SAIF Partners, a leading Asian private equity firm with $3.5 billion in assets under management, is looking at ramping up its early-stage deal-making activity in India. The asset management firm, which likes to position itself as sector and stage-agnostic, is looking to close three more early-stage deals, a top official of the firm told VCCircle. It also has the right reasons to do so.

In a part of the world where private equity is just about a decade-old animal, SAIF has seen through the emergence of a handful of companies that scaled up from being start-ups to formidable names with sky-high valuations.

For instance, its early-stage investment of $24 million across various rounds in online travel portal MakeMyTrip generated a return of over 15 times on its original investment. The travel portal raised its first round of major funding from SAIF Partners in late 2005, getting $10 million. SAIF took part in both Series B (2006) and Series C (2007) round of MakeMyTrip, which cumulatively raised $28 million.

While the industry went through a tough time during 2008 recession, MakeMyTrip survived that period and filed for $100 million issue in July, 2010. As the issue valued the company at $450 million, the firm’s market capitalisation zoomed to over $1 billion soon after the listing, thanks to strong investor interest.

It was not the first time that SAIF had had a success in the consumer internet space with MakeMyTrip. It was more like revisiting the success scenario for SAIF which had earlier met with huge gains on its investment in Sify.

“In terms of early stage, the firm is primarily focused on internet-related investments which include both commerce and content-driven models,” said Ravi Adusumalli,  managing partner of SAIF Partners.

The private equity firm has been steadily carving out an early stage portfolio for itself. It has already invested in very young companies like Firstcry, an e-commerce offering which claims to be the largest baby products shop, and Inkfruit, an online T-shirt store. While it invested $3 million in in January this year, SAIF followed it up with $4 million in in April. It would be hoping to replicate the success in other early-stage transactions.

SAIF Partners was also the first institutional investor in JustDial, a Mumbai-based local search firm which provides both B2C and B2B listings of small and medium business advertisers across the country. This investment is already sitting with big unrealised gains for the private equity firm which invested close to $11 million in the Mumbai-based company and expects to make 20 times on the overall investment. 

The local search engine set-up by first-generation entrepreneur VSS Mani just raised around $10 million from SAP Ventures and Sequoia Capital Global Equities at a Rs 2,000 crore valuation, thereby already translating to a significant step-up in the valuation from the earlier round led by SAIF Partners. The IPO is expected to be at a valuation of over Rs 3,000 crore.

In another of its other early-stage bets, the PE firm infused $17 million across various rounds in Noida-based One97 Communications, a leading mobile value-added services company and expects to make about 5 to 8 times on its overall investment.

In its earlier exits, Intelligroup Inc. (IT services firm) was acquired by NTT Data Corporation for about $200 million. SAIF also made an open market exit in Mindtree Ltd and Thermax Ltd in 2009. HSBC InvestDirect (India) Ltd, another of its portfolio companies, was acquired by HSBC Securities & Capital Markets India Pvt Ltd, valuing the firm at $275.4 million in 2008.

Is Venture Investing Finally Taking Off

So, are these early signals hinting at venture investing finally coming of age in India?

“Yes, I believe it is. Given the growth of internet penetration and successful exits such as MakeMyTrip, JustDial etc., venture investments are finally taking off,” said Adusumalli.

SAIF’s billion-dollar exit from MakeMyTrip is being touted as the poster deal for the domestic venture industry. “MMT was the first big multi-bagger opportunity for a fund in India as earlier debuts like Rediff etc. on NASDAQ didn’t do too well,” said Shailesh Vickram Singh from Seedfund, a firm which only makes early-stage investments.

For those who have worked with SAIF Partners believe that their speedy execution and a top-down approach towards investing is unique. “SAIF is a very thesis-driven investor. They nail down a term sheet in a week. They know what sectors they have to be in – either they will invest or create their own company in that space,” said Deepak Srinath, founder of Viedea Capital Advisors, a Bangalore-based boutique ibank which specialises in making early-stage investments.

While one private equity firm’s success is not reflective of the industry as a whole, there have been a few other successful early-stage exits as well. Recently, Axel Springer AG, one of the largest multimedia companies in Europe, along with the home-grown media company The India Today Group, picked up 70.4 per cent stake in Automotive Exchange Pvt Ltd, the owner of automotive classified ads portal

In 2006, Carwale raised funding from Seedfund, diluting about 30 per cent stake. It raised another $7 million in commitment from Sierra Ventures in 2008. The early-stage investors are understood to have made several multiple returns on the deal.

In another transaction, British media group Pearson Plc. Recently acquired Bangalore-based education-cum-consumer internet services firm TutorVista Global Pvt Ltd by increasing its stake to 76 per cent for $127 million (Rs 577 crore). Pearson had picked up around 17 per cent stake in TutorVista in June, 2009, and with this deal, invested a total of around $139 million (Rs 622 crore) in the firm. The latest deal valued the five-year-old company at $213 million (around Rs 960 crore). The deal marked an exit for TutorVista’s venture investors Sequoia Capital and Lightspeed and strategic investor Manipal Education and Medical Group.

Even two-three years ago, an IPO or a write-off was seen as an exit opportunity in a start-up as M&A activities in small companies were rare. However, the increasing number of such exits has opened a whole new way for VCs to liquidate their investments who can now look at several opportunities instead of just aiming at the IPO as an exit option.

VCs investing in India went through that much-needed learning curve to understand the India market. Those who opted for a typically US-based approach to Indian investing also had to re-invent themselves. “VCs are now much more confident as they now know what would work,” said Srinath of Viedea Capital Advisors.

The maturation of the VC industry is also evident from some of the recent exits where exits have happened at the pre-IPO stage or at various stages of a company’s life and not necessarily when they hit the IPO.

Recently, Seedfund – whose portfolio includes very young companies like Redbus, Vaatsalya, AFAQs, Printo, Thinklabs and Edusports – has closed its second fund with a total investment corpus of $54 million, thereby signalling the increasing confidence of LPs or institutional investors into early stage.

Venture capital investment in India is really constrained due to the lack of healthy exit situations, as Indian companies rarely acquire companies within India unlike their western counterparts. “An entrepreneur or investor must have many ways to get an exit even if his venture does not become super success,” clarified Singh of Seedfund, who was an entrepreneur before becoming an investor. Srinath also feels that there are not enough early-stage M&A activity yet and it has to really evolve to become a meaningful exit option like an IPO.

One of the most common disappointments of LPs or institutional investors injecting monies into private equity and venture capital funds in India has been the inability of the fund managers to show returns or exits on their portfolios. This has, in fact, kept a lot of investors away from investing or re-upping their portfolios. It was also believed that the risk-reward ratio in India does not favour venture capital investments and that private equity remains a safer asset class as far as alternative investments are concerned.

But this trend is changing. “The slew of activities taking place in the last two-three years make a strong case for VC investments as well,” Seedfund’s Singh added.


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