Incubator

'Series-B financing faces extremely negative forces': Footprint Ventures - Outlook for 09 Part VI

2009-01-07T14:39:00Z

Bangalore-based Footprint Ventures has been a cautious investor in India. It invests from a global fund and director Josh Bornstein spent more than a year on-ground before making its first investment two years ago. Last year, it invested in learning assessment company Educational Initiatives and digital photoprinting company Canvera Digital Technologies. 2009 will be a decision point for VCs on the performance of portfolio companies, says Bornstein.

Edited excerpts:

What are your main concerns for the next year?

Our main concern this year is actually very similar to our concerns over the past two years - a lack of funds to co-invest with in the Series A round and/or then lead follow-on rounds for the Series B. Despite all of the hype in the market relating to the abundance or over-abundance of early stage funds in India, there are only a handful of India-based, India-focused funds in the market.

As the downturn has hit many sectors in the economy, funds primarily are focusing on the survival of their own portfolio companies. Therefore, companies looking at a Series B financing are facing two extremely negative forces - a paucity of capital sources coupled with VC funds fearing that the bottom has not been hit yet (thereby delaying any investment decisions until "additional data" is available).

How will portfolio companies be affected by this VC sentiment?

For a number of portfolio companies, there will be a decision point (for VCs) in 2009 to either continue bridging through internal rounds or to let the company fail and close up. This decision whether to fund or cut off funds is not simple as VC funds act as fiduciaries for other people's money. From this perspective, no matter how much a VC may like the promoter or the investment thesis, the principles of portfolio management theory dictate what decisions will be made.

What stage of deals will you focus on? What will your average deal size be?

Footprint continues to focus on Series A investments with a round size of $1-3 million.

Will you do more syndicated deals?

Like the previous two years, we prefer to work with the right co-investors on each deal. Especially in these difficult times, finding the right co-investor becomes more important. Having an additional source of capital invested in the deal ensures there is another body to do the heavy lifting in case the Series B financing takes longer. Otherwise, we will continue to work on many of the same types of deals as the previous year.

What sectors will you invest in this year?

Footprint is industry agnostic - we invest in all sectors but for real estate and defence. Moreover, Footprint's strategy has always been to do 1-3 deals/year as we are high touch investors with a ratio of partners to portfolio companies to make this effective.

What will you do differently in 2009?

As for potential changes in 2009, we may look at some cash-starved Series B deals that are closer to breakeven that will carry Series A-like valuations.

This is the sixth in the ten-part 'VC Outlook for 09' series on Incubator.

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'We expect to do more deals this year': ePlanet Ventures - Outlook for 09 Part V

2009-01-06T14:41:00Z

ePlanet Ventures began as an affiliate fund with venture firm Draper Fisher Jurvetson and earned a name for itself with big-ticket investments such as Internet telephony company Skype, Inc and Chinese search engine Baidu.com Inc. The firm, which broke away from DFJ in 2006, invests in India out of a global fund. Last year, it made only one investment, in pesticides company Sree Ramcides, but will do more deals this year, says India managing director Chandrasekar Kandasamy.

Edited excerpts:

What are your main concerns for the next year?

Fluctuation of dollar vis-à-vis Indian Rupee; Liquidity and cash flow issues with companies - though top line and bottom line may be good; Inadequate availability of working capital from Banks; Poor Performance of companies in Q1 and Q2 2009 - which could create a ripple effect in various other areas

What sectors will you focus on in 2009? Will you do fewer deals?

We will continue to focus on sectors like technology, healthcare, niche telecom businesses, agriculture and agro-related businesses, education, specialty retail and hospitality chains and low capex infrastructure deals. In 2008, we did only one transaction. We expect to do more deals next year.

What will you and your portfolio companies do differently in 2009?

From our side, (we will) focus on high cash flow oriented businesses, increase the threshold criteria in evaluating new business opportunities- across all parameters and plan funding in companies, assuming that there will be no next round for the next two years.

We have requested all our portfolio companies to re-look at their expenses and ensure that they may be reduced suitably. We are also requesting them to focus more on cash flows and profits. Since we are seeing good people available at reasonable compensation levels, we have also told our portfolio companies to re-look their organization structure and hire people at the right levels. Also, companies which have high imports are taking suitable precautionary measures to ensure that they minimize currency fluctuation losses.

What will your average deal size be? Will you do more growth v/s early-stage deals?

Our deal size would be between USD 2 to USD 7 million. We will do only Growth capital deals in India - either Series A or Series B. In other markets like U.S and Europe, we will selectively do early stage deals.

What sector(s) are you less keen on because of the market slowdown?

We will be going slow on sectors like auto, capital equipment and engineering construction - which have been significantly affected by the market slow down. In the technology sector, we have always looking at deals where the revenue model and business model have been established. Though we do not invest in real estate and commodity businesses, I expect that these sectors will not be looked at favourably by PE investors.

What sector(s) disappointed you in 2008?

Education was one space we had looked at carefully in 2008. However, given the high valuations, we could not move forward. We are hopeful of doing a deal in 2009

Have you done any down rounds yet?

So far we have not invested in any down round deals. However, we are seeing a number of deals either for flat rounds or down rounds.

Are your portfolio companies looking to raise funds in 2009? Would you be willing to negotiate down rounds for them?

As this stage, I am not sure any of our portfolio companies would be looking to raise capital in 2009. However, even if they were to raise additional capital, they will be raising only at a higher valuation, as all the companies have grown compared to last year and the valuations which we had entered are comparatively attractive, even at today's market conditions.

Will you look at doing more syndicated deals?

We were always keen to bring in co-investors in all our transactions, as we believe that co-investors can bring in differentiated value to the portfolio company. However, given that valuations are down, we believe that companies will look to raise less amount of capital, resulting in lower dilution to existing shareholders, till the market picks up and hence funds will look to invest on their own.

What has been the feedback from your global headquarters regarding the India market?

General feedback is that all of us should look at deals at lower valuations compared to last year. We are generally seeing valuations worldwide have come down significantly, some times better than Indian markets. In India, our deal flow has become extremely strong during the last six months and we are seeing some good opportunities at attractive valuations.

Where will valuations go in 2009?

Valuations have already come down by about 30-50% as compared to last year. We expect the same to come down further by about 10-15% during 2009.

This is the fifth of the ten-part 'VC Outlook for 09' series on Incubator.

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'Deals will take longer to close': KPCB & Sherpalo Ventures - Outlook for 09 Part IV

2009-01-05T11:49:00Z

Venture capitalist Sandeep Murthy invests in India for a partnership of two venture firms - Silicon Valley biggie Kleiner Perkins Caufield & Byers and Ram Shriram's Sherpalo Ventures. In 2008, the partnership made two new investments - mobile advertising firm mKhoj, online photoprinting company ZoomIn - and participated in follow-on rounds in Cleartrip and Paymate. Murthy, who moved from CEO to Chairman of Cleartrip last year, says existing companies will be the biggest focus this year, and new deals will take longer to close.

Edited excerpts:

What are your main concerns for 2009?

Existing portfolio companies will be the main concern for the year. We'll be more engaged in working with our companies on how to cut cost, but manage new opportunities. The first half will go into that - We'll look at future financing for the business and figure out if you've to put in more money into the company. The second half depends on the first half

What sectors will you focus on in the coming year? Will you do fewer deals?

In general, we focused on consumer technologies in Internet and mobile in the first two and a half years. Last year, there was a bit more focus on energy and we'll continue to think of it more this year. In consumer technology, we've done (deals in) all the basic opportunities. In aggregate, I think there will be lesser deals this year.

Which sectors disappointed you last year?

I'd like to see more high utility applications on the mobile side. The mobile (subscriber) base is huge, but apart from ringtones, etc, there has been nothing exciting. It has been more the VAS [value-added services] model than applications.

What will you and your portfolio companies do differently in 2009?

We're working with our companies on improving their topline, deciding whether to reduce cost base or capitalization. Every other week, we have discussions on how much cash is left, how revenues are shaping up. On new investments, it will take longer to close deals. It's taking longer to close deals everywhere - between VCs and start-ups, between businesses.....deals between two product companies takes the longest time.

I think angel-funded companies will gain more importance. At typical series-A these days, it is necessary to show some revenue traction, and companies with angel funding may use it to validate business model before approaching series-A investors. With mKhoj for example, we came in after a bunch of angels had invested in it and the company already had revenues coming in.

Will you stay focused on early-stage or look at growth?

We have typically done more series-A deals. We'll continue to focus on early-stage.

Are your portfolio companies looking to raise funds in 2009?

Most of our companies are not looking to raise funding next year.

What has been the feedback from your global headquarters for KPCB and Sherpalo on India investments?

They understand that what's happening here is part of a global setback that everyone is going through. They view it as a long-term opportunity.

This is the fourth in the ten-part 'VC outlook for 09' series on Incubator.

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'Almost all sectors will see revenue stress': Sequoia Capital India - Outlook for 09 Part III

2009-01-03T12:08:00Z

Venture capital firm Sequoia Capital rang alarm bells in the US Silicon Valley last October with the now infamous ‘R.I.P Good Times' presentation it made to portfolio companies in an emergency meeting. Its India entity, which invests from a dedicated pool of capital, repeated the message to portfolio companies here a few weeks later. KP Balaraj, managing director of Sequoia Capital India, predicts tough times ahead for young companies. Sequoia Capital India has close to 60 investments and $1.8 billion capital under management, including a $725 million growth fund raised last year and a $300 million early-stage fund in 2007.

Edited excerpts:

What are your main concerns for the next year?

Very difficult financing market for startups and growth companies, given global capital flight to safety among equity investors and banks.

What sectors will you focus on in 2009?

We will continue to be sector agnostic with a bias towards consumer services, technology, financial services and infrastructure services.

What will you do differently in 2009? Will the pace of investment slow down?

(There will be) significant focus on cash generation and very prudent cost management. On number of deals, (it's) likely to be an active investing year, given the combination of more realistic valuations and significant need for equity capital among high growth companies, as traditional alternatives - bank debt, IPOs, mezzanine debt - are all shut for the near term.

What will you look for in a company while funding?

Founder commitment and ability to get to cash breakeven quickly

Will you focus more on growth deals?

We will do a combination of both. For startups, we will continue to invest $1-5 mm in the first round and around $20-50mm for growth equity investments.

What sector(s) are you less keen on because of the market slowdown?

Our view is that almost all sectors will see revenue stress in 2009 given the pace and extent of the current financial crisis and the negative impact on bank lending. Most sectors suffered from high valuations in 2008.

Have you done any down rounds yet?

We are looking at a few currently.

Will any of your companies raise funds in 2009, and would you be willing to negotiate a down round?

We will have 4-5 companies raise follow on funding in 2009. In cases where the current market price is lower than the last round price, we will advice our entrepreneurs to be realistic on expectations given the current market situation

Where will valuations go in 2009?

Probably much lower if investor sentiment does not change.

What has been the feedback from your limited partners (investors in Sequoia's funds) in the aftermath of the meltdown?

Generally very supportive. (They) view venture as a long-term asset class and the general observation is around focus on cash flow.

This is the third in the ten-part 'VC Outlook for 09' series on Incubator.

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‘Lack of product innovation disappointing’: DFJ – Outlook for 09 Part II

2009-01-02T12:18:00Z

Venture firm Draper Fisher Jurvetson began 2008 leading an $18.5 million third round in travel portal Cleartrip, and followed it up with five other deals, including e-waste management company Attero Recycling and online education company Catura Systems. The firm, which set up India office in late 2007 with a $100 million allocation, expanded its early-stage focus to include larger growth deals and hired Sachin Maheshwari as Principal in 2008. Executive director Mohanjit Jolly says the pace of investment will slow in the coming year. Edited excerpts:

What are your main concerns for the next year?

Raising capital in 2009 will continue to be a challenge. One of the concerns is that there may be a "knee jerk" reaction on part of many VCs to move away from risky early stage bets to potentially safer later stage plays, thereby letting some really good ideas not come to fruition due to lack of initial funding.

What will be your sector focus in 2009?

Sector focus will be more diversified than it has been historically. Although technology and consumer media (online/mobile) will still be the mainstay, added emphasis will be placed on cleantech given DFJ's expertise in that arena, as well as healthcare, education, entertainment and logistics/distribution. The pace of investment will slow.

What will you do differently in 2009?

The level of scrutiny and diligence, especially around the business models and financial assumptions will be higher. Additionally, the portfolio companies will have to be more disciplined around more frequent and thorough reporting of financial and business metrics. Focus will be more so on capital efficiency and having visibility with respect to becoming cash flow positive rather than top line growth.

One of the positives of the downturn is that expectations come in line with reality, that goes for valuations as well as compensation expectations on part of employees. I expect the churn issue within companies to subside in 2009, and as a result, cash component reducing while options become a more meaningful piece of the overall compensation. Budgets will be tight, with a lot more scrutiny by boards on most expense items and potentially expenses above a lower threshold ($25,000 vs $50,000 for example) requiring formal board approval.

What are the key factors you will look for in a company while funding?

Team, technology/differentiation and traction within a large and growing market will continue to be key investment criteria. Even greater emphasis will be placed on the team and capital efficiency. The former, because a cohesive team preferably with prior experience is able to out-execute, especially in a market like India. (Here), successful companies may be created more on the backs of teams that can execute better than anyone else, rather than on significant ground breaking technology, at least in the near term.

What stage of deals will you focus on?

DFJ will continue to be stage agnostic with a bias towards early stage including seed and series A deals. We will look at mid and expansion stage companies opportunistically.

What sector(s) disappointed you in 2008 and why?

Valuation expectations, especially during the first half of 2008 were unreasonable. DFJ ended up walking away from several deals for that reason alone. 2008 like previous years was supposed to be the knee of the curve in terms of broadband and overall Internet penetration growth. The numbers are growing, but not at the pace that was expected. On the other hand, mobile subscriber growth seems to defy gravity.

Although not sector specific, what continues to disappoint me is the lack of real product innovation as well as the lack on the part of entrepreneurs of truly thinking big in terms of creating a company with a potential of generating north of $100M in revenues.

Have you done any down rounds yet?

Not yet, but they are definitely becoming more common and will most likely be the norm in 2009 especially for those companies who raised capital in late 2007/early 2008 and need capital in 2009.

Will you be willing to negotiate down rounds for your companies?

Fortunately, most of the companies are well capitalized and don't need to raise capital in 2009. Ideally, the valuation is at a step-up from DFJ's investment, but if it is flat or even down, and that's the only option on the table, then of course, we will have to consider it seriously.

Will you look at doing more syndicated deals?

Every deal done since setting up the DFJ India office has been syndicated. Having said that, DFJ still wants to own a meaningful piece of the company post funding. Owning a relatively smaller piece of a large opportunity is better than owning a large chunk of a smaller one. Having more smart people around the table generally enhances the prospects of a given company along with providing more pockets of capital internally in case the company has to be bridged along the way.

What has been the feedback from your global headquarters on India investments?

The DFJ partnership has been extremely supportive of the work being done by DFJ India, and investments made in 2008. The key criterion that the India team has to consider when recommending an investment is the potential of a company to yield a meaningful return to the core DFJ fund (> $50M return to the fund).

Where will valuations go in 2009?

Generally speaking, down. The really solid companies should be able to get reasonable step ups in valuation assuming they are hitting milestones and showing meaningful progress towards the goal of being a profitable going concern. But VCs will be looking for valuations that are in line with the public companies and as such most will not be willing to pay too much of a premium for deals.

This is the second interview in the ten-part series on 'VC Outlook for 09' on Incubator

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'It's a forest fire': Norwest Venture Partners - Outlook for 09 Part I

2009-01-01T12:41:00Z

Capital efficiency will be the new mantra for venture capitalists this year. Yesterday, we carried in the paper the overall outlook for Indian venture capital in 2009. Starting today, we bring you a ten-part series of interviews with VCs investing in India, their individual investment thesis for 2009, sectors of interest and what they look for in a start-up. This interview with Promod Haque, managing partner, Norwest Venture Partners, is the first in the series.

Norwest set up its India office in late 2007 planning to accelerate investments. It has added three India partners - Niren Shah (previously with eBay and Baazee) and Sohil Chand (previously with Goldman Sachs) in Mumbai and Mohan Kumar (previously with Motorola) in Bangalore. But has made only one investment since then, in services company Suvidhaa. Managing partner Promod Haque, who looks at India investments out of the firm's Palo Alto, California headquarters describes the current market conditions as a "forest fire" that only good companies can survive.

Edited excerpts:

What are your main concerns for the next year?

The recession will continue to make it difficult for companies next year. That's why we're working closely with our own portfolio companies to manage their cash during the downturn (as we've done during previous downturns). We're advising our portfolio companies to be extremely cautious. Based on past experience, we know they will experience a spending squeeze as we have already started to see this year. It takes longer in this economic climate to reach a meaningful exit - M&A or IPO, and the IPO window hasn't opened yet. Therefore, conserving cash and finding a way to reach cash flow breakeven is critical for these companies.

What sectors will you focus on in 2009 compared to last year? Will you do fewer deals?

In 2009, we will look more heavily at growth equity opportunities in a variety of sectors. The correction in valuations has created a more viable option for PEs to invest in India, particularly in the coming year. Also, given the public markets are on hold for IPOs, it is likely that companies who need money will turn to private equity. They can't keep their expansion plans on hold, and we believe that there are tremendous growth equity opportunities across a wide range of sectors in India, including telecom, technology, financial services, infrastructure and manufacturing. We hired a managing director in our Mumbai office earlier this year to focus on these growth equity opportunities.

We continue to believe there are significant opportunities in the local consumer markets (both Internet and mobile) in India. In 2009, we will seek out appealing businesses in these sectors, but the bar is extremely high on new investments. We are beginning to see the maturity of the second-generation services (in) IT-ITES outsourcing. We could see our investment pace increasing in 2009 because there are a lot of interesting companies out there looking for funding right now.

What are the key factors you will look for in a company while funding?

Our criterion hasn't changed in this area. We look at several factors when making investments. We analyze the size of the market (is it large enough?) and we determine whether or not the company is considered to be a breakthrough project with world-class solutions that are highly differentiated. We also look closely at the domain expertise of the founders and engineers (do they have a proven track record?) and do the entrepreneurs have the true passion and vision to build the company? Lastly, we need to be convinced that the differentiation is defendable, sustainable and offers a unique value proposition to the customer (customer validation, ROI and traction are critical). Lastly, as I mentioned above, the business must be capital efficient-particularly in today's economic climate.

What will you and your portfolio companies do differently in 2009?

Nothing has really changed. We will continue to work closely with all of our portfolio companies. I do think there will be an even heavier emphasis on cost control in the midst of this challenging economic climate. We're telling our companies to conserve cash, focus on their core competencies (not the second or third tier projects in the plan that require more funding and are less impactful in this market environment), find a way to "extend the runway" as long as they can, avoid hiring extra headcount (in the short term), lower the cash burn, and find a way to get to cashflow breakeven as soon as possible.

What do you expect your average deal size to be in 2009?

Our average deal size could be anywhere from $5 million USD to $30 million USD depending on the opportunity.

What sector(s) are you less keen on because of the market slowdown?

I think too many consumer Internet companies with exclusively ad-funded models were funded over the last few years. Some investors looked at "eyeballs only" and funded the company solely based on how much traffic came to the site. Too many companies were funded on the belief that they will "learn" how to monetize users later. Those that raised small amounts of money burned (or continue to burn) a lot of cash, and I don't think all of them will survive-they can't. We are starting to see another shakeout in this area.

The consumer Internet companies that we believe will survive offer a unique and valuable service that its audience is willing to pay for. Overall, we're still in the early days of online advertising. There is definitely a movement toward quality, uniqueness, accountability and guarantees. Companies that offer a guarantee for ad performance will prevail. This is more than just banner ads being paid on CPMs alone. There are still opportunities for innovative winners to emerge here. We are more pessimistic on the remnant, second tier banner ad network companies that we think have been over funded.

Where will valuations go in 2009?

I think they will continue to decrease in the first half of 2009 and then we'll see an up tick when the market begins to recover. Just a guess- Nobody can know for sure.

We were disappointed in the extremely high, over inflated valuations over the past few years. We are now starting to see a much needed correction in the industry. Companies that haven't performed and haven't been able to conserve cash will not survive. It's like a forest fire- It's healthy for the long term, but it's not fun to be in the middle of it in the short term. Long term, it is a healthy process, and we believe good companies can emerge during a downturn.

How many of your portfolio companies are looking to raise funds in 2009? Would you be willing to negotiate deals at lower valuations than you took them on?

A number of our companies will most likely raise funds in 2009, but we are encouraging each portfolio company to conserve as much cash as possible in this tough economic environment. Whether or not we are willing to negotiate deals at lower valuations depends on the company and the situation. We take things on a case by case basis.

Will you look at doing more syndicated deals?

We've always believed it is important to syndicate with strong partners with deep pockets, who will continue to fund companies with strong fundamentals-particularly during a downturn.

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TechTribe model not validated, says investor Canaan Partners

2008-12-26T10:15:00Z

The businessmodel of online job referral company techTribe Networks, Inc isn't working out, says its investor Canaan Partners. techTribe was launched in late 2006 as a professional networking site, with a referral recruitment model that asked users to refer candidates for jobs and win cash incentives if the candidate was successfully hired. It had raised undisclosed first round funding from Canaan, Miven Venture Partners and The Entrepreneurs Fund in July 2007.

"I don't think the bet is turning out as expected. The fundamental concept we were looking to validate, that incentive drives referrals, is not heading in the right direction," said Alok Mittal, managing director, Canaan Partners. Asked if writing off the investment was an option, Mittal replied, "Well, we could write off the investment or sell to someone."

When contacted, techTribe CEO Rohit Agarwal said the company was in the process of re-evaluating and reconfiguring the company. It has been in revamp mode for the last month and won't do referrals for the next two months. In a mail, Agarwal added:

"The referral model worked, but not to the level of automation as we had hoped. The human intervention required is larger that I had expected. We have had great success with dozens of customers who have successfully recruited middle to senior level talent using techTribe. We are working with those customers - making changes to the core model to get the level of intervention down. As you would expect, given the hiring freezes all over, things are moving slower than one would hope for."

Are these early signs of not only start-ups re-evaluating business models but also of venture firms in India evaluating their portfolios?

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Microsoft India launches BizSpark for startups

2008-12-17T10:23:00Z

In its bid to woo startups in India, Microsoft Corp (India) Pvt Ltd. has launched Microsoft BizSpark - a program designed to provide free access to Microsoft’s professional software. Under the initiative, BizSpark will offer access to the company’s current development tools, platform technologies as well as production licenses at no cost.

“The initiative is targeted at the startups for whom affording software means capital expenditure. We want to be an enabler for them,” said Moorthy Uppaluri, general manager, developer and platform evangelism, Microsoft Corp (India). The incentives include, access to design tools, development test and demonstration, IT operations servers, and support resources (both technical and non technical) and integration with Microsoft's sales team and product groups.

In order to help the start ups in getting access to professional guidance, mentoring, idea validation, technology readiness and visibility, the company has struck five network partnerships. These include The Indus Entrepreneurs (TiE), NEN, Proto, NASSCOM and IDG Ventures, a venture capital firm. Other VC firms supporting the initiative include - Draper Fisher Jurvetson (DFJ), Helion Venture Partners and Accel Partners. “For the first time, an entire ecosystem of stakeholders is coming together with Microsoft to enable a vibrant startup ecosystem in India,” said Uppaluri.

For signing up for the program, a start up needs to be engaged in the development of software-based product or service, that is core to their business model. It needs to be privately held, with lees than three years in business. Also, the firm should have less than $1 million in annual revenue. Microsoft Corp (India) will take $100 from the startup when it (the startup) exits the program after three years.

Uppaluri says 75 startups have already signed for the program. Sanjay Mehta, chief executive, MAIA Intelligence, which signed up for the program a few weeks ago, says their credibility has increased in their customer’s eyes due to the usage of a Microsoft platform.

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Leander Sport raises fund from angel investors

2008-12-17T10:05:00Z

Leander Sport Pvt. Ltd., a sports management and marketing company promoted by tennis player Leander Paes, has raised an undisclosed amount in its first round of funding from angel investors. Bangalore-based investment banker Viedea Capital Advisors was the advisor to the deal. “We expect to do a larger institutional fund raise for the company in 8-12 months to fund growth and expansion", said Uday Disley, director, Viedea Capital. Leander Sport offers sports education services such as content creation, content management and distribution. It also offers sports management services like sponsorship sales, brand licensing and asset management are also a part of the company’s services portfolio.

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More tips for entrepreneurs in a downturn

2008-12-16T13:20:00Z

In today's Mint, we listed ‘Ten tips for entrepreneurs to combat the downturn'. Expanding on the subject, here are some more thoughts and suggestions entrepreneurs and venture capitalists shared with us:

Focus on existing customers: "Do not spend on acquiring new customers, but on breaking even, with the cash on hand currently. Margins should improve," advises DFJ India executive director Mohanjit Jolly. "We don't care about how big you (the company) can get in 1 to 2 years but we want to ensure that you have enough cash to sail you through the next 24 months." For example, portfolio company Canvera has been given a mandate to turn profitable by end-2009 with the series-A capital it has raised from DFJ and Footprint Ventures.
Be opportunistic: Recognise opportunities to cut costs. After it got funded, a month before the dotcom bust, Info Edge - owner of portals such as Naukri.com and Jeevansaathi.com- received VCs' mandate to let go of its auditors and hire a bigger firm such as PWC. Info Edge's auditors were planning to start their own dotcom, so the company asked them if they wanted to manage and grow Jeevansaathi.com, so it could focus its resources on the job portal. Info Edge held 35% stake in the matrimonial site, but bought back the remaining stake in 2004, thus merging it back into the company.
Measure RoI on hiring: Examine headcount issues. If you do need to hire, try to devise metrics to measure the cost of hiring against the value-add to your balance sheet. Check if you can re-assign duties within the existing team.

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Updated: HeadStart, Proto et al - It's show(case) time, folks

2008-12-09T13:25:00Z

Updated: MoDemo has been cancelled for lack of entries, IIM-A plans to have a showcase in February.

Here's a welcome break from all the recession news. The season of start-up showcases has begun again. Nominations are now open for Proto.in ~~and~~ ~~MoDemo~~, while the nomination process has come to a close with two others - HeadStart and the Tata-NEN Hottest Start-ups. Over the next six weeks, these will (hopefully) bring to light a few dozen start-ups working on innovative products and services.

~~First up is MoDemo in Bangalore, tentatively scheduled for December 13, provided at least ten companies submit entries. It is organized by the~~ ~~Mobile Monday Bangalore~~ chapter and is meant as a platform for mobile start-ups to demo their products and services. It is strictly show and tell and no power point presentations will be allowed, which means the audience might be spared self-marketing spiels. The first edition was held last December (check out the companies that presented ~~here~~ ~~and a brief summary of the event~~ ~~here), and looks like the MoMo Bangalore guys want to make it an annual affair. To register for the demo, send a mail with brief description to~~ ~~admin@modemo.in~~

Tata-NEN Hottest Start-ups will announce the final five winners on its site on December 23. The top 30 nominees have been announced. Read our coverage of the competition so far here.

Next up is HeadStart in Bangalore on January 10-11, organized by ~~KickStart~~, the team behind BarCamps in Bangalore and Mumbai, now registered as the Headstart Network Foundation Ltd. HeadStart, like MoDemo, is onto its second edition this time. It was started in a bid to showcase innovation across the spectrum, be it start-up, research institute or large corporation (read a brief summary of the first HeadStart here). Nominations are officially over, but companies can still demo their products at booths outside the auditorium by registering here. The nominated companies will be announced on December 12.

Finally, we round up the showcase with the bi-annual Proto.in on January 23-24, to be held in Bangalore for the first time. This will be Proto's fifth edition since it began in January 2007 and second since it moved out of home base Chennai. The last one was in Delhi in July this year (read our coverage of the event here). Nominations for Proto have just opened up. Read more about the run-up to the event on this blog and nominate your company here.

IIM Ahmedabad and its incubator, the Centre for Innovation, Incubation and Entrepreneurship (CIIE) is also planning a showcase event in February. CIIE senior associate Aditi Gupta says it will go beyond IT and mobile sectors. The event has not been finalised, but Aditi can be reached on aditigupta@iimahd DOT ernet DOT in

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No pressure to exit: Mayfield Fund's Vikram Godse

2008-12-09T12:04:00Z

Amidst a growing sense of gloom in the equity markets, venture capital firm Mayfield Fund closed its first India-dedicated fund of $110 million yesterday, barely three months after it closed a $395 million fund in the US. Mayfield is the second venture firm to raise an India fund since the market meltdown in September, following Accel India, which closed a $60 million early-stage fund last month. Mayfield, which set up its Mumbai office in June 2007, has two partners on ground - Nikhil Khattau and Vikram Godse. It has invested in seven companies so far, three of them from the India fund - infrastructure company Geodesic Techniques Pvt Ltd, apparel company Genesis Colours Pvt Ltd (under brand Satyapaul) and mobile payment company Paymate India Pvt Ltd. Managing director Vikram Godse spoke to Mint about the new fund, investors' response and its sector focus. Edited excerpts:

You've raised a dedicated country fund at a time of a global financial crisis. What kind of response did you get from your investors about the India market?

We have been fundraising for a while. The US partners raised a new fund couple of months ago. We had our first closing of the India fund in April. We have LPs [limited partners, who invest in equity funds] from the US, Europe and Asia. A majority of LPs are common to the US fund as well. Clearly, it's been a tough environment, but our investors showed confidence in our investment thesis. We have been very focused on the expansion stage of (companies for) investment. The reason is, they are showing the kind of growth you see in high-growth companies in other markets.

What sectors will you focus on for the new fund?

Our focus remains the same - we are very comfortable in the ancillary space, especially infrastructure, because of the long-term nature of the segment. Within consumer, we are focused on consumer ancillary industries such as logistics and specialty retail. Genesis is a good example of one such investment we've made. We may also look at ancillary companies in water, clean energy and fuel industries.

How many deals are you targeting?

Our deal size will be in the $5-15 million range. On average, each partner (there are two) will do two deals per year, so we are looking at 8-10 investments across the fund. So far, we have done seven deals. Four from the global corpus and three from the India fund.

How do you find the deal flow?

Entrepreneurs now clearly understand that the days of high valuations are over. The slowdown is a setback for entrepreneurs, but it's a great time to invest if you're looking at long-term trends. We don't have the pressure to exit, and are willing to stay in a company for 4-6 years.

Will you look at PIPE deals?

We are clearly PE (private equity investors) but we're not focused on PIPE deals. We will continue to focus on India as a domestic market growth story.

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Epiphany Ventures to fund early, growth stage firms

2008-12-05T07:13:00Z

Investment thesis changed for Gaurav Saraf, the latest entrant in the VC investors’ bandwagon, even before he could get started. Saraf recently launched Epiphany Ventures (contact@epiphanyventures.in, www.epiphanyventures.in), a Mumbai-based sector agnostic $25 million fund, with the idea of backing early stage firms. Within a few days, the firm realized there was an overwhelming demand for working capital by growth stage companies due to the current capital shortage. In response, the firm will now balance three early stage investments with at least one growth stage deal. “Things have changed so much in the last few months. We will now cater to a demand that we had not expected,” says Saraf, director, Epiphany Ventures. “The idea is to manage risks better by investing in one company where the business model is established and revenues are already being generated.”

On the deals front, the fund is already in talks with a public company needing working capital of about $6 million. Saraf says he will look for a co-investor for such a deal. Epiphany’s limited partners include Lakshmi Mittal family, among other HNIs. The firm plans to invest between $2 million to $3 million and expects to allocate 30% of its corpus by 2009 mid. It may look at raising another fund next year. Epiphany also plans to launch a late stage fund in twelve months.

Regarding its expansion plans, the firm will operate from Mumbai and will soon recruit two officials. Its areas of interest include healthcare, online portals, mobile VAS, advertising excluding TV and print ad, technology, agriculture, and irrigation.

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Mumbai terrorist attack: VCs in south Bombay unhurt, AVCJ postpones annual conference

2008-11-28T13:01:00Z

Encounters are on at the Taj Mahal hotel and Nariman House as I write this, while the Trident and Oberoi have been evacuated. The Trident is home to global venture funds such as Norwest Venture Partners, which set up India office last September, Battery Ventures, which set up office this year and IDG Ventures India, which initially had only a Bangalore office. Many times, I have run into entrepreneurs who were at the hotel to make VC pitches.

In fact, most VC firms lie between Worli's Ceejay House and various locations in south Bombay. Other venture firms such as Clearstone Venture Partners (which operated out of Trident until a few months back), SVB Capital Partners and Mayfield Fund have offices at Colaba and Nariman Point, close to the two hotels. For this reason, both the Taj Mahal and Trident are popular with VCs to meet entrepreneurs, journalists and host press conferences. Many interviews such as this one have been held at the hotels.

Gautam Patel, a partner at Battery Ventures, and his colleagues were trapped at the Trident hotel for at least 90 minutes after the terrorist attack began, but got out safely. Other VCs operating in the region have confirmed they are safe. Clearstone's Rahul Khanna, in reply to a message, said all partners were ok, but they couldn't get to their office (at Dhanraj Mahal) yet.

Due to security concerns, the Asia Venture Capital Journal has postponed its annual Private Equity and Venture Forum, one of the largest industry gatherings in the country, that was to be held next week at the Grand Hyatt. Last year's forum was hosted at the Trident in December. In the last three years, since private equity returned to India after the dotcom bust, it has attracted large numbers of private equity and venture investors as well as their limited partners (institutions that back equity funds) scouting for market opportunities here.

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Start-up funding may get hit at root, as endowments suffer

2008-11-26T15:15:00Z

Start-up funding may now be hit at the root source of capital, as US university endowments, which contribute significantly to the pool of money venture capitalists raise, suffer. Universities are looking to sell off parts of their equity portfolio privately, as their investments through endowments take a hit from the market, reports The New York Times. Such endowments, along with pension funds, are the chief sources of VC money (see chart) that is then invested in companies.

Close to 90% of venture capital raised for the India market continues to come from limited partners (institutions that back equity funds) in the US, and universities such as Stanford and Harvard Business School are among the active ones here. Harvard, for example has invested more than $ 1 billion in India. Many global funds investing in India such as DFJ and Matrix Partners, as well as domestic funds such as Helion Venture Partners and Nexus India Capital have raised money with such endowments.

Now, universities such as Virginia and Harvard, which have billions of dollars in endowments, are now exploring the sale of their stakes in venture capital and private equity funds, says the NYT:

“The value of some of these investments has fallen, and they are not easily shed because there is no public market for them, as there is for stocks. Worse, private equity and venture capital funds require investors to put up additional capital over time. Cash may now be in short supply at schools facing budget pressures and investment losses.”

Eventually, if endowments start pulling out, it means less capital for VC’s and therefore, for start-ups.

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