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April 22, 2010

"The Brain of an Indian VC"

Indiagames founder Vishal Gondal has an interesting post on the topic:

Being a VC in an emerging markets like India is like being a VIP. You are at a very high pay scale, constantly being pitched by smart entrepreneurs, called to give speeches at every major conference. At business plan events they are almost mobbed and receive endless amounts of emails, phone calls, SMS most of them trying to desperately convince them into liking them. They meet CEOs of top companies, are in influential company boards, and get an ego massage from everyone who meets them...Its but natural for any human who is living in an environment like this to develop a bit of an EGO. Its really complex dealing with such people and you too can easily get into the EGO massaging mode.

...VCs always tend to react to the current buzz. If the last big acquisition was in the cloud application space they would suddenly start looking at cloud investments. If a high profile investor or entrepreneur invests in a segment that becomes the flavor of the month and as most VCs react to trends and buzz its easy to assume that they are following the herd mentality. However there always seems to be some kind of strategy in this herd mentality. VCs bet on 3-4 players in any given segment and space. Therefore a smart entrepreneur would focus on catching on the buzz early on and hit the VC at the right time with his plan. The buzz has a very short life and in no time the VC would move to the next trend.

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

VC Interview: Venetia Kontogouris of Trident Capital

Venture Intelligence recently spoke with Venetia Kontogouris, Managing Director of Trident Capital. The US-based VC firm has invested into six companies with significant operations in India including Elucido, Microland, MingleBox, Neilsoft, AirTight Networks and Outsource Partners International. (This interview first appeared in the Venture Intelligence India Venture Capital Report of Q1 2010)

Venetia Kontogouris of Trident Capital

Venture Intelligence: Is Trident Capital cutting its exposure to India?

Venetia Kontogouris:
The business environment is slowly getting better but it is still a challenge for young companies to generate revenues. As a result, most VCs are being more conservative. We are on hold until we get a better idea of the direction of the Indian markets and valuations.

VI: In general, what sort of businesses are you looking at?

We look to invest in technology, Internet, software, business services and payments space over the next 6-12 months.

VI: Which sectors will you stay away from?

Hardware and real estate

VI: What attracted you to Minglebox and Elucido – your two most recent investments?

Through Minglebox we are directly servicing over 4 million Indian students. This platform lets students provide information and communicate with each other. If a student, based anywhere in India, needs information about colleges in Bangalore, other students on Minglebox can help him. We are going to come out with ratings of colleges to help students make the right choices. We are also working with employers to help make better choices when providing jobs. In the case of Elucido Media Networks which provides digital media solutions, we have got the first clients and we are shaping the strategy for 2010. We are looking at recruiting additional board members and additional talent both for India and the US. I see Elucido going public in next 24 months.

VI: How much do you look to put into a company over the life of the investment?

We look at investing about $3-15 million. We have invested over $40 million to date.

VI: What will make pure Indian plays more attractive for you?

With its fast growing economy and young population, India will continue to offer interesting opportunities in many areas. The key will be political stability as well as continued favorable tax treatment for offshore investors and infrastructure development.
VI: According to you, where is the venture market going – both in the US and India?

VK: Smaller funds, smaller investments, more focused investment thesis. There is generally less capital available for new ventures and therefore VCs are becoming much more selective in placing their bets. More funds and management time are required to fund and manage existing investments, making new investments less of a priority.

April 12, 2010

Interview with Mintoo Bhandari of Apollo

Venture Intelligence recently spoke to Mintoo Bhandari who heads global PE firm Apollo's India subsidiary in Mumbai. Apollo recently consummated its first PE investment in India - a $100 million investment in DTH operator, DishTV. Prior to joining Apollo in the US (in 2006), Bhandari was Managing Director of India-focused private equity firm, The View Group. Interestingly, Apollo – when it comes to PE investments - has chosen to invest earlier in India than in China. (This interview was first published in the Jan-Mar 2010 issue of the Venture Intelligence India Roundup Private Equity report.)

Venture Intelligence: Can you tell us how the DishTV investment came about and what attracted you to the company?

Mintoo Bhandari: There were both macro and situation specific reasons why we found DishTV interesting. On the macro thesis: we believe India is perhaps the most attractive media market in the world today. India is a producer of significant unique content and there is voracious consumption of media content here. There are on the order of 500 million TV viewers and in excess of 100 million cable and satellite homes and these numbers are growing. Even with a large number of viewers, there is an abundance of channels and programming (some might say there is an excess), we felt that distribution would be the right focus for us in the media value-chain in India. And, in distribution, we felt that DTH would be a better solution for reaching the vast spread of households across India in a cost effective fashion and that DTH had a more “investor friendly” industry structure than cable represents in India today.

DishTV is the pioneer in this space in India (having obtained a license as early as 2003) and we have known Subhash Chandra (the principal promoter of DishTV) for some time. About two and a half years ago, he expressed an interest in getting us involved in the business and our providing inputs based on our extensive international cable and satellite experience. He invited us to join the board of Dish TV and we actively participated in board meetings of DishTV for a full 2 years before engaging actively in a dialog about investing in the company.

VI: Where is your investment going to be used and what do you expect next from Dish TV?

MB: Today, less than 20% of all cable and satellite households are on DTH. While the sector has picked up nicely in the last couple of years, there is still a lot of potential for growth and we believe that at least 40% of these C&S homes will be serviced by DTH, with much higher penetration levels outside of the major metropolitan areas. So the capital we provided will be used primarily for new subscriber acquisition, for funding marketing, and for deepening the distribution network.

VI: Are there any other sectors within Media that appeal to you?

While we look across sectors, we tend to seek and prefer what we call “low variance of outcome” investment strategies. No investment is without risk and the media sector is known to be one of the most challenging for investors world-wide, so we focus on looking for opportunities where the reward outweighs the risk and we have some way of bounding and perhaps mitigating some of the risks.

Within media, content and other segments we have considered tend to be more dynamic – i.e., you can get a great return if you call it right (with regard to positioning and team, etc.) but there is also significantly more downside risk. Within Media, we think distribution, which relates to the number of subscribers rather than the number of eyeballs, represents a much more predictable, cash-flow oriented business model than content and other segments and it is a segment we understand well.

VI: Outside of media, what are the other sectors you are scoping out right now?

We look for opportunities at the intersection of what Apollo is good at globally and the industries in which India has genuine advantages. Some the areas that fall in this intersection are mining and metals, highly engineered industrial products, business services, and media.

We are also very focused globally and in India on the chemicals space - our interest spans everything from basic chemicals through highly specialized chemicals (including fine chemicals and inputs for pharma companies). Driven by macro economic factors, we are looking closely at a whole host of infrastructure inputs such as steel, aluminum and cement. These industries should do well as India seeks to improve its infrastructure which is in dire need of repair and expansion. We also believe that India has long-term advantages in business process outsourcing and information technology and that those industries are likely to continue growing.

VI: In BPO, do you see any specific opportunities as the landscape has clearly changed and it has not been among the favored sectors among PE investors for a couple of years now?

We like the industries and opportunities that are out of favor, especially when there are fundamental long-term strengths that we can build upon. We are attracted to the BPO arena and we have been looking at a couple of opportunities that speak to our contrarian, value orientation. We think that the long term competitive advantage for India in BPO is very, very robust and that if we are selective and can add value to the companies in which we invest, we should do extremely well.

VI: Given how other US buyout shops have taken to doing more growth and minority deals in India, is that something you will follow as well?

We are not dogmatic about the style of investing. It has to be more about the quality of the opportunity rather than how it can be characterized at a “30,000 foot” level. We are very focused in the quality of a company’s market position and its future prospects, the drive and experience of the management, the ability of a business to generate significant cash flow, and the ability to invest at a price which doesn’t reflect the true value of these factors.

So, yes, we are happy to back an exceptional management team with whom we can align and add value in a growth situation. We would prefer to do that over seeking to do a buyout of a mediocre company with questionable long-term prospects. But, we won’t invest in any situation in which we can’t add value and in which we are expected to be a passive investor; our strong preference is to have meaningful involvement in any company in which we invest, but we don’t have to control everything that we go into. India is a competitive investment landscape and we believe the opportunity set demands creativity and flexibility.

VI: Is there a minimum ticket size for the deals you will look at?

We believe that roughly 1-4% of Apollo’s current fund (Fund VII has ~$15 billion in committed capital) is an appropriate range for private equity deals in India. Given this fund size, that means we should be looking at equity checks of $150-600 million, which is on the higher end of the spectrum of deals generally contemplated in India. That being said, we are willing to be flexible and will consider somewhat smaller deals and will also go higher, if we find the risk-reward compelling and the context of the transaction is appropriate for a larger commitment.

VI: Given these parameters, do you see yourself doing more sole investments?

It depends on the situation. But given the current fund size and desire to invest a reasonable percentage of the fund, there are not many deals in India that lend themselves to syndicates that would also accommodate our target equity check size.

VI: Outside of PE and Real Estate, Apollo internationally has very significant public market operations. Is that something you will bring to India as well?

We are more inclined to explore the credit markets than the public equity angle in India. So we may focus on creating a credit platform that will be India specific that will look to help companies, not only with equity financing but also with the provision of debt in creative and dynamic ways that we believe Indian corporates will appreciate.

VI: As someone who worked previously at Harvard University’s endowment, what is your reading of the current fund raising environment in India for independent GPs vis-à-vis global funds like you?

There are only a few investment strategies for which the private equity community will likely be able to confidently raise capital over the next couple of years. One of the in-demand themes will likely relate to managers that can deliver unique capabilities and experience in emerging markets such as India. Having said that, I do feel that generally the fund raising environment is very challenging. You need to have some genuinely unique capabilities and ingredients to be successful in raising capital today given the experience the industry as a whole over the past few years and the impact that the financial crisis has had on a wide array of LP’s.

April 07, 2010

PE firms invest $2-B in Indian Cos. in Q1 '10

Private Equity firms invested about US$2,000 million across 56 deals during the quarter ended March 2010, according to a study by Venture Intelligence (, a research service focused on Private Equity and M&A transaction activity in India. The amount invested during the latest quarter was the highest in the last six quarters. The figure was significantly higher than that during the same period last year (which witnessed $620 million being invested across 58 deals) and also the immediate previous quarter ($1,681million across 102 deals).

The largest investment during the quarter was the $425 million investment into power generation firm Asian Genco by General Atlantic, Morgan Stanley, Norwest, Goldman Sachs and Everstone. Other top investments reported during Q1'10 included Quadrangle Capital Partners' $300 million investment into telecom tower infrastructure company TowerVision India; StanChart PE, KKR and New Silk Route's $217 million investment into Coffee Day Resorts and TPG Growth's $115 million investment into Clean Tech firm Greenko Group.

"The key trend on the PE investments front during Q1'10 was the re-emergence of appetite for large ticket deals," remarked Mr. Arun Natarajan, MD & CEO of Venture Intelligence. "For the first time since Q3'08, the latest quarter witnessed as may as five investments over $100 million," he pointed out.

Led by Actis' $50 million investment into BPO company Integreon Managed Solutions, the IT & ITES industry registered 13 deals worth $193 million during Q1'10. IT & ITES was followed by BSFI (9 deals worth $94 million).

Venture Capital and Late Stage investments accounted for 16 and 18 deals respectively during Q1 '10. "Instead of rushing after listed company and pre-IPO deals, investors showed special preference in Q1 '10 for slightly younger companies with median sizes of about $11 million," Mr. Natarajan said.

Private Equity firms obtained exit routes for their investments in 32 Indian companies during Q1 '10, including six via IPOs. This compares to 16 exits (none via IPOs) in the same period in 2009 and 20 exits (including 4 IPOs) in the immediate previous quarter. "PE and VC investors are continuing to take advantage of the buoyant capital markets in India to exit some of their 3-5 year old investments at healthy multiples. This should stand them in good stead when it comes to raising newer funds," Mr. Natarajan remarked.

The largest PE-backed IPO during Q1'10 was toll road operator IL&FS Transportation Networks' (ITNL) $155 million March IPO. Trinity Capital, which had invested $9.3 million in December 2006, sold its entire holding as part of the offering. Other PE investors in ITNL included Goldman Sachs; SCI Asia (Standard Chartered-IL&FS Asian Infrastructure Fund) and Bessemer.

The total value of M&A transactions providing exits to PE-investors during Q1'10 was around $858 million. These included 13 sales via public markets, 7 strategic sales, 1 secondary sale and 5 buybacks (by either the company or its promoters). The largest M&A exit announced in Q1'10 was the secondary offering by NYSE-listed BPO firm Genpact through which PE firms General Atlantic, Oak Hill Capital Partners along with General Electric and Wells Fargo will sell stock worth about $504 million. General Atlantic and Oak Hill Capital Partners each own 24% of Genpact.

About Venture Intelligence

Venture Intelligence, a division of Chennai, India-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

April 01, 2010

“BFSI presents great entry point for consumer, infra sectors”: PE Investors

Microfinance, Infrastructure Finance and service providers to financial services firms, are among the favourite sectors of PE & VC investors within the industry, a survey by research firm Venture Intelligence reveals.

Private Equity and Venture Capital investors are viewing investments in BFSI (Banking, Financial Services and Insurance) companies as an attractive “entry point” into the two key themes driving their investments in India: rising domestic consumer and infrastructure spending. PE/VC investors surveyed recently by Venture Intelligence, a leading research firm focused on Private Equity and M&A deal activity, selected Microfinance, Infrastructure Finance, service providers to financial services firms (like back-offices to mutual funds, etc.), Banks, Stock Exchanges and Insurance Distribution companies as their favorite sectors within the BFSI industry. The survey results are published in the in the newly released report from Venture Intelligence titled “Private Equity Pulse on Financial Services”.

The report has a special focus on Microfinance. “PE investments in Microfinance continued to grow right through 2008 and 2009 even as investments in other sectors witnessed a steep decline. So much so that almost all top companies in the sector are now PE/VC-backed,” said Arun Natarajan, CEO of Venture Intelligence. “With the constant need for capital among MFIs (to meet capital adequacy requirements), the synergistic relationship with PE/VC investors seems set to continue,” he added.

In an interview in the report, Dhiraj Poddar of Standard Chartered Private Equity points that, apart from sectors within BFSI, providers of technology and analytics services to this industry present another attractive investment opportunity for investors. Poddar says PE investors would also look forward to investing in the capital intensive and long gestation business of Life Insurance.

In his article on PE in Financial Services, Sanjay Doshi of KPMG, points out that opportunities abound for Private Equity in virtually every facet of the Financial Services industry considering the expected growth of the Indian economy combined with rising income levels, focus on infrastructure spending, emphasis on financial inclusion, emergence of wealth managers and expected growth of the insurance industry. Among the hurdles facing PE investors, he includes regulatory restrictions on investment limits in banking and insurance sectors and uncertainty in valuations of insurance companies.

Siddharth Shah of legal advisory firm Nishith Desai Associates traces the evolution of financial inclusion in India. Highlighting how from the time of the Sahukars and Shroffs (money lenders) in pre-colonial India to the advent of institutionalized banking, the banking sector in the country has witnessed sweeping changes. The nationalization of banks in 1969 led to the expansion of branch network increasing lending to agriculture and small business and pulling in millions of people into the formal financial system. Highlighting how the new delivery channel of Micro Finance Institutions is enabling efficient delivery of credit to the neediest sections of society, he indicates that The Micro Financial Sector (Development and Regulation) Bill 2007, when cleared by Parliament, will provide the required regulatory framework for this sector.

Highlighting the potential of Microfinance to alleviate poverty by providing access to productive assets and financial resources, Anil Joshi, Prashant C and Sasha Mirchandhani of angel investor group Mumbai Angels indicate how. MFIs would need US$3-5 billion over the next 4-5 years. The hunger for capital among MFIs stems mainly from the need to meet mandatory Capital Adequacy Requirements specified by RBI and to invest in branch network, human capital and technology. From an investor’s perspective, the sector’s rapid growth, high returns and relative immunity to global developments, are strong attractions.

In his article, Samir Bali of Ernst & Young points out how the rapid growth of microfinance has been aided by partnerships with PE firms and banks. The revision of mobile phone banking guidelines (to enable low value transactions), the Unique Identification Number programme (UIN) and the establishment of a ‘Credit Information Bureau’ to encourage safe lending practices, will provide the framework to boost further growth. He however cautions that as the Indian MFIs develop a pan Indian network and increase in size, the lack of common standards for technology, product design, the gaps in legal and regulatory framework and the ability to tackle multiple borrowings will pose challenges. Bali predicts that the sector will witness consolidation over the next few years as some of the better capitalized firms (including PE-backed ones), embark on acquisitions for expanding their reach and size.

Indicating how a fact-finding study by the RBI observed that some of the microfinance institutions (MFIs) appeared to be competing to reach out to the same set of poor, resulting in multiple lending, Shivi Agarwal of legal advisory firm Dhir & Dhir highlights the need for a general regulatory environment for the microfinance sector that can provide oversight, independent of the organizational form of the MFIs. The article provides an update on the status of the Micro Financial Sector (Regulation and Development) Bill, 2007 (which had lapsed) and on the steps towards self regulation within the sector.

While writing on the payment business, Manek Fitter of Ernst & Young highlights the factors which will throw up huge opportunities for PE in this capital intensive and technology driven sector. The growing acceptance of electronic payment systems from the presently low penetration levels, a supportive regulatory stance, initiatives like the formation of the National Payments Corporation of India (NPCI) and the issuance of UIN, coupled with the rapid growth of telecom infrastructure and the existence of evolved and proven payment systems, will help this sector achieve healthy and sustainable long-term growth in India.

For the convenience of entrepreneurs, the report provides a listing of advisory firms who provide value-added intermediation services.

The report can be downloaded from

About Venture Intelligence

Venture Intelligence, a division of Chennai, India-based TSJ Media Pvt. Ltd., is the leading source of data and analysis on Private Equity, Venture Capital and M&A deals in India. Our products include Databases, Newsletters and Reports - all focused on tracking deal activity in India. For more information, visit