-Bombay, raised investments from Infosys Technologies and its founders are of Indian origin. Stratify changed its business model, post the Internet crash, and was acquired in late 2007 by Iron Mountain.

I learned a lot of investment lessons from Stratify, the most important of which are:

1. Don’t underestimate the value of a great technology team. Great tech teams can quickly adapt a product to suit changing markets and priorities. They also create products and technology with lasting value that can be leveraged in multiple ways.

2. If at first you don’t succeed, find a new market and/or a new business model. It’s often said that very few start-ups achieve success with their original business plan and after my Stratify experience I believe it. Star…

VC Market

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

08-03-19-1: Delhi-based Management Consulting Services firm seeks $1-5 M for expansion

08-03-19-2: Mumbai-based hospitality services company providing conferencing, hotel bookings and other services to companies with a current turnover Rs. 1 crore, seeks $5-M for expansion

08-04-09-1: Bangalore based Social Commerce marketplace, with 16 national Brand Stores and having served thousands of customers across India, seeks $1 M for expansion.

08-04-16-1: Pune-based company operating fantasy gaming web site where users can predict outcomes of sports, entertainment, politics through a fun trading game seeks <$1-M for expansion.

08-04-16-2: Bhopal-based company operating hiring web site for IT Freshers seeks <$100-K for expansion.

08-04-16-3: Thane-based start-up planning financial products distribution and wealth management planning for the HNI segment seeks >$5 M.

08-04-30-1: Mumbai-based operator of…

Company Showcase

Clean fuels firm seeks $12.5 M (in two tranches of $7 & $5.5 M)

Company manufacturing conversion kits to convert diesel engines to CNG is looking to raise about US$12.5 million. Conversion is becoming mandatory by law & this company has the track record of converting over 1,000 buses in 2002. This is one of two companies approved by ARAI (other being Cummins) to make CNG engines. The 2008-09 top line is expected to be US$17 million with an EBIDTA of 32%. The new funds are to be used for Setting up the manufacturing facilities and additional approvals of engines and kits.

Interested investors may contact Atul P Anand at apanand@omkam.in or Tel: +91-9810020279.

Poison Pill for India Inc.

Corporate lawyer Rajiv Lutha has an article in The Economic Times on the amendments required to various M&A-related laws to facilitate tools to help ward off hostile takeovers. In the absence of these amendments, Luthra points some ways in which poison pills can be created under existing rules.
History is ripe with examples of how a little legal ingenuity and a few pre-emptive strategies can fend off the advances of the most ardent hostile acquirers. One of the advantages of the poison pill strategy is that there is no rigid structure to it and it can be tailored to suit the particular needs of a company. As a result, Indian companies are not restricted to adopt the classic version of the pill i.e., the shareholders’ rights plan.

For example, DIP guidelines do not prescribe any pricing restrictions on the issue of non-convertible preference shares, non-convertible debentures, notes, bonds and certificates of deposit. Thus, we may consider structuring a poison pill in place whereby b…

LPs preparing for less spectacular exits?

"We have tempered our growth expectations. But we still expect to see private equity returns commensurate with the risk we are taking, and far in excess of other markets," says CDC Group’s portfolio director of South and South-East Asia, Anubha Shrivastava, in an interview to The Mint.

"The Sensex has demonstrated that India is far from decoupled. And with the appreciation of the rupee and concern around inflation, we have tempered our growth expectations. But we still expect to see private equity returns commensurate with the risk we are taking, and far in excess of other markets." Since valuations will come down on  the  entry  side,  exits are likely to continue to yield good returns. "The recent bout of fantastic exits, though, will slow down."

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 Ven…

Business Today's Hottest Start-ups List

Business Today has published the second edition of its list of Hottest Start-ups.

The list includes two portfolio companies of IDG Ventures India (IT security start-up iViz and 3D visualization software firm 3DSOC), APIDC Biotech Fund-backed organic foods firm Sresta Natural Bioproducts, India Equity Partners-backed HR Services firm Ikya Human Capital and JM Financial-backed publishing BPO firm Premedia Global.

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.

Analysis of a non-deal

New York Times' Andrew Ross Sorkin has an analysis of Steve Ballmer's missteps in bidding for Yahoo.
..most of all, Mr. Ballmer didn’t realize — though he had been warned by his advisers — that when you make a blockbuster unsolicited offer, you must be prepared to win. Not necessarily win at any cost, but win at a cost within reason. (Just ask Rupert Murdoch.) And the truth is, the few extra bucks that Yahoo wanted in order to save face was within Microsoft’s ability to pay without wrecking the economics of the deal.

...Mr. Ballmer made things worse by lashing out at the company he was wooing. He contended that “public indicators suggest that Yahoo’s search and page view shares have declined.” He threatened to go on the attack, but never did.

...Perhaps the biggest problem in this deal was that neither Microsoft nor Yahoo heeded Wall Street’s advice or listened to what the market was saying. Each company hired armies of bankers — Bear Stearns, Blackstone Group and Morgan Stanley …

Is acquiring captives a mug's game?

Basab Pradhan, CEO of Gridstone Research and former Head of Sales & Marketing at Infosys, has a critical post on Indian IT Services companies "acquiring" the captive outsourcing units of MNCs.
(The MNCs) expect the Indian outsourcer to ‘acquire’ (their) Indian subsidiary and pay them for transferring a “stream of cashflows”. To me this seems like an unnatural act. I can’t see how the IT services company can justify this beyond paying for the acquisition of assets. But there is obviously a way this is being justified because it is happening.

...None of these justifications work for me. They are ways to rationalize what these companies feel compelled to do to meet short-term expectations from the market. By this logic, every client outsourcing work in the US should first form a subsidiary, transfer all employees into it and then ’sell’ the subsidiary.

This new game is a dangerous one. It tells a story of an industry that doesn’t know how to respond to the triple whammy of cos…

Profile of the Adani Group

Business Today has a detailed profile of the infrastructure focused Adani Group.
Having established itself as India’s leading private sector port operator, the Adani Group is betting big on power. It has lined up investments of Rs 45,000 crore over the next 5-7 years to set up 10,000 MW of generating capacity (see The Biggest Bet).

Here, too, he has followed the Mundra Port model—pioneered in India by the late Dhirubhai Ambani—of integrating his value chain backwards to the source of raw materials. The group has acquired coal mines in Rajasthan and Indonesia, which will feed his projects in Gujarat, Maharashtra and Rajasthan. “But our biggest strength in the power sector is the time to completion,” says Ameet Desai, Chief Financial Officer, Adani Group, who is overseeing the power initiatives. “We plan to complete the entire projected generating capacity by 2012-13,” he says. In fact, he expects the 1,320 MW project at Mundra to go on stream in stages next year itself.

Adani’s plans will…

The Birth of Aujas Networks - By Manjula Sridhar

On February 10th 2008, 10 PM, all of Aujas’s founders assembled at IDG Ventures India’s Founding Chairman and MD, Sudhir Sethi’s residence to sign the agreements for the seed funding of Aujas Networks Private Ltd and celebrate Aujas’s formation.

We had spent most of the earlier part of the day on finalizing the documents. Although exhausted completely, an immense sense of satisfaction and excitement overwhelmed every other emotion. This was the occasion of successful completion of Entrepreneur in Residence program at IDG Ventures India for me. Here is how it came to being.

Lucent Days and the Start up Bug
Although Entrepreneurship always fascinated me, it was during the middle of 2006 that the idea of entrepreneurship really possessed me. I had been watching the entrepreneurial scene in India for quite some time and was encouraged by the fact that the entrepreneurial eco system in India was booming with lot of VCs coming into India and setting up early stage funds. This was at a time whe…

"The tipping point has arrived for India product companies"

Starting with a comparison of Huwaei and Infosys, successful Entrepreneur-turned-Angel investor Venkat Rajendran, has a post (which I noticed only now) on why he thinks why this holy-grail-moment-of-the-Indian-techie has (finally) arrived.

* It is a wide open space: There is no dearth of opportunities. The ground is empty. Telecom, Consumer Electronics, White Goods, Industrial systems, Capital Equipment, Non-conventional Energy, Software systems and tools, Food processing, Financial systems, Instrumentation, Automobiles… the list is endless for building strong branded goods from India and selling to the world.

* Large home market: One of the problems till recently for an Indian product company was a small home market. With a swelling middle class with increasing disposable income, a huge captive home market gives a big advantage for a new product venture. For example, Indian telecom market is the fastest growing major market in the world today. Indian cellular subscriber base gr…

"Wave 3 of Indian IT Services"

Sudhakar Ram of Mastek has triggered off an interesting discussion with his guest article titled "Wave 3 of Indian Outsourcing" on Sramana Mitra's blog.
With rising salaries, the appreciating rupee and recessionary pressures in the US, it is difficult to see the Indian industry continuing to sustain a 40-50% growth rate in the labor arbitrage mode. Hence there is a genuine question whether Indian outsourcing is on the decline.

My view, however, is that this is the classic S-Curve in operation. And for Indian industry to grow, we need to shift to Wave 3 work – which is strategic, value-added and non-linear. Capitalizing on the large pool of technical talent available in India and the free availability of domain experts in the western world, Indian companies need to start making substantial investments in building intellectual property – not necessarily as packaged software, but also as frameworks, components, web services and the like. We need to move up to create solutions…