At GSF 2012, a rather panel of investors, entrepreneurs and big media execs discussed where the exits are going to come from for companies that have raised money in India. Remember that the potential for exits drive investment from venture capitalists, and a higher propensity for exits means that VC’s are more likely to make investments, and entrepreneurs are more likely to start.
Are There Exits?
Suvir Sujan of Nexus Venture Partners pointed out that we havent seen enough homegrown companies which have come of an IPO and acquired new companies. “We’re in the nascent stages of domestic M&A. There are a fair number of global majors looking towards India and they’re beginning to see that there is talent in India that can build global products. The challenge is that while we’re seeing M&A, we’re not seeing M&A for traction, we’re unlikely to see acquisitions on the basis of India based traction alone.” Mahesh Murthy of Seedfund pointed out that exits are there – “We’ve exited 3 companies at valuations of $10 million or thereabouts. It costs less to build a company in India, you can build it soon and flip it early. We have have the small cap exchange. The first company listed on the BSE SME had $300,000 and exited at $2.1 million. An exit is an exit, whether its big or small.”
What Media Companies Are Looking At (Mostly Acqui-hires)
Satyan Gajwani, CEO of Times Internet* commenting on how traditional media companies in the US have done on the web, pointed out that most media companies suck at the Internet, and sitting in India, “we see what’s working and what’s not. For us, traditionally, we’ve never been about M&A. We look at a company, think it’s expensive, and we decide to build. My first acquisition at TIL (referring to MensXP) is partially for talent. Building doesn’t always work. It’s easier to bring people in. I don’t have to set up a new team. The culture of the people you bring in after the acquisition. For us (Times Internet) it’s healthy to bring in non-content type people. More important that buying is what you do after that. Effort goes into figuring out the deal and giving them the autonomy. I don’t believe in one big consolidated strategy. Every month strategy changes. Sometimes it makes sense to take a small stake, sometimes it makes sense to build. We’re trying a lot of different things and see what works.”
MIH India CEO Ashish Kashyap said that Ibibo will acquire for traction, but not below the $10-15 million level. So far, it’s mostly been acqui-hires for Ibibo – “We set up a greenfield operation. We were experimenting and we hired people who weren’t good. Our first phase of doing inorganic was for hires. We’ve done 30-40 acqui-hires. That’s really worked well for us. We love entrepreneurial talent, and what works for us is teams which have learned failure. Those teams know how to execute. Gajwani added that Times Internet has 7-10 deals at some stage or the other. What they’re looking for – “The team has something valuable. We’re interested in mobile centric ideas, something that might be relevant for people have never used a computer. Why Internet sucks in India because everything plateaus. Something might happen on mobile. Something that is on smartphones and has a crossover to non smartphones.”
What Entrepreneurs Are Looking To Buy
Vijay Shekhar Sharma, MD of One97 Communications* said that they have a three-pronged strategy – build, buy or invest; “Most of the time, we prefer to build organically. If we find some businesses and new markets, we buy. “We had free cash flows, and started a fund to do things that we would not do, and later realized that it is better to invest in businesses that you want to do. We believe that we’ll need a swiping device for our payment services (Paytm), so we started looking at that. Our investments are led by the strategy that if they aren’t able to run it, maybe we can run it, or if it doesn’t work our, we can hire them.” Sharma said that they’re using the money they made following an exit of an investment to McAfeeWe for other investments. Two areas interest them right now – mobile advertising and mobile payments.
Amar Goel, founder of Komli and Pubmatic, ventures which have acquired fairly actively, said that they’ve bought for people, expertise, product (to lower time to market and risk) and geographic expansion. “We (Komli) bought companies in SEA and Australia for geographic expansion. Pubmatic bought a company which was doing what exactly pubmatic was doing. It’s been pretty opportunistic for us. We haven’t invested in anything. Founders can be a bit crazy. You want to find founders that want to be a part of a larger team. We’re not looking at much right now, but if we acquire, it would be for product in areas where we aren’t.” He said that the company acquired a mobile business (Zestads), and has grown it 8-10x in a year.
Kunal Bahl, Founder of Snapdeal feels that while they’ve seen talent based acquisitions in e-commerce, most companies are not yet large enough to absorb others. The next phase will be largish companies in e-commerce merging. “The phase after that will be of large international companies coming and buying (Indian companies). Some will choose to go private and others will go to an IPO. We’re still just 2.5 years old, so we have time.” Yebhi founder Manmohan Agarwal agreed, saying that they’re likely to see smaller companies merge into larger ones, especially because founders who have been around for a while but not scaled, might want to exit now.
What will Snapdeal be interested in buying? “Recommendation engines for ecommerce. 20% of our sales are coming from recommendations and personalization, so we would look at that. Second its about finding entrepeneurial talent and finding a home for them in a company. We’ve acquired two companies already for that. ARPU on this is opportunistic.”
Disclosure: Times Internet and One97 Communications Are Advertisers with MediaNama