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IDGVI News: Media Coverage 2008

Venture Valuations

VC Circle | November, 2008

By Madhav A Chanchani

An economic downturn could be a time for new companies to test their capabilities to the core and come out stronger. Sectors like education, after-sales infrastructure service, engineering and electronics are tipped to outlast the current downswing which might last at least two years. The fund has no plans to dilute its strong focus on early stage technology, especially when a few others have vacated the space. Sudhir Sethi, Founder, Chairman & Managing Director, IDG Ventures India, shares his company’s outlook in an interview with VC Circle. Excerpts:

Since the slowdown has started and demand is falling, what is IDG Venture telling its portfolio companies?

We have called for greater focus on sales, cost cutting and continuation of product development. But we have sought to put on hold the plans for development of new products so that the existing products can generate more revenues. At the same time, the non-performing people in our companies are being advised to perform and there is a higher weightage on variable pay. We want to make sure all our companies have adequate cash for the next 18 months.

Since you have taken an 18-month cycle, do you think the economy would be in a relatively good shape in that time?

No. We are only making sure our companies are scaling rapidly on revenues during this time frame. How long will this last, we don’t know like many other people, but our hypothesis is that it will be a minimum two-year cycle. Companies that survive this two-year cycle will do extremely well thereafter.

A lot of venture capitalists have been saying that the best and most successful companies are started in a downturn. But that is easier said than done, isn’t it?

I don’t think it’s a black and white situation. In a downturn, the leadership team in a company experiences how to build a company in difficult circumstances. If they are able to learn that and rapidly scale up, the experience would prove to be rewarding. Growing a company when the markets are good is much easier than growing it when the markets are not good.

That’s why companies that successfully wade through a downturn are able to perform in the long term.

Are there any sectors that particularly excite you in these times?

The education sector will do very well in the next two to four years. And it’s a defensive play in downtime. Also, looking at a company that we have, namely, ConnectM, which addresses remote monitoring for capital equipment to ensure breakdown maintenance, we realise the future of predictive maintenance. In this market, the life of capital equipment has to be extended and that can be done through good predictive maintenance. Companies that offer after-market service in the area of engineering will do very well.

IDG VENTURES INDIA PORTFOLIO
Company Amount ($Mn) Sector What they do?
3D Solid Compression Undisclosed Media Solutions for 3D Visualization
Aujas 3 IT Enabling Digitial Defence
ConnectM* 6 IT Machine to Machine(M2M) Enabled Solutions
IviZ 2.5 Technology Security Product Company Providing On-Demand and Automated Penetration Testing
Kreeda <10 E-Commerce Multiplayer Online Gaming
Manthan Software Systems 2 IT Retail Indsutry Focused Business Intelligence andAnalytics Software
Ozone Media 4 E-Commerce Online Advertising Network
Perfint 3.5 Medical Technology Intelligent, Connected and Reliable Healthcare Devices and Solutions
Myntra Designs 5 E-Commerce Customized Gifts and Merchandise

“We intend to remain a technology focused venture capital fund and don’t intend to go into growth in this fund or the next. The reason for that is everybody else is vacating this space. We have strengths here and have done well for the last 10 years and will continue to do so."

Are you also looking at the healthcare sector?

Yes. We have invested in healthcare sector, in a medical system company called Perfint. It has a device for minimally invasive image guided biopsy. We continue to look at this sector actively. It takes very special skills to build a medical systems company. Venture capital funds in India are increasingly getting into growth capital,and adopting a sector agnostic approach.

How easy is it for you to remain one of the few technology-focused early stage VC funds?

We intend to remain a technology focused venture capital fund and don’t intend to go into growth in this fund or the next. The reason for that is everybody else is vacating this space. We have strengths here and have done well for the last 10 years and will continue to do so.

Are you seeing any change in valuations? Is there any change in the way you evaluate companies now?

Valuations have gone down, there is no question about it. Valuations in the venture world were anyway reasonable. They never went through the roof because the number of venture players is actually very small. And within that the number of players in technology sector is much smaller.