VCs get gung-ho about start-ups

Written by Sarika Malhotra | Sarika Malhotra | Updated: Aug 7 2011, 08:03am hrs
Start-ups is the new flavour for venture capital (VC) investors in 2011. With 93 deals worth $510.98 million already between January and July compared to 69 deals worth $282.21 million in the corresponding period in 2010, the start-up space is finding much traction. As per the VCCEdge data, total investments in start-ups in 2010 were 147 deals worth $728.52 million.

With a slew of investments happening across a spectrum of start-ups ranging from consumer discretionary, consumer staples, financials, healthcare, industrials, telecommunication services and utilities, the story is no more just limited to the e-commerce space. The ecosystem for the Indian entrepreneur who hitherto depended on just family and friends to fund his enterprise is fast evolving into a comprehensive one.

Observers point out that investments in start-ups are likely to grow exponentially from here and every stripe of investment will be available to the Indian entrepreneur. The segmentation of the VC market in India into various stagesangel, start up or early stage investingis a sign that the Indian market for venture funding is maturing. However, this does not come without a rider.

As Alok Mittal, managing director, Canaan India cautions that even as the spurt in the start-up space is on account of consumer tractioPn, the valuations offered are a definite cause of concern. In a stage when start-ups are still trying to figure out the best business model, valuations offered to start-ups are the classic growth stage valuations. No wonder the VC space is abuzz with a group of investors joining hands to fund start-ups. Canaan Advisors along with Helion Venture Fund I, Sequoia Capital India invested $16.68 million in UnitedLex BPO Pvt Ltd a technology powered legal outsourcing (LPO) services making it the second biggest investment in the IT space.

Seemant Shankar

International investors have a higher confidence in the Indian potential than those based out of India

Enterprise: Flo2Go.com is a start-up dealing within upcoming personalised television content space. Joining hands with large IPTV providers worldwide, Flo2Go has introduced on-demand personalised television service to their existing and growing IPTV subscriber base.

Age: Shankar: 31

Educational background: B Tech Computer Science (CIIT, Jaipur)

Work experience: Serial entrepreneur

The Idea: While Shankar is not an avid fan of television, his mother follows her soaps religiously. One day, while attempting to spend some quality time with his mother, Shankar figured out that her entire schedule revolved around the television air times of her favourite programmes. This experience inspired him to create Flo2Go, an on-demand television platform. With Flo2Go, your television programmes will revolve around your schedule. Interactivity requires a two way communication channel between the user and the TV service provider, which is not possible through conventional technologies like DTH. The only way to establish this two-way communication is by using IPTV (Internet Protocol Television) service. IPTV is a technology where specialised set-top boxes will utilise your broadband internet connection to stream television content to your television set rather than use a one-way satellite service as currently performed by DTH.

Pre-launch hiccups: With so many DTH services it is important that the system has noticeable value additions that a user can easily identify with. When Shankar set out to get funding for Flo2Go, one of the biggest challenges was to create a team which would bring relevant core domain experience. In this case, he needed not only technology used in programme distribution but also deep-rooted relationship with various channels, which would provide Flo2Go with the TV programme inventory, which the user would access through the system.

Seed capital: Currently Shankar has funded the venture in his personal capacity. He has invested more than R25 lakh over a period of 18 months

Money punch: In talks with VC investors for raising capital. Was the runner up for the multi-city Boot Camp of IAN

Market segment: Flo2Go is an interactive on-demand television system, which works with existing IPTV infrastructure. It allows you to watch your favourite shows when you wish to without going through the hassles of recording it on your STB. With Flo2Go you can watch new shows right from the first episode. You can even create your own channels containing only those shows that you like to view and then watch it anytime, anywhere on either your television, personal computer or mobile phone. While you watch TV, Flo2Go quietly observes your viewing patterns and recommends other shows from its inventory using full video promos. Flo2Go connects with Facebook and Twitter allowing you to post/view your opinion on a particular show or episode in the form of comments. Currently there are no competitors for Flo2Go in its complete form. IPTV, however, is a concept that is attracting players from all over the globe. Google TV, Apple TV, Slingbox and Boxee, all operate in the on-demand IPTV space.

VC feel: Indian VC space is currently at its nascent stage. Very little money is available for pre-revenue companies. India needs a few more success stories for angels / VCs to start funding at the seed level, much like their counterparts in the Silicon Valley.

Girish Batra, Sandeep Batra and Kanwaljit Singh

We would not have been able to scale up so much without the VC funding

Enterprise: NetAmbit is a financial services distribution company.

Age: Girish Batra: 38; Singh: 37;and Sandeep Batra: 35

Educational background: Batra and Singh are IIMA graduates; Sandeep is a management graduate from IMT, Ghaziabad.

Work experience:: Batra worked for three years with Escorts and Godrej; Singh for seven years in the investment banking space with IL&FS and ICICI investment; Sandeep joined NetAmbit after completing his management education.

The idea: NetAmbit was created in 2000 to provide offline services to online companies. In mid-2001, when the dot com bubble busted, it got into telecom distribution business, but that business was not scalable. The idea of creating a retail financial services supermarket came in 2003. It was at that time when penetration and distribution of financial products such as life insurance, auto insurance, health insurance, loans, credit cards and mortgages was very low. Also from the consumers perspective there were no intermediaries who could provide a manufacturer/brand agnostic choice of financial products. Hence the idea of creating a one-stop source wherein a consumer can buy any financial product and choose any brand within that category.

Pre-launch hiccups:: The biggest pre-launch inhibition that any entrepreneur faces is the risk of failure. It stems from the fact that the capital available is quite limited and most of the professional entrepreneur also have an opportunity cost.

Seed capital: Batra started out with the initial capital of R1 lakh out of his fathers GPF.

Money punch: The company grew on internal accruals till 2007. It raised its first round of funding from Bessemer Venture Partners (BVP) of R15 crore, followed by series B in 2009 of R50 crore from Helion and BVP. Series C happened in 2011 beginning with Helion and BVP for R40 crore.

Market segment: NetAmbit is a direct marketing model of customer acquisition. This model works on combination of high quality lead generation using outbound call centre followed by face to face customer meetings undertaken by frontline sales teams. NetAmbit believes that each and every family is a potential customer for a range of financial products. Hence it starts its work with cold databases. The model also works well to get into a vast majority of tier-2,3 and 4 towns in a very cost optimal manner called Netambit model.

VC feel: The trend of VC funding is a positive trend and we hope it continues to grow. Since most of the Indian entrepreneurs come from middle class background, VC comes really handy. The need for VC also arises due to poor availability of debt for early stage companies.

Som Sagar, Jaison Mathews, Abhijit Vedak and Mukund M

We are looking forward to the right type of VC funds for the next level of growth and we think that it would not be easy to go ahead without the right combination

Enterprise: Heckyl, an online application developed for the financial world to provide real time financial information, news analytics, trend matrix and heat maps to get exclusive coverage of markets, companies and businesses.

Age: Sagar: 30; Mathews: 32; Vedak: 32; Mukund: 34

Educational background: Sagar: Electrical engineer from DIT; Mathews: Masters in computer application; Vedak: Instrumentation engineering from Mumbai University; Mukund: Electronics engineer and MS (Software Systems) and executive management from IIM Kozhikode.

Work experience: Sagar: Eight years of experience with Infosys Technologies and Merrill Lynch (Bank of America); Mathews: Nine years of experience in software design and development with with Merrill Lynch, SSP UK; Vedak: Nine years across various domains such as in the finance, MIS and the telecom industry including Merrill Lynch (Bank of America); Mukund: 14 years of techno-commercial and techno-functional experience in information technology and banking industries.

The Idea: The idea of information aggregator. The team did a lot of research to find out what is exactly required and understood the market status. It found that there were/are plenty of entities who have worked and are working on information aggregation, but they decided to take a different route. They decided to poll the rich internet sources along with social media with a specialised search engine and worked on an algorithm that is unique to Heckyl to bring in the value proposition on the table for its users.

Pre-launch hiccups: The typical challenge that the team knew it would face was that the market is yet to accept the methodology that is widely acceptable and used in the West. Innovation and creativity are still a bit of a challenge when its an Indian company. The team has been working for the last three years to reach the level where it believes that the market has matured and ready to accept the importance the internet can bring in making of a well-informed decision in the financial market.

Seed capital: R50 lakh, self and friend funded

Money punch: In talks with VC investors for raising capital. Was the winner of the multi-city Boot Camp of IAN and under discussion with IAN for Series A.

Market segment: Target customers are retail brokers, private equities, hedge funds and financial institutions that will benefit immensely from their news analytics platform tailored for financial domain. There are several online financial communities, but their functionality is entirely different, and they offer little in the way of providing high quality real time financial content. There are several well-known content providers that have a large customer base, but they mostly focus on main street sources. Heckyl not only covers the entire spectrum of information, but can help to integrate the same across platforms.

VC feel: VC funding has matured in India, it has surely grown from where it was five to ten years ago. It has still not reached the level of the US.

Yashish Dahiya, Avaneesh Nirjar and Alok Bansal

VCs help not only get funding but also help build organisations and see companies become professionally managed

Enterprise: PolicyBazaar.com is an insurance research engine, which allows intelligent insurance decisions. It empowers the customer to compare insurances from over 46 companies and make intelligent purchase. The website enables a consumer to research and evaluate products, and select the best product for her needs.

Age: Dahiya: 38; Nirjar: 44; Bansal: 35

Educational background: Dahiya: IIT, IIM Ahmedabad and MBA from INSEAD; Nirjar: MBA, Birla Institute of Technology-Ranchi; Bansal: MBA from IIM-Kolkata.

Work experience: Dahiya: A former MD for Ebookers, one of the largest travel portals in Europe; Nirjar: 20 years of experience in outsourcing industry and has held leadership level positions in Hero ITES, GE Capital; Bansal: Worked at Mahindra & Mahindra, Strategy Management.

The Idea: Policybazaar.com started its operations on June 4, 2008. The objective of the company since inception has been to empower customers to take the decision of buying even a complex financial offering like insurance in their own hands. The trio has a rich background of online e-commerce business, prior to setting up Policybazaar.com. Indian economy is witnessing a strong growth in the financial services market, especially the insurance sector with almost 49 companies already present in the market and another 20 are at various stages of clearances to start their insurance operations. This rise in number of insurers in the country has also led to a plethora of products being introduced, making it difficult for the consumer to understand all the products and allied options.

Pre-launch hiccups: The first inhibition was setting up an e-commerce business in India. Though the number of people transacting online had increased considerably thanks to e-ticketing, the number of people wanting to buy an insurance policy online was miserably low. People were only logging online to gain more information about their policies or new policies. To remove this, PolicyBazaar had to build an environment of trust, in which the user could trust the gateway as being safe and at the same time feel secure while transacting with PolicyBazaar.

Seed capital: Mostly personal savings.

Money punch: As the company grew, it attracted VC funding which came in from InfoEdgeNaukri.com and Intel Capital. Total investment from VCs till now has been R60 crore.

Market segment: Insurance is a very complicated category; most consumers have never understood the product and typically insurance is never bought but is sold to the consumer. The website enables a consumer to research and evaluate products, and select the best product for his/her needs.

VC feel: Without VC funding industry-transforming ideas from entrepreneurs who belong to middle-class backgrounds may have never seen the light of day. In the last two decades middle-class promoters have been able to set-up large successful businesses within 10 years.

Srikumar Misra and Lt Col Ashit Mahapatra

It wouldve been almost impossible for Milk Mantra to take off without VC funding. The amount of capital required for starting a venture like this was significant

Enterprise: Milk Mantra offers natural, healthier milk products for a healthier lifestyle.

Age: Misra: 34; Mahapatra: 44

Educational background: Misra: BE, MBA from XIM, Bhubaneswar, and PE and venture capital executive education from Harvard; Mahapatra: BE, M-Tech, management development programme, IIMA

Work experience: Misra: Eight years with the Tata Administrative Service. Worked extensively across the FMCG space with Tata Tea and Tetley and left in 2009 as director of M&A of the Tata Tea/Tetley Group. Mahapatra: 20 years career with the Indian Army, followed by a leading role in establishing the Orissa operations of a microfinance company, IFMR.

The idea: Misra was always enthused with the idea of creating an exciting food brand. Being exposed to several markets in his corporate career he realised from product life cycles in these markets that there was a significant opportunity to create an innovative and premium range of food products. Dairy stood out as a great sector. And Milk Mantra as an idea was born in early 2009. Misra left his job then and after some further ground work and some initial funding incorporated Milk Mantra in late 2009.

Pre-launch hiccups: Three main issuesfunding, team and survival. Survival in a metaphorical sense, as well as in in real sense. Misra was leaving a successful corporate career behind, putting in most of his and his wifes combined savings, and with a realisation that he would also need to give personal guranatees/collateral for any bank debt. Funding was a serious concern.

Seed capital: Misras own capital. He initially put in R25 lakh first just to get the ball rolling.

Money punch: Two early angelsSuman Kumar Narula and Sandeep Dasput in R1 crore, followed by other angel investors including Mumbai Angles followed by anchor investment by Aavishkaar. Total investment of $ 5 million out of which equity capital of $2.5 million is raised from VCs and angel investors.

Market segment: Clearly focused on premium and innovative formats of dairy products for urban consumers. Initially targeting eastern Indian cities like Bhubaneswar, Kolkata. Milk Mantra milk pouch incorporates a three-layer technology with a middle black layer that will prevent light exposure damage to milk. Also to target 10,000 farmers in its network in the medium term. Building a robust extension services package for network farmers including partnership with a leading MFI to provide access to capital for poor farmers, a network of vet care professionals to render services, and access to quality cattle feed. Milk Mantra is building a direct last mile linkage to farmers that will ensure very good quality milk supply for its processing unit.

VC feel: Given where its is, it can only get better. Theres been severe dearth of early stage VC funding in India, but since 2009 there has been a definite buzz. Start up funding is absolutely critical to fire up the entrepreneurial space and its coming around. Ticket sizes for early stage funding are also getting bigger and meaningful.

Ray Newal and Areef Reza

A lack of investor appetite means either we havent solved a problem sufficiently, or we could be talking to wrong investors

Enterprise: Jigsee Inc App will enable Indian mobile users to access premium video content on a normal no-frills mobile phone at no cost. Developed by Canadian-Indian mobile video streaming start-up, Jigsee Inc, the smooth streaming technology helps deliver continuous video flow on wireless data networks as slow as 50 Kbps (the average speed of GPRS data-rates across India is estimated to be 60 Kbps). Combined with smart client technology, which makes video streaming possible even on phones with basic features, Jigsee allows adoption of mobile video in most emerging markets.

Age: Newal: 35; Reza 39

Educational background: Newal: Economics at York University, Toronto; Reza: Computer engineering at University of Waterloo, Waterloo.

Work experience: Newal: 10 years in business development roles with DoubleClick, Microsoft and Yahoo. development, Yahoo, covering Canada.

Reza: 10 years of engineering experience with Nortel and RIM.

The Idea: Jigsee Inc emerged out of two ideas that intersected when Reza and Newal met in 2009. Newal established Jigsee in 2008, with a mission to make people access video content in an easy manner. Reza had been trying to solve this issue in developing countries. They realised that both problemsaccess and discoverycould be solved on one single platform. They developed a plan to merge the two concepts and decided to focus on India as a first market. They launched the product in early 2010, via a white-label partnership inked with Hungama Digital.

Pre-launch hiccups: Inhibitions in the early days had to do with how they would take the product to market in India. Both were not sure if they were the right guys to make an impact in this market. So it seemed logical to partner with Indian companies such as Hungama, which had a strong sense of the Indian market. However, they soon realised that in order to really understand a market, they have to be in it themselves. So in early 2010 Newal moved from Toronto to Mumbai and met with consumers and people in the industry.

Seed capital: Jigsee was initially funded by its founders. In 2010, once they had established a product and a customer partnership, they raised a small round of seed funding from Angel investors in Canada.

Money punch: In early 2011 Jigsee raised funds from Sequoia Capital and IAN

Market segment: The idea behind Jigsee is to dissolve the borders that prevent video from getting to billions of people in the developing world. The focus is on 95% of the mobile subscribers who lack access to smart-phones and 3G services in BRIC and other emerging markets. Estimates show that as many as 4 billion people use feature phones. With its technology, Jigsee believes it can enable as many as 1.5 billion people to obtain streaming video content on those phones. India is a great first market as it represents many of the challenges Jigsee will face in most developing countries. While Jigsees app is distributed globally via appstores such as OVI and GetJar, much of the content currently caters to an Indian audience.

VC feel: India has attracted many VC players, both domestic and international, which is a testament to the opportunity, the market, and the talent within the country.