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IDGVI News: Media Coverage 2011

Who will fund you today?

ENTREPRENEUR | February, 2011

Hemir Doshi
Co-Founder & VP. IDG VENTURES INDIA

  1. WHICH SECTORS PROMISE TO BE HOT IN 2011?
    Scalable technology companies that cater to Indian and emerging market need gaps, like healthcare and education. Software products for emerging markets, SaaS and cloud-based models, IT security, mobility and 3G-based ventures and online-offline (hybrid business models).
  2. WHICH SECTORS ARE NOT HOT FOR 2011?
    Pure cost arbitrage-based commoditized IT services, clones of e-commerce successes.
  3. WHAT AREAS WILL INVESTORS FOCUS ON THIS YEAR?
    Market opportunity is immense. Success will be driven by a team that can execute and realize that opportunity. Look for a solid team that can deliver here. Offerings that demonstrate on-the-ground knowledge, capital-efficient models, exit-ability in 5-7 years.
  4. WHAT FUNDING TREND DO YOU FORESEE?
    Private equity industry will grow rapidly. In the 2007 peak, private equity industry contributed 3.5 percent of U.S.A. GDP; whereas in a developing country like India, it was 1.2 percent then and only 0.3 percent in 2009. So, there is ample room for growth. Confidence of long-term investors in India is high. Consequently, first rounds, next rounds, exits will be active. Investors are appreciating the ‘India’ model and not doing a copy-paste of developed market strategies. Funds raised in 2005-’07 period will start looking at exits in line with typical holding period.
  5. WHAT KIND OF VALUATIONS WILL TAKE PLACE?
    There is a bubbling up of valuations in some segments. Deal do-ability will get impacted.
  6. WHAT KIND OF COMPANY IS THE BEST BET FOR YOU?
    As always, sectors and companies that we understand well. Long-term investors who stray away from their knitting are more likely to ‘overpay’ and also be unable to ‘value-add’ on the board. Five of our 11 companies have already been successful with next rounds. So, the strategy and criteria for 2011 remains largely unchanged.
  7. WHAT IS THE BEST FUNDING OPTION THIS YEAR?
    For early-stage entrepreneurs, the good news is that angel networks are panning out very well. So, look for good quality seed money. The VC component of the private equity industry will increase substantially as the country progresses and funding environment matures.
  8. WHAT WILL IT TAKE TO WIN INVESTOR MONEY IN 2011?
    Depends on who you can choose to raise from. If you offer a compelling value proposition, then the VC is trying to ‘win’ you. Strike a balance between valuation and value-add. In this environment, many funds are willing to give unrealistic valuations based on unrealistic scale projections. It will come back to haunt both the fund and the entrepreneur.
  9. WHAT IS THE CURRENT POLICY ENVIRONMENT?
    Improving in some regulated sectors and resulting in an increase in private equity participation.
  10. WILL 2011 BE A GOOD YEAR FOR EXITS?
    Going by history, yes. Exit activity had peaked in 2007 with strong public market environment. In the 2004-’09 period, exits gave 4-5x average returns. This is expected to increase in the next five year period. Large domestic and international companies have equally contributed to M&A activity in India. They will acquire sun rise/disruptive businesses with high growth revenues and footprint. This will create a culture of serial entrepreneurs. Scaled businesses will go for IPO in such markets and not be keen to sell out. PE funds will also provide exits to VCs.