“Valuations In India Are Way Out Of Whack”


Linus Capital was in the news a few months ago because of an undisclosed amount of investment in cricket focused social networking startup Sixer.tv. They’ve also invested in Linus Infotech in partnership with the Andhra Pradesh government. Sunny Burra, MD Linus Capital is on an India tour, looking at ventures to fund and shall be making an announcement on Sixer soon. Sunny has an MBA from the University of Chicago, holds an MS Computer Science from University of Nebraska and B.Tech Electronics Engineering from National Institute of Technology (REC), Warangal. He has served as the Chairman of TiE’s networking SIG. Over the last 12 years, Sunny has raised capital, made private investments and served as an advisor to multiple investment groups. He has managed companies and divisions, and led over 20 products and services for startups and Fortune 500 companies, including Sprint and Canon. I spoke to Sunny about investing in India, and their plans for Sixer.

Apart from Sixer, what brings you to India?
We’ve got one deal taking place in mobile, and another in Finance. The due diligence process is underway, so I can’t really comment on it yet.

So what do you think of the scenario in India? What do you look for, in terms of metrics, before Investing?
We look at the team, the maturity of the concept and the growth rate expected- is the market growing? Where is the company on the growth curve? We take the private equity route, but it’s just that this dealhere happened in the early stage. We prefer to invest leading into the growth stage in already established firms. That’s our preference. Not late stage companies or companies that have profitable cash flow. But there’s too much cash chasing in India and the valuations are way out of whack.

On what basis do you say that? The metrics?
In the US, if you take the multiples, typically it’s an average of 4-6 times EBITDA, and here, for a company of that sort, they’re asking for multiples like 3 to 4 times revenues. Being an investor, it’s a little hard to digest. But, for any company, in multiple spaces, it’s easier to get an Indian company from a valuation point of view that a US based company.

Are you looking at Indian companies for the Indian or the global market?
If they have a good team and good product, then the value we bring is to take them abroad. The US market is mature. If any company gets a lot of customers there, then it’s a plus point, but not a deciding factor. But the Indian market is huge, so we’re okay with an Indian company targeting the Indian market too.

Have you come across any really innovative ideas?
So far, we haven’t come across anything innovative. To some extent, some of it is demand driven, but I wouldn’t put Sixer in that category because it’s an innovative concept for the global market. For all the social networking sites, it’s an uphill task because in India, you’ve already got a strong social network among family and friends. And then there are time and bandwidth constraints. Elsewhere in the world, neighbor doesn’t talk to neighbor, and the free time is used on the Internet. Social networking sites here have to adapt to the scenario here.

How do you think the social networking model be monetized in India?
If you see the advertisements on the Internet in India, it’s in the early stages of a takeoff. You see new channels coming up, and there’s so much happening in print. Advertisers have so much money, they just bombard. For the right product, it’s the other way – they will chase them down.

It’s a very competitive landscape with CricketNext, Cricinfo, Pepsi’s Blue Billion. So what stops an advertiser from launching his own social networking sites or going to these pre-established players?
Yeah, the management is struggling with the same thing. Since launch, we’ve seen that two or three similar sites have launched, and we anticipate another 30 to show up. We were accredited by the ICC Media to cover the ICC championship, and have tied up with one of the biggest media firms in India who can easily do what we are doing. But they realize the value of having us as partners. For Linus Capital, Sixer is a great entry point into the Indian Internet space, which is in the early stages. We want to take Sixer to the grassroots. We’re not competing with the informative sites- our model is to connect cricket fans. We’ve had discussions with a telecom company in Australia for a co-branded site but that’s on the backburner. There is enough traction. The company should break even in six months. Sixer should also have a partner in a JV by then, to accelerate the growth.

How do you go beyond India? Isn’t there a danger in the sense that an Australian fan could come to Sixer and feel outnumbered by the Indian fans?
We have to prove the model here. It doesn’t take much to expand to other countries. We can roll out elsewhere in a matter of a month. An Indian cricket fan would love to see his own content. He’s more interested in what is happening in clubs in Hyderabad and Delhi. Our portal will connect teams in the backyard, and help set up matches, and take it below the Ranji Trophy level. That cannot be facilitated without country specific sites.

How would you identify the right time to exit?
That’s a hard question to answer for a company that is just 3 weeks old. It’s too early to answer, but the way it can be structured is to take it to different vertical markets, and piecemeal it if needed. We honestly haven’t thought that far. We understand that it’s a long haul and are willing to help build it brick by brick. And things have started off well – we saw around 500 signups within 48 hours of launch.

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