The recently concluded big ticket investment of Norwest Venture Partners in NSE ( National Stock Exchange) is the third investment by the fund this year. The venture capital firm has investments in infrastructure management services (IMS) company Appnomic Systems and also picked up stake from open market in mobile value added services firm OnMobile.

Norwest hired Sohil Chand last year to focus on growth capital, PIPES ( Private Investment In Public Enterprises) , and late stage investing. The investments in NSE and OnMobile are pretty much on those lines. “I think we will be doing some of these kind of deals going forward. This will be a large part of our strategy,” said Chand in an interview to VCCircle.

The strategy adopted by Norwest, a Silicon Valley based venture capital firm, is being fast adopted by its peers who have set up shop in India. Players like Sequoia, who have been present in India for 5-6 years, have already adopted a strategy of growth capital deals several years ago. Others like Mayfield, Draper Fisher Jurveston, Matrix Partners have also showed a leaning toward late stage, growth deals.

Recently, players like Battery Venture and Lightspeed Venture Partners have also showed an interest in this area.


The last two investments by Norwest have been secondary deals, in both of which it has been classified as a foreign institutional investor (FII).  Chand believes that secondaries are good opportunities at this time. Several players are evaluating to sell their stake in secondary deals for various reasons like simple profit booking or liquidity concerns. Norwest is also actively looking at primary deals.

Norwest is looking to do more growth deals going into the year. “Sectors with highest priority are financial services, infrastructure and agriculture,” said Chand, who was part of Goldman Sachs private equity team in India before joining Norwest. Co-incidentally, Goldman has also invested in NSE and OnMobile.

NSE Deal: Valuations

The investment in NSE by Norwest was done at a per share price of Rs 2650, valuing the firm at Rs 11,925 crore, sources close to the development told VCCircle. The investment by NYSE, SAIF Partners, General Atlantic, Goldman Sachs, Actis, Morgan Stanley and Citigroup was done at Rs 2,250-Rs 2,500 per share. This was in early 2007 and since then the profitability of NSE has increased dramatically. The exchange has profitability of Rs 700 crore for FY08, double from that of 2007, the source added.

Also in last couple of years several domestic institutions and high networth individuals (HNIs) have bought stake in NSE at share price upto Rs 3,500, added the source. That would value the exchange at Rs 15,750 crore. These buyers include Azim Premji's private equity firm PremjiInvest, Hero Honda and Srei Infrastructure Finance.

The deal was first after government drafted a regulation saying that FII’s could take upto a 23% stake in NSE. The overall foreign shareholding allowed in NSE is upto 49%, with FDI of upto 26%. The FDI limit was reached when the consortium of investors picked up stakes in early 2007. The investment agreement for NSE-Norwest deal was signed before post-election bull run started.

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