Knowledge Partners

 Economic Laws Practice       Avalon Consulting

 Technloogy Holdings   

April 29, 2015

Declaration of Independents: A New Venture Funding Model Without the Exit Pressure is a new experiment (in the US) that provides equity like capital to founders in return for cash distributions from profits instead of needing to sell out or taking their company public.

The philosophy:
There’s a mythology that entrepreneurs need to take VC money to hit the big time. While it’s true that some companies really do need outside capital, there are many examples of great companies that have reached revenues of hundreds of millions of dollars, or even gone public, without ever taking in capital, or taking it in only at a late stage, when they’d already created a high valuation by bootstrapping the company.
...Like cement, the cultural foundation for new projects and companies sets early. Those who focus on raising outside capital and achieving fundable milestones have a very difficult time getting off that VC treadmill. Those who focus on creating value for customers and generating positive cash flow from the very beginning are able to make their own decisions independent of competing outside interests.
Can companies today who plan to stay independent and bootstrap their business be competitive in a world awash with Silicon Valley startups and Sand Hill Road cash? Can we build a new kind of startup community that values independence and a DIY work ethic?
The Methodology:
Traditionally, technology investors only get their money out when you sell out (another term for this is a “Liquidity Event”). An investment from IdVC doesn’t preclude you from selling, but in the event you stay independent, our investment will get paid out as distributions from cashflow over time.  
...Initially, we will get 80% of those distributions while the founders take 20% until our initial investment has been returned 2x. At 2x the model flips to 80% to founders, 20% to until we’ve received 5x our investment. Distributions to are capped at 5x. 
Only if and when you choose to raise more money from traditional investors or sell out do we become shareholders in your company.
More detailed summary of the terms are spelt out here. A model for how the cash distribution will work is here.

More about the "Declaration of Independents" by Bryce Robeters here.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private company transactions, valuations and financials in India. Click Here to learn about Venture Intelligence products that help entrepreneurs Reach Out to Investors, Research Competition, Learn from Experienced Entrepreneurs and Interact with Peers. Includes the Free Deal Digest Weekly Newsletter: India's First & Most Exhaustive Transactions Newsletter.
Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

April 24, 2015

From Unicorn to Oxymoron - Tech Startup Frenzy Spurs New Lexicon. "Private IPO" being the Latest.

Q: What do you call a $100 million plus investment by Hedge Funds, Mutual Funds and other typically  public market investors, in Startup companies? 

A: "A Private IPO" (to put a small spin on term coined by Josh Kopelman, CEO of US-based First Round Capital)

Q: Isn't IPO short for Initial Public Offering?

A: Well, fuddy duddy, welcome to Tech (Bubble / Not Bubble / Bubble / Not Bubble) Land. As of now, anything - including seeming Oxymora - goes.

In these unusual times, Indian startups dominate list of cases cited by investors in Asia and other parts of the world. Here's an extract (emphasis mine) from a post titled "Alert: Venture Capital Tsunami in South Asia" by Piyush Chaplot, Partner at Singapore-based Innosight Ventures :
Strategic investors such as Softbank, Rakuten, Alibaba, Naspers, etc. are throwing money as if there is no tomorrow. Sovereign Wealth Funds such as GIC, Temasek, QIA and Khazanah want their share of the pie. Even Private Equity firms do not want to be left behind.  Lets look at some mind numbing data first to feel the intensity of this tsunami:
  • Flipkart raised 3 massive rounds from Series F ($210M), G ($1B), H ($700M) in a 7 month span between May and Dec 2014.
  • Ola raised Series C ($41.5M), D ($210M) and E ($400M) in 10 months between Jul 2014 to Apr 2015.
  • Snapdeal raised more than $727M between May and Oct 2014.
  • Grabtaxi raised 4 rounds of funding from Series A, B ($15M), C ($65M) & D ($250M) in a 9 month period between Apr and Dec 2014.
  • Tokopedia raised $100M in Oct 2014.
  • raised $18M, $19M and $100M between Apr and Nov 2014.
  • PayTM parent One97 raised $635M from Alibaba and SAIF partners in Jan 2015.
...I can never comprehend how a startup moves from Series A to Series D in 9 months. Such sudden influx obviously causes ripple effects. Early stage valuations are going through the roof...The race is now on to  reach a billion dollar valuation in the shortest amount of time. Hate to say this but to a certain extent these funding rounds now decide who is going to be the winner. Taxiforsure lost its battle against Ola not because their product or team were not great. But because, they did not raise such quantums at the right time. 
Kopelman too has warned about the dangers of the Private IPOs. Extracts from his post (emphasis mine):
I don’t think we’ll fully understand or appreciate the impact of the “private IPO” phenomenon for another decade, or at least until a full cycle plays out.

In my opinion, there isn’t nearly enough focus on “low frequency trading.” Public companies reprice daily. Private companies don’t have to reprice for years on end.

One key benefit of low-frequency trading in private companies is a long-term focus. It removes arbitrary time constraints on growth and profits.

...By relying on private financing events as “comps,” we risk pricing new financings (and creating new unicorns) based on stale valuations.
Sage advice indeed.

But who's listening? 

Who's got the time?

There goes the bell for adding the next $100 Million to the Venture Intelligence Deal Digest Newsletters and PE/VC Deals Database!

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

Capitulation! E-Commerce FOMO catches up with the Best of Indian PE/VC Funds

The discussions at Venture Intelligence APEX'15 PE/VC Summit demonstrated how the latest E-Commerce wave - including the FOMO (Fear of Missing Out) factor - is challenging the convictions of some veteran PE/VC fund managers.

Veteran 1:
The key is to remain disciplined. Even if you have not managed to find a new investment opportunity for 24 months (because the valuations are unreasonable or whatever) and there is investor pressure to justify the fees they are paying you, it is important to back your conviction and not lose discipline.
Veteran 2:
Investments are a question of timing. I can keep investing in safe businesses that I understand well and continue to make steady returns. But the opportunity to make extraordinary returns comes only a few times and, as a fund manager, I'm paid to get those extraordinary returns. So, like it or not, I need to figure out how to get on to the E-Commerce bandwagon!
Come April, one of the leading VC firms in the country - which has very publicly stayed away from E-Commerce bets thus far -  seems to have completely capitulated. And is announcing hundreds of crores of investments in e-tailers each week.

A sizzling beginning to the summer indeed. Keep track of all the action via the Venture Intelligence Deal Digest Newsletters and PE/VC Deals Database.

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the Free Deal Digest Weekly: India's First & Most Exhaustive Transactions Newsletter.

April 22, 2015

Worried about Tiger Cubs & other Hedge Funds in Indian StartUp territory? Now, start thinking about the Grand Cubs.

Economic Times has an article quoting some worried voices on Hedge Funds adventuring into startup territory:
Hedge funds, which have fuelled frenzied deal-making in Indian internet companies and stoked valuations to stratospheric levels, are moving down the food chain to take positions in younger, smaller startups. 
Early-stage startups such as Zop-Now, Vserv and MobiKwik have got hedge funds to bet on them. But as these investors plant themselves firmly in India's startup landscape, analysts as well as entrepreneurs are wary about the funds' potential to abruptly pull out in a crisis, as they did during the econom ic downturn that began in 2008.
...The entry of these high-risk appetite investors and the rising pace of deal-making reminds some investors about previous peaks in investment cycles.
...“From 2006 to 2008, we saw prop books and hedge funds say that they will be in India for the long run, some even having teams on the ground. But after 2008, we did not see most of them in the country,“ said Anand Prasanna, director of US-based investment firm Morgan Creek Capital.

Parag Dhol of Inventus Capital had also made a dire prediction on the trend at the Venture Intelligence APEX'15 PE/VC Summit:
"The transactions of recent months, where investors who used to talk to only companies that are EBITDA positive, are now writing cheques to companies that have hardly any revenues, is going to lead to lot of pain." 
Like most trends in the Indian market, the hedge-funds-investing-in-startups also seems to have been imported from Silicon Valley. Extract from a Reuters report of more than a year back:
Tiger Global Management, part private equity manager and part hedge fund manager, has emerged as among the most prominent of a growing club of Wall Street financiers now eyeing technology start-ups. They include hedge funds such as Coatue Management and Valiant Capital Management; private equity groups such as Rizvi Traverse Management and TPG; and mutual fund giants BlackRock, Fidelity and T. Rowe Price.
...Tiger Global, a so-called "Tiger Cub" because of its ties to investor Julian Robertson and his once-highflying hedge fund Tiger Management, has quietly taken one of the largest positions of the newcomers, technology investors say. 
Tiger Global of course has been on the prowl in India for a few years now and, the dream run of Flipkart in 2013-14 and its healthy exit from Justdial, is attracting fellow hedgies in droves to Indian shores. Of course, only time will tell how exactly the 2014-15 wave plays out (compared to the 2000-01 and 2007-08 ones).

Given that Tiger Global is clearly at the vanguard of the hedgie trend (both in Silicon Valley and in India), a little bit more context on the firm would be clearly useful to have. More from the Reuters story quoted above:
Founded in 2000 with $25 million by Chase Coleman, a protégé of Robertson's, Tiger has earned the respect of Silicon Valley denizens, in part through its highly profitable investment in Facebook. 
...While the firm has long been active in venture-backed companies, particularly internationally, it has recently stepped up the pace in Silicon Valley...People familiar with the matter say that Lee Fixel, who co-runs Tiger's venture-growth business with Scott Shleifer, has been particularly active in the firm's venture-backed deals. 
Wikipedia provides more context on Tiger Management founder Julian Roberston and the "Tiger Cubs" (which includes Tiger Global):
After closing (down) his fund in 2000, Robertson kept his hand in the hedge fund business by supporting and financing upcoming hedge fund managers (38 in total as of September 2009), in return for a stake in their fund management companies. Apart from those, many of the analysts and managers Robertson employed and mentored at Tiger Management, including Chris Shumway, Lee Ainslie and Ole Andreas Halvorsen went out on their own and are now running some of the best-known hedge fund firms, called "Tiger Cubs". These include funds such as Viking Global, Tiger Legatus, Blue Ridge Capital, JAT Capital Management, Tiger Global, Maverick Capital, among others.
According to an Octa Finance profile, Tiger managed more than $21 billion as of April 2014. The hedge fund, which invests only a small percentage of its assets in (public) equities and options, had between 11-25 clients.  Its returns over the last seven years have been:

2007: 71%
2008: -26%
2009: 1%.
2011: 45%
2012: 23%
2013: 14%
2014: 17%

Even as some of the other Tiger Cub names are becoming more familiar in the Indian startup context, there are a now a few former Tiger Global managers that have also set their sites on India. An interview with one such "Tiger Grand Cub" is here.

Wonder what the grand cubs will accomplish? Well, there's a saying in Tamil that goes like this:
If the mother (tiger) leaps 8 feet, the cub will leap 16 feet. (The progeny is always assumed to be more accomplished than the previous generation because they have the experience of the parent to drink from.)
Whatever the distance covered by the cubs and grand cubs in Indian Private Equity / Venture Capital territory, rely on the Venture Intelligence - with its on ground presence in India since 2002 and deal data since 1998 - for the measurement!

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the Free Deal Digest Weekly: India's First & Most Exhaustive Transactions Newsletter.

April 01, 2015

Private Equity investments tick up 20% YOY to $2.65 Billion in Q1’15

Pause in Mega E-Commerce deals sends QoQ value down 36% 

Private Equity firms invested about $2,646 million across 124 deals during the quarter ended March 2015, according to early data from Venture Intelligence (, a research service focused on private company financials, transactions and their valuations. The investment amount was 20% higher than that invested in the same period last year ($2,212 million across 132 transactions), but 36% lower than the immediate previous quarter (which, on the back of blockbuster deals in E-Commerce companies had witnessed $4,120 million being invested across 112 transactions). Note: All figures in this note are exclusive of PE investments in Real Estate.

There were six PE investments worth $100 million or more during Q1’15 compared to four such transactions in the same period last year and eight during the immediate previous quarter, the Venture Intelligence analysis showed. The largest investment during Q1’15 was IFC’s $260 million commitment to microfinancier-turned-bank license holder Bandhan Financial Services. Another microfinance firm Ujjivan Financial Services attracted a $100 million (INR 600 crore) investment from a clutch of investors including CDC Group, IFC and CX Partners. Two large hospital operators – Manipal Health Enterprises and Medanta Medicity – attracted $100 million plus rounds. While Manipal attracted INR 900 crore ($150 million) from TPG Capital, Medanta attracted INR 700 crore (about $114 million) from Temasek (via a secondary purchase from Punj Lloyd). The largest E-Commerce deal reported in Q1’15 was the $100 million fourth round raised by led by Tiger Global (a key investor in rival Flipkart).

The Power sector too witnessed a return of interest with IDFC Alternatives committing INR 500 crore (about $81 million) to an SPV of Diligent Power executing a 1,200-Mw thermal power project in Chhattisgarh and Actis announcing a SPV of its own – Ostro Energy – to focus on renewable power projects. Transactions like Carlyle’s buyout of financial services firm Destimoney (from erstwhile majority owner New Silk Route) as well as Ujjivan (in which half of the investment went to exiting investors including Sequoia Capital India) marked a return of significant sized secondary transactions between Private Equity firms.

While IT & ITES companies accounted for 32% of the value pie (attracting $836 million across 71 deals) during Q1’15, BFSI (Banking, Financial Services and Insurance) companies followed closely at 31% (attracting $816 million across 12 deals). They were followed by Healthcare & Lifesciences companies ($392 million across nine transactions) and Energy companies ($207 million across 6 transactions).

The Venture Capital segment (defined as investments of up to $20 million in companies that have been active for less than 10 years) accounted for 68 of the PE transactions or 55% of volume pie during Q1’15. Late Stage companies (including mature companies like Bandhan, Manipal Health, Medanta and Ujjivan) attracted 27 investments and accounted for 45% of the pie in terms of value during the period. Listed company investments (“PIPE” deals) accounted for 8% of the pie in value terms (and 6% in volume terms). Venture Capital investments of Q1’15 were dominated by follow-on rounds in companies like online video content firm Culture Machine ($18 million round led by Tiger Global), food ordering app Tinyowl ($16.25 million led by Matrix Partners India) and QSR chain Faasos ($16 million round led by Lightbox). Listed companies that attracted PE investments too were topped by BFSI companies like Magma Fincorp (INR 500 crore or about $80 million from India Value Fund, Leapfrog and KKR) and M&M Financial (about $42 million from Temasek).

Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the Free Deal Digest Weekly: India's First & Most Exhaustive Transactions Newsletter.