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February 26, 2010

Entrepreneurs have long memories...

Sample this from Sanjay Chandra, MD of real estate firm Unitech, in a Business Today article on his lessons from the 2008-09 crisis.
...the media really worsened the situation. The worst was when news began doing the rounds that we had defaulted on our payments to the Greater Noida Authority, even though its CEO went on television to say that we had not defaulted.

...The frustration with lenders was also huge because they were the same people who would come to you analysing your balance sheet, analysing your assets and lend you money. They came back to you after just three months and wanted to recall their money because the market perception had changed. And these were relationships which we had for years. We had a sanction of Rs 700 crore from a large public sector bank.

The loan was very heavily collateralised, they were happy with the structure, but one board member objected saying that "if this comes into the papers tomorrow we will be in trouble". So, the approved loan was not disbursed. Everyone asked for their money back—some nicely, some not so nicely. You learn not to expect anything. It was not the Indian institutions but the large FII shareholders who had more faith in us and participated in our QIP (qualified institutional placement) sale.

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

The Next Big Thing after Telecom... Microfinance, points out Vijay Mahajan, founder of Basix tracing the evolution of the sector in an article for Business Today.
With the exception of the mobile telecom, perhaps no other sector has grown as fast and as big in terms of customer base as the microfinance sector in India in the past two decades. Today, the MF sector lends Rs 1,000 crore (11 digits) every month!

...In the long run, MFIs will probably resolve into two segments— the developmental MFIs and commercial MFIs. Developmental MFIs will be more focussed on the poor and on social impact, and offer more broad-based financial services such as microinsurance and remittances. Many of them will go beyond financial services and take a livelihood approach. They will have to increase their reliance on funding sources sympathetic to these approaches— such as philanthropic foundations, social investors and governments.

On the other hand, the commercial MFIs will focus on microcredit to those slightly above the poverty line. They will diversify in lending to include housing and personal loans. Their portfolio will grow and they will become increasingly dependent on banks for funding. Some of them would attempt to get a bank licence so as to mobilise deposits, but this will not be a common possibility. Eventually, many of them will get acquired and become specialised divisions of banks catering to the "base of the pyramid", but in search of the fortune there. They will be able to attract private equity and a few may also have IPOs on the stock market

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

February 20, 2010

E&Y, ALMT Legal, Desai & Diwanji top Venture Intelligence League Tables for 2009

ALMT Legal and Desai & Diwanji topped the Venture Intelligence League Tables as the Most Active Legal Advisors for Private Equity and M&A deals respectively in 2009. Ernst & Young topped the League Tables as the Most Active Transaction Advisor (PE and M&A combined) for the year.

For PE deals, Ernst & Young was tied with boutique investment banks MAPE and o3 Capital for the first position (with 5 deals each). On the M&A front, E&Y, which topped with 7 deals, was followed by MAPE (6 deals) and Kotak and Avendus Capital (with 5 deals each). Among Legal Advisors for PE transactions, ALMT (with 21 transactions to its credit for the year), was followed by AZB & Partners (12) and Khaitan & Co. (10). In the League Table for Legal Advisors for M&A transactions, Desai & Diwanji (with 17 transactions), was followed by AZB & Partners and Khaitan & Co. (with 15 deals each).

The Venture Intelligence League Tables, the first such initiative exclusively tracking transactions involving India-based companies, are based on volume of PE and M&A transactions advised by Transaction and Legal Advisory firms during the calendar year. The detailed version of the League Tables can be viewed online on the Venture Intelligence web site at

“Given the extraordinarily tough environment for deal making in 2009, advisory firms that made it to the League Tables for the year can be credited for their deep client relationships and market awareness,” said Arun Natarajan, CEO of Venture Intelligence. Going forward, Venture Intelligence plans to update its League Tables each quarter, he added.

February 18, 2010

The mess at Argentum Motoros

Forbes India has an article on how the plans of Ajay Singh-, BVR Subbu- and Ashish Deora-founded Argentum, which had acquired the bankrupt Daewoo Motor's plant in Haryana to produce auto components for MNC auto makers, have fallen apart and is now essentially a Real Estate play. things stand, the partnership is in tatters and Subbu and Singh are negotiating an exit strategy for the former and both blame each other for not fulfilling their responsibilities.

...While all the three partners agree economic conditions derailed their plans, they blame each other for making things worse. For instance, Singh claims Subbu failed to deliver on the various deals he was supposed to bring in. He argues that Subbu’s strategy to wait for that one big deal to come Argentum’s way was not practical. And that he would much rather the company got off the ground with whatever orders that came.

...If Subbu exits, Singh and Deora may find it easier to pursue a few real estate deals. They know that in spite of the real estate meltdown, the promoters are aware of the value the 210 acres of land the plant is built on commands. It is worth much more than the price they paid to acquire the business.

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

Profile of iMetrex Co-founder Rajeev Mecheri

Subroto Bagchi has published an interview with Rajeev Mecheri, Co-founder of building security technology firm iMetrex, in Forbes India magazine.

In time, they became the go-to organisation for every high-rise in town that required compliance with safety, security and energy management norms. In 2007, Siemens noticed their work. And Siemens also noticed that their building solution software was comparable and in some ways, actually ahead of what Siemens offered. It wanted to buy them out but with a condition: The brothers came with the business. Rajeev came on board as the managing director of Siemens’ Building Technology business for an agreed period of five years. This year, the business having fully integrated, Rajeev has decided to move on and brother Anand has stayed on as the chief marketing officer of the Building Technology business, located out of Switzerland. The acquisition is valued at a whopping $100 million. If you have not heard about it, it is because in Chennai, folks do not crow about such things. I wanted to know about the experience of selling his enterprise.

...“What did you learn from being part of Siemens?”
“I learnt about the power of a brand; the power of size. Only when you are large, you have the leverage, the negotiating power. Today, even as I leave, we have inked a deal to deploy a physical and logical security system involving 105,000 cards to be deployed across the world for Infosys. At iMetrex, all by ourselves, we would not have even bid for the business because we had no capacity to deploy such a solution across the world. On the flip side, in a large entity, you lose out on relationships. Employees tend to think of customers as quotations, invoices and account receivable and not as people with needs. Customer needs and not numbers are the end game and that requires empathy ahead of size.”

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

February 16, 2010

Fund Manager Interview: Subrata Mitra of Accel Partners India

Extracts from the interview with Subrata Mitra, Partner at Accel Partners India that appeared in the GIVCA-Venture Intelligence India Venture Capital Report-2009 (that provides a synopsis of VC investments during the year). Subrata earlier co-founded early stage-focused VC firm Erasmic Venture Fund, which merged with Silicon Valley VC firm Accel Partners in mid-2008. Accel is among the handful of funds in India that are truly early-stage focused and was an active investor in 2009, especially in the Internet/Online Services sector.

Venture Intelligence: Has your team’s overall philosophy of investments changed since the merger of Erasmic with Accel? What are the other changes now that you are Accel India?

Subrata Mitra: Clearly, we’re managing a bigger fund now than at Erasmic. That does mean our investment range has moved to at least 3-4 times for the better companies. It has changed our thinking somewhat in terms of types and stages of deals we would like to do.

VI: What attracted you to your latest investments - enStage, Flipkart and CommonFloor? Are Online Services plays a particular favorite for your fund?

SM: We have been looking at Internet deals even as part of Erasmic. We believe that Internet is turning a corner in India now, and therefore different Internet related models would become increasingly viable in the coming years. Added to it is our local and global know-how on this area, which makes internet related investment quite lucrative for us.

VI: In general, what are the key qualities you look for in an Online Services investment?

SM: We look for the team foremost. We believe that there are only a few people available in the ecosystem today in India who can build great Internet companies. Once that’s given, we look for areas where rapid growth would be possible. Finally, we try to understand the quirks of running the model in India (as opposed to the US/Europe) which may require a different/alternative approach to market development/reach.

VI: What other sectors appeal the most to you?

SM: We continue to be intrigued with highly leveraged services opportunities (such as niche KPOs), Enterprise products (such as those delivered through a scalable SaaS platform) and other areas such as Healthcare, etc., which would become big in India, in our opinion.

VI: What sectors are you staying away from?

SM: Ones where larger sums of money would be needed for success (infrastructure, etc.)

VI: Would you invest in "two guys and a PowerPoint presentation"?

SM: Sure...we have done it in the past, even for one guy and a PowerPoint!

VI: All your other investments, except three, have been into Bangalore-based firms. Is this a conscious choice because you are seed level investors?

SM: We tend to be fairly hands-on with our companies, and it does help to therefore have them be located in the same city. Whenever we have deviated from this, we have usually done in a co-investment type of deal, where one of our partners would ideally be located closer to the company.

VI: What is your take on the recent developments in the Mobile Telecom industry? How do you think it affects startups in the Mobile VAS space?

SM: It’s probably EVEN harder for VAS companies to make money now in India than ever before. So, doesn’t look like things are getting better there anytime soon.

VI: What would you say is the most important quality for a start-up CEOs to have in today’s environment?

SM: Most startup CEOs need to understand their markets and fit their products/services into some market need that is clear and valuable. Also, it should be possible to argue that the identified need and can potentially become a big space under certain assumptions.

Fund Manager Interview: Sanjiv Singhal of BanyanTree

Extracts from the interview with Sanjiv Singhal, Managing Director of BanyanTree Finance (the advisor to the BanyanTree Growth Capital fund) that appeared in the Venture Intelligence India Roundup-2009 report (that provides a synopsis of Private Equity investments during the year). BanyanTree is a $125 million Private Equity fund that provides capital to middle-market companies in India with promising growth prospects. It was among the most active investors in 2009.

Venture Intelligence: What is BanyanTree's investment strategy?

Sanjiv Singhal: We like to focus on the underserved spaces. The manufacturing sector gets a disproportionately small share of PE investments in India – especially when you consider that we are the seventh largest industrial economy in the world. For most people, doing a deal in manufacturing is time consuming and maybe not as glamorous as doing a telecom tower deal, etc. But this sector is our happy hunting ground.

At a company level, we try to provide capital to those who have difficulty raising it from other sources. This could be for a reason as basic as the inability of the management to effectively communicate with prospective financiers as why they should invest in the company. And that’s why we use “fallen angels” or “hidden gems” to describe our strategy. Basically our strategy is not to follow the crowd. We would like to look at a deal on an exclusive basis and not be in competition with anybody else.

VI: You have worked for a long time as a banker (with Citi and Standard Chartered Bank). How are you finding your current role different?

SS: The PE fund job is really very exciting especially since you get to be an investment banker, management consultant and a fund manager all at the same time. You are a fund manager when you are making the investment and post that, a management consultant and investment banker.

We find that promoters/sponsors in India have what we call the “post natal” depression. Just after the equity investment is made, they start feeling that they have sold the company too cheap. We find that by actively engaging with the companies post investment not only helps us improve value but also helps us improve the relationship with the sponsors. So a lot of our time goes in being an investment banker and consultant to our investee companies and that I find far more interesting than being a pure banker.

VI: What do you think are some of the key issues before PE investors in India today?

SS: A lot of it is about being differentiated and avoiding the herd mentality. Funds which are just $250-300 million in size should not be trying to compete for deals which larger competitors like KKR and Blackstone can also do. I think they have a risk of being eliminated as they have nothing differentiated about them.

The second big thing for the PE industry is that we need to be more creative in the way we look at deals and where we look for deals. There is too much of a “this never worked in the past and so this can’t work in the future either” kind of view. It might indeed be that it is difficult to make investments in small- and mid-cap companies due to lack of liquidity, some promoters not being straightforward, etc., but all of these issues are addressable. The point is to be able to successfully challenge the status quo.