VCCircle

California-based Clearstone Venture Partners is upbeat about early stage deals in India. It has a partner stationed in India - Sumant Mandal (right). Here is an interview of Jim Armstrong, Managing Director, Clearstone, who talks about India too. He says:

We're already halfway through that new fund—we've been really active. We're doing a lot in Southern California. We have two offices, one in Southern California and the other in Northern California, with the portfolio pretty evenly split between the two.

We also have a person on the ground in India, and are making investments in companies selling to the Indian market. We're still learning how to do companies that do business there. Sumant, my partner, has built companies over there, and he's helping to manage that effort. It's not that we have a confirmed point of view on what the opportunity is there, but if you think about media—and think think about half the population of India and China, 1.2 billion each—is under the age of 35.

It's pretty incredible how youthful that culture is, versus Europe, which is aging, and other countries, which have dominated youth, media, technology in the past. Historically, things have shifted to where the youth are. Most people there think that the opportunity in India is later stage, but we're actually doing early stage deals there.

In general we're really doing lots of early stage deals—we'd love to do later stage, but just don't see that many opportunities. There's lots of money out there flowing into later stage deals quickly, so we tend to do early stage companies. Everything except one investment we've done in our new fund has been a Series A.

I had written briefly about Band of Angels in VC Circle sometime in November. BoA is now officially launched and has already invested in a venture - Knowcross - a hotel guest management software company in Delhi. If you want to know more about BoA and how they pick companies etc, I have written a four page feature on Band of Angels in the latest issue of Business Today magazine, which is available on stands. Venturewoods.org has given a link to the pdf copy if you are interested in reading the plain sheets.

BoA, modeled on the Silicon Valley's Band of Angels, is a growing organisation in Delhi. It's already 20-member strong and has experienced entrepreneurs like Saurabh Srivastava and Mohit Goel of Xansa, Alok Mittal of Baring Private Equity, and Raman Roy (ex-Spectramind) as backers, besides accomplished pros like Arun Kumar of Flextronics Software and Jerry Rao of Mphasis. It's an interesting group to watch.

Thanks to Rajan, here are the winners and the other finalists for the DFJ-TiE India Venture Challenge finals held at Indian School of Business in Hyderabad on February 20. (Ed. Among them, I remember meeting Mukesh Hegde at TiE Conference in Delhi late last year.)

The two winners

* Dr. Girish Saraph, Vegayan Systems, Mumbai (IIT B incubated company)

* Mukesh Hegde, NCE Technologies, Bangalore

Rest of the finalists

* Manish Agrawal, MAdApps, Bangalore

* Debashis Bhattacharya, Simbiosys Biowares Inc, Texas and Bangalore

* Kabir Singh, Comfort Controls, Hyderabad, ISB student – current Class

* Sumantra Roy, Ad Response Optimizer, Mumbai, ISB Alumnus – Class 2000

* Manav Garg, Reftree, Bangalore

* Kuruvilla P Kurian, DVDplex - Video Subscription Service, Bangalore

* TR Bharath Rajkumar, EaZyShopping, Chennai

* Ritesh Banglani, Couch Potato Entertainment, Bangalore

There were 125 contestants originally, and 10 went to the finals. Two won the prize money (funding) of $75,000 (Rs 33 lakh) each.

The finals of the India Venture Challenge, a business plan competition organized by Draper Fisher Jurvetson (DFJ) and TiE (The Indus Entrepreneurs) are being held today at Indian School of Business in Hyderabad. The contest has seen participation of 125 budding and aspiring entrepreneurial teams from across India, representing both new ventures and existing early stage businesses.

The 10 short listed candidates will present their business plans to a team of judges and the award ceremony of the DFJ-TiE India Venture Challenge will be held at ISB on February 20. The panel of judges includes Sarath Naru, MD, APIDC, Ranjan Chak of Oak Investments, Raj Atluru and Mohan Lakhamraju from DFJ, N.S. Raghavan, founder of Infosys and Nadathur Holdings, Srini Raju founder of ILabs and Professor Chandrashekhar of ISB.

The competition has been co-sponsored by Nadathur Holdings, ILabs Group and the ISB, Hyderabad. The first prizewinner will receive seed funding of $100000 and the second prize winner will receive seed funding of $50000. The seed funding is being provided by DFJ and Nadathur Holdings. (Via Press Release)

This fund will be talked about in the coming days since it’s the first time Kanwal Rekhi, one of the founders of The Indus Entrepreneurs and a celebrated NRI entrepreneur in the US, is raising an India-specific fund. Rekhi’s Inventus Capital Partners is in the process of raising a $150-$175 million fund for India. This will be invested in early stage technology firms.

According to Red Herring, “While he (Rekhi) is geography agnostic, he would like to invest in Indian startups. The fund should start investing before the year is out. “We wish we had the fund already as we have seen very good companies to invest in both in Bangalore and Silicon Valley,” said Rekhi. He said Inventus would focus on companies that offered solutions in software, consumer Internet, wireless, and technology-related services.

Another early stage fund is Seed Fund set up by Pravin Gandhi, Mahesh Murthy and Bharati Jacob.

Related:

India To See Some Action In Early Stage Investing: TiE Bangalore, Mahesh Murthy's Seed Fund, Erasmic Consulting Lead Actors

There is some action in the early stage funding in India, according to Red Herring. The Bangalore Chapter of The Indus Entrepreneurs (TiE) has introduced its Entrepreneurship Acceleration Program (EAP) to bring together successful local entrepreneurs with new entrepreneurs to increase their chances of raising institutional funding.

“One of the key reasons for the shortage of high-quality startups in India is that, unlike in Silicon Valley, there isn’t a mature ecosystem comprised of entrepreneurs, mentors, venture capitalists, seed investors, angels, incubators, law firms, accounting firms, banks, and other elements promoting entrepreneurship,” said Sridhar Mitta, president of the TiE Bangalore Chapter. “We want to change that.”

TiE EAP is designed to help companies get through the seed stage of evolution and graduate to a first round of funding from established institutions, such as venture capital firms.

“TiE has designed it in a way that the framework between different parties is standardized and parameterized so that precious time is not wasted in endless negotiations,” said Ashok Soota, a member of the board of trustees of TiE Global. “The funds directly flow from investors to entrepreneurs. The whole process is open and transparent.”

New Early Stage Funds

Another brand-new fund that will come up in 2006 is called the Seed Fund, set up by veteran Indian venture capitalists Mahesh Murthy (who ran the Passion Fund and is currently the CEO of Pinstorm) and Praveen Gandhi (who ran the Infinity Fund). Both of them are die-hard early-stage investors.

“We are looking at raising $10 million,” said Mr. Murthy. “We deliberately want to keep the figure low because early-stage startups in India don’t need more funds. And since we intend to do a lot of hand holding we cannot spread ourselves too thin investing in too many firms.”

Quietly working away without calling themselves a fund are professionals at Erasmic Consulting, a group of four who are already mentoring and handholding three small companies. The group has deployed $400,000 and another $700,000 is ready to be put into a further three selected startups soon.

"Two of the initial three companies are at a stage where they can run independently,” said CTO Subrata Mitra. “This year we will concentrate on the remaining four. We may invest more in these companies if need be." Erasmic has raised funds from friends, mostly Indians in the Valley.

Kleiner Investing in India

John Doerr of KPCB and Ram Sriram of Sherpalo are currently touring India. Doerr said that KPCB was looking at investing in Indian companies and had shortlisted some, but declined to provide more details. [Via Red Herring]

[Via ContentSutra] Verismo Networks Inc, a media technology company headquartered in Santa Clara, California, has found an angel investor in serial entrepreneur Prakash Bhalerao, who has ploughed in $2.5 million into the company. Bhalerao has also taken over as the company’s chairman and chief executive officer. The company has also opened its Indian product development subsidiary in Bangalore.

“We plan to help enable the convergence of broadband and entertainment to provide entertainment though next-generation TVs and set-top boxes,” Bhalerao said, adding that its products should be out next year, to be followed by products that enable mobile broadcasting.

Verismo’s partners include Advanced Micro Devices Inc., Intel Corp. and Real Networks, he said. Bhalerao said he expects to raise venture capital funds in India to fund Verismo later in 2006. (Source: EETimes)

I met Mukul Gulati, a managing partner at Peacock Partners, at ContentSutra mixer in Delhi last week. The New York-based venture firm is setting up its India venture fund with some $75 million in capital to invest.

Its headquarters will be in Bangalore and Gulati and his other partner Kartik C. Parija are currently scouting for real estate to house their office. The fund is likely to kick off its operations in January 2006. As Gulati was in Delhi last week, he decided to attend the mixer to figure out what was happening in Indian market. He is looking at early stage technology companies to invest.

Gulati, who was based in New York and now moving lock, stock and barrel to Bangalore, is excited about Indian market and has been watching the Indian scene for the last one year.

Arun Natarajan writes about the soft launch of another early stage technology VC fund, Mentor Partners, in Bangalore. "The firm plans to initially invest $1 million each in 10 product-focused companies in the IT and telecom space: around $500,000 as seed investment or "bridge loan" and the remaining as part of the first round investment along with other Venture Capital firms," Natarajan writes.

India's software business body, National Association of Software and Services Company (Nasscom), has asked the government to set up a venture capital fund to promote innovation in software product space.

"This kind of a fund would ensure a sort of back-up for those angel investors and allow them to take a greater risk while funding product start-ups," said Kiran Karnik, President, Nasscom.

The fund would act as a back-up for angel investors by minimising the risk and encourage seed or early stage funding in the country. "In order to avoid the misuse, the fund could be managed by a group of recognised professionals, who could be rated by agencies like Crisil among others," he said. (Via Sify)

I agree that software product space in India is out of fashion and it's difficult to get funding. However, I would suggest that it's better not to invlove the government in such matters. If the government gets involved, then you are inviting bureacracy to rule over the body. You cannot have a government venture without bureaucratic involvement. Would you prefer to go to an IAS officer for funding or to a real VC who bets on the actual business potential than looking at how influential you are?

In fact, what Nasscom can suggest to the government are:

*Float a venture fund with the donations from rich IT companies

*Nasscom will be the adminitrator for the fund which will appoint VCs

*Make the contributions from these IT companies tax free

The government should only facilitate than directly getting involved in launching a fund.

"Tiger" TG Ramesh, a serial IT entrepreneur who founded Bangalore Labs and Quintant Services (along with Phaneesh Murthy), is now on to the next "big thing". He is planning to set up a chain of ecotourism resorts in the country, and is looking for VC funds to fulfill his dream.

The resorts chain, to be promoted under the brand “Cicada” (a tree dwelling tropical insect known for its high pitched wabble) through Wilderness Resorts Pvt Ltd, is already developing two projects - one near Nagarhole wildlife park and the second close to Bandipur National Park.

The company will be investing $10 million (Rs 45 to Rs 50 crore) in phase one. For this, the company has received initial funding from the HRB Group led by H B Jairaj and PM Ventures (a fund instituted by Phaneesh Murthy) and Ramesh himself. "Talks are on with other private equity players and venture capital companies for further investments," Ramesh added.

The company plans to have 15 resorts in the next five years. Cicada has the ambition to be the premier ecotourism resort chain in India. (Via Business Standard)