The Venture Intelligence Blog

Knowledge@Wharton has an article based on a panel discussion on destinations for global real estate investors. According to the panel, emerging real estate markets in India and China along with recovering property industries in Germany and Japan, are the most attractive. (Wharton real estate professor Peter Linneman) described panelist Surendra Hiranandani, managing director and founder of the Hiranandani Group in Mumbai, as extremely popular these days with the hordes of real estate investors trekking to India to investigate its hot property market. "There's an image that, in India, the streets are paved with gold. What's the reality?" Linneman asked. According to Hiranandani, the Indian economy only began to open up in 1991 compared to China, where free-market reforms began to take hold in 1979. The effects of those changes are just now beginning to become evident in India. He also noted that the capital coming into India is generating greater transparency in busin...

Businessworld has a cover story on the new drug discovery partnerships being created between Indian life sciences firms and MNCs. Last week, Nicholas Piramal signed an agreement with the UK drug discovery firm Morvus Technology. Nicholas Piramal will use the technology of Morvus to develop drugs in areas such as cancer, diabetes and arthritis. We could shrug it off as a routine development, but for two reasons. One, it is the third R&D collaboration agreement that Nicholas Piramal has signed with an overseas company in the last year and a half. Two, it is the sixth R&D collaboration between an Indian and a foreign company within the last three months. Several more are being negotiated and will be signed within a few months, say sources. Have the Indian pharma and biotech companies found a new strategy for drug discovery and development? ...Last year, Nicholas Piramal made a strategic investment in the Canadian firm Biosyntech, a company that makes gels for regenerative medicin...

Based on his impressions upon attending TiECon Delhi, Basab Pradhan feels India needs a unique model for the venture business. "VCs and entrepreneurs, who take a cookie-cutter approach to it, are in for a rude shock," he says. - Unlike in the Valley, Web 2.0 has no relevance to the Indian domestic market. Internet penetration is low (5.4%), broadband is lower ( - Mobile however is hugely interesting. Mobile penetration in India is twice that of the internet and is growing at rates close to 50%. There are opportunities to develop mobile applications that the developed world never needed because of high internet penetration. Booking a cinema ticket in the US is probably done 95% of the times over an internet connection and 5% on a cell phone screen. In India it may be totally different. This also holds out the opportunity that Indian startups may develop mobile applications for the Indian market and then take them to Europe and other developed markets. Arun Natarajan is the Fo...

Guest post by Deepak Srinath : Mobile payments or m-payment are not new buzz in India; attempts at creating m-payment solutions go as far back as 1999 and has even seen some VC investment in the space. However, the market was clearly not ready for it and m-payment was more a conceptual experiment than any real paradigm shifting opportunity. The second coming of mobile payments in recent months is an entirely different story. It has the backing of a 135 million user base that is growing at 5% a month, and a retail economy that is poised to take off into stratosphere. m-payment is a broad term for any mechanism that allows a user to make a payment for a service or goods, or transfer money to another person using a mobile phone. The m-payment solution typically works in conjunction with an existing bank account or credit card the user holds. The basic hygiene factors for an effective m-payment solution are: - Ease of use - Maximum device support to cover a large user base - Support for a ...

Businessworld has a detailed cover story - here , here and here - on the Special Economic Zone (SEZ) business including the challenges of making money on these ventures. SEZ builders must have the capacity to inject the capital early and wait for returns — it takes a minimum of eight years to take the project into the payback stage. This is where the serious players will score over the speculators. Their returns will be far higher than those who parcelled out the land earlier. “IRRs of 35 per cent are not unheard of. The average IRR could be 20-25 per cent,” says Magazine. After this, the final annuity phase becomes easy. Here, the SEZ generates a steady stream of income and needs minimum management. Utilities and facilities management are, perhaps, the only requirements. ...Unfortunately, many SEZ builders see this more as a grand realty development opportunity than as an infrastructure business — buy, build, sell. That model may bring profits in the short to medium term, but is unl...

Businessworld has an article on Reliance Fresh, the Anil Ambani group's venture into the neighbourhood convenience store business. Eleven stores were up and running by the end of last week and 100 more will spring up before the end of the year. The plan is to have 3,000 Reliance Fresh outlets soon. (Several other formats in categories including apparel, electronics, etc., will follow soon.) Sources say that Reliance believes each Reliance Fresh outlet could earn annual revenues of Rs 3 crore. That’s a sale per sq. ft of roughly Rs 12,500. Industry sources say this is in line with what other chains have achieved in the past. For instance, at its peak FoodWorld had managed a Rs 300-crore turnover on its 80 stores. The average size of a store was about 3,000 sq. ft — or sales of Rs 12,500 per sq. ft. If Reliance Fresh can match that, the 3,000-outlet chain could be in line to clock revenues of about Rs 9,000 crore. Arun Natarajan is the Founder of Venture Intelligence, which tracks p...

Businessworld provides some interesting numbers about the market for children's garments as part of an article on suiting specialist Raymond's entry into this segment. The kids apparel market in India is worth about Rs 27,000 crore of which only about Rs 500 crore goes to the organised sector, growing at an average of 20 per cent against the 30-35 per cent for the overall industry. So far, the organised market was dominated by Lakhani-owned Gini & Jony Apparels with a 30 per cent market share, followed by Weekender Kids and Ruff Kids. Clearly, there is space for more organised players to come in and take a larger bite of the market. That is what Raymond plans to do. With prices ranging from Rs 299-999 against Rs 295-2,000 for Gini & Jony. ZAPP! is clearly aiming for volumes. Whether it can deliver on the target depends on what Raymond brings to the consumer at a lower price. It is doing the usual things. For example, it has tied up with Warner Brothers for the ‘Superma...

Businessworld has a short review of the financials of Info Edge, India's first pure play online services company to go public. Info Edge, which gets most of its revenues and profit from recruitment classifieds services through Naukri.com, has been growing at a scorching pace. In fact, thanks to the growth this fiscal, the IPO valuation drops by almost a third to 34 times based on annualised June quarter earnings. In the three year period between FY03 and FY06, the company’s revenues have grown at a compounded average rate of 110 per cent. Profit before tax (PBT) has grown at an even higher rate of 191 per cent in the same period. What’s also important to note about Info Edge is that it operates at a reasonably high level of profitability. Both in FY06 and in the first quarter of the current fiscal, the company has reported a PBT margin of over 25 per cent. Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-fou...

Economic Times' Corporate Dossier supplement has a four-part feature on buyouts in India and how they initial few deals have fared. ( Part 1 , part 2 , part 3 and part 4 .) Infomedia is expected to show a very significant increase in revenue and profits in FY 2007, and will double its profits this year. The erstwhile ACC refractories, now Ace Refractories , is expecting to grow revenues by more than 20%, with exports growing by about 40%. Meanwhile revenues at VA Tech WABAG are expected to grow at a rate of 30% over last year. MBOs, by the nature of their creation, are a high-risk category. And managing the MBO can be a tricky issue. As the Actis-PTL and Tata Infomedia-ICICI Venture buyouts have shown, existing managements can pose a problem. ...Things are also finally falling in place at Punjab Tractors, which saw a bitter battle for control with the previous CEO Yash Mahajan, till last year. Finally, Actis and the Burmans of Dabur now control the board, and the company has a new...

Business Today recently published an interview with Sequoia Capital's Mike Moritz. I think American investors today understand that a lot of money has rushed into India and the shrewder American investors are pulling back. The shrewdest investments and shrewdest investors in India will be sitting on their wallets. Because of their very justifiable concern that this is already a very overheated market.... ...With the exception of a very short list, venture capital as a category has been a very disappointing place for most people to invest for a long period of time. And for some reason, I think there is a whole conspiracy around the venture business of people conspiring to fool investors and prospective investors into thinking that they are going to make a lot of money by being an investor in venture capital, while the history of the last 30 years shows that you will not unless you are with a very short list of firms. ...we would always want the founders to look back and feel that o...

Anurag Gupta has analyzed the economics of the online travel services sector and the results are not very encouraging for the half-a-dozen VC-backed startups in this space. This will remain so even if there is a strong growth in the overall market size in the years since that is likely to be negated by the entry of travel agencies (like Thomas Cook) and foreign online brands (like Expedia). I estimate that close to 1,00,000 Air tickets are being sold every day in India. Out of this nearly 20,000 are being sold online. Online tickets are sold by Online Travel Portals / Agents & Directly by the Airlines Websites. Out of this 20,000 I believe that Online Travel portals are selling around 4-5000 tickets per day. At an average ticket value of Rs. 3,000 the total revenue (Gross revenue) earned by Online Travel Portals from sale of Airline Tickets would be in the range of Rs 430-540 Crores. The portals would be getting a net commission ranging from 0.5% to 7.5% from various Airlines. At ...

Recent months have witnessed large buyouts in the US (like in the case of Harrah’s, HCA and Univision) where there was only one bidder - in the form of a syndicate of buyout firms. Now, PE Hub reports that the shareholders of some of these companies have filed a suit against the leading PE firms (including Apollo Management, Bain Capital, Blackstone Group, Carlyle Group, Clayton, Dubilier & Rice, Providence Equity Partners, Silver Lake Partners, Texas Pacific Group, T.H. Lee Partners and Warburg Pincus) accusing them of cartelizing. Interestingly, PE Week editor Dan Primack has come out in defense of the PE firms based on a recent deal in which two syndicates competed against each other. This class-action lawsuit has a timing problem. Namely, today’s announcement that Clear Channel Communications has agreed to be bought for around $26.7 billion (including assumed debt) by Bain Capital, Thomas H. Lee Partners and a group of its lending partners. This was no inside job, with Bain ...

At a time when we are witnessing several follow-on financing rounds in India, Fred Wilson has an post on why his firm prefers to be the lead investor in the companies they invest in. - Lead investing allows Union Square Ventures to establish the capital and governance structures for our portfolio companies. Once these are set, they are hard to change. And every firm has a preferred way to approach governance and capital structures. So the best way to get them the way you want them is to be there when they are set up. That means leading the first venture capital round. - Lead investing allows Union Square Ventures and the entrepreneur to establish a positive VC/entrepreneur relationship. That relationship is critical to the long term success of the company and getting it right early on is easier than trying to fix it later on. Coming into a Series B or Series C round where there is a dysfunctional investor/founder relationship is a recipe for disaster. ...- Lead investing allows Union ...

Morgan Stanley's Internet analyst Mary Meeker presented an update to her "State of the Internet" presentation at the Web 2.0 conference earlier this week. I had linked to her 2005 presentation with comments here . This time around she focuses on how the online video momentum is "building and building". ~60% of Internet traffic may be P2P file sharing of unmonetized video — ramp in tagging (for search) + partnerships + monetization – note recent moves by likes of ABC / CBS / FOX / NBA / Sony / Warner / Universal / Google / Yahoo!. Challenges (especially related to copyright and infrastructure stress) are significant, but over time, consumer demand should rule and content creators should benefit Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Business Today has a detailed and well researched feature on top performing sectors within the Indian manufacturing industry. There are a handful of industries in India that have begun to become globally competitive because a) they have honed their process skills to a great extent, b) have the advantage of being vertically integrated, or c) have been able to tap into the global supply chain of large customers. One test of global competitiveness is the ability to withstand foreign competition in home markets. Another, the bigger test, is the ability to compete with a multitude of suppliers in international markets and win. Apply the second test, and the number of industries that can be considered globally competitive shrinks-to, by expert consensus, five. Which are these? In alphabetical order, auto components, electricals and electronics, pharmaceuticals, textiles, and specialty chemicals. Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture ...

In the wake of the YouTube acquisition, Economic Times has a feature on Indian online social networking startups and their prospects. Sources say six other start-ups are looking to join the ranks of existing sites such as Yo4ya.com, humsubka.com, zhoom.in, meravideo .com, yaari.com and fropper.com to roll out their versions of social networking channels in India. "This is one of the most interesting areas since globally also it has been quite a major hit with very large exits. We are very keen to make investments in this space in India," said Alok Mittal, India head Canaan Partners. Though the idea is clearly to sell-out after building a certain scale, skeptics feel there is a good chance that some of the start-ups may fail to create a sound business model. In the online space, a proven business model, besides being profitable, needs to focus on innovation and creativity. Video and music are some elements that are essential, not just the text messaging which is being adopted...

Business Today has an article on online real estate-focused classified sites like 99acres, magicbricks, indiaproperties, etc. Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Businessworld has a profile of buy-and-turnaround specialist Pawan Ruia. A merchant banker by profession (he is a chartered accountant and has also studied cost accountancy, company secretaryship and law), he worked for Shaw Wallace and Hindustan Lever for about a year before venturing out on his own. His first business move came when he bought two small-scale units, a ceramics unit in the 1980s and a chemicals unit in the 1990s. His father Shyam Lal, who earlier worked for a chemicals company in Renukoot, oversaw their operations. But when Shyam Lal passed away, Ruia shut them down. Later, in 1995, he set up Ruia Cotex, a cotton mill. ...Ruia’s interest in dead companies may appear unnatural, but there is a method to his madness. “Both Jessop and Dunlop have high brand value. They have their basic equipment in place. They also have employment-ready staff. It’s that much easier to create value from them than starting afresh,” he says. Besides, Dunlop has an asset base of Rs 1,500 cror...

Knowledge@Wharton reports on an academic study "Financing Firms in India". The study...challenges the conventional wisdom among academics and public policy experts that corruption automatically impedes economic advancement of developing countries, according to Wharton finance professor Franklin Allen, one of the authors of the study. "Small- and medium-size Indian companies have found ways to get around [the limitations of the country's financial and legal systems]," says co-author Sankar De, clinical professor and executive director of the Center for Analytical Finance at the Indian School of Business in Hyderabad. "They depend on informal mechanisms for dispute resolution. They lend and borrow from each other. In many ways, they bypass formal financial markets and courts of law." ...The three most important financing channels for these firms during their start-up and growth periods are founders' family and friends, trade credits and loans from f...

Businessworld has a cover story based on a survey of 5,485 young people surveyed across 15 Indian cities such as Kochi, Jaipur or Bangalore. Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Businessworld has a short profile of NTrust, a provider of outsourcing services to US Real Estate companies. NTrust, floated in 2002, has built a $12 million business in the lease administration space. And it hopes to step up revenues to $16 million by 2007. ...Says Srikanth Ramachandran, president and CEO, NTrust: “Only 25 per cent of the US lease administration agreements are documented online.” Which means there is a large outsourcing market to exploit. Real estate agreements require skills like accounting for rent calculation and retailer-builder profit sharing agreements, as well as understanding lease classes and long-term lease payments. ...“An employee in the US is paid $60 per hour and in India the cost comes down to $20 a day. There is enormous cost and time saving.” Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newslette...

Businessworld has an article on the growth of the aircraft maintenance, repair and overhaul (MRO) business in India. There are about 300-odd third-party MRO units worldwide, of which more than 65 are located in the Asia-Pacific region. But none in India. Even the existing in-house units have a long way to go before they will meet global standards. For now, the domestic market and sheer growth prediction is in itself a sizeable market to cater to. A look at the numbers. Assuming 1,000 aircraft in 2012 (both commercial and business), there would be a need for roughly, 50,000 weekly checks, 3,500 A level checks, and millions of night halts. Corroborates Prasad: “Given 52 weeks in a year, we expect 50,000 weekly checks. An aircraft undergoes a check after 600 flying hours. And even if an aircraft flies the minimum of 12-14 hours a day, on an average it flies nothing less than 2,500 hours annually, which implies that one aircraft will go for a check 3-4 times a year.” Arun Natarajan is the...

Businessworld has an article on why the Warburg Pincus-backed CD/DVD maker, Moser Baer, is diversifying into the solar cells business. Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.