Venture Capitals cheer thanks, early investors likely to make big gains

As numerous young technology ventures in India get ready for their next level of growth, venture capital funds that invested millions in them are cheering the prospect of earning significant returns.

Beginning 2014, some of the top funds in the country are gearing to exit a number of emerging companies— some valued over a billion dollars—making them attractive to retail investors as well as global corporations. “We have several exciting companies that are hitting $100 million ( Rs 623 crore) in revenue,” said Sanjeev Aggarwal, senior managing director at Helion Venture Partners. “Partial exits are a possibility as well.”

Private equity firms invested $7.5 billion (Rs 46,762 crore) in 2013, their lowest in four years, according to research firm Venture Intelligence.
Private equity firms invested $7.5 billion (Rs 46,762 crore) in 2013, their lowest in four years, according to research firm Venture Intelligence.

While Aggarwal did not confirm it, two companies from Helion’s portfolio—legal and data solutions provider UnitedLex and digital ad solutions firm Pub-Matic—are preparing to go public in the United States in the next 18 months. While PubMatic has raised over $60 million ( Rs 374 crore), UnitedLex has raised about $17 million ( Rs 106 crore) from risk-capital investors.

Both ventures are believed to crossed revenue of about $100 million ( Rs 623 crore) each. Others expecting big-ticket returns include Sequoia Capital, Accel Partners and Nexus Venture Partners. “We have been investing for about 10 years now, all (are) restless and want to see success. But it could take time,” said Mohit Bhatnagar, a managing director with Sequoia Capital, which earned two big-ticket returns last year with the public listing of JustDial and sale of payments services provider Prizm to Japan’s Hitachi.

In the next two years, the fund which manages a total corpus of $1.4 billion ( Rs 8,729 crore) in India will be eyeing multiple exits, with companies such as data analytics provider Mu Sigma, restaurant listing service Zomato and security software maker Druva topping the list.

“Mu Sigma is the leader in data analytics, which is a very hot sector at the moment, and given the success of (ticketing portal), Zomato is also a very attractive proposition,” said Raja Lahiri, a partner at advisory Grant Thornton.

Till December 2013, investors had poured in $608 million ( Rs 3,791 crore), spread across 162 transactions, into India’s early-stage technology ventures, according to data collated by Ernst & Young. Over the past three years, total investments in India’s startup and early-stage ventures are at almost $2.7 billion ( Rs 16,834 crore), a figure that highlights the increasing need to make profitable exits. Experts contrast the buoyancy in venture investing with the disarray in private-equity capital directed largely at mature companies in sectors such as infrastructure and real estate. “(Investors) are clearly anguished by the policy logjam in the country and the lack of returns on their Indian investments so far,” said Sanjeev Krishan of Pricewaterhouse-Coopers India.

Private equity firms invested $7.5 billion ( Rs 46,762 crore) in 2013, their lowest in four years, according to research firm Venture Intelligence.

In contrast, venture funds that back innovation in sectors such as consumer internet, technology products, healthcare and education are putting their money to much better use. “VCs have chosen their sectors and companies very carefully compared to private equity, and have entered at attractive valuations, and are therefore, in a better situation from an exit viewpoint,” Grant Thornton’s Lahiri said.

  “Within one to three years, we’ll definitely see several of the companies that we have had a chance to scale, going for IPOs,” said Vani Kola, managing director of earlystage investor Kalaari Capital. Kalaari, which manages a $160 million ( Rs 998 crore), early-stage fund, is also betting on big returns from investments in fashion retailer Myntra and electronic waste recycling firm Attero Recycling. Typically, venture-funded companies in India can be categorised at three levels of valuation.

Startups that have established a business model will be valued at about $15 million to $50 million.

These are attractive targets for acquisition by large global corporations looking for new innovations as well as talented people. Ravi Gururaj, angel investor and chairman of Nasscom’s Product Council, expects at least 40 such deals to come through in the next five years.

Launched in 2013, iSpirt’s M&A Connect programme has identified companies such as retail services software maker Capillary Technologies, healthcare applications provider Practo and security software maker Quick Heal. “Smaller exits are the lifeblood for healthy startup eco-systems like in Israel and in the US,” said Sharad Sharma, cofounder of iSpirt.

Such interest is boosting the prospects of early-stage funds. Inventus Capital Partners which manages $152 million ( Rs 947 crore) has invested in advertising software maker Vizury, Sokrati, Savaari Car Rentals, and online insurance retailer PolicyBazaar.

“The good thing about the VC world, all of us have one-three companies which in the next one-three years will mature enough either to be picked up or go for an IPO,” said Parag Dhol, managing director at Inventus, who estimates that funds will earn returns between five to ten times of investment.

Companies, such as Druva and Komli Media, with proven customers and robust revenues, will be in the $100-$500 million range. “Global corporations could acquire such companies for acquiring customer base or for entry into new geographies,” said Kanwaljit Singh, a managing director at Helion Venture.

Experts said if the exit scenario plays out as anticipated, it will go a long way in boosting India’s technology startup ecosystem.

Top investors said with many multinationals establishing development labs in India there is now a pool of skilled talent. “Combined with strong investor interest, this has led to disruptive technology startups,” said Naren Gupta, cofounder and managing director of Nexus Venture Partners, which is looking for big returns from Snapdeal and EKA Software.

“It is difficult to predict the number of exits but you can expect them to be regular,” said TC Meenakshisundaram, cofounder and managing partner at IDG Ventures India, which could be looking to earn big from early bets made in companies such as online retailers Valyoo Technologies, Myntra and Zivame.

Source: The Economic Times

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