Early-stage investments in India in sweet spot for VCs

Financial Chronicle,

Intel Capital, the US chipmaker’s investment unit, has invested over $10billion in more than 1,140 companies in 50 countries. In India, Intel Capital has invested over $285million in 65 firms across 10 cities. Anupam Srivastava, director, Intel Capital, who is in charge of the fund’s investments in India and SE Asia as treasury director, in an interview with Rajesh Abraham, discusses the venture capital scenario in India and Intel Capital’s plans. Excerpts:

With stock market in a state of flux, has it affected your exit strategy through the IPO?

I think it affects the QIP (qualified institutional placements) and PE (private equity) markets. But venture is quite early stage and so our exit time frame is 3-5 years. So, it does not affect us that much.

What are the new sectors that you are looking at?

Recently we made our first investment in healthcare. That was after we got close a couple of times last year, which did not fructify. We have been looking at healthcare for 18 months now. Healthcare or medical technology more accurately is a key focus for us in India. We are also looking at other pure product companies that have global ambitions. This is new and it is exciting. As far as Intel is concerned, we are focused on mobile technology, cloud computing and financial services. We might also make an investment in education space if things work out. In my personal pipelines, I’m looking at web and e-commerce.

There are lot of private equity funds in India looking to clinch deals. How has that affected Intel’s ability to close deals?

Web has become hot again and private equity folks have a valid reason to get into the spaces, which are traditionally meant for venture funds. PE guys, in my view, are probably one series too early into some of the investments. That is because there is really a scarcity of really good assets. So they are happy to come in little earlier.

So in a way it has affected your investment strategy?

Venture return model is very different from PE return model. We look for big hits and then there are lot of infant mortalities. Infant mortality tragically happens early because they are infants. So our risk return model balances more towards high return but high risks. PEs typically operate at a much more moderate risk model and their return expectations are benchmarked to the public markets. So selling out to a PEs sometimes makes sense and especially when competition makes valuations attractive.

So in terms of valuations you are willing to pay, has it affected because of the fact that more funds are chasing fewer deals?

I think the market is giving late-stage valuations to early stage deals. E-commerce space is early and the regulatory environment is in a flux. There are innumerable challenges that commerce space in terms of delivery logistics, back-end operations and quality control on the inbound merchandise, payment hurdles. So there are innumerable hurdles. However, my peers in private equity and in venture capital are taking the view that certain companies are going to be bellwether companies. And so the price you might command at this point really does not matter because they will be part of two-three companies in this space. I think that argument makes certain amount of sense but at a certain price the risk return profile does not make sense.

In MCX, will you be exiting fully at the time of IPO?

No. We are bullish on MCX. We think the MCX growth can be accelerated if the regulatory environment eases. And thatgrowth can be phenomenal. We will have continued strategic engagement

with the company and it is healthy.

XCan you name the companies that are expected to hit the IPO in next one-two years?

One97 (mobile value added services firm) and MCX (commodity exchange) have filed for IPO. Later stage investments in our portfolio are affected due to the volatility in the market. I can name the companies that have achieved a scale. And IPO is one of their options. I do not know whether they would exit into the public markets. Companies that have achieved scale are July Systems (a mobile media company), FINO, Yatra.com (online travel portal), IndiaMart (B2B commerce), Tejus (telecom equipment) and Omnesys Technologies (securities trading and execution software). We have been in Tejus, which is into telecom equipment space, for a long time. Similarly, Yatra.com has got scale. I’m sure their respective boards are looking at all options.

Read more at http://www.mydigitalfc.com/companies/early-stage-investments-india-sweet-spot-vcs-940