The Venture Intelligence Blog

Knowekdge@Wharton has published the proceeds of a a roundtable discussion between four leading limited partners - Kristin Gilbertson of the University of Pennsylvania, Sandra Pajarola of Partners Group, Cory Pulfrey of Morgan Stanley Alternative Investment Partners and Michael Taylor of HarbourVest Partners. Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Knowledge@Wharton has an article based on a panel discussion on private equity investing in India and China titled "Driving Returns: Value Added Investing." Mukund Krishnaswami, managing director of Krilacon Group, an investment firm based in New York and Philadelphia, agrees with Siegel about the current investment climate in India. "Long term, I'm a very big bull on India. India is a country where they've done so much wrong in the last 45 years. Yet despite all that there's so much that is good going on that if they just get it right, the opportunities [will be] fabulous in 25 years," he said. "In the short-term, I'm quite a bear. I think the risk premium just isn't there in most assets to be spending a lot of money [in India] today." Krishnaswami advised investors to follow the broader economy, not the trends that are hot today, including information technology or real estate. "Look for derivative areas of economic growth and t...

Knowledge@Wharton has published the second part of its interview with Wipro's Azim Premji. Aron: You already have a strong footprint in IT design, development, maintenance and operations. Now, as you said, you are trying to deepen your skills at the top -- in the consulting area -- so that you can be proactive in serving your customers and not just reactive. But the kind of person who goes into consulting -- say, my students at Wharton who might join a consulting firm after graduation -- is very different in profile, personal style, culture and expectations than someone who might join a technology firm. Do you see a contradiction here? Can you manage a panther and an elephant from the same menagerie? Premji: Of course this is a challenge, and we have to rise to it. We did this very well in AMS. We did it less well in NerveWire, where we had a higher attrition level. We are learning from this. One good thing we have been able to do in Wipro based on our experience over the years is...

Anand Sridharan of Bessemer Venture Partners has a blog post on why his firm (along with New Vernon Private Equity)has invested into Motilal Oswal Financial Services, a leading Indian stockbroking firm. Our thesis is that rising consumer incomes will translate into disproportionately higher allocation of these funds into equities. Right now, under 3% of India's retail assets are invested in stock markets. Cash, bank deposits, real estate and gold dominate the pie-chart on how Indians invest their wealth. As economies develop, this % rises to as high as 30-35% in the US. Further, the stock broking industry is highly fragmented and seeing a gradual consolidation. Motilal Oswal's growth has outpaced that of the industry and the company should continue to gain from this consolidation. Sridharan also promises BVP will be a patient - andf truly long-term - investor in the company: The main concern with the brokerage business is cyclicality. Trading volumes drop sharply during a down...

Business Today has a detailed article examining whether the boom in Indian real estate prices is sustainable. Points on the "Yes" side: To answer in a word, demand. Underlying it, though, are some key macro-economic reasons. One, the country's growth...To add to it, interest rates have actually come down from high teens to about 9 per cent, giving rise to an EMI (equated monthly instalment) economy, where even a Rs 30-lakh apartment is affordable to a large number of households..."Low interest rates and retail loan boom have turned the latent demand in many of these cities into a real demand," says Gaurav Dalmia, Chairman of Landmark Holdings and also a director on the board of a real estate fund, Fire Capital India. And then there are the usual Planning Commission, PwC and other consultacy numbers: "Currently, there is a need for 22 million dwelling units in India, and till this gap is bridged, there is no reason for the demand (for residential units) to ...

Business Today has an article profiling the Hyderabad-based GMR and GVK business groups (both named after their founders Grandhi Mallikarjuna Rao and Gunapati Venkata Krishna Reddy respectively) which have recently shot into the limelight for their winning bids to modernize the Delhi and Mumbai airports. Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Pvt equity giants jostle for slice of India pie Economic Times - Apr 19, 2006 “Clearly, the growth investments will make up the volume, but buyout deals will continue to tilt the numbers. But the market will segregate, with each player finding its sweet spot in the future,” says Arun Natarajan, editor, Venture Intelligence. Buyout deal by KKR is India's largest ever International Herald Tribune - Apr 17, 2006 According to Venture Intelligence India, private equity and venture capital firms invested $2.2 billion in India in 2005, spread across 146 deals. That sum was up 33 percent from the $1.65 billion in investment the year before. ...Now, analysts say, the Flextronics deal, nearing the $1 billion mark, will lend new credence to the trend. In a single deal, KKR will have invested nearly as much in India as the two current major players in private equity here, Warburg and Temasek, have invested over a period of several years. "When these guys came to town, people were skepti...

Business Today has a Cover Story on the Kotak Mahindra Group, which recently bought out Goldman Sachs from their investment banking and broking joint ventures. (Vice Chairman & Managing Director Uday Kotak) won't say it, but the message in the buyout of Goldman Sachs is pretty clear: Thanks for the help guys, but now it's best for Kotak Mahindra to be on its own (although there are some market watchers who insist that it's Goldman that wanted to be on its own in India). Compared to the global Goliaths-Goldman, Morgan Stanley and Merrill Lynch-Kotak is a relative David on Dalal Street. But Kotak is aiming his sling and his stone far and wide, and not just at domestic targets. "India, Indian institutions and Indians can have a shot at the world today. These opportunities were not there 5-10 years ago. This is India's second tryst with destiny," he told BT last fortnight. Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capit...

Fred Wilson has a short "VC Cliche" post on "(investing) ahead of the curve". I am not sure what curve this cliche refers to, but for me its the market adoption curve of any technology or business model. It's hard to make money in the venture business if you wait until the adoption curve starts to slope upwards to make your investment(s). I believe that you must always try to look ahead to get a sense of what's next and make your bets before they are obvious. ...If you get too far ahead of the curve, you can find yourself on the bleeding edge and that is no good either, so its a careful line you have to walk and nobody does it perfectly, not even the best venture firms. But I am convinced that if you spend a significant amount of your time looking ahead, trying to get ahead of the curve, you'll have a better performing fund than if you simply invest in whatever is the hot trend of the day. Arun Natarajan is the Founder of Venture Intelligence India, w...

Peter Rip has a very funny April 1 call to create the International Brotherhood of Venture Capitalists (IBVC). Before you scoff at the idea, consider the advantages of organized VC labor. The role of a union is to improve the lot of its members. Pay, working conditions, work hours, and job security are all demonstrably better for union workers. If we are successful in our fight for the common VC, we could have any or all of the following: * Better Job Security – Because Ten Year LP Agreements are clearly not long enough * Shorter Work Weeks – Too many of us are forced to toil 7x24 (7 hours a week, 24 weeks a year) * More Time Off – Why stop doing deals for just August and December, when there are ten months to do your two deals a year? * Better Working Conditions – Who isn't tired of the menu at Buck's, really? * Collective Bargaining – Appoint the Senior Managing Director to be your Shop Steward and negotiate all investments in complete collusion. ...

Some recent articles in the press featuring Venture Intelligence India: Buying a stairway to heaven Economic Times - Apr 16, 2006 In the first three months of this year, PE investments have flowed into eight deals worth $350 million, according to a study by Venture Intelligence India. The PE players started closing deals after spending much of 2005 raising capital. Flush with funds now, they are looking for investment opportunities in real estate. Says Arun Natarajan of Venture Intelligence India: ”The fact that real estate has emerged as the third most favourite industry for PE investments during this quarter -- after IT & ITES and manufacturing -- is a clear sign of things to come. This significant deal activity indicates that the PE firms and developers are working together actively to overcome issues like corporate governance that were initially considered major challenges to investments in this industry.” Private equity and venture capital firms invest $1.4bn in India in Q1 A...

Within the resurgent Indian manufacturing industry, PE firms have paid special attention to sugar companies. Businessworld has a profile of this sector and its top players. Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Extract from our latest quarterly press release: Chennai, India : Private Equity and Venture Capital firms invested about US$1.4 billion in 69 Indian companies during the quarter ended March 2006, according to study by Venture Intelligence India ( http://www.ventureintelligence.in ). The amount invested during the latest quarter was over 3.5 times that during the same period last year and 1.7 times that during the October-December 2005 quarter. “The average PE deal size has gone up to about $20 million from $14 million during the same period last year,” said Arun Natarajan of Venture Intelligence India. “Apart from mega deals like Temasek’s investment in Tata Tele Services, the increasing investments by PE firms in the Real Estate industry as well as in mature IT, BPO and Manufacturing companies has contributed to the rise in deal sizes,” he added. Click Here to read the full press release. Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activ...

Following a new study by the India Semiconductor Association , the industry is getting a lot of buzz in the media including a cover story (no less!) in Businessworld and a profile of US-based Cadence's Indian operations in Forbes . Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Forbes has a profile of New Delhi-based real estate developers DLF Grou p and its Chairman, K.P. Singh. Today he presides over closely held DLF group, India’s largest real estate developer with an estimated land bank of 3,000 acres in prime city locations. Singh, who owns 99.5% of parent DLF Universal with his family, is worth, by our reckoning, at least $5 billion. ...Rajiv, 46, an MIT-trained engineer, and daughter Pia, 35, a Wharton B.S. who also is in the business, running the retailing side,..are aiming even higher than he did. Cashing in on India’s mall boom, DLF is planning a massive retail rollout: Over the next five years 100 malls will be built in 60 cities, including a 4-million-square-foot Mall of India, the country’s biggest, in Gurgaon ...Rajiv estimates that these expansion plans, which include building hotels, middle-income homes and special economic zones, will translate into investments of at least $10 billion. To finance their ambitions the Singhs are going beyond t...

Some Seed Funds and entrepreneurs like to use convertible notes, which pegs the valuation of the seed investment to that of the first round (which is typically expected to happen a few months down the line). In response to an earlier post by Brad Feld on "What's The Best Structure For A Pre-VC Investment?", Josh Kopelman , Managing Director of First Round Capital, explains why he has a strong preference for Preferred Equity versus Convertible Notes. A typical convertible note allows an investor to convert from debt into equity at some discount to the Series A price (typically 20-40%). I believe that this often has an unanticipated outcome -- it puts the seed-stage investor and entrepreneur on different sides of the table. The entrepreneur wants the Series A price to be as high as possible, while the note holder wants the Series A price to be as low as possible (since the conversion price of their note will be based on the Series A price). This misalignment of intere...

Knowledge@Wharton has an interview with Wipro's Azim Premji. It's always an issue to differentiate Wipro and get closer to target companies like IBM and Accenture rather than companies like Infosys and TCS. We are trying to do this in two or three ways. Consider, for instance, our product engineering services business. I think we are trying to do it by way of the competencies we have built there, with specialized teams for telecom and embedded systems, which are focused on verticals. Scale is another differentiator. In the products engineering services business we are 10,000 people strong, which makes us the largest products engineering services company in the world on a third-party basis. It gives us a huge depth of competence. Moreover, the business we do now is evolving to models where we take turnkey responsibility for deliverables such as the design of end products -- next generation products. We don't just make subsystems for customers or work as part of a project te...

Benchmark Capital's Bill Gurley is concerned that Sarbanes-Oxley (SOX) Act is "ensuring the demise of the leadership of U.S. capital markets". New up and coming companies outside the U.S. are now shunning the U.S. markets in mass. Let us not forget that the Nasdaq has and as always had “weaker” listing requirements that the NYSE. And eventually, the then new and up and coming companies like Microsoft, Cisco, and Intel eventually came to dominate the Fortune 500 – and they all started as emerging companies that preferred the Nasdaq. Now companies are going to “prefer” other markets with requirements that are less stringent than the SOX laden U.S. markets. This is a HUGE issue. I applaud the Nasdaq BOD for going after the LSE, and I have to wonder whether Mr. Sarbanes and Mr. Oxley have any idea that they will go down in history as the specific architects of the demise of U.S. capital market leadership. Arun Natarajan is the Founder of Venture Intelligence India, which tr...

Some recent articles in the press featuring Venture Intelligence India: The Great Indian Tech Sale Financial Express - April 8, 2006 Induslogic Gets $12.5M Red Herring - Mar 5, 2006 Pvt equity firms turn sight to real estate in Q4 Business Standard - April 4, 2006 Pvt equity:$1-bn in just two months Economic Times - March 29, 2006 VCs seek dot-com success stories in India United Press International - Mar 25, 2006

Investors in Indian dating/matrimonial web sites are doomed. For Google, after taking on Yahoo Finance, has now launched Google Romance , "a place where you can post all types of romantic information and, using our Soulmate Search™, get back search results that could, in theory, include the love of your life". With Google Romance, you can: * Upload your profile – tell the world who you are, or, more to the point, who you’d like to think you are, or, even more to the point, who you want others to think you are. * Search for love in all (or at least a statistically significant majority of) the right places with Soulmate Search, our eerily effective psychographic matchmaking software. * Endure, via our Contextual Dating option, thematically appropriate multimedia advertising throughout the entirety of your free date. Oh, by the way, also check out Google's April 1 press release announcing the launch of the new service. Arun Natarajan is the Founder of Venture In...

Given that Ryan Air, according to this Business 2.0 article, is already predicting more than half of its passengers will fly free by the end of the decade, we can expect Indian low-cost carriers to follow suit soon. In fact, the article explains, Ryanair already offers free fares to a quarter of its customers. Last year it flew 35 million passengers to more than 100 European destinations, while its customers paid an average fare of just $53. How then is Ryanair - with $368 million in net earnings - Europe's most profitable airline? Ryanair's austere cost structure almost makes Southwest look profligate. In addition, the Irish airline puts a price on virtually everything except tickets, from baggage check-in to seat-back advertising space. As a result, last year Ryanair collected $265 million--15.6 percent of overall revenues--from sources other than ticket sales. "We weren't the first to figure this out," O'Leary says. "But we do it better than everybod...

It is well known that Vinod Khosla is a very active investor in microfinance institutions. Interestingly, so is eBay founder, Pierre Omidyar. He explains why in an interview to FT : “I believe microfinance has huge potential, not only to eliminate global poverty, which is remarkable, but also to help people achieve social, economic and political empowerment. But in order to have any real impact, microfinance companies need to sustain themselves and grow. And to do that they need to focus on profits, not only social outcomes.” Omidyar also explains why his investment vehicle, Omidyar Network, invests not only in non-profit organisations, but also profit-making businesses (something that Khosla also seems to be doing): “I have learnt that you if you want to have a global impact you can’t ignore business,” he says. “Nor should you. I don’t mean corporate responsibility programmes but business models that provoke social change. The big difference between companies and traditional charities...

TheDeal.com has an article on how billion dollar exits for VCs are now largely history and how this phenomenon is impacting the business. In the past four years, only five venture-backed information technology companies have achieved billion-dollar valuations (see table). Two were in China, one was based in Eastern Europe and the remaining two, Google Inc. and Salesforce.com Inc., hailed from the San Francisco Bay Area. Worse, still, for limited partners placing their money with venture investors seeking oversize returns, since the end of 2001, only 19 venture-backed startups have even achieved valuations exceeding $500 million on the day of their IPO or trade sale, according to VentureOne, a San Francisco-based research firm. ...The median valuation of venture-backed startups that completed IPOs declined from $454 million in first-quarter 2000 to $166 million in 2005. VentureOne reports there were 9.5 times more information technology company IPOs in 2000 than 2005. ...Venture capi...