Introducing, Shailaja Neelakantan, our India correspondent. A seasoned journalist, Shailaja is an old friend, and we worked together at Forbes, where she was a staff reporter.
She did stints for Fox News and Dow Jones. She will write mostly about start-ups, venture capital, telecom and technology scene in India and other parts of South Asia. She is a fantastic writer, and you will find that outHer coverage will dovetails with my belief that broadband has freed innovation from geographic limitations. Hopefully we can add more voices from our broadband planet. Stay tuned, and if you get a chance, say hello. Meanwhile, here is a great overview of the Indian VC market. – Om!
With a booming mobile phone user base, a steady rise in the number of Internet users, high capital efficiency and a big opportunity for exits, India is seeing the return of venture capital –in the real sense of the word — through funds and via cross-border investments.
After a lull between 2000 and 2004, the prospects for Indian start-ups are looking good again. Last year, India saw venture capital investments worth $482 million across 52 deals, and this year until June, there have already been investments worth $240 million across as many as 49 deals, according to Venture Intelligence, a research service focused on private equity and venture capital activity in India. (These numbers do not include private equity deals.)
VC firms are realizing they need to invest in companies that are low on investment and high on capital efficiency. “Both those parameters work in India where even $10 million goes a long way. So they are thinking, ‘Why not just invest directly in India?’ “says Arun Natarajan, founder and chief executive of Venture Intelligence.
And unlike in the late 1990s when venture capital bets in India were all over the place, this time around, many bets are in niche emerging sectors — consumer Internet companies like classified advertisements, and online travel, mobile and mobile value-added services companies, online and mobile gaming companies and telecom (including wireless) technology solutions companies.
There are other reasons as well. Asian Private Equity News recently notes that India has raised four times as many funds as China. In a newsletter they recently wrote:
In China, which is preparing to enact stricter regulations for private equity and venture capital activity, the government is in the early stages of completely re-organizing its approach and control over foreign private equity investments in this country. ….. In India, on the other hand, the government has put out the “open for business” sign in large print as the government voted to approve KKR’s half-billion dollar acquisition of Flextronics’ software development arm in India.
According to Venture Intelligence, for the first six months of this year, 23 percent, that is nearly $55 million of venture capital was invested in online and mobile services companies, $44 million was invested in Internet-based services companies and $10 million was in mobile value-added services companies.
Sequoia Capital has started its India Growth Fund I for which it has raised $383 million. It plans to invest in the consumer services segment, which includes the Internet and mobile value-added services. Sequoia recently merged with India’s WestBridge Capital Partners. Matrix Partners’ new $150 million India fund plans to invest in the mobile technology and Internet space, among others. Helion Venture Partners has started a $140 million India fund to invest in, among other things, online gaming and ticket booking, IP-based products and mobile and Internet services. New Enterprise Associates has started NEA IndoUS Ventures, reportedly a $105 million venture fund, with Vinod Dham (yes, that one) as a partner.
“The mobile is India’s PC,” as Ram Shriram of Sherpalo Ventures has said at several forums. There are currently a little over 100 million mobile subscribers in India and that number is expected to rise to a whopping 348 million by the end of 2010. “The local market is world scale, so a company based in India and targeting the Indian market is beginning to be viewed as a great opportunity. Venture capitalists are now seeing India not just as a place to outsource to,” says Natarajan.
To wit, Sherpalo Ventures and Kleiner Perkins Caufield & Byers have invested $5 million in Paymate, a wireless technology solutions provider in mobile commerce. Sequoia India and Intel Capital have invested in Mauj Telecom, and Pequot Ventures has pumped in $10 million into IMImobile, an enabler of mobile content services. Helion Venture Partners has made its first investment of $2.2 million in JiGrahak Mobility Solutions, that allows users to make payments and buy things using their mobile phones.
But the Indian mobile market is seeing stagnating if not declining ARPU, so it remains to be seen if the country’s mobile subscribers will take to value added services in a big way. In addition, currently, revenue sharing is so skewed in favor of mobile operators that it is hard to figure how value added services companies will make money. That scenario could change with wireless technology that enables these service providers to bypass operators.
The consumer Internet space seems a surer bet at this point. VC firms are looking for where the Internet has had disruptive effects (in the US) and that has happened in travel, and classified advertisements. “So they bet it will happen in India and China too. It’s just a matter of time,” says Natarajan, adding, “They went to China first and had some successes and now they are coming to India.” So, study what’s in the U.S., take it to China and then to India!
And that’s where consumer Internet companies come in. India has far fewer Internet users –35 million — than mobile subscribers, but the former are growing at 50 percent a year. Combine that statistic with the fact there is a tourism boom, a real estate boom and a jobs boom and what you have is a huge opportunity in online consumer companies.
Recent investments in Indian online travel companies include Softbank Asia Infrastructure Fund’s $10 million in Makemytrip.com, Sequoia India’s $10 million in Travelguru, and Norwest Venture Partners, Reliance Capital and Television 18’s $5 million in Yatra Online. Kleiner Perkins and Sherpalo ventures have invested around $4 million in InfoEgde, a company that owns jobs portal Naukri.com (jobs portal) and property portal 99acres.com. In June, BillDesk, an Indian online payments company, received $7.5 million from Clearstone Venture Partners and India’s largest public sector bank, State Bank of India.
Oh and let’s not forget that many Indians still prefer to get married the traditional arranged way so matrimonial sites with advertisements for prospective brides and grooms are also big money spinners. Sequoia India has invested $8 million in matrimonial site shaadi.com and Canaan Partners and Yahoo followed with an investment of $8.6 million in the Bharat Matrimony Group that also owns clickjobs.com, indiaautomobile.com and indiaproperty.com.
All these companies should thank, in part, India’s best-known success story- outsourcing. With so many companies outsourcing back-office functions to India, many potential investors have already tested the waters and think highly of India’s technology development skills and cost efficiency. “So much so that Sequoia is blunt about it. They say that if any company they are thinking of investing in (in the U.S.) does not have more India then China, and an R &D center in India, they don’t invest,” says Natarajan.
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