early stage & vc investing · pdf file• redbus (bus ticketing) ... • transport...
TRANSCRIPT
Private and Confidential
Early Stage & VC Investing
Sanjay Nath,Co founder & Managing Partner
Blume Ventures
November 9, 2013
Overview of PE and VC
Private and Confidential
Private equity (PE) The provision of equity capital by financial investors – over the medium or long term – to non-quoted companies with high growth potential
Venture capital (VC)Is a subset of private equity and refers to equity investments made for the launch, early development, or expansion of a business.
It has a particular emphasis on entrepreneurial undertakings rather than on mature businesses.
Often and especially in Silicon Valley, and now in India, many VC investments are into technology & technology-enabled businesses
India – VC Landscape & Evolution
Private and Confidential
Many VCs in India have moved upstream, into the realm of Growth VC and PE. Compared to the US which has several angel groups (with Silicon Valley alone having close to a dozen) -- India has only 2 large groups and a few angel funds
A majority of VCs have moved upstream
Seed Angel Series ASeries C / pre-IPO
Pre -Series A
Series B / Growth
• Angel groups• Individual angels • Angel funds (Blume, Kae, India Quotient) • Incubators & Accelerators
• Inventus• Accel• Helion• Sequoia Capital• IDG Ventures• Saama (formerly SVB) • Kalaari (formerly IndoUS)• Matrix• Nirvana• Omidyar • Qualcomm
• Nexus • Canaan• NEA • Bessemer• Norwest • SAIF• Lightspeed• Fidelity• Tiger • Vertex• Intel• Cisco
Blume Ventures
Phase I: Seed & Angel Investing
Private and Confidential
Seed AngelPre -
Series A
•Seed financing is designed to research, assess and develop an idea or initial concept before a company has reached the start-up phase.
At this stage, investors are mainly business angels. They often have operating experience i.e. entrepreneurs or former directors who join a project to help get it off the ground and also contribute some of their personal funds (act like individual angels).
• Start-up (or Angel) financing is used for product development and initial marketing.
Businesses may still be in the creation phase or have just started operations and have not yet sold their product commercially.
When the product has taken shape, forming the basis of a real “business plan”, a certain number of venture capital professionals will join the entrepreneur and assist him with setting up the business.
Blume Ventures
Phase II: Growth / Expansion Investing
Private and Confidential
Series ASeries C / pre-IPO
Series B / Growth
Expansion/Development (or Growth Stage)
In the case of expansion, the business has reached or is approaching breakeven.
This is a period of high growth and capital is used to increase production capacity and sales power, to develop new products, finance acquisitions and/or increase the working capital of the business.
Getting through this period often requires many rounds of financing, during which the company has to ensure that its growth is balanced.
Professional investors are most attracted if a significant amount has already been invested in a company, if the company already has a history of development and if it is already operating with a robust structure in place.
Blume Ventures
The Holy Grail – the Exit
Private and Confidential
The EXIT is the end goal of every VC firm
How is exit value maximized?
• Revenue growth • EBITDA / Operating margins• IP (Intellectual Property)• Quality of Customers • Quality of Management Team• Competitive Advantage
Most successful Exits are either thru Trade Sales (eg M&A) or IPOs. Sometimes also happen outside India, e.g. on the NYSE / Nasdaq but equally on the BSE or sales to Indian MNCs.
More importantly, the exit results from the “total package” of how the company is valued, not just a single part eg only revenues
Is VC right for your company?
Private and Confidential
• Are you prepared to take on the responsibility of being an entrepreneur, i.e. to run a business with a method and structures, to delegate responsibilities to a team and know how to motivate them, to develop your knowledge outside the business and bring this knowledge into your company, to take on the legal responsibilities – in a word, to take the plunge?
• Are you prepared to give up part of your company’s capital to a private investor?
• Does your business operate in a growth market? •
• Are your company’s development prospects sufficiently ambitious?
• Is your team prepared to follow you? Does it have the necessary experience?
It is a personal, case-by-case decision. It is NOT a formula, or a one size-fits-all
Is VC right for your company?
Private and Confidential
• Are you prepared to take on the responsibility of being an entrepreneur, i.e. to run a business with a method and structures, to delegate responsibilities to a team and know how to motivate them, to develop your knowledge outside the business and bring this knowledge into your company, to take on the legal responsibilities – in a word, to take the plunge?
• Are you prepared to give up part of your company’s capital to a private investor?
• Does your business operate in a growth market? •
• Are your company’s development prospects sufficiently ambitious?
• Is your team prepared to follow you? Does it have the necessary experience?
It is a personal, case-by-case decision. It is NOT a formula, or a one size-fits-all
When is VC right for you?
Private and Confidential
When you want to:
• create a business;
• improve and develop your export performance;
• exploit the creativity and innovation of your team;
• recruit highly qualified personnel;
• change the size of your business and take over one of your competitors;
• launch a new product or range of solutions
VCs like to invest in businesses that are rapidly scalable,have an exponential growth curve, and have somewhat of a clear exit path (even if longer term)
Angel investing
Private and Confidential
• Art or science?
• Gut or rigorous due diligence?
• What are the key investment criteria?
• How does the investment process really work?
• How does it differ from VC and also PE?
Early stage (seed and angel) investing is an art AND a science, it’s the yin with the yang
What makes a good VC
Private and Confidential
• Smart money
• Operating experience
• Bringing the Network / Ecosystem Effect
• Acting as advisor, mentor, guide
• Ability to connect to partners, customers, eventual acquirers
Good VCs as stratecic partners and advisors – NOT just sources of pure capital
India – Shift from 2009 to 2013
Private and Confidential
Seed Angel Series ASeries C / pre-IPO
Pre -Series A
Series B / Growth
• Burst of accelerators, seed funds, super angels (& their quasi-funds)
• Blume was first of its size in this cycle – at least a dozen more emerged in last 24 months
• Reduced attractiveness of the 2006-08 vintage angel groups
• Fragmented angel networks don't work well as yet (close-knit networks only)
• Lack of a network / marketplace of mentors, advisors, domain experts, service providers (we may build it like FRC / @500)
• Almost NO change in the set of Series A / B / C players
• Some wind-downs, some rebranding, some splits amongst larger VCs
• Most of them on new funds + limited exits => large active portfolios
• IPO market as dormant as ever in tech, focussed only on exceptionally large cash-flow or gross rev biz models
• Trickle of M&A; we need a flood
Blume Ventures
Lack of transparency around VC performance
India – the Nuances
Private and Confidential
• RedBus (Bus Ticketing)
• Tally (Accounting Software on CD)
• AppsDaily (offline App Store)
• Gharpay, Delhivery (e-comm Only Logistics and Payments)
• JustDial (yellow pages on Voice)
• MadRat Games (Indic language, local character design – board games)
• Large Cash Economy, cards underpenetrated, payment infra highly regulated
• Do-it-for-me > DIY
• Transport Infrastructure creaking –overburdened as its being built
• Every City’s Tech culture is quite different
• Broadband Infra well below optimal
• Mobile Service Providers have too much control over app economy
Blume Ventures
Some Localized Startup Ideas Localized problems that Investors need to be aware of
India The “Mobile First” Digital Economy will kick in (very) soon
Source: Qualcomm, KPCB Report
Representative Investments & Sectors Blume Ventures
HR / Skills / Employability
Internet + Mobile - Infra & Platforms
Ad Tech / Marketing /
Mkt Research
Consumer (other)
Consumer (e-Com -Goods
+enablers)
Content / Publishing
SaaS
Internet / Mobile /
Digital Media
Life Sciences
Consumer (e-Com –Svcs
+enablers)
Education
The “core” of many technology focused VC firms is around Mobile, Internet, New Media and related sectors – that are capital efficient, have a strong ecosystem already built in, and can scale rapidly
India – some big ideas & themes
Private and Confidential
• Mobile First (device and access penetration much higher)
• Fix the SMB problems (35-40 million small businesses)
• Location tracking and services
• Fixing e-commerce backends – B2B commerce, payments
• Video bigger than text?
• Audio / Video Indic languages content bigger than English
• Gaming – will leapfrog consoles to Mobile and Tablets
• Crowdsourcing – Surveys, Information, Tasks, Capital
• Reimagine traditional plays – travel, jobs, housing, dating/marriage
Blume Ventures
China
India
ASEAN
USEU
(2.0)%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%
2012
GD
P G
row
th
Population Growth (2012–14)
…is Expected to Propel Consumption to New Heights
Source: The World Factbook and Economist Intelligence Unit.
High GDP Growth, With a 1.1 billion & Growing Population…
India Continues to Have a Favourable Macro-Economic Profile
Bubble Size Current Population
156222
378
756
1556
0
200
400
600
800
1000
1200
1400
1600
1800
1985 1995 2005 2015F 2025F
Agg
rega
te C
onsu
mpt
ion
In U
S$
bn
Source: McKinsey Global Institute Consumer Demand
Aggregate Consumption to Quadruple
1,556
Calendar Year
FDI flows in India continue to remain strong(US$ bn)
43
36
27
34
25
2008 2009 2010 2011 2012Source: Economist Intelligence Unit.Note: Figures in US$ bn
There are Concerns – but also Confidence
Currency devaluation Political uncertainty given general
elections in 2014 Lack of political consensus Uncertain tax environment That said, Growth projected to be 5-
6%+, and if the above concerns are alleviated and a more investor-friendly Govt is in Power, this could be higher
Attractive Economic & Demographic Trends…
2010 World Population(mm of People)
Real GDP per Capita Growth(2011 – 2020 CAGR)
Source: US Census Bureau (2010).
Total Population: 6.9 Billion People
6.6%
6.1%
4.1%
3.5%
2.1%1.9%
1.4% 1.4%1.1%
0.9%
China
India
Russia Braz
ilGerm
any US
Japa
n
France UK
Italy
Sources: The Economist Intelligence Unit, CIA Fact Book and Citi Investment Research as of March 2011.
China18%
India (1.2 bn people)17%
Africa15%
North and Latin America14%
Europe8%
Indonesia4%
Pakistan3%
Asia (Other)14%
Others7%
Just this month (June 2013), Fitch upgraded India’s Rating Outlook to Stable – driven by Government steps to contain the deficit, stabilize the rupee and other positive reform-oriented actions
Attractive Economic & Demographic Trends (Cont’d)…
Projected Shift in Composition of World Economy2010 / 2030E Global GDP Composition
Projected Evolution of the Global Economy($ in trillion, purchasing power)(1)
Total
Emerging Economies
70%
Developed Economies
30%
Total
Emerging Economies
52%
Developed Economies
48%
Rank Country 20101 US $14.122 China 9.983 Japan 4.334 India 3.925 Germany 2.916 Russia 2.207 Brazil 2.168 UK 2.169 France 2.1210 Italy 1.75
Rank Country 20301 China $38.492 US 24.623 India 23.274 Japan 5.555 Brazil 5.286 Russia 4.827 Indonesia 4.288 Germany 4.059 UK 3.6710 Mexico 3.20
Developing Asia27%
CEE4%
CIS4%
Latin America9%
Middle East4%
North America22%
Western Europe19%
Aus & NZ1%
Japan6%
Africa4%
Developing Asia44%
CEE3%
CIS4%
Latin America8%
Middle East4%
North America15%
Western Europe11%
Aus & NZ1%
Japan3% Africa
7%
Sources: The Economist Intelligence Unit, CIA Fact Book and Citi Investment Research as of March 2011.(1) “PPP” stands for Purchasing Power Parity, which is a theory of long-term equilibrium exchange rates based on relative price levels of two countries; the purchasing power of different currencies is equalized for a given basket of goods.
…Driven By Rising “Middle Class” and Domestic Consumption
87 109158
220290
350
590650
1961 1971 1981 1991 2001 2010 2030E 2050E
India is One of the World’s Youngest Nations…
. . . With a Rapid Increase in Urbanization(in millions)
… With the Most Diverse Society
2010A – 2030E CAGR: 2.6%2030E – 2050E CAGR: 0.5%
64%50%
26% 15%
31%35%
40%
32%
4% 13%25%
29%
6%17%
3% 7%1% 2%
1%
2000 2008 2020E 2030E
Annual Household Income (USD)
<$2,000 $2,000 - $5,000
$15,000-$25,000 >$25,000
$5,000 - $15,000
46% middle class by 2030
0-411%
5-912%
10-1412%
15-1910%20-24
9%
25-4427%
45-6414%
80+1%
65-794%
Over 300mm People Within the Target Age Group
AoAssameseBengaliGujaratiHindiKannadaKonkaniKashmiriKhasi & GaroMarathiManipuriMalayalamMizoNissi/DaffiaOriyaPunjabiTamilTelegu
Jammu&Kashmir
Punjab
Haryana
Rajasthan Uttar Pradesh
Delhi
Uttaranchal
Bihar Assam
West Bengal
OrissaMaharashtra
Madhya Pradesh
Andhra Pradesh
Karnataka
Tamilnadu
NepalBhutah
Arunachal Pradesh
Nagaland
Manipur
MizoramChhattisgarh
Kerala
Mahe(Pondicherry)
Gujarat
HimachalPradesh
Sikkim
MeghalayaBangladesh
Tripura
Andman & Nicobar Island
Jharkhand
Yanam (Pondicherry)
Karaikal (Pondicherry)
Pondicherry (Puduchcherry)
A Growing Middle Class
Sources: Street Research, Mckinsey Estimates and The Economist Intelligence Unit
India is Among the Most Attractive Internet Markets Globally Low Internet Penetration Presents Further Upside
Unique Internet users in India India: 2nd Largest Wireless Market Globally
Source: Internet World Stats, as of December 2011.
Internet Penetration (%), As on December 31, 2011
121 140190
273
376
10.0%12.4%
15.3%
21.7%
29.5%
2011 2012E 2013E 2014E 2015E
Unique Users (mm) % Penetration
(Wireless subscribers as of December 2011, in millions)
245 61 79 513 2,267 1,016 121# of Internet Users (mm)
78%
44% 39% 38% 33%26%
10%
US Russia Brazil China World Asia India
984.1893.8
333.4246.4 242.5 216.8
125.6
China India USA Brazil Indonesia Russia Japan
Source: WCIS and TRAISource: Street Research
Rapidly Growing Smart Phone PenetrationSmart Phone % of all Cell Phones
Source: TomiAhonen Consulting Analysis December 2011, Citi Investment Research and Analysis.
Active Internet Enabled Smart Phones(1)
Source: KPMG in India Analysis.
1024
58
105
166
264
0
50
100
150
200
250
300
2011 2012P 2013P 2014P 2015P 2016P
(Milli
ons)
60
107
26
10
2012E 2013E 2014E 2015E
Early 3G numbers are encouraging and point to medium-term upside
Analysts project a c.8% 3G penetration by 2015, which we believe is conservative
1% 2% 8%5%Penetration
3G / 4G Adoption a Key Growth Driver…(2)
…Supported by Increasing Smart Phone Penetration
(Subscriber base in mm)
8%
12%
14%15%
2012E 2013E 2014E 2015E
0%
10%
20%
30%
40%
50%
60%
Sing
apor
e
US
Aust
ralia
Sout
h Ko
rea
UK
Fran
ce
Isra
el
Ger
man
y
Sout
h Af
rica
Mal
aysi
a
Japa
n
Chi
na
Indi
a
(% o
f Cel
l Pho
nes
that
ar
e Sm
artp
hone
s)
Source: Analysys Mason, IDC
Notes: (1) Includes Wi-Fi and 3 / 4G enabled smart phones. (2) Includes 3 / 4G enabled smart phones.
Q & A