The Venture Intelligence Blog

Business Today has used a recent research paper titled "The current liquidity crunch in India: Diagnosis and policy response" by Jahangir Aziz, Ila Patnaik and Ajay Shah, to review why India got sucked into the global liquidity crisis. Their hypothesis in brief: in trying to manage the exchange rate, growth and inflation, the central bank had kept the system chronically tight on liquidity. Several Indian companies that had been using the London money market fell short of dollar liquidity in mid-September. So they borrowed on the money market and took US dollars out. At the same time, corporations were liquidating their holdings in mutual funds. Mutual funds, too, then started making claims on the money market, leading to a colossal shortage of liquidity. This was accentuated by factors such as advance tax payments and sale of dollars by RBI to prop up the rupee. Plausible? Perhaps, but that may not be the only explanation for the domestic turmoil, say finance heads of compa...

For an overseas investor researching "hot sectors" in India remotely, it looks like the easiest thing to do would be to list services that the government is expected to deliver and, then, invest in private Indian companies which are filling the yawning gaps. Physical Infrastructure, Healthcare and Education come to mind. And given that the government is finding it "challenging" to deliver on its fundamental job of providing Law & Order , it's not surprising to see Businessworld come out with a cover story on the booming market for private security services. Much of the demand for private security has been precipitated by the series of bomb blasts that have rocked India over the past decade. India is now one of the world’s most terror-prone countries, with a death toll second only to Iraq, says a report from the National Counterterrorism Center in Washington. India’s crime rates, already some of the highest in the world, are also rising, as is the incidence...

CNBC has a slideshow on the resurgent business of maritime piracy. India (with 10 hijackings this year) also features as part of the dubious list of "8 worst pirate-infested places on earth" headed by the Gulf of Aden (which separates Somalia from Arabia). Piracy remains a serious threat to life and commerce, with 199 attacks tracked by the International Maritime Bureau's Piracy Reporting Centre through the first three quarters of this year. Many more attacks, most of which take place near shore, go unreported. ... Nigeria – 24 Attacks As the Danish container vessel Claes Maersk (pictured) sat docked on April 17, it was boarded by 10 pirates who came alongside in speed boats. The crew fled to the ship's accommodations and locked themselves inside. Two shore watchmen hired for security remained absent from the scene until the pirates had left, according to IMB, and Nigerian authorities took no action after the crew reported the attack. Indonesia – 23 Attacks Twelve...

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Businessworld has an article which indicates that the damp Diwali sales could leave builders with no option but to cut prices - something they have been desperately resisting. Developers had hoped Diwali and the festival season would turn their fortunes. Many of them had borrowed funds at very high interest rates — ranging from 20-36 per cent — to complete projects in time for Diwali or to service previous debt. But very few sales have been reported. ...“There is no substantial cut in the builders’ rate cards,” says Arvind Pahwa, managing director of JP Morgan Asset Management Real Estate. “There is some reduction, but considering prices have gone up 300 per cent over three years, this is not good enough,” he adds. ...Some builders have taken the cue and are planning lower prices to move sales. A developer that has several hundred ready residential homes in central Mumbai, disclosed Vakil, has decided to let the broking house do a price discovery and market his project, after witnessi...

Ms. Gail McManus, Founder of Private Equity Recruitment, Europe's leading independent private equity recruiter - will join two other expert speakers for the VC workshop at the Pan-IIT conference . See more info here . Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

ABC's technology industry columnist Michael Malone makes a passionate pitch for freeing of regulations governing IPOs that are "killing" the VC industry in that country. We are looking at the current crisis in Venture Capital and assuming that it is self-inflicted. But the more likely reason is that the industry has taken so many external shocks in the past seven years -- Sarbanes-Oxley (which has killed new IPOs because of its onerous costs to young companies), full disclosure laws (which have driven smart people away from serving on corporate boards), and options expensing (which has all but erased the prime motive for people to join new start-ups) -- that it can't help but be in bad shape, a once-robust industry reduced to a sick, shrunken shell. [And now, of course, there's talk of raising the capital-gains tax rate again, which will be the final nail in the coffin of venture capital.] ...And the biggest roadblock of all is that they have taken away the all-i...

I like to view and read people who have strong opinions and are, more often than not, right . It therefore found it quite interesting to view a YouTube Video of Peter Schiff, who runs US-based brokerage Euro Pacific Capital , who had forecasted a crash in the US as early as 2006. The especially funny parts in the videos are the ever-bullish views of his co-panelists on various TV shows. (Hat Tip: Paul Kedrosky ). Related links: Here , here , here , here and here . Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

An interesting podcast titled "Bailing Out Wall Street" here based on a panel discussion organized by the Commonwealth Club. I especially liked the comments of Prof. Jonathan Berk from the Stanford Univ. who speaks about the long term "moral hazard" damage that the bailouts have caused. He says the inevitable regulations that follow the crisis would do better to focus on providing the right incentives rather than trying to "outsmart" investment bankers. For instance, if Lehman Brothers and other mega IB firms were still partnerships (which meant unlimited liability for the partners), it would have ensured far better self regulation by their owners. Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Fortune has an article on the boom in secondary deals. The problem is straightforward. Portfolio managers have strict guidelines for asset allocation (Harvard's endowment, for instance, is offloading $1.5 billion in private equity to get back to its 13% target.) As the public markets have collapsed and the prices of liquid assets have plummeted, the value of the overall portfolio, or the denominator, has shrunk. But allocations to venture funds, buyouts, and real estate, which aren't priced often, have held - at least in theory. So a slice that once accounted for 10% of a portfolio now might suddenly account for 15%. ..(The unwinding of PE portfolios) is starting to happen, with Harvard, Duke, and others unloading alternative-asset portfolios or portions of them. If they aren't already, say industry insiders, practically every big endowment or pension fund soon will be putting something up for sale. ...Some buyers are bidding as little as 50 cents on the dollar; earlier th...

The PanIIT Association and the Indian Venture Capital Association (IVCA) are organizing a conclave for partners of VC/PE firms titled " Building the human side of a VC/PE firm - The institutionalizing steps " The workshop will be conducted by - Prof David Brophy, Director of the Center for Venture Capital & Private Equity Finance, Univ. of Michigan, Ann Arbor and - Ms. Anne-Maree Byworth, a veteran private equity investor who earlier worked with CDC Group. When: December 18th, 2008, at Park Sheraton, Chennai from 8:30am to 6:30pm. For Whom: For partners of private equity, venture capital, real estate, and similar funds. Institutional LP's are also welcome. Click Here for more information.

ADVERTISEMENT Indian Venture Capital Association in partnership with European Venture Capital Association is conducting a Foundation Course in Private Equity & Venture Capital December 1-3, ‘08; Delhi • Develop your professional skills • Learn from the experience of senior industry practitioners • Build relationships with other professionals As part of IVCA’s role to facilitate professional development among participants in India’s venture capital and private equity industry, and building on the success of last year’s training program, we are pleased to announce the second annual premier training program sponsored by IVCA and the European Venture Capital Association. Career development is an important component of IVCA’s mission to facilitate the development and professionalization of India’s venture capital and private equity industry. Our partnership with the EVCA is part of that commitment. The IVCA & EVCA Foundation Course for Investment Professionals will be held from De...

In his "Cautiously Optimistic" post , Arun Uday of HSBC PE points out why "India is far better positioned to be first off the blocks on the path to recovery". If one considers the five major relevant economic blocks – US, EU, Japan, China and India, the former three are plagued by severe systemic issues (such as excessive leverage, low savings rate, inordinate consumption levels etc) that will take a long period of time to get resolved. Now, in comparison to China, India has some significant characteristics that will play in the latter’s favour. For starters, as is oft repeated, exports form a far smaller component of India’s GDP compared to China’s. Apart from this, India also has a lower operating leverage in comparison to China. China’s model has always been to build huge capacities, which worked very well in boom times, enabling it to attain economies of scale and enjoy great cost savings. However, in times like this, excess capacity can become a millstone aroun...

Knowledge@Wharton has an interesting discussion (available also in audio) featuring entrepreneurs from BRIC countries - Shiv Khemka of the India- and Russia-based SUN Group; Silas Chou of HK-based Novel Holdings and Odemiro Fonseca of Brazil's Viena Rio Restaurantes. Khemka : From an Indian point of view, clearly export sectors will be affected. The real estate sector has taken a very severe downturn because of credit issues in the market. And naturally, demand domestically will fall. And so that's another sector that one needs to be careful about because of this heavy leverage. Any sector which has a lot of leverage would be a sector to watch carefully. In Russia, you know, the oil price being down where it is today means that the bonanza of the last few years, the boom times, are perhaps coming to an end. The savings that the Russians have wisely made over the last few years need to be now invested thoughtfully in the future. But given the strong commodity base, and the lack...

Alok Mittal has triggered a discussion on VentureWoods on valuing Internet start-ups in the current environment when the enterprise value of a leading listed player like Rediff.com is just $24 million. As a bellwether for Indian internet industry, these numbers reset expectations on the entire sector and near term expectations. Naukri is just over $200M on EV, which I do believe is healthy because of their earnings (P/E ~ 20). I also wonder what series B valuations for Internet companies would be now - till 12 months back, companies with less than 200K users and zero revenues were getting $24M valuations… Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Pankaj Dhandharia, Partner,Transaction Advisory Services, E&Y writes in The Economic Times how pent up infrastructure demand and attractive valuations will lead a slow-but-steady pick-up in PE investments. With significant investment needed, the Indian infrastructure segment offers great opportunity. There are several infrastructure projects which are yet to achieve financial closure. As the valuations correct, infrastructure deals will attract investors. Similarly on industrials, several expansion projects have been put on hold because of the scarcity of capital and the uncertainty as to when demand growth will start to pick up again. As demand picks up and liquidity improves, these projects will come back. The activity is likely to rebound in India much faster than that in the western markets. In addition, the Indian rupee is probably at its lowest levels and any appreciation in the rupee is likely to make the returns even sweeter. Given all of this, India still is an attractive...

Sandeep Singhal of Nexus India Capital, which has recently closed its second fund, writes in the Economic Times how VC investors are now facing far less competition. Short-term earning hits from capacity expansion or MTM hedging losses, or selling due to redemption pressures, are less relevant for PE. Marginal and less value-added capital has departed and a more rational and less competitive investment environment has led to valuation expectations become more reasonable. Consumption and business investment, although moderated, still remain at very attractive levels. Large opportunities do exist in the domestic market, and in exports, with greater global integration and trade flows. A young population with high aspirations, both in urban and increasingly in rural markets, India is a great destination for companies with ‘Bottom of the Pyramid’ solutions. The strength and availability of world class talent, enhanced by NRI returnees and managers with global exposure, give Indian companie...

Business Today has conducted a survey on the usage of social networking sites in India. ...there are already an estimated 17 million Indians who visit or use social networks. “This number is bound to grow once Orkut starts actively marketing in India. So, India is not yet in the top 10 globally, but should be by next year,” says Mahesh Murthy, Founder, Pinstorm, which is an independent digital marketing firm with seven offices in six countries. Despite this—and despite the media hype over the social networking phenomenon— ad spends, the major, and often the only, source of revenue for social networking sites, remain small (at an estimated Rs 20 crore) in absolute terms. “Our audit in 2007 showed that the digital marketing spends (Internet+mobile) in 2007 in India was around Rs 450 crore. We think that this market will grow almost 100 per cent this year to Rs 850 crore,” says Murthy. ...“The interesting thing to watch is that almost 57 per cent of online users are part of social networ...

Business Today has a profile of the new initiatives of media group UTV. (Interactive, gaming & Internet) is a relatively new business for UTV, and it has grown through acquisitions. In 2007, it bought out UK-based Ignition Entertainment and the India-based Indiagames. Ignition develops and publishes games for leading consoles, whereas Indiagames is a mobile and online gaming player. More recently, the company picked up a majority stake in US-based True Games Interactive. ...Analysts say UTV’s presence across many segments de-risks its business model, but it can expect competition as big Indian players seek foreign partners and new markets. Screwvala is not perturbed: “We are not looking at a competitive market because we believe that today everyone is challenged to grow the market… Before we start talking of serious competition we need to first grow the market.” Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking serv...

Economic Times has an interview with ChrysCapital MD Sanjiv Kaul, who is also an expert on the pharmaceuticals sector. Valuations across most sectors now look attractive for a prospective PE investor. But entrepreneurs still need to reconcile to the changed paradigm of a downsized market capitalisation. With debt instruments being scarce and costly, IPOs not being the current flavour of the capital market, and the FCCB experience not positive in today’s environment, entrepreneurs have now realised the need and importance of raising smart capital and PE is all about providing smart and dependable capital. I am quite optimistic that we will see a significant jump in the number of deals transacted in 2009. ...Sectors like pharma and healthcare were not the beneficiaries of the past-market exuberance. In fact, there was a significant market cap correction in the pharma index with P/E multiples dropping from 26 in 2004 to 17 in 2007. Investments will take place in these sectors not because...

The Economic Times has an interview with Hamilton James, President & COO of Blackstone. Yes, valuations in India are down by almost two-thirds. Besides, many companies, which wanted to go public earlier can’t do that, as the stock market is down and many companies will have a hard time borrowing. So, this is a good opportunity for private equity (PE) companies like us for investments. ...We have a global fund of $20 billion and we invest across the world with that fund. We started in India three years ago with an investment of $1-billion, spread over five years. We have already surpassed that investment by twice that much. The next six months give us a good investment window. But there are concerns, as general elections are coming up. India has some geo-political issues with Pakistan. I think, India is on track of good economic growth with a burgeoning middle class. We are here for long term. ...In the real estate sector, a huge amount of supply is now coming in the market and in...

Via Paul Kedrosky Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Stock market investor and trader Deepak Shenoy who had a very accurate prediction for markets in 2008 has come up with another for 2009 . Here are some of his going forward predictions: If 2008 was about world drama, 2009 will be about the collapse of the Great Indian Real Estate Story. Prices will start coming down, though it may take a full year for panic to set in. At least one real estate company - of the big ones - will go bust. At least one bank will face serious threat of collapse due to high exposure to RE. In all likelihood, the government will rescue the banks. Commercial real estate will be in the doldrums, with distress sales reducing prices even more dramatically. NRIs who invested in India and thought they will keep their properties for a good day will call their brokers to sell, at any price. Banks will refuse to lend to real estate. Some may even try to give homeowners margin calls, but that will fail as political pressure will force them back. The dollar, after a sma...