By Shraddha Nair & Deepti Chaudhary
IDG Ventures, one of the largest venture capital (VC) investors in Asian Internet companies, has put in $3 million (Rs.13.38 crore) in Vserv Digital Services Pvt. Ltd, a mobile advertising network for application developers, publishers and advertisers.
This is the company’s fifth investment in India’s mobile Internet sector since it entered the country in 2007.
IDG Ventures, a division of US-based International Data Group Inc. (IDG), has also invested in China-based Baidu Inc., which runs the world’s second largest search engine; E-commerce China Dangdang Inc., the largest e-commerce company in China; VinaGames, the largest gaming company in Vietnam and, more recently, Myntra.com, an Indian e-commerce company.
It plans to raise a second India fund of $150-200 million, focused again on technology-backed ventures. “We will be launching the second fund early next year,” said Manik Arora, founder and managing director, IDG Ventures India.
The first India fund of $150 million was raised in 2006.
The parent company, IDG, is also looking to start a growth fund and a so-called mezzanine fund for India by 2013-14. A mezzanine fund invests in deals with both equity and debt components.
“The plans for these funds will be finally shaped up after we have raised the second fund,” said T.C. Meenakshisundaram, managing director of IDG Ventures India.
The growth fund could have a corpus of over $300 million. The mezzanine fund will look at investing in pre-initial public offering (IPO) companies.
“Mobile Internet is just taking off, not just in India but globally too,” said Arora.
He said while the US and China have been years ahead of India in investing in Internet-based companies, all three countries are similarly placed in terms of investment in mobile applications.
Explaining the investment in Vserv, Arora said: “What attracted us to the company was that they developed a solution compatible for Java-based phones, which is the dominant installed base in India and most emerging markets today.”
Vserv is now extending its advertising solutions to the Android platform, he added. “India will transition from Java to Android over the next few years.”
India’s mobile Internet user base is growing much faster than the general Internet user base. The number of mobile Internet users has doubled in the country since last year to about 40 million, Arora said.
India is the largest market for Java-based applications, with 15-25 million applications being downloaded a month. The global mobile application industry is estimated to grow from $2 billion in the year 2010 to $30 billion by 2015, according to International Data Corp., a market research and analysis firm, and a division of IDG.
Vserv will use the funds raised from IDG Ventures to expand engineering and sales teams and enlarge its footprint in international market, said Dippak Khurana, chief executive of the Mumbai-based Vserv.
IDG has earlier invested in Indian mobile Internet companies such as Apalya Technologies Pvt. Ltd and 3DSoC Pvt Ltd, and plans to continue investing in the sector. In May this year, the firm, along with Sequoia Capital India Advisors, invested in Sourcebits Technologies Pvt. Ltd, a mobile and tablet applications developer.
Nexus Venture Partners, an early stage VC firm, is close to investing in a mobile Internet company. “There is a lot more activity now because the usage of smart phones has gone up. So we are looking at a mobile play where there is an intersection of social media and mobile,” said Sandeep Singhal, co-founder, Nexus Venture Partners.
In India, most Internet-related investments have been in e-commerce companies, with only a few investors willing to invest in mobile Internet. Those who have have mostly looked at mobile value-added services, which range from ringtones to voice-based short messages and music downloads.
Developing apps for mobile phones using the Internet as a medium is a promising sector, according to Nitin Khanapurkar, executive director, advisory, at consulting firm KPMG India Pvt. Ltd.
“Another advantage is that app development is country-agnostic so the market is not restricted,” he said. “The apps can be used globally.”