Reliance Venture Asset Management Ltd, the venture capital arm of Reliance Capital, is on an exit mode. After managing an IPO exit when Sequans Communications listed in New York Stock Exchange two weeks ago, the venture firm has received another exit as one of its overseas portfolio companies Pelago Inc. was acquired by the leading online group buying company Groupon Inc. Reliance Venture invested $5 million in Seattle’s location-based services firm Pelago in 2008.
It was a stock-for-stock swap deal and the entire Pelago team will be joining Groupon. However, the transaction details are not revealed yet. Pelago was founded by former senior executives of Amazon.com.
A top Reliance Venture official said that his firm “will receive a premium of 80 per cent” on its holding if Groupon IPO is priced at a valuation of $25 billion. Harshal J Shah, CEO of Reliance Venture Asset Management, added that the firm would receive a 4x-5x additional return upon Groupon’s listing.
Shah told VCCircle that there was a bidding war for Pelago Inc. between Facebook, Groupon and other online behemoths which culminated in Groupon winning.
This is Reliance Ventures’ third exit so far. The venture recently announced its exit from French 4G chipmaker Sequans Communications, which was listed on the New York Stock Exchange (NYSE).
Previously, it exited Dhama Innovations through a secondary sale to private equity investors. It is now in discussions with several other portfolio companies for exits.
The Pelago Advantage
Pelago offers a B2C product called Whrrl, which is a mobile and online service that combined location information with social networking. Whrrl was available only to US customers and is being shut down, according to media reports. The company’s primary offering is its backend technology, which is being retained. This technology will allow Groupon to offer its users deal alerts based on their location, with an additional discount. “This is a tool that offers first degree price discrimination,” said Shah.
Shah claims that Pelago has been doing well but was unable to share revenue or profitability. “The company was founded by Amazon executives with validated technology and has a product roadmap for 5-10 years. It has developed a set of services that will now allow Groupon to capitalise on location-based services across the globe, including India,” he added.
Groupon India will be launching new types of deals that use Pelago’s location-based services in India through Groupon India (Sosasta.com).
“It will be natural for the company to roll out the products considering India has a huge price conscious consumer base,” an industry expert told VCCircle.
Will Location-Based Services Help?
Asked about the stagnant LBS sector in India, Shah said, “LBS in India do not have a large consumer base like Groupon does. Pure play location-based services have not been successful so far. But Groupon’s network-based effect will make it successful in India too.”
Incidentally, Mobile location-based start-up Mojostreet has recently received a seed funding of $350,000 from Srini Koppolu, former managing director of Microsoft India Development Center, and J.A. Chowdary, former managing director of Nvidia India.
Reliance Ventures has also raised Rs 200 crore for online travel portal Yatra.com. “Yatra is scaling up very well. We are valuing it slightly over 10 per cent. The focus will be on growing organically, exploring inorganic opportunities to augment growth rates, ensuring deeper technology presence in each of the verticals and increasing management strength,” said Shah.
He added that with domestic hubs being upgraded into international airports and early adopters moving into international bookings, the sector had received a boost.
Extrapolating Yatra’s offline strategy, Shah said that Yatra is focusing on customer acquisition through point of presence in offline stores. “A large part of the travel industry has been dominated by offline players so far, and the real challenge is to bring about the switch from offline to online,” he added.