Flipkart, Rediff, MakeMyTrip — American market myopia has inflated Indian internet company valuations once more. Our bubble could burst in another six months, warns MAHESH MURTHY

I’M SUPPOSED to be the risk-taking investor, throwing caution to the wind, picking good teams with great ideas and zero revenues — then backing them against all odds in the hope of a high multiple. While the stock market and private equity (PE) guys are supposed to be the cool pros, weighing decisions based on established revenues, profits, multiples and such, making safer bets.

But this is identity crisis time — have I suddenly become a namby-pamby? Is the world speeding by and have I missed the shinkansen?

I hear that Flipkart, a loss making company with FY11 topline revenues in the sub- 100 crore range, is raising a round at a $1 billion (that’s 4,500 crore) valuation. And then I hear that its main rival, the similarly-sized Infibeam is doing exactly the same.

I’ve seen this movie before. In 2000. And 2007. A price-to-sales ratio of 50 times? A PE ratio of infinity? What could the logic be to value firms at these numbers?

Have we not learnt our lessons from our earlier wounds? Are there any comparables here? MakeMyTrip (MMT) just announced gross revenues for the year of 550 crore, net revenues — if you take out the cost of hotel rooms they count as sales — of 270 crore and a profit of 23 crore. That’s about 8 percent on net.

A travel agency with 270 crore in revenues and 23 crore in profit is not likely to raise a bead of sweat on Dalal Street. But it’s raising thunderstorms on Wall Street. The stock goes up to a 4,000 crore market cap. That’s enough to buy two Kingfisher Airlines and have enough left over to buy a few Mallya-type yachts. Two hundred times profits? Fifteen times sales? What’s up with the Yanks? Do they know something I don’t?

Past experience says it must be the US myopia on India (“Let’s just buy the Indian expedia!” says a man in a suit in a glass-walled Manhattan office. “Sure, boss,” the underling goes. “And the Indian Google”. “Brilliant, boss”. Little do they know the Indian Google is... Google and the Indian Yahoo is... Yahoo. But I digress.)

US market myopia is perhaps the single cause of survival for our other bellwether Internet firm, Rediff.com. This 15-year-old company announces its third straight year of losses and would be slaughtered if it was listed in India. Once India’s no. 1 site, it’s now barely in the top 10. Four years ago, when the Indian ad market was around 650 crore, Rediff did one-fifth of it with 130 crore. Today, in a digital ad market of almost 2,000 crore, Rediff does less than 100 crore. Some idiot stock analyst in New York calls it “the Google of the Ganges” and clueless punters take the stock price up to a market cap of 1,300 crore.

I never knew calls with analysts would be so easy. Three years ago, Rediff told them: “Wait for broadband, then see.” We did, and nothing happened. Now they say “Wait for 3G and see”. In all this time, Yahoo has grown past it — and Google is now almost 10 times as big as either. My prediction? After 3G is passe and the others have grown even bigger, they’ll say, “Wait for 4G and see”. And some fool on Long Island will take the stock even higher.

Market cap to me reflects two things — either the value of the earnings or cash flow discounted into the future — or a proxy for the cost of replacing the company if one were to rebuild it from scratch. With no earnings, no growth and just losses to speak for, discounted cash flow (DCF) is not the issue with Rediff. And would it really take 1,300 crore to build out a portal like this with 100 crore in flat-lined revenues? Not a chance. Most of us venture capitalists (VCs) wouldn’t offer even 1/25th as much if someone approached us with such a plan. So why is the “safe” public market offering much more than what us “risk-taking” VCs are? Maybe it’s tulip time again.

Applying this same logic to MMT and Flipkart brings the same conclusion. Does either have such a lock on the market that it’ll take 4,000 crore or more to dislodge them? Nah. They are barely ekeing out a living — neither shows much customer loyalty, both compete every day on price. Each has stiff competition. So what’s with the valuation insanity?

Is it some big Internet boom? Well, I think the boom’s already happened. We’re at a 100 million plus users now. And will be at 150 million in a year or two. And most of that growth will come through mobile devices, not landline-driven computers. So do I see an incredible jump in air ticket sales only through MMT only through phones and tablets to justify a 15x multiple? No Sir, I don’t.

Public markets have their own hysteria and I’ve learnt over time to stay away from the madness. But private markets?

If a private equity firm is valuing Flipkart at $1 billion now, this must mean they see it worth $3 billion sometime soon — either to an acquirer or to the public markets when they flip it. Who would pay 13,500 crore for a loss-making e-commerce portal? Amazon.com? Unlikely — from what I hear, they are already well underway setting up in India.

(But I will take this aside and talk of nonsense accounting practices at some of these e-commerce firms. Here’s how it works: a book has an internal cost price of 100. Offer it at 120. But at the same time, offer a coupon or such for 30, so you finally realise only 90. But show the selling price as 120, count the 20 as net positive income and show the 30 coupon as “long-term amortisable marketing expenses”. One day, some big four accounting firm partner will go to jail and then this loophole will be plugged.)

Coming back to why private equity chaps are going bananas. Perhaps they think they can pull off an MMT or Rediff by listing it overseas. Where Joe Schmoe will be told “it’s the Amazon of India” and hence in a frenzy mortgage his home and plunk out big greenbacks for it, in the hope that a greater fool will take it off him at a higher price.

Yes, there’s money to be made in this madness — but not by me. I’m not a speculator.

It is ironic that we say the Indian stock market is full of speculators and overseas markets are far more rational than us. I see exactly the reverse happening.

The men in Manhattan are chasing unicorns, while Mr Patel in Surat is asking in puzzlement where the rokda is.

Stay calm, Mr Patel. This world will fall apart soon enough. My guess? Another six to 12 months till valuations come crashing down again. And till investing bargains come by your way and mine.

So till then, don’t buy these stocks or stories. Instead, buy a book or a high-fashion bauble at a ridiculous discount from any of these firms.

That’s where the real bargain is — and that isn’t going to last much longer.

Murthy is the co-founder of Seedfund, a venture capital firm and founder of Pinstorm, a digital brand management firm. Follow @maheshmurthy on Twitter

Irina: You invest not only in technology companies but in companies in other sectors, right?

Pravin: Yes. India has many opportunities and challenges; technology adoption is not the best here. There are enough opportunities in different business models on how to do things better and more efficiently. We have done a bunch of hospitals in class B and class C cities. 

It is not that there are no hospitals in this country. There are many hospitals here, but there are no hospitals that are run efficiently and provide value for money to the people who need and pay for these health services.

Irina: What type of investment you usually do?

Pravin: They are all common shares. There is not a big concept of preferred shares here, but in the shareholder’s agreement, like any typical investor we will have some veto rights, some need for approval on capex, and some liquidation preferences. They are pretty standard rights.

Irina: What are your challenges as an angel investor?

Pravin: One challenge from the supply point of view is the quality of entrepreneurs. I have the money to invest, but the entrepreneurs are not mature enough. That is a challenge and sometimes we spend a lot of time nurturing them.

Second is the country itself. There are challenges of technology adoption and [understanding of] how business is done, so the market can be inefficient. To that extent, growth is not always as spectacular or “hockey stick shaped” as you would like it to be.

The ecosystem for early stage investment here is so poor, there isn’t enough money available in any case, and there are not enough mentors. It is not yet clear to me whether there are not enough entrepreneurs because there is not enough money or if there is not enough money because there are not enough entrepreneurs.

We haven’t seen much success for a country of a billion people. Israel can probably show much larger success ratio than India can. The ecosystem is still weak and that needs strengthening. Government interventions and some incentives are needed, but I think that there are bigger issues to solve.

The problem with incubators is real estate. For example, at any point we can incubate only three companies. One challenge in India is that lot of entrepreneurial work is not about developing an IP sitting at home or two guys in a garage. Many of these are execution plays, which means that at the very start you may have 10 to 12 people, which make it very difficult to execute out of homes.

People in India, for example, don’t buy off the Internet as easily as they might in the U.S. Which means you must have a sales team or at least a salesperson who physically has to go and do stuff, and then [you need] someplace for a team to develop software. Very quickly it become three to four people.

In a typical U,S. entrepreneurial model, the teams are small, basically it is around IP development. This works very easily. Here, it may not be a common occurrence.

Irina: Could Flipkart be is a good role model for Indian entrepreneurs?  They started from home, right?

Pravin: Do you know how many people Flipkart has today? Two hundred. It did start from home to the point that they built a website, but the minute you talk about warehousing, logistics, staff grows quickly.

CarWale also start from home in that sense. Generally,  if you want to be in the market quickly, that is perhaps in two to three months, it is no longer a home-based business.

 Irina: Thanks, Pravin. This has been a really interesting discussion. Thanks for your time.

Seedfund’s unique experiment is spurring early stage investing in India

CLUB SEED: (From top left) Shreyas Srinivas of Level 10 with Seedfund’s Pravin Gandhi, Mahesh Murthy and Anand Lunia (BW Pics By Satheesh Nair)

Most people redefine themselves in one way or the other when they make a comeback. This holds true for the Indian venture capital industry, where former adventurers got tamer after the 2000-01 Internet boom-and-bust. Pravin Gandhi and Mahesh Murthy, however, have remained exactly the same. And, yet staged one of the industry’s most successful comebacks with Seedfund.

Tuesday afternoons are usually a good time to visit the Seedfund office, tucked away in a by lane off the Mahalaxmi racecourse in mid-town Mumbai. Gandhi, Murthy and team members Anand Lunia and Paula Mariwala can be found poring over monthly reviews of portfolio companies or talking deals. Sometimes Bharati Jacob, the firm’s Bangalore-based managing partner, joins. Tuesday is also when the team catches up with each other’s lives. They mostly work from home or are in the field the rest of the week. It is a throwback to the informal way many VC firms worked when ‘dotcom’ was not a bad word. “It was a good experience for this country as it chastened a lot of people. The true entrepreneur — driven by passion and willing to make sacrifices — began to emerge after that,” says Gandhi, referring to the excesses that marked the era.

Yet, it did not change the way Gandhi and Murthy saw VC investing. In 2006, when they raised Seedfund’s $15-million maiden fund, they had no doubt that they would back only pre-revenue startups. “There was enough money above us. So we picked the seed stage as our sweet spot,” he says. This is where firms need that critical $50,000 (up to $1 million) to build a prototype and test their idea in the market. The strategy was validated last November when German media company Axel Springer bought majority control in automobiles classifieds portal CarWale. Seedfund had picked up 25 per cent in the firm for $690,000 in 2006 and made a profit of $25 million on exit. When the firm invested in CarWale, it had not even raised its first fund. “They wrote us a personal cheque of Rs 30-odd lakhs,” recalls Mohit Dubey, founder and CEO of CarWale.

Teething Time: MyDentist, founded by Vikram Vora, is incubated by Seedfund. It offers affordable dental care

Firms such as CarWale fitted nicely in Gandhi’s own sweet spot. Gandhi has never enjoyed investing in mature firms with proven business models. An active angel investor since 1996 and an early-stage investor with Delhi’s Infinity Ventures, he continued to back ground-up startups well after the crash. In Murthy, who earlier ran early stage fund Passion Fund, he found a kindred soul. While Murthy used the void left by the dotcom crash to start digital advertising firm Pinstorm, he continued to engage with startups as a mentor. “At one point, we were practically running every business plan contest in India,” he jokes.

The exposure to startups of different hues had a big role in firming up the belief that there was a clear need for a specialist seed-stage fund. This unique approach, which mirrors the classical VC style of investing in the US Silicon Valley, has led to 16 deals so far. The first 12 have come from Fund I, which is now fully invested and already in exit mode. Another four have come from Fund II, which the firm raised with a $55-million corpus this February. “We will announce three more deals,” says Lunia, executive director at Seedfund. While a larger fund will allow the firm to put more money to work, the investment thesis will remain the same. “We try to invest in ideas we think will become sector leaders, often creating new sectors,” says Lunia.

So far, this thesis has been borne out by most of the firm’s investments. Vaatsalya, founded by doctors Ashwin Naik and Veerendra Hiremath, is now the acknowledged pioneer of affordable hospitals for smaller towns. It has just raised a $10 million round of funding from Singapore’s Aquarius Capital and is surging towards 20 hospitals by end 2011. Online bus ticketing portal redBus has notched up Rs 120 crore revenues and 3.6 million users. Education solutions startup ThinkLABS Technosolutions now has a presence in 25 schools and 10 colleges. It expects to reach Rs 10 crore revenues by March. “When we met Seedfund in 2007, we did not even know what VC was. It played a big role in helping us become a full-fledged business,” says Gagan Goyal, founder and CEO of ThinkLABS.

Seedfund has had a few other exits, too. It sold its 54.5 per cent stake in online financial services startup Rupeetalk to Delhi-based NetAmbit. It had invested $940,000 in the company in November 2007. It has also partially exited personal health records portal Healthizen and sold off its stakes in SaaS startup Uhuroo and social networking startup Lifeblob (bought by Printo). Not all the exits have been successful, though the investment in each has been under $1 million. “We realised early that some would not make it, and it made sense to cut losses,” says Lunia.

The experience with some of the early exits also drove home the point that a larger fund may have enabled the firm to stay invested in some firms longer. Fund II gives it the ability to do that now. It will invest in companies in e-commerce, mobile value-added services, media, healthcare, education and SME-focused IT products. The ticket size will be $2-3 million to begin with.

All For Cubs
Even as it embarks on investments from the new fund, the founders are on to their second experimental initiative: Seedfarm. This is an incubator for young entrepreneurs who have an idea, but not resources, both in terms of money and office to build the business prototype. The ‘farm’ has already signed up two. Shreyas Srinivas, who founded comic book startup Level 10, is relocating himself and his team from Bangalore to take up residence at the incubator.

The second incubatee is Mumbai’s MyDentist, founded by Vikram Vora, which will operate as a remote incubatee. MyDentist offers affordable dental care at self-branded clinics and already has four such clinics up and running. The uniqueness of the business, apart from being affordable, is that it makes the process of going to a dentist transparent. “When a patient comes in, we first analyse his problem and then offer him a standardised price list. Show me one dentist who would do that!” says Vora.

Seedfund will invest up to Rs 1 crore (about $222,000) per incubatee, which it thinks should be adequate for the first 12 months. If the firm stabilises within the year, it will bring a $2 million round as follow-on funding. Incubatees will also have access to Seedfund’s network of mentors — industry experts and successful entrepreneurs — who will work alongside the startup.

In setting up an incubator, the Seedfund team is addressing the same funding gap they sought to plug in 2006. While they have been partially successful with their first fund, it is clearly not enough. Fortunately, and in further validation of their investment thesis, the need to invest in younger entrepreneurs and businesses is finding some resonance in the VC industry.

New Delhi-based SAIF Partners, which manages over $3.5 billion in funds, is now incubating an apparel e-commerce startup in Bangalore. “We now see a better climate for early stage deals and will ramp up activities in that area,” says Mukul Singhal, vice-president at SAIF. The incubation project, ongoing since January, was born out of an idea that the SAIF team liked. “This kind of a project requires a lot of bandwidth and we may do one more in the next three years,” says Singhal. The firm intends to invest a minimum of $2-3 million in such firms over a period of time.

In Mumbai, Nexus Venture Partners recently unveiled Nexus Seed, which aims to invest in technology, retail and ecommerce startups. The ticket size of funds will range between $50,000 and $500,000. “A lot of high quality entrepreneurs are building capital-efficient businesses using tools such as cloud computing, crowdsourcing and viral marketing. There are not enough sources of capital for them,” says Sandeep Singhal, managing director of Nexus.

To be fair, most VC firms active in India today do not abhor funding pre-revenue startups. For instance, Bangalore-based IDG Ventures India was among the first to incubate one, Aujas Networks, under its entrepreneur-in-residence (EIR) programme. It spun Aujas as a separate firm in 2008. Helion Venture Partners had backed young firms such as Ngpay and R&R Salons. In Delhi, Canaan Partners runs an EIR programme and brought on board former Yahoo India R&D head Sharad Sharma in 2009. Mumbai’s Norwest Venture Partners teamed up with Reliance Venture and TV18 to inclubate travel portal Yatra.

That said, most VC funds that started investing in 2004-05, prefer stable firms. Seedfund shows Silicon Valley style investing can work in India and with reasonably good results. It is time for others to get on to the bandwagon.

-Snigdha Sengupta

(This story was published in Businessworld Issue Dated 04-07-2011)

Bangalore: Bangalore-based healthcare service provider, Vaatsalya, raises in third round of PE funding led by Singapore-based Aquarius India Fund, which is an India focused private equity fund that has been investing in emerging enterprises in India. One of the existing investor, Seedfund, also participated in this round of funding.

Spark Capital acted as the sole advisors for the transaction. The fund will be used in expanding its presence from eleven hospitals in Karnataka and Andhra Pradesh to create a pan India hospital network. The company had earlier raised 6 crore from the venture firms Seedfund and Aavishkar in its seed round of funding and an undisclosed amount in the second round of funding from Oasis Fund and returning investor Seedfund.

Co-Founded by Ashwin Naik and Veerendra Hiremath, Vaatsalya is a pioneer in healthcare services delivery in semi-urban and rural India. The hospital network focuses on Tier II and Tier III towns. They provide affordable healthcare services to thousands of families across Karnataka and Andhra Pradesh through their hospitals in Hubli, Gadag, Bijapur, Mandya, Raichur, Hassan, Mysore, Gulbarga, Shimoga, Vizianagaram (AP), Narasannapetta (AP) and Ongole (AP).

"We are very excited and privileged to have Aquarius as our investment partner as they come with experience in mid-size and high growth companies across industries which is going to be of tremendous worth for our team to help us reach our goal. Seedfund backed us at a very early stage in 2007-08, while the business model was still evolving, and have continued to support us throughout our growth period by infusing multiple rounds of funding," says Naik.

SN Subaramanya and Vamsi Ramana Ravuri, from the investment advisory firm Aquarius Investment Advisors India, will join and represent Aquarius India Fund on the company's Board of Directors. Vaatsalya is a recipient of several awards including Frost and Sullivan Award for Healthcare Excellence in 2010, Sankalp Award for Healthcare Inclusion in 2009, BiD challenge India in 2007 and LRAMP award in the enterprise category in 2008. They are currently managing more than 800 beds, making them the largest low cost hospital chain in India.

"Vaatsalya has served more than half a million customers till date and we are proud of the exceptional level of care shown by our team of doctors, nurses and the support team at our hospitals. We are also very encouraged by our partnerships with existing nursing homes and hospitals who have joined hands with Vaatsalya over the last 3 years and helped us grow to this stage. Our mission is now to bring the same Vaatsalya spirit across the country," says Hiremath.

Aquarius Investment Advisors, Singapore, which has been managing various funds since 1995 focusing on Indian investment opportunities for international investors, manage Aquarius Investment also called as Aquarius India Fund. Aquarius India Fund is an India-centric private equity fund focusing primarily on private equity investments in attractive medium-sized growth companies in India. They have invested in many public and private companies through its various funds including MTR Foods, Napier Healthcare, Wizcraft, Mercator Lines, Equitas Micro-Finance, Vijay Nirman Company and Cholamandalam Investment and Finance Company.

"Our investment in Vaatsalya meets our twin goals of providing growth capital to Indian private companies and our desire to be associated with the growing healthcare sector," says AS Thiyagarajan, Senior Managing Director, Aquarius India Fund.

Seedfund is an early stage venture capital fund looking to invest in media, mobile, internet, retail and consumer-facing businesses. Founded by Pravin Gandhi, Bharti Jacob and Mahesh Murthy, the firm has made investments in over 17 companies and supports companies through the lifecycle of companies growth. The portfolio of the company includes Vaatsalya, RedBus.in. CarWale, Nevales, EduSports, Jeevanti, Thinklabs and many more. 

Bharti says, "We have seen the Vaatsalya network grow from two hospitals to 11 hospitals, from 60 beds to more than 800 beds and the company has successfully extended the model beyond Karnataka into Andhra Pradesh, validating the original hypothesis."

via siliconindia.com

K Ganesh, CEO, TutorVista; Raja Kumar, Founder, Ascent Capital; Sanjay Nayak, Founder, Tejas Networks and Bharati Jacob, Founder/ Partner, Seedfund at the ET discussion on the Challenges before Entrepreneurs in Bangalore.  India's most youthful city, famed for its technical prowess, cosmopolitan culture and innovative companies, is now at a crossroads. Burgeoning population, with over 8.5 million, and creaky infrastructure has dimmed the luster of Bangalore, arguably one of the worlds most visible symbols of globalization.  Twenty five years ago, when The Economic Times launched an edition in Bangalore, the city was yet to acquire its now familiar moniker as the technology capital of India. But the timing of that launch would prove to be serendipitous. A short distance away from the citys central business district where the offices of ET are located,a multinational technology company Texas Instruments set up its operations. This decision by the US semiconductor company to house its research arm in the southern city would herald the wave of an influx of technology professionals that has turned the city into a hub for high-tech entrepreneurship. The journey, which ET has chronicled minutely, range from new company formation to the global stock market listing of shares of some of the citys most famed technology firms. Fittingly, it was not just the entry of multinational technology companies that spurred Bangalores reputation as a centre for high-tech innovation. Now as unbridled growth and poor growth forecasting jeopardises Bangalores position as the innovation capital of the country, there is a growing clamour to understand how the city can retain its competitive edge. To debate this point and arrive at a prescription that can serve as a roadmap for future innovation, ET invited a high-power panel consisting of some of the citys top entrepreneurs and private equity investors. The four member panel consist of Bharati Jacob, partner in Seedfund - an early stage venture capital firm; Raja Kumar, founder, Ascent Capital - a $350-million private equity firm; Sanjay Nayak, founder  of Tejas Networks and K Ganesh, founder - Tutor Vista.The panel engaged in an hour-long discussion that highlighted the need for greater infusion of risk capital, more active role by large technology firms in nurturing and supporting the start-up ecosystem and an enabling role by government that drives greater entrepreneurial activity across the city.  Does Bangalore offer an advantage that helps build new businesses? Bharati: The best advantage Bangalore has is the weather. People who move here do not want to move out. It is a very cosmopolitan city that has attracted people from different parts of the country. It has had a science-oriented education. A lot of the original PSUs that were set up here were all high-tech. It had a science and innovation culture in that sense. I think the fact that a lot of MNCs and IT companies set up their offices here, like Wipro and Infosys, created a pool of IT talent, which spurred some of the entrepreneurial ventures.   What are the most important inputs that a city can provide for entrepreneurs,what does Bangalore provide? Raja Kumar:Bangalore has a legacy advantage. If you look at the Silicon Valley, it took them 60 years for the right kind of ecosystem and culture to develop. The first venture capital fund was started by Indian institutions way back in 1988 and was headquartered in Bangalore. The big wave of venture capital happened when the Silicon Valley was booming and many Indians were doing start-ups in the valley. And almost 60 funds, somewhere in 2000,directly and indirectly had a presence in Bangalore. They were literally imitating what was happening in the Silicon Valley. About 50% of the venture capital fund and 40% of private equity today is getting invested in South, mostly in Bangalore,Chennai and Hyderabad. For sustaining entrepreneurship,we need skilled technical entrepreneurs. Those came from public sector companies such as BEML, BEL, BHEL, HAL and institutes like IISc. These were the existing advantages for Bangalore. Today, if any automobile company has to set up their operations in Asia, the first place they will choose is Sriperumbudur in Chennai. There is a similar ecosystem for Tech companies in Bangalore.  So what are the missing links and gaps that need to be filled? Who has to play the role? Raja Kumar: What is required for a perfect ecosystem is skilled people coming from large companies to take the entrepreneurial plunge, good source of capital and exits for entrepreneurs and also for the investors to make money. It is early to say why we dont have perfect ecosystem in Bangalore. Take Silicon Valley, large companies collaborated with start-ups offered their clients cash to buy these start-ups. Cisco alone has spent billions to acquire start-ups. Hundreds of start-ups have been acquired this way. Bangalore is also hub for large tech companies, but they are not adopting that model. They have billions sitting in the balance sheet in cash,which unfortunately is being deployed in money market and mutual funds. The real cash they have is in stocks,which are worth billions of dollars. There is a gap in venture capital, because people are not able to exit from small companies. K Ganesh: I think it is unfair to shift the blame to large companies in India or abroad. Companies as an example make a habit of acquiring start-ups.  There are multiple reasons for it. One is that they want to take up competition. Two is that by acquiring ten such things, one of them could be that defining product the product of the future. But I think we are shifting the blame here when we are saying that exits are not happening and the ecosystem needs Indian large companies to acquire.The problem here is with the venture capitalists. They are acting like banks and private equity. They are not willing to take the risk. Everyone wants to do private equity. One of the venture capitalists and a good friend of mine left early-stage investing to focus on public markets. Great for them,public markets are good. They want well-cooked meat. The lack of venture capitalists in India, in the truest sense,is the problem. Bharati Jacob: Strangely,I somewhat agree with Ganesh. What is somewhat missing in the ecosystem is that Indian enterprises do not buy local products. They do not support and take the risk of buying local. Whether you look at Titan or Britannia or any of the large corporates, they do not buy Indian. Also, the CIO of a company has never been a strategic position. Technology is never seen as a strategic tool. Marketing and finance are seen as strategic. The CIO never has the business perspective and is not willing to take risk of buying from an unknown start-up that is developing a product. Till we bridge this gap, we will see fewer tech companies emerging out of India.    What about the need for domestic funds in Bangalore Raja: Silicon Valley is the only place where failure is celebrated, that kind of perfection in the ecosystem will take time to come here. However, access to capital has now improved tremendously. Bangalore has become one the important location for investments, especially in the area of real estate. Even though VCs may be many in India, around 90%-92% of the capital come from overseas investors and institutions. We are not able to raise risk capital from Indian banks and institutions. Government can become the facilitator in this process. Is there a market in Bangalore A Future Ganesh: In terms of entrepreneurship, Bangalore is still the best. There is no doubt about it. In terms of availability of technology, people and resources. The lack of VCs and early-stage risk capitalists are small issues. It is natural for entrepreneurs to go where the VC fund is, and the VC fund will go towards technology. But I see a lot more coming up now. Opportunities are great. Could you talk about the opportunities in the non-tech space Bharati: Before I get on to non-tech, I think our tribe is getting bashed here. There was a lot of talk about venture funds not taking risks. Most of the Indian tech companies in Indian market are primarily service companies. There is not a whole lot of R&D happening. In services you want to see early profitability and there isnt a lot of money to invest in R&D. I wont call Bangalore or India an innovation capital. But that doesnt matter. We do not have to create a Google or a Facebook as long as we are able to create valuable companies that solve existing problems. Sanjay,you had said that the first 25 were easy to hire and then it wasnt so. Sanjay: I dont think we should give up on the aspiration to become the innovation capital. We have enough talent in Bangalore and in India to become the leader in the next 10 years in innovation in any form. The advantage that India has which we dont take advantage of is our domestic market size. If you look at what China has done in building an equivalent of Google, I think there is tremendous opportunity to take the Indian domestic market as an initial sandbox. This can give the scale that 100 other countries cannot, use that as a mechanism and then go global. Does Bangalore need to do anything differently Ganesh: Media should celebrate failures. We should learn to celebrate failures. They should write about the number of failed patents from Bangalore. Unless we create a culture where failure is celebrated, because there are many people who have started it. The guy who has failed thrice should be appreciated. The fear of failure holds the entrepreneurs back. Secondly, the government should take on the role of seed funding and support early-stage seed fund from the point of view that this is how entrepreneurship should start and jobs will be created. Thirdly, there should be collaboration between academic research and companies working together. Bangalore is still the best, I would say, but still a lot can be done. What will the prescription be then Ganesh: The ecosystem that everybody spoke about is a macro issue. Every city has those problems. Bangalore just needs better infrastructure. There is a high percentage of operating cost and cost of power. Sanjay: In the US all the net new jobs have been created through entrepreneurs. I think government should create innovation funding. We need to use our domestic pool. Bharati:I agree with the need for creating some platform, which could be a secondary market. This could be the SME exchange. But that is again not a Bangalore issue. We need close collaboration with academia, industry and research institutes. But the problem is, I have seen a gap between what commercial reality and research project is trying to do. Dont blame just us. I dont agree with government starting an innovation fund. Raja: Government should not create a fund. It should be an enabler not a direct player.

Bangalore-based low-cost hospitals chain Vaatsalya Healthcare launched its first Rural Birthing Center at Kotumachagi village in Karnatak’s Gadag district yesterday. The center is part of a new initiative by the company to create a model for low-cost birthing-related healthcare services.

The centers are a public-private partnership that involves the Deshpande Foundation and the Kotumuchagi village panchayat, said a company release.

The four-year old company, founded by doctors Ashwin Naik and Veerendra Hiremath, provides affordable and high-quality healthcare services to consumers in Tier II and III cities and rural areas. It has raised $6.5 million in venture capital funding so far from Seedfund, Oasis Fund and Aavishkaar. The company is currently in the process of raising a $10 million round of Series C funding from existing and new investors.

Seedfund has committed to invest USD 2.2 Mn in Jeevanti Healthcare Private Ltd. Jeevanti Healthcare has been set up recently by a team of distinguished entrepreneurs, Arun Diaz and Deepa Chandrashekhar, to start secondary hospitals in Tier II and III cities of Maharashtra and Gujarat.

Arun and Deepa are currently, successfully running The Apollo Clinic (franchisee of the premier Apollo clinics) in Thane, Mumbai region. Through Jeevanti, they now aim to provide quality medical facilities in under-served areas.

Intellecap was  the sole advisor to this transaction.

Bangalore-based Pilani Soft Labs, makers of online bus ticketing service redBus has raised $6 million in Series C funding from existing investors Helion Venture Partners, Inventus Capital and Seedfund. This takes the total venture capital raised by the company to $9.5 million. Seedfund, which seed funded the company in 2008, remains the largest shareholder, said executive director Anand Lunia, confirming the deal.

Founded in 2006 by former Texas Instruments executive and BITS Pilani alumni Phanindra Sama, the company is aiming for $33.3 million revenues this fiscal, Sama told VCCircle in an interview recently. We could not reach Sama for comments on the deal.

redBus’ last round of funding was in 2009 when it raised an undisclosed Series B round led by Bangalore-based Inventus Capital. The company pioneered the concept of online bus ticketing and connects bus operators with travelers. This is the second Seedfund-backed company to raise additional funding this month. Low-cost hospitals chain Vaatsalya is close to raising a $10 million round from existing and new investors.

(Source: Mint, New Delhi)By Harini Subramani & Pramit Bhattacharya, Mint, New Delhi

April 29--Despite its unique proposition, the initial share sale of Future Ventures India Ltd, the first venture fund to go public, has failed to attract interest from retail investors and qualified institutional buyers (QIB) because of lack of earnings visibility.

Future Ventures, which was looking to raise around '750 crore by selling a 45% stake, had priced its stock at '10-11 apiece. According to information on the Bombay Stock Exchange updated at 6.15pm on Thursday, retail participation was 0.61 times the issue, while the overall subscription was 1.52 times. It was subscribed 7.81 times by non-institutional investors, while the QIB portion was subscribed by 0.26 times.

The company has no operational history as it is just a holding company with exposure to the consumer and the textile industry through various investments, said Nisha Harchekar, an analyst with domestic brokerage Way2Wealth Securities Ltd. "It is far from being profitable; perhaps this might have put off investors despite the unique opportunity," she said.

Future Ventures has reported a loss of '19.6 crore for the fiscal year ended 31 March 2010. Many companies in its portfolio are yet to break-even. Accumulated loss as on 31 Dec 2010 was '90 crore, so they will still continue to make losses, said Harchekar.

Retail investors may not understand what the offering is as the returns they expect are in a shorter time frame, said Pravin Gandhi, partner, Seedfund, an early-stage venture capital fund. "So it is not surprising that it has not gained a lot of interest from retail investors," he said.

Over the past year or so, the successful initial share sales such as training institute Career Point Infosystems Ltd and fitness-chain proprietors Talwalkars Better Value Fitness Ltd have been differentiated stories. Last week, the '964 crore initial public offering (IPO) of gold loan financing company Muthoot Finance Ltd, that has only one listed peer, received a subscription of over 24 times, which made it the most successful new share offering in 2011 so far.

Future Ventures has not given a clear objective about how it plans to deploy the money. Also, the offer has received a conditional acceptance from the market regulator, which added two riders. While the management has long-term ambitions, market regulator Securities and Exchange Board of India has directed the company to utilize the proceeds of the issue within three years of listing, failing which the company would have to return the unused amount to shareholders. Second, any investment greater than '150 crore needed shareholder approval.

The market regulator is not comfortable with long gestation plans as it holds that retail investors have a shorter investment horizon. In an earlier instance, it had raised objections against the IPO of private equity firm Milestone Capital Advisors Ltd, following which the company postponed its share-sale plans.

Investors could have got a sense that post-listing, the price could fall further, said an analyst at Mumbai-based brokerage. "The scale of the brands in which Future Ventures has invested in is small. Topline for these companies are in the range of '100-150 crore and value unlocking could come only once the turnover of the brand reaches '500 crore, " he said.

Bennett, Coleman and Co. Ltd (BCCL) has a 12.1% stake in Future Ventures. BCCL, publisher of The Times of India and The Economic Times, and HT Media Ltd, which publishes Hindustan Times and Mint, are competitors.

harini.s@livemint.com