VCCircle

VC Circle wishes its readers a very a happy and eventful year ahead. We hope you do more deals, raise capital, sell/buy companies, strike joint ventures, start up, and return profits to investors in 2008 and beyond. We will strive to cover these developments thoroughly, and be more useful to you as a reader/user of the site. Thanks for being with us.
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The government-owned Small Industries Development Bank of India (SIDBI) is planning to set up an asset reconstruction company (ARC) to buy non-performing assets in the SME sector, reports Business Standard.
The ARC, which will have an initial paid-up capital of Rs 100 crore, will be a joint venture with banks like Punjab National Bank, Canara Bank and United Bank. SIDBI is also in talks with other banks, and the JV will see some 10 partners. SIDBI may hold about 15 per cent stake in the company while other partners may hold 5-10 per cent share each. ARC is expected to kick off operations in next six months. It will buy assets from state finance corporation so that they can focus on fresh lending.
The Non Performing Assets in the SME sector are estimated to be around Rs 8,000 crore.

Private equity fund Blackstone has invested $50 million in Pipavav Shipyard Ltd (PSL) in a pre-IPO placement, VC Circle has learned. The deal is said to be at Rs 80 a share. JM Financial is running the book.
Pipavav Shipyard, co-promoted by Delhi based engineering firm Punj Lloyd and Nikhil Gandhi's SKIL Infrastructure, is planning a $200 million IPO sometime next month which will see dilution of 10-15 per cent. A few months ago, the company received about $100 million from New York Life, 2i Capital, Trikona Capital and hedge fund Citadel, who invested $25 million each. The placement was done at Rs 45 a share.
Also, Singapore-based SembCorp Marine, the world’s second largest offshore oil rig builder, recently bought a 3.31 per cent stake in PSL for around Rs 80 crore. Sembcorp picked up over 17.5 million shares in PSL at about Rs 45 each. Sembcorp has been PSL's technical partner for shipyard design, technology, infrastructure, management and training of employees. But the Blackstone's deal has been done at a higher price.
The shipyard, being built at Pipavav, in Gujarat, is building a 600-metre-long dry dock. This will be the largest in India and the third-largest in the world after Hyundai’s yard in South Korea and Dubai Drydocks. Punj Loyd, which had acquired 129.4 million shares at Rs 27 (at a total investment of Rs 349.28 crore), owns 28.8 per cent of the current paid-up share capital of PSL. The other promoters include IDBI, IL&FS and Exim Bank who hold around 12 per cent.

Every panelist at the VC Circle Forum (held on Friday, Nov 30, in Bangalore) asserted one word: Entrepreneur. Entrepreneur. Entrepreneur. So the entrepreneur is the key parameter a fund evaluates before making the funding decision. That said, funds should not chase a celebrity entrepeneur. Second, the macro trends of the sector, whether it's likely to clip at a healthy 30 per cent or above a year. Third, the intellectual honesty of the management on the sector opportunity and how realistic they are about the projections. Fourth, the scalability of the business model - $100 million or more in revenues in growth stage, and $60-100 million in case of VC investments – that is the kind of scale the investors are looking at in a business. Fifth, the VC panel agreed that there is a dearth of seed capital, and a gap in mentorship, and that needs to be tackled. They agreed most of the incubation centres are not doing well for lack of mentors. And finally, all those who are pursuing a VC career, please think again. It may not be all that sexy when you actually find out that you are a misfit in the industry five years down the line. By then you are unemployable elsewhere.

Thinking Out Of The Box
Hetal Gandhi of Tano Capital, while harping on the importance of the management team, said that they are thinking out of the box to generate dealflow. He cited the most recent deal of his fund in ABG Motors which used the capital to buy an Italian company flameproof motors manufacturer Cemp. This deal was completely sourced by Tano using their networks and relationships in Italy. It was brought to ABG Group (they own ABG Shipyards) by Tano, and a deal was struck. So funds are looking at innovative ways to generate dealflow. It’s not just the classical way of a deal being to a fund by a banker.

Raja Kumar of UTI Ventures said that there was no hard and fast rule about selecting a company. “We like entrepreneurs who are focused on business.” But that does not mean they would chase a celebrity entrepreneur. According to him, a celebrity entrepreneur might not be hungry and as focused as a first generation entrepreneur.
Kumar said the foremost characteristics are the scalability of the business (for instance, Koutons Retail, which has 1,100 stores now and revenues of Rs 800 crore), whether the company is ready to go in for an IPO in three to five years from the investment (UTI Ventures had a series of IPO exits recently like Zylog Systems, CCCL, Koutons etc), and the value system of the entrepreneur. Kumar said: “We have not gone wrong on entrepreneur even in a single case.”

Deepak I Shahdadpuri of Beacon India Advisors too seconded the view that entrepreneur (read management) is everything from an investment point of view. “We are very entrepreneur-centric,” he said. Shahdadpuri cited the instances of his earlier two investments – Sula Wines and Saffron Art - to make a point that how the founders have played a major role in converting their ideas into high growth businesses. Sula is now in an industry which grows at 60 per cent in India. The founder Rajiv Samant, a Stanford graduate, had tried growing roses and mangoes earlier, but they did not work out. But finally he settled on wine. This is a sector where India is second fastest growing in the world after China. Shahdadpuri said before they select a company, they actually zero in on the sector, and whether it’s a fast growing one.

Ashish Gupta, Managing Director of Helion Venture Partners, talked about venture capital as a career. His contention was that not every one is suited to become a VC. If one enters the VC’s job and after five years realizes that he is on the wrong job, he is unemployable by anyone else. “That is a very dangerous situation.” Gupta’s point was that don’t rush into venture capital career because it’s sexy. What I understood from Gupta was that it might help to build a career elsewhere before seeking to enter venture capital industry. One would have at least built some skill set which could become a fall back option in the event of a failure in VC career.
He also cautioned young VCs and other VC aspirants. People (entrepreneurs) who walk into a VC’s office probably will be much smarter than the VC himself. But it becomes dangerous when a VC thinks that he is smarter than the entrepreneur.

Sudhir Sethi, founder chairman and managing director of IDG Ventures, talked about trends in technology investing. He said it’s very difficult to forecast technology trends in the long term. One can take only a short term call on technology trends. He said they would look at investing in businesses if they are among the first three in India. All their portfolio companies meet this criterion. They like early stage ideas and are ready to put in smaller amounts in businesses. However, at the end of it all, they use the old world methodology – whether the company can be scaled to $60 million-$100 million, and if it has a disruptive business model.

Mohanjit Jolly, Director of Draper Fisher Jurvetson, said he could be biased towards early stage technology ventures in India. In his previous role as the managing director of Garage Technology Ventures, Jolly was involved with seed and early stage deals. He was also involved with a $20 million seed fund prior to that. In India too, although he is with a VC fund which makes investments in mature ventures as opposed to seed stage deals, he said he is open to working with incubation centres and angels. DFJ has a $75 million technology fund.

In response to a question from Shantanu Surpure, the moderator of the VC panel, on risks associated with venture investments, Ashish Gupta made an interesting point. According to him, one needs to watch out for intellectual dishonesty risk on the part of entrepreneur. So what is intellectual dishonesty? An entrepreneur has no idea how the market will look like a few months down the line, but despite that he would like to believe that the market would behave the same way as his businessplan has projected. That’s intellectual dishonesty. Gupta said intellectual honesty is a pre-condition he would look for in an entrepreneur.

To see more pictures, click on any photo.

We were taking a bit easy from posting on Friday since we had to manage our first event. Yes, VC Circle Forum at Le Meridien in Bangalore on Friday had a great turnout despite scores of other events and seminars in the city, and we trust everyone who attended the event went back home happy. The panel discussions were terrific, thanks to a great lineup of speakers. We thank everyone (about 120 attendees) who took time off to attend the forum and made it a success. We had a good mix of investors, entrepreneurs, companies and service providers attending the event. We had to limit our capacity because of hotel constraints, and apologies to all who could not be accommodated because of space limitations.
We will post some pictures over the weekend, and also a snapshot on what the panelists spoke. Your suggestions are welcome on how to do events even better next time. Finally, we want to thank our sponsors UTI Ventures (Principal Sponsor), o3 Capital Advisors (Lead Associate Sponsor) and Blend Financial Services (Supporting Sponsor) for making this event possible.
Update: Click on the photo below to see the whole set of pics (VC Circle Forum, Nov 30, Bangalore).

Balaji Motion Pictures, the film production house floated by Balaji Telefilms, probably the largest producer of Indian television serials, is looking to raise capital by offloading about 10-15 per cent stake, reports Business Standard. The company is apparently in talks with private equity funds, and the report even speculates a valuation of Rs 1,000 crore for the startup.
Although Balaji is an established outfit in TV serials, the company is only making baby steps in moviedom. Some movies it has produced include Kya Kool Hai Hum, Shootout at Lokhandwala (co-produced with director Sanjay Gupta and Sanjay Dutt’s banner White Feather Films).
It may not be easy to raise capital from the traditional private equity firms who have an aversion towards bollywood. But film funds and avenues like London Stock Exchange's Alternative Investment Market (AIM) may be a good choice. The Indian Film Company of Network18 Group and Eros Group (film distribution) have successfully raised capital from AIM. Balaji also plans movie distribution business. It has already distributed Bhool Bhulaiya and Darling. As for the movie pipeline, it intends to produce, co-produce and distribute around 12 films a year.
According to BS, Centrum Finance is the financial advisor to the company.

Lifetree Convergence, a company that provides billing, messaging and business support software solutions to telecommunications carriers, plans to raise $60 million in private equity, reports Business Standard. The Delhi-headquartered company has the backing of Richard Siemens, the man who created the "Orange" brand for Hutchison Telecom, and Craig Erlich, Chairman of the global GSM Congress, who is also an early investor in the company. Lifetree, in addition to billing and messaging solutions, provides products such as web-based self care portals, an electronic bill presentment solution and an interconnect solution for telecom operators, mobile value added services such as content aggregation and distribution. The company's managing director is Atul Chopra, a former investment banker.

Artemis Health Services, the hospital chain promoted by the Apollo Tyres Group, is in talks with private equity funds to raise capital to the tune of Rs 100 crore, reports The Economic Times. The company has invested Rs 220 crore ($55 million) in its first hospital, a 500-bed super speciality hospital, in Gurgaon. The company has already taken on debt (1:1 ratio), and any capital infusion may be through equity route. It plans to set up about 15 hospitals across India by 2015, which will entail an investment of about Rs 1,000 crore. Artemis is also setting up a medicity in Baroda at an investment of Rs 500 crore and and a medical education hub in Haryana.

Cellworks Group Inc, a company headquartered in California with its R&D centre in Bangalore, is looking at raising venture capital next year. The company, which aims to shorten the time to successful drug discovery, reduce costs, increase efficiency and improve success rate of the pharma drug discovery process using systems biology route, is angel funded and was incorporated in 2005. Cellworks has recently set up its R&D centre in Bangalore - Cellworks Research India Limited (CRIL) - which would develop and provide technology based solutions that hasten drug discovery research and development. It can house about 110 scientists. Taher Abbasi is the CEO of the company. See more details here.

We are happy to announce our first event - VC Circle Forum.

Date: Friday, November 30, 2007
Venue: Le Meridien, Sankey Road, Bangalore.
Time: 6.30 PM-10.30 pm. The programme kicks off with panel discussions - one track on growth capital investments and the other on venture capital and technology investments - followed by cocktails and dinner.

Speakers:
Venture capital panel
Sudhir Sethi, Managing Director of IDG Ventures
Ashish Gupta, Managing Director of Helion Venture Partners
Mohanjit Jolly, Director of Draper Fisher Jurvetson
Moderator: Shantanu Surpure, Managing Attorney/Managing Advocate, Sand Hill Advisors

Growth capital panel
Raja Kumar, Managing Director of UTI Ventures
Hetal Gandhi, Managing Director of Tano Capital
Deepak Shahdadpuri, Managing Director, Beacon India Advisors
Moderator: Shyam Shenthar, Managing Director, o3 Capital Partners

(Thank you sponsors for your generous support.)
Principal Sponsor: UTI Ventures
UTI Ventures is a leading Indian private equity firm. Focused on growth capital, the firm has a demonstrated track record of successful investments, led by an experienced management team. The Bangalore based fund likes sectors that address domestic demand driven by a fast growing consumer market; services sectors that benefit from India's infrastructure boom; and sectors that leverage India's outsourcing strengths in services and manufacturing. It's portfolio includes Consolidated Construction (urban infrastructures services), Koutons Retail (integrated apparel retail), Laqshya Media (outdoor media), Subex Azure (telecom revenue maximization solutions), Shriram EPC (alternate energy infrastructure services), among others.

Associate Sponsor: o3 Capital Advisors
o3 Capital Advisors is a knowledge-oriented investment banking and financial services firm that offers a gamut of advisory solutions to its domestic and international client base. The o3 Capital team comprises investment banking professionals with extensive experience of advising clients across sectors. o3 Capital offers the following services:
Investment Banking, Wealth Advisory, Trading & Broking Services.
The key sectors that o3 Capital focuses on are: Consumer Products and Services, Information Technology, Infrastructure, Life Sciences, Logistics, Manufacturing, Real Estate, Retail, Textiles & Apparel.

Supporting Sponsor: Blend Financial Services Pvt Ltd
Blend Financial Services Pvt. Ltd. is amongst the leading and fastest growing financial services company in India with a unique model to serve its clients’ needs. Established in 1997 by Mr. Ravi Gupta, who is the Promoter and MD, the firm has grown itself from a two member to 175 member team today. The other key members on the Board are Ms. Vaibhavi Thakkar and Mr. R Sankarakrishnan. Blend has presence in Equities, Debt, Insurance, Management Consultancy, Investments and Mutual Funds. On the equities front, Blend offers end to end advisory and consultancy services to Indian and Overseas Corporates by way of IPO/PE/Private placement/M&A/ADR/GDR/FCCB route. The firm has served around 300 mid-sized corporates, while currently holds mandate worth $1bn (Rs. 4000crs). Last year, the company has seen a successful closure of 13 transactions worth $450 Mn. Blend has its head quarters in Mumbai. Internationally, it has aggressively expanded and has setup operations at five locations: Hong Kong, Singapore, Dubai, Malaysia and Indonesia. Domestically, Blend is spread across metropolitan cities like Bangalore, Chennai, Delhi, Kolkata, Ahmedabad, Hyderabad, Pune, Surat, and Coimbatore.

Update: The registration to the event is closed. For information on future events and sponsorship opportunities, please contact sahad@vccircle.com

Not sure if this will happen so soon. Because we have been hearing this for long. The government is apparently thinking of allowing foreign law firms in India in phases, says a report in The Economic Times. In the first phase, they will be allowed to advise clients on laws in countries other than India. So Indian companies can hire services of foreign law firms in the case of a cross border M&A, international fund raising or any such things where they need to know about the legal issues in a foreign country. I thought this was already happening albeit discreetly. Probably, it will get legal sanctity now.
In the next phase, overseas law firms will be allowed to form partnerships with Indian firms (this has also been happening, for instance, there are some Indian firms with referral partnerships with overseas law firms). Foreigners, however, will not be allowed to appear before courts.
After these two phase, the government will look at allowing full market access for overseas law firms to practise Indian law. The law ministry also plans to set up a regulator to monitor foreign firms. The matter may now get closed faster. The law ministry has apparently received recommendations from all the leading law firms. They will now consult the commerce ministry which is the authority on allowing market access in services. Minister Kamal Nath is personally in favour of opening up the sector. Only if Bar Council allowed him now.

Exclusive: It's known that global buyout fund Kohlberg Kravis Roberts & Co (KKR) is considering setting up an India office, but what is not known is who is heading it. Industry sources told VC Circle that Sanjay Nayar, Citigroup's India boss, is being considered for the job. This information could not be verified from the bank nor Nayar, however, highly placed sources said that Nayar could be headed to KKR.
Till now, the recently ousted Citigroup Inc CEO Chuck Prince was said to be holding Nayar back. Now that Prince has been removed from the job, it's likely that can make Nayar's decision faster.
Last month, reports suggested that KKR had sounded of a few law firms in India for setting up an office. Once KKR comes, that would complete the roster of PE biggies in India - which include TPG, Blackstone and Carlyle, among other large funds.
Since it was founded in 1976, KKR has done some 150 transactions with an aggregate enterprise value of over $318 billion. As of June 30, 2007, KKR’s equity investments were valued at over $78 billion on over $31 billion of invested capital, a multiple of 2.5 times, the website claims.
KKR has done only one deal in India, though. It bought out Flextronics Software, the software business of Flextronics International, for $900 million last year. It was the first leveraged buyout deal in India. KKR interestingly did this deal out of its international offices. The firm has six offices worldwide - New York, Menlo Park, Paris, London, Hong Kong and Tokyo.