Booming mobile VAS industry fails to woo venture funds

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Mumbai, Apr 5: The booming mobile value added services (VAS) industry in India, growing at the rate of 60% and valued at Rs 2,850 crore, is struggling to attract venture capital funds. The reason for this is that, being an operator driven industry, a major slice of revenues from services would go to the operators, leaving VCs with less returns than in certain other segments.

Says Alok Mittal, executive director, Canaan Partners, India, a venture investor, “VCs are keen to invest in this sector but we prefer companies that have proprietary content or applications, and are looking to build direct relationships with end consumers. Also, the relatively low capture of revenue share in the value chain is another deterrent for VC investments in this area.”

According to Rahul Khanna, director of Clearstone Venture Partners, “The distribution business in mobile VAS is that of aggregating somebody else’s content. Also, small companies lack selling power and are not in a position to invest in the brand upfront.”

In India, operators typically retain the biggest chunk of revenues. Revenue sharing arrangement is typically 60% for the operator, 25% for the aggregator and 15% for the owner. This model is significantly different from evolved markets like China where the share of the operator is typically 20-30% in the entire chain, and aggregators and owners keep a much higher share. “There is a large market for the players in India, but from the point of view of a venture capitalist, there is a need for strong customer value proposition and strong initial management team, which is yet to develop in the Indian mobile VAS industry,” said Rishi Navani, MD, Matrix Partners.

“What is important is a growing revenue stream and brand building among end users, which is lacking in this space in India,” says Mahesh Murthy, managing partner, Seed Fund. The number of mobile subscribers has been exceeding that of internet users and services like SMS, ringtones and mobile gaming have been growing rapidly, estimated to touch Rs 4,560 crore by the end of 2007.

Emerging as the fastest growing mobile market in the world, India today ranks 5th in the world to have crossed the 100 million mark in subscriber base.