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April 29, 2009

Why does China pile up on US treasuries?

Knowledge@Wharton has an article on some of the possible reasons.
China may also be accumulating massive amounts of foreign reserves as a result of the Asian Economic Crisis in 1997, when it watched the IMF impose strict conditions on bailout recipients. "In my view, that's a major contributor" to China's ballooning reserve of foreign exchange, says Allen. "I think most Asian countries looked at what happened and decided that they hadn't been treated fairly. So that's why they have been accumulating trillions of dollars in reserves."

China's trade surplus could swell to $325 billion this year, an ING Group economist told Bloomberg on April 23. According to Bloomberg, China's currency reserves fell $32.6 billion in January, $1.4 billion in February, then went up $41.7 billion in March.

But a lot of China-watchers assert that China purchases U.S. Treasuries as a way of manipulating its currency. "The way the Chinese manage the value of the yuan is through buying and selling dollars," says Wharton professor of business and public policy Howard Pack. "They have been intentionally incurring these export surpluses, so they have too much foreign currency. When they buy U.S. Treasuries, it keeps the value of the yuan low relative to the dollar. That enables Chinese exporters to sell at relatively low prices to the U.S."
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at

April 28, 2009

When the shoe is on the other foot...

From a promotion for a masterclass for US PE fund managers titled "How To Keep Relationships with LPs Harmonious - Despite Recession, Credit Crunch, Mark-to-Market, Capital Calls, & Other Causes of Frustration, Anger, Mud-Slinging, & Divorce":
In this post-Madoff world, there are two concepts LPs like me have gotten more and more concerned about. First is transparency. Believe it or not, I know LPs who have started to go around their GPs and contact managers of portfolio companies directly to confirm their fundamentals first-hand. Would you know if your LPs did that? And frankly, do they have a reason to?

The second word? Liquidity. With capital call defaults an industry-wide problem, you need to ask yourself - are you prepared with creative remedies? Or are you likely to be caught off-guard?

...I’ve watched as fund managers try to sugarcoat bad news — which never works. Or they fail to communicate as openly as they should -- which makes tempers flare and attorney phones ring.

The balance of power these days has squarely shifted in favor of LPs, and they know it. They’ve read about the concessions large fund managers such as TPG and Carlyle are making - from scaling back commitments to cutting management fees - so they’re not shy about asking for flexibility on such touchy issues as terms, drawdowns, and secondary transfers. As a GP, fingers in all directions are pointing to you. You can’t run. You can’t hide.
(Emphasis mine)

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at

April 27, 2009

Nominate Indian Startups for The World Economic Forum's Tech Pioneers Program

Venture Intelligence is happy to invite you to nominate companies you are associated with in India to The World Economic Forum's 'Technology Pioneers' Program 2010. The Program, started in 2000, with the goal of identifying new technologies that will have a dramatic and sustainable impact on business and society, has achieved the distinction of being the most prestigious recognition in the world of technology.

Last year, Bangalore-based mobile payments company JiGrahak Mobility Solutions was selected as one of the 34 "Technology Pioneers" for 2009. Another tech firm that does a lot of its development out of India - Nivio - was also named.

To be selected as a Technology Pioneer, a company must be involved in the development of "life-changing technology". In addition, it must demonstrate visionary leadership, show signs of being a long-standing market leader and its technology must be proven. WEF solicits nominations for the Technology Pioneers program from Technology Pioneer alumni, WEF members, partners, entrepreneurs, innovators and other technology experts.

To nominate a candidate please fill out the form available at

Please note that once a nomination is accepted, a detailed application form will be sent to the contact person in the company.

Successful candidates will be notified in October 2009 and the class of Technology Pioneers 2010 will be officially announced to the public via a press release on 3 December 2009.

Links to more information on the Process & Criteria:

April 26, 2009

Corporate India and the downturn

Sumant Sinha, COO of Suzlon Energy and formerly a top executive at the Aditya Birla Group, writes in the Economic Times how Corporate India should deal with the "unprecedented times" we are passing through currently.
(The large business groups) realised the good times were leaving them behind given their relatively risk averse nature, belatedly tried playing catch up, but only ended up coming to the party late. Hence, most of their large acquisitions such as Corus, JLR, or Novelis were very late in the cycle. These acquisitions suffered from the worst of all worlds — they were closed at peak valuations but their financing ran into the post-Lehman environment. Hence, these companies are saddled with huge financing issues in terrible financial markets and a very weak operating environment.

...At the same time, stresses in the system will generally increase before diminishing. To my mind, the worst is yet to come, and we will have one or two more downdrafts before we go into a more sustained recovery. Of course, I could be wildly wrong and we may be in for a much longer bear market than anybody can anticipate, or conversely, the recovery may already be well under way. But this is exactly the point. The range of probable outcomes from here on could be vastly different, each of which appear quite plausible. From a strategic standpoint, therefore, it is really hard to plan for the future. The best plan in today’s context is one where the company comes through unscathed even under the most pessimistic scenario.

...Depending on the company’s situation, this could mean divestitures of some key assets – even at these depressed values — to save the broader business. Alternatively if the company has the cash, a bold move could be the acquisition of strategic assets at attractive prices. However, in this environment it will take a brave manager to make these calls – which in the long term may have a bigger positive impact than risk taking in the boom period.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at

"Indian corporate tax rate way above global average"

As part of a debate in the Economic Times, Amit Mitra of FICCI, makes the case for why corporate taxes are too high in India.
The average tax rate globally stands at 25.9% in 2008 while that of India stands at 33.9%. This figure includes a 10% surcharge and a 3% education cess. In other words, corporate tax rate in India is almost eight percentage points higher than that of the global average. And this, without adding the impact of Dividend Distribution Tax (DDT) and Fringe Benefits Tax (FBT) levied on corporates.

Furthermore, the global average tax rate has been coming down over the years. In 2006 it was 27.2%, down to 26.8% in 2007. Unfortunately, India has moved in the opposition direction. The DDT was raised from 12.5% to 15%, education cess from 2% to 3% and ESOPS were subjected to FBT. Even for MAT companies, the rate has gone up and its base widened.

...A look at the tax rates of other countries does reveal that Indian companies are charged higher tax rates. For instance, the corporate tax rate in Bulgaria is 10%, Hong Kong 16.5%, Egypt 20%, China 25%, Netherlands 25.5%, Malaysia 26% and UK 28%. Ficci feels that there is scope for reducing corporate tax rate to around 25%, which will result in larger revenue collections owing to the Laffer Curve effect in India. Whenever tax rates have been reduced in India, the collections have invariably gone up.

How much will a Third Front govt. affect the economy?

Business Standard has a debate on this topic.

Amit Tandon, Managing Director of Fitch Ratings India, presents the optimistic view:

Will a Third Front government spell economic disaster? Will steel plants shut in Jharkhand? Will companies stop making cars in Tamil Nadu? Will software no longer be written in Bangalore? Will ships not sail from Mumbai? Will doctors not operate? Will teachers not teach? Go back in time. Did FIIs not come back, after vowing to stay away from India, after we exploded a nuclear device? Did banks not shut shop in the 1990’s, only to line up on Mint Street, wanting to open branches again? The pace may vary, but a billion-plus people will always create their own forward-momentum.

Nirmal Jain, Chairman and Managing Director of India Infoline, is highly concerned about a fractured outcome:
We are passing through a massive global financial crisis. Under these circumstances, if the country’s financial management is in the hands of corrupt politicians who are in a hurry, it can cause grave damage to the economy. Worsening macro-fundamentals in a shaky global financial world will halt the flow of capital into India. What makes it worse is that we are competing with China where, thanks to continuing reforms and the government’s ability to execute its plans efficiently, the investor-environment is more favourable.

This lower flow of foreign capital will have an impact on the economy as well as on the stock markets. On the economy front, we badly need the flow of investments in infrastructure and industry to continue since this is what will help sustain growth and generate employment. For the stock markets, whether we like it or not, FIIs drive the sentiment and retail and domestic investors follow them. Many political observers feel that if a Third Front government comes to power, it may not last for more than a year. Apart from the costs of holding another election, the greater burden on the exchequer will be the disruption and uncertainty in fiscal and economic policies.

In another BS column, Akash Prakash of Amansa Capital, touches upon this topic from a stock market perspective:

Firstly we have the elections staring us in the face. By all accounts this is the most open election ever, with at least six leaders in the running to become PM. Nobody is quite sure how it will turn out, and as of today any of the three formations could come to power. I am not in the camp that politics do not matter. They may not have mattered when the world was growing at 4-5 per cent, and India had enough of a tailwind through heightened risk appetite and the benefits of past reforms to grow at 8 per cent-plus. However, they matter today, when the world is in the midst of a recession, we have structural fiscal issues and strong economic decision-making is the need of the hour.

India has enough policy-based low-hanging fruit, that its growth can be protected at a relatively high level. But will we get the policy reform? The only way that India can be re-rated upwards in terms of valuation multiples is if we get strong policy action. Depending on which formation comes to power, and who is the PM, there is no guarantee that we will get the dose of policy action that we need. There is not an insignificant probability that we get stuck with a very weak and ineffectual government that may not even last a full term. Such an outcome is a recipe for inaction and policy drift.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at

April 23, 2009

Is Pantaloon getting into a debt squeeze?

Businessworld has a cover story on the mounting debt levels at listed retail firm Pantaloon.
With Rs 362 crore payable every year to meet long-term debt obligations for the next six years, PRIL’s 3 per cent return on capital employed may not be enough. On capital employed of Rs 5,342 crore, PRIL delivered a turnover of Rs 5,295 crore in 2007-08, representing a cash churn of only 0.98 times of capital employed. Internationally, Wal-Mart generates 2.29 times, but then the firm is a global behemoth. PRIL also has Rs 250 crore worth of inventory on its books and many believe the group’s extended discount sales are testimony to this. But Biyani rubbishes such statements and remains rooted to the Indian retail story.

Investor confidence in PRIL has hit a low too. As against a 63.7 per cent drop in the Sensex from its peak, PRIL’s stock has fallen 80 per cent from a high of Rs 876 on 2 January 2008 to 169 on 6 April 2009. Its market cap has dipped from a peak of Rs 12,913 crore in January 2008 to Rs 2,961 crore on 6 April 2009 (See‘Market Captalisation’). And with 21 million warrants worth Rs 1,050 crore coming up for conversion in three months, Biyani is a burdened man. He refuses to discuss the details of how he would arrange the finances for this but he is believed to have committed shares worth $85 million as a secondary pledge. This is a collateral to a primary pledge, which he would not disclose.

...Going forward, PRIL’s threats are no longer external, they are growing within. The debt service coverage ratio (the ratio of net operating income to debt payments), as of June 2008, was 0.90. This ratio should ideally be over 1. But it threatens to remain at these levels even this year. The ratio brings us back to the basics: the company is not generating enough income to pay its debt obligations. This would mean that Biyani would have to delve into his personal funds every month to keep PRIL afloat. But is he really doing that? He chooses not to answer any questions on financials, but he has recently dabbled with the idea of splitting his retail operations into two firms to unlock value, where the value retail arm will be independent of PRIL.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at

April 22, 2009

How some Wall Street banks are suddenly profitable

Andrew Ross Sorkin writes in his New York Times column how the US markets have seen through the attempts by Wall Street banks to "to pull a bunny out of the hat" in their latest earnings reports.
Bank of America sold its shares in China Construction Bank to book a big one-time profit, but Ken Lewis heralded the results as “a testament to the value and breadth of the franchise.” Sydney Finkelstein, the Steven Roth professor of management at the Tuck School of Business at Dartmouth College, also pointed out that Bank of America booked a $2.2 billion gain by increasing the value of Merrill Lynch’s assets it acquired last quarter to prices that were higher than Merrill kept them.

...Why can’t anybody read the room here? After all the financial wizardry that got the country — actually, the world — into trouble, why don’t these bankers give their audience what it seems to crave? Perhaps a bit of simple math that could fit on the back of an envelope, with no asterisks and no fine print, might win cheers instead of jeers from the market.

What’s particularly puzzling is why the banks don’t just try to make some money the old-fashioned way. After all, earning it, if you could call it that, has never been easier with a business model sponsored by the federal government. That’s the one in which Uncle Sam and we taxpayers are offering the banks dirt-cheap money, which they can turn around and lend at much higher rates.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at

April 21, 2009

"Dump the Dow. Track Shanghai Composite"

In his column for the Economic Times, Ruchir Sharma points out how the Chinese market is emerging as a leading indicator for markets and economies across the world.
Over the past couple of years, the Chinese stock market has been acting as the harbinger of global trends. After bubbling up to record high valuations in 2007, it was the first stock market to peak in early October of that year...And, probably most significantly, it was ahead of other stock markets to form a bottom late last year in an almost immediate reaction to the Chinese authorities announcing massive stimulus packages. While investors across the world remained sceptical of whether the Chinese measures would work, the Shanghai stock market continued to rally sharply over the past few months.

...The mention of decoupling conjures up images of the China and the US running off in different directions. That is not what’s going to happen. Decoupling is an evolutionary concept and the Chinese economy will take time to transition from an export-oriented growth model to a more consumer-oriented one. It’s also unlikely that China’s growth trajectory will return to the 10%-plus rate it sustained from 2003 to 2007. Such a pace of growth was partly rooted in the global credit bubble of that era. The Chinese economy’s growth potential is probably closer to 7-8%.

At $3.5 trillion in size, China’s economy may not be large enough to independently chart a course for the world economy but it now has the critical mass and the ability to at least save the world from falling into an abyss. So when trying to figure out which way the global economy and markets are going to zig and zag, it makes sense to follow the movements of Chinese A share market as closely as those of the S&P500.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at

April 20, 2009

M&A activity declines 60% during Q1 2009

During the first quarter of 2009, Indian companies were involved in a total of 54 M&A deals - including both cross-border and domestic transactions - compared to 135 deals during the same quarter in 2008 and 89 such deals during immediate previous quarter, according to a study by Venture Intelligence, a leading research service focused on Private Equity and M&A transaction activity in India.

Q1 ’09 witnessed 26 deals with an announced value of $4.6 billion, the Venture Intelligence study revealed. There were 15 inbound and outbound deals each with the rest being domestic acquisitions. Manufacturing was the most active industry with ten deals followed by IT & ITES with seven deals. Healthcare & Life Sciences, Food & Beverages, Telecom and Agri-business were the other industries that witnessed significant M&A activity in Q1 ‘09.

The largest inbound deal saw France-based stationery manufacturer BIC acquiring a 40% stake in Mumbai-based stationery products maker Cello Pens for about $160 million (Rs. 800 crore). Other notable inbound deals included American Tower Corporation acquiring the XCEL Telecom, Mylan Labs acquiring residual stake in Matrix Laboratories and Sodexo’s acquisition of Radhakrishna Hospitality Services Group.

Q1’09 also saw Indian companies aiming to close out on their acquisitions of global energy / commodities assets. Notable deals in this category included ONGC Videsh’s closing out on the acquisition of UK-based Imperial Energy for $1.9 billion and Sterlite Industries’ new bid for US-based copper mining firm Asarco at a renegotiated value of $1.7 billion.

The largest domestic M&A deal during the period was Reliance Industries’ acquisition of group company Reliance Petroleum. In other domestic deals, Private Equity-backed Nuzhiveedu Seeds acquired a 51% stake in two seed companies during the period - Yaaganti Seeds and Pravardhan Seeds.

About Venture Intelligence
Venture Intelligence, a division of Chennai-based TSJ Media Pvt. Ltd., is the leading source of information on private equity and M&A transactions in India. For more information, please visit

Why Corporate India flops at the box office

Businessworld has an article on why corporate India's repeated attempts at film-making have fallen flat.
M&M isn’t the first business group unable to gauge the quicksand of Bollywood. Attracted by the glitz and glam of the tinsel world, the past 6-8 years have seen many corporate groups enter a business quite removed from their core competence. They have ended up burning their fingers and very often exited as fast as they entered.

...Is the film industry resistant to corporates, or do the corporate groups fail to get the Indian film formula right? According to Madhu Mantena, the young producer of the Aamir Khan starrer Ghajini, and head of Saregama Films, corporate groups have wrongly interpreted the relationship between the studio, the film-maker and themselves. “The corporate group creates the studio platform but not the movie; it is the film-maker and his creative team that creates the movie. The studio provides the platform, then carries the movie forward through marketing and distribution.”

According to Sanjay Bhattacharjee, a film consultant who earlier headed UTV’s film division, “Many of these corporate groups don’t know the value of the products and stars, and end up overspending.”

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. Email the author at

April 19, 2009

Are the headwinds too strong for Suzlon?

Businessworld has an article featuring the recent technology and financing related challenges facing wind energy firm Suzlon Energy.
The US, which accounts for over 55 per cent of Suzlon’s market, has not placed any new orders since mid-2008. Instead, while global rivals Vestas and Gamesa grew by 48 and 64 per cent, respectively, in terms of order intake in calendar year 2008, Suzlon saw an erosion of 22 per cent.

...The US is key to its health, and Suzlon cannot wish away its problems in this geography. Its handling of the defective blades backlash shows a lack of readiness in handling situations such as this. “Quality of your equipment is your responsibility, which makes or mars your future,” says Kymal. “Every manufacturer goes through such issues,” concurs T. Shivaram, MD and CEO of wind energy equipment maker, Shriram EPC. “However, more tests should have been done for durability instead of rushing to the market with a product.” Suzlon’s orders now mostly come from smaller markets. For example, Inner Mongolia’s North Longyuan Wind Power Corporation wants 100 MW of wind turbine capacity, while Australia’s AGL Energy requires 113.4 MW by this calendar year.

...According to Sinha, Suzlon needs around E30 million (Rs 204 crore) in April 2009 and E175 million (Rs 1,225 crore) in May to buy out the balance stake in RePower from Martifer. When the deal is eventually completed, Suzlon will own close to 90 per cent in RePower, which will accelerate its access to technology. Founder Chairman and Managing Director Tulsi Tanti, who holds roughly 65 per cent stake in Suzlon, is negotiating with private equity players such as the Carlyle Group and TPG Capital, and even Indian banks, for funding of around $500 million (Rs 2,500 crore), possibly by diluting a little over 15-20 per cent of his stake in it. No one has taken this bait yet, though bankers say Tanti’s price expectations are too high.

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. Email the author at

April 14, 2009

Entrepreneur Interview: Atul Phadnis of What’s On India

N. Sriram of Venture Intelligence recently spoke with Atul Phadnis, Founder and Promoter of What’s On India, a company that focuses on TV Guidance and Electronic Program Guides (EPG) for all the major TV channel networks and operators in India. What’s On recently raised a round of funding from leading venture funds. Excerpts from the interview, the full version of which was published in the Q1'09 Venture Intelligence India Venture Capital Report:

Venture Intelligence: Could you tell us why you went for VC funding? Were there other options?

Atul Phadnis: We went for VC funding for two reasons: largely to scale up our current operations and also to expand into some of the newer but related areas.

VI: What were the key challenges you faced in raising VC funds?

AP: We entered the market in 2005 at an inflection point of the analog Indian television industry going digital. At the time, we faced two key challenges. One was lack of comparable benchmarks from other markets. While these benchmarks are very critical from the VC perspective, the Indian TV market conditions were not directly comparable with any other market. This would create a disturbance in the prospective investor’s mind as to how to value the opportunity that our company presented. It was only in 2008 as the digital TV market exploded, that it became clear that we were on the right track and marching towards a real potential.

Secondly, my personal observation is that a lot of investors that we’d initially met understood mobile, online, technology, realty, etc much better that they understood niche verticals within media. The task for an entrepreneur in this arena is that much more difficult.

VI: Your company was earlier known as Mediae2e, focusing more on product placement valuations, analytics, etc. What’s-On-India focuses more on EPG. How has this change come about?

AP: Mediae2e was set up in 2005. The primary focus was always to focus on EPG and TV Guidance. In fact, EPG was the first business that we initiated from an R&D perspective. But we decided not to talk about it in the first year-and-a-half due to competitive fears.

During this initial period, we straddled two other somewhat diverse businesses - more from the perspective of generating cash-flows. These businesses were largely in the realm of Analytics and Consulting. Our consulting work also helped keep in touch with the potential clients for the EPG business. Since the company was self-funded during the first year or so, these verticals helped pay our bills.

VI: What is your advice for any entrepreneur who seeks VC funding?

AP: At what stage an entrepreneur should go for VC funding is best left to him and the vision that he has to scale his enterprise. But to sharpen and expand that vision, entrepreneurs should, in my view, actively seek mentorship in four key areas: domain expertise, business strategy, financial management and corporate governance. An entrepreneur without a mentor in any of these four areas is rather acutely exposed. Besides this, it’s very crucial to get a winning team in place that has the patience, motivation and maturity to stay the course in the initial tough years of the start-up.

Limited Partner Focus: Asia Alternatives

Founded in early 2006, Asia Alternatives is an Asia-focused Private Equity Fund of funds. Asia Alternatives recently raised a $950 million second fund (as a successor to its $515 million first fund). Venture Intelligence recently spoke to Rebecca Xu, a Co-Founder and Managing Director who co-leads Asia Alternatives’ Hong Kong office, and Praneet Garg, Investment Associate who is responsible for the firm's fund investments and direct co-investments in India. Extracts from the interview, the full version of which is published in the Q1 '09 Venture Intelligence Roundup report.

Q: When do you expect the PE deal making activity to recover?

Rebecca Xu: Investing pace has slowed down in every market in Asia. There are currently a lot of uncertainties in the overall economies and the PE markets, causing our GPs to be extremely cautious in deal making. Public market valuations have come down significantly but private market valuation correction is still lagging in some markets. Our GPs are also spending a lot of time helping their current portfolio companies to deal with this environment. So it is going to take a long time for deal activities to come anywhere close to levels seen in recent years.

Praneet Garg: While deals in pipeline are pretty strong, GPs are taking time to re-assess risks in the current economic environment.

Q: When can one expect to see the fundraising environment recover for GPs?

RX: It’s going to take a long time, possibly up to 24 months, for global LPs to come back to market and actively make new commitments. At the moment, if you look at LPs who are on the ground, still actively looking at Asian funds, these are mostly Asia dedicated fund-of-funds firms or LPs who already had significant positions in Asia. These firms have capital allocated to Asia already and would continue to build relationships and evaluate opportunities in Asia.

Q: Would we see more specialist Buyout funds or will it be Growth funds doing buyouts opportunistically?

RX: Even in the past, we have not seen many GPs focusing only on buyout deals. But there are people who want to do more buyouts or control deals. However, given the limited opportunities in the market, we haven’t really seen much action on this front. Going forward, that may still be the case in that minority growth deals will drive majority of the deals by Indian GPs.

Interview with Srinivas Chidambaram of Jacob Ballas Capital

Founded in 1995, Jacob Ballas is an India-focused Private Equity Fund which raised a $440 million third fund in September 2008. Venture Intelligence recently spoke to Srinivas Chidambaram, Managing Director of Jacob Ballas Capital. Extracts from the interview, the full version of which is published in the Q1 '09 Venture Intelligence Roundup report.

VI: Do you see any change in the perception of Limited Partners towards India?

SC: Limited Partners have bigger issues at stake. Though the share of the emerging markets in their allocation has been increasing, still, emerging market PE is still a very small part of their exposure. The slowdown clearly has some impact and the political instability and corporate earnings will be a concern in the short term. However, in the long term, India is a market which will give superior returns.

VI: What is your outlook on the Indian PE market for the next 3-5 years?
SC: Private Equity, if anything, has become more relevant. India has a very young PE market. India dedicated funds have US$ 5 - 7 billion of capital already with them which will get deployed as they find good opportunities. While there is a withdrawal of certain players from the Indian market, taken together, the industry is bound to grow. But 2009 will be low in terms of activity levels as firms try to get their portfolios in shape.

VI: The gap in valuation expectations between promoters and investors seems to be holding back deal closure. Do you see this changing anytime soon?

SC: Valuation expectation is just the symptom. The problem really is that a lot of the promoters do not know how their toplines and bottomlines will get affected in the slowdown. But things will change once we start seeing some positive news and renewal of corporate plans during late 2009.

Private Equity appetite for slowdown-resilient Education Cos. soars

Press Release

Over 80% of Private Equity and Venture Capital investors surveyed by Venture Intelligence in its newly released “Private Equity Pulse – Education” report, plan to make an investment in Education companies during the next 6-8 months. With an estimated $40 billion market for private institutions and a CAGR of 8.6%, it is no surprise that PE & VC investors are looking to ramp up the 30 investments (worth over $300 million) they have already made in Education-related companies, the Venture Intelligence report indicates.

“In the current uncertain economic environment, the attractive and predictable rates of return of the Education industry, is serving as a magnet for PE investors,” points out Arun Natarajan, CEO of Venture Intelligence. “In fact, in another poll which we had done in end 2008 among PE investors, Education had received thrice as many votes as the next favorite sector in terms of attractiveness for investments in 2009,” Mr. Natarajan added.

Despite the overall optimism, investors have their own set of concerns, the topmost being the regulatory uncertainty surrounding “for profit” ventures in the K-12 and higher education segments and the lack of scalability of ventures in “non formal” segments. Over half the fund managers surveyed by Venture Intelligence felt that regulatory hurdles are a significant deterrent to the free flow of investments into the Education industry. The lack of quality teachers and political interference also figure in the list of concerns.

Entrepreneurs, by their very nature, are optimistic and resourceful. And those interviewed in the PE Pulse report seem confident that the constraints facing their industry can be overcome. For instance, Vinay Pasricha of Wigan & Leigh College (India), a vocational education firm that has raised Private Equity funding, feels there is enough scope to create scale in the unregulated segments of the industry – both within and outside India. "Tell me a sector where you do not face regulatory uncertainty," he asks adding that "Education, apart from healthcare, is the only mass growth opportunity that will continue to flourish during any economic downturn”.

Incisive Articles
The report features an article by a team from The Parthenon Group highlighting how investment opportunities in India’s education industry can generate high returns even in an unfavorable economy. Leading Private Equity firms like India Value Fund and Sequoia Capital India weigh in with their thoughts on the Higher Education and the Tutoring segments respectively. Dushyant Singh, Director (Strategic and Commercial Intelligence) of KPMG's Transaction Services practice, elaborates on one of the most exciting segments: the Kindergarten-to-Class 12 segment (K-12).

Will the boom in for-profit education ventures benefit only the economically better off sections? In her article, Reema Shetty of Kaizen Education Fund, assures us that there is no conflict between delivering high quality inclusive education and providing high returns to investors. Vignettes from PE-backed education ventures in other countries, highlighted in another article, also support this.

Given the significant regulatory challenges facing the industry, this report also features the expert views of top corporate law firms - ARA Law and Dhir & Dhir Associates.

For the convenience of entrepreneurs, the report provides a listing of Private Equity and Venture Capital funds keen to invest in this industry. A directory of investment advisory firms, who provide value-added intermediation services with a special focus on Education, has also been included.

The Private Equity Pulse on Education can be downloaded from the Venture Intelligence web site on

April 07, 2009

The New Normal in Fund Raising

Using an analogy with the pharmaceuticals trials process, "Super LP" Chris Douvos has some new advice for GPs raising a fund in the current environment.
...I've got a confession to make: I'm worried that I've been giving people the wrong blanket advice by telling cats who have some money raised -- but perhaps not as much as they'd like -- to wrap up fundraising, get back to investing, and live to fight another day. After all, fund size is a function of time. If you raise half the amount of capital you'd like, deploy it at the same pace in about half the time. Then come back when the sand has been lubricated out of the gears of the financial system. Sure, there's a bit of a fee stream impact, but the brain drain associated with dealing with institutional investors right now is just way too high.

But then I had this epiphany: it's not just that there's sand in the gears, it's also that many investors are changing their entire evaluation paradigm. Between the dreaded Denominator Effect, investor fatigue, and a new impulse to "Keep it Simple" while eschewing complex "modern" portfolio management, I think that the new normal will be "show me," not "tell me a story." During the recent market madness, the cost of illiquidity was so high that people will remember the sting for a long time.

...But I'm a bit bummed that my reasonong was flawed all along: I'd assumed that the market would generally be more receptive a few years hence when cats came back for their next fundraise. But I now think it's going to take a lot more than readiness; it'll take good progress in the clinical trials. Those groups that are tempted to say, "the readiness is all," and come back without making much progress in their portfolio might recall that Hamlet used those exact words and was dead a couple of pages later.
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. Email the author at

April 01, 2009

"Next Govt. has the opportunity to decouple India" has an interesting video of a debate on the impact the forthcoming elections featuring Ridham Desai of Morgan Stanley, Vallabh Bhansali of Enam Securities and Rakesh Jhunjhuwala of Rare Enterprises.
Desai: Its coming at a point which is quite critical in our economic cycle, we are facing very difficult global situation. So the world is not going to help us, our fiscal deficit has expanded and there were a lot of numbers debated in the previous session. Our own estimate is that on a consolidated basis that number is around 12.6% for the year that ended yesterday.

On a projected basis things are looking slightly better because of the crude oil, the fertilizer deficit is reducing but we don’t know how much tax revenues will fall. The point is that we are starting with a situation where fiscal deficit is high and at the same time we need to spend money. So I don’t disagree with the political comments that we need to spend money as a government, it’s a difficult government balancing act. So whichever government comes to power, it needs to execute and that has not been the forte of some governments in the past and that is the challenge that we face as an economy.

I think India will start doing better than the rest of the world because we don’t have a balance sheet crisis in the banking system, we do have an NPL crisis, there will be a deep NPL cycle in the next 12-18 months but its not a balance sheet crisis. We have a growth rate which is likely to be better than most parts of the world. It will be definitely slower than what we had in the last five years but better than most parts of the world infact maybe the second or the third best in the world.

The only challenge we have is this fiscal deficit which is staring at us and it needs to be fixed and we need some stimulus in the next 12 months, so that the economy has some support. That’s where the government’s importance is and if we get a good election result or if we get a government that has capability to execute then I think we should start outperforming the rest of the world in the forthcoming 12 months.

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. Email the author at