Venture Capital Pundit

The advent of social networks in the U.S. (aka Facebook) has given rise to a whole new use for the Internet (said in jest of course). Nonetheless whether you are too old or too confused to understand this trend, real money is blooming. So, you would think, India with its vast population and generally more social/group culture would be very well positioned to take off with social networks? I mean how else do I keep track of whose shaadi I have to go to and that it is actually my mother’s maternal cousin’s daughters’ neighbors’ family friend and we HAVE to go. Without these social networks I could never keep track of these type of events!

Oh its coming to India with a strong value proposition (noted from the HT): “Social networking sites also offer a better target audience with better profiling of registered customers and their consumer preferences, while allowing advertisers a chance to tap into a captive audience for their specific brands.”

Mind you that Orkut’s largest fan base is India (other than Brazil). On that note, Google’s revamp of Orkut has found no love. I have to agree…it is kind of blah mostly given it has been soooo long…

Ok, let us get serious, here is a roll call of social networks related to India:
Saywit : A Web platform for Creative and Cognitive Fun
Frustu: Platform for sharing frustration
Sportsvite: New Sport Social Network
Kincafe: Web 2.0 family social network
SaffronConnect: Self-labeled “Networking Destination for India”
HumSubka (last time tried this there was a ASP crash — oops)
Jhoom: Entertainment Sociali-zation
Minglebox: Facebook meets India (in Alpha)
Yaari: Another social network (in beta)

With the recent Rs 10 Crore (US$2.5M) investment of Nexus India Capital into MapMyIndia.com, I got curious on the site. Mapping a place like India is difficult due to varying standards and lack of consistent infrastructure. And $2.5M does not seem like a lot for something that would require a fair amount of labor. Now Nexus’ portfolio does include other mobile plays, so persumably they have vetted the technology.

The site is fairly slow, but interesting. I entered “Guargon” and it understood I meant “Gurgaon” and went to the correct location. The Ajax-y interface was relative smooth, once the page loaded (about 20 second wait).

I did think about the recent Google effort to give tools to people around the world where Google’s map provider did not have much data. That sort of grass roots effort with Google-love-fever may actually turn out to be more effective.

But I must say the one feature that impressed me most and fit right into the Indian culture (and reality) is the milestone signs like “Cross Shaktinath Jain Temple on your RIGHT”. This is somewhat sort of addressed by Google’s open API where people can apply a layer on top of Google maps or even create new maps.

What is the business model or exit strategy? Well if the U.S. is any indication, the search engines are buying the mapping providers, locking out others from using the service. Eventually mapping leads to local search and advertising, a relatively hot area.

If you have considered offshoring, you have probably, at some point, thought about if you should go to India or China. Likewise if you are looking to launch a startup or fund one, that question also arises. I looked at some research in this space to shed some light on the matter. The bottomline? India is a better bet going forward.

The main reasons for this conclusion is mostly to do with the macro factors in India:
1. India is more efficient in energy use [I know sounds hard to believe, but China has a higher usage of oil on cars, etc..], which will be big factor in inflation and other economic influences.
2. India has more developed capital markets allowing for a better range of exits.
3. India has about 25% of its workforce in the ideal range of 20-35, about 4% more than China. This will allow India to catch up in terms of productivity and economic growth as China’s population ages.
4. India has a wide population that speaks English, allowing for lower barrier to foreigners to acclimate.

As for metrics:
1. An average Indian company will post a 16.7% return on capital vs. 12.8% on return in China.
2. 89 VC Firms and 292 registered VC professionals are estabished in India

Proof points:
1. Warburg Pincus has $1B in accumlated investments in India vs $250M in China
2. Indian VC investments have gone up 70% (despite a general drop in investments in Asia overall).
3. Overall India has captured about 24% of the Asia-Pac VC dollars.

I do recall (about 10 years) when I went over to India to shutdown my firm’s operation there. It was an in-person visit since we had to ensure the secure destruction of data and equipment. The sad part was that equipment took longer to get to our offices than our offices were open. Those days are long gone as India is currently leading China over import/export and banking structure.

All rosy? No.

It is still difficult to do business in India. In that regard China is leading with more stable government policy development, better infrastructure, and overall more attraction of business/investments generally. They key weakness is in infrastructure for India.

So what do you do with this information?
1. Realize while doing business in India is not as easy as in the U.S. the mid- to long-term advantages and trends favor getting in now.
2. Focus on software and intellectual capital oriented businesses. Infrastructure requirements are generally lower. Intellectual capital is very good.
3. Hedge your bets. Establish funds in the U.S., India, and China. You may wish to allocate more towards India for software oriented applications, and focus on infrstructure heavy (manufacturing) investments in China. The U.S. is a perfect place (for now) to bet on cutting edge innovation.

[Sources used in this report include Cedar Consulting Report and the a paper by J Sagar Associates.]

Who would have thought Wi-Max with its heavy investment infrastructure, legal snafus, and general unfamiliarity among consumers would be supported so strongly in India?! Intel Capital recently announced their intention to support an investment in India. They said that “We are very actively exploring Wimax (an emerging wireless data standard) deployment in India; we have been working with regulatory bodies Trai (Telecom Regulatory Authority of India) and other government officials to get the allocation of spectrum done as rapidly as possible.” This new investment will be part of an inital $250M fund launched in 2006.

Intel has also invested in Clearwire, in the area of high-speed wireless broadband services. Clearwire’s executives come from the cellular industry, so they will have a “clear” understanding of how difficult this type of technology can be to bring to the mass market.

Okay no secret that India has Google-love fever. Orkut is only alive due to the huge popularity of the service there [purely factual conjecture]. Now Google is getting in on the funding game. Google is now an instiutional investor in New Delhi’s Band of Angels (the flash animation on the site is spot on in terms of the Indian filmi approach). Although, technically, this is not the first venture (it has invested in the Seed Fund and Erasmic Venture Funds) this appears to be the boldest move into that geography. Erasmic has funded Postion2 [no link provided since they ARE an SEO firm, so search away!] whom I recently met at the Searchnomics event last month. Google shares the spotlight with Naukri, Lightspeed Venture, Punjab Venture Capital, and SIDBI Ventures.

With the introduction of Google in the fund, I wonder if the fund will ask money seekers their ungrad GPA before accepting a billion dollar startup idea? hmmm…

This is getting old…another venture fund plops down some cash for India (get in line!)

Bessemer Venture Partners plans to set aside US$350M for India. Bessemer actually has been in India for 3 years already with investments in 12 companies already.

Here is a quote that highlights how this is a huge trend:

“India has been an exciting investment opportunity for us,” said Rob Chandra, a Managing Partner at BVP. “Just as we saw the long term opportunity when we went to Silicon Valley in the 1970s, we see a similar opportunity in India driven by the growth in middle class prosperity and innovation. We have an exceptionally experienced and highly dedicated team on the ground in India who is helping us build a great investment practice by combining local expertise with a great global investment platform.” [Press Release from BVP]

One of these days I intend to create a geographic map in India and map out who has invested where. Kind of like those “Guide to Silicon Valley” type maps. If you have been in the Valley, you know what I mean.

I am interested in learning how these funds have adjusted their metrics and funding philosophy for India (vs. the US or even China) as India is unique as a market in its own right.

Here are the BVP India funded companies:
2007 Lakshmi Energy and Foods
2006 Anant Raj Industries
2006 Motilal Oswal Financial Services Ltd
2006 Sarovar Hotels & Resorts
2006 Shriram EPC Ltd.
2005 BA Systems
2005 Rico Auto Industries Ltd.

Got a tip for The Pundit? Drop an email to: kapil (at) vcpundit (dot) com.

Here is the portfolio for Sequoia India…

Oh and in case you were missing India (or fascinated by it):

Ok to be fair, Yahoo already had a presence in India. But given their current malaise, I am not sure why a company would want to be acquired by Yahoo. A fast, quick exit for the founders, no doubt.

What am I talking about? Well Yahoo recently acquired a large stake in Tyroo, an Indian based online ad company. There is a lot of talk about trying to capturing all those consumers in India through advertising. From my point of view Indian ad agencies really do understand how to advertise to the masses. After all you have highly fragmented population in terms not having access to the same media (TV, radio, etc..), consistent infrastructure (just because you advertise on a show at 8pm, doesnt mean the town has power to watch it), a range of economic demographics, 1,000’s of languages/dialects, etc… So I am wondering if Yahoo just wants another distribution mechanism with Tyroo (hence a stake vs a buyout)? Tyroo claims to have over 1,000 publishers using their services. One of their investors is Smile Interactive Technologies Group — which is worth checking out in another post.

What do you think? Is Tyroo struggling, hence the Yahoo offer acceptance? Was Yahoo being aggressive in pursuing them (desparate to get market share?)?

A social network for enterprises?! Everyone is in on the game. Dilemna’s galore…do I invite my manager into my corporate social network? How about that annoying co-worker? What about my staff? Do I need multiple accounts? eeesh..

Well I can’t say these are questions that will hit ConnectBeam anytime soon. They a startup based in Newark, CA and closed US$3.5M in a Series A led by Gabriel Ventures (of NetScaler and PlaceWare fame) and Startup Capital Ventures (I will have to post an interesting story on their WhiteHat Security investment one day). Although they launched in June 2006, I think they will get more visibility these days. (Gee I wonder what their Facebook strategy is? Sorry I couldn’t resist.)

Too lazy to check them out? Well you can check out the video by their CEO or be less lazy and signup for a demo (but they will “get back to you” if you signup for the demo — so no immediate gratification there). When I launch VCPundit.com, I will do a review of them there.

By the way, if you have a startup concept or company product you want me to review, send me a note: kapil (at) vcpundit (dot) com. I do user experience level reviews and supplement them with interviews from the company.

The Hindustan Times has reported that Rediff may be acquired by Yahoo, AOL, or Google. Rediff has a hugely popular portal presence in India. So why does Yahoo, et al care about India? Consider the general trend in demographics in India…a huge, young age group that is also the key target for most technology companies.

The valuation in the case of a buy could put Rediff at US$1Billion. Rediff’s shares have seen a huge explosion in terms of trading volume and its share prices have rocketed from US$17.94 from July 5 to $25.41 on July 13.

I suspect Yahoo is more desparate for this move. AOL is using Google’s search engine, so buying Rediff gets them more eyeballs, but not a diversification strategy in the search space. And generally Google has been strong in non-US markets. In the UK, for example, Google has nearly 75% of the search market. Google’s Orkut (social network service) dominates in India. Although Yahoo could continue its poor execution and miss out on this deal or just overpay (remember the Facebook rumors/deals from last year?).