@TiEcon 2008: Ritesh Banglani of IDG Ventures On Mobile VAS Business Opportunities

The highlight of the TiEcon 2008 summit was a great overview the Mobile VAS ecosystem from Ritesh Banglani from IDG Ventures, who gave the investors perspective on the Mobile VAS space, and highlighted several key opportunities and challenges.

Banglani said that most Mobile VAS conferences he’s attended are of two types - where the discussion is either characterised by hype, or despair. There is hype if the disucssion is about the number of users and the “opportunity” in those numbers, and despair if it is about operators, low revenue shares, and so on.

Issues
Generally fall under 3 or 4 categories:
– Distribution Channels: The biggest issue is the distribution channels. Currently there are two active distribution channels - either through operators or media companies. Both of these are far larger organizations than mobile VAS companies, and squeeze them for margins. That is the second challenge.
– Margins: Getting margins even for highly innovative products is very hard. On average, gross margins for mobile VAS players are below 35 percent.
– Technical: low bandwidth, small screens on mobile phones, and so on. That is typically a challenge when you try to port applications which work successfully in the west.
– Funding: The fourth challenge challenge is the funding challenge for small companies in this space, since it’s very difficult to get their first customer, and investors are not keen on working with companies that do not have customers.

Importantly, he added that “When we go out, looking for entrepreneurs, we look for people who don’t necessarily want these things to change, but look for people who can survive despite these challenges.”

The Opportunities
There are discontinuities in the marketplace - things like 3G and new operators - and there are some things which have changed slowly, but have reached a critical mass:
A short term tactical opportunity for startups: As soon as 3G is operationalized by operators, they will start looking for VAS applications. While these will not be at a scale to make substantial money, they’re a very good entry point to operators. You get access to a key distribution channel.

More opportunities, the areas that IDG wants to invest in, and the challenges that Mobile VAS companies will face in the coming months:

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At TiEcon2008: Exits, Motivation And Speed; Diversify, Diversify, Diversify

On Startups And VCs
– Exits: On the first day, one VC said that many Indian startups are really don’t help the VCs who’ve given them money - once the VCs start talking to startups about an exit for the VCs, they act as if they’re being betrayed and tell them to figure out how to get the exit.
– Motivation: The most significant challenge for Venture Capitalists right now is in keeping entrepreneurs and startup employees. At the same time, VCs feel there’s a feeling that this is the perfect time to hire the riht people, and the suggestion for startups is - look at your team, and figure out whom you need to hire.
– Opportunity for entrepreneurs and companies that are adding value is still there. There’s opportunity in transformation in India - in transforming schools and colleges, who are still very open to evolving.
– There needs to be a clear path to profitability, but we (VCs) really need a road to revenues. Need to build a base of loyal customers.
– Entrepreneurship is more about speed than perfection. If you can get the timing right, you can change the story.

Diversify, Diversify, Diversify

Deep Kalra, CEO of MakeMyTrip
“IBM has a cut its travel spending by around 75 percent - all executives below the CEO are going to travel Coach. AOL has cut all travel for a while. ICI, and Indian company, has cut all travel except sales related travel. So there’s going to be a huge impact on travel. Aviation in India is down 17 percent. We’ll have to brace up. I think it’s acid test time. I don’t think it’s as if no one will do well, but it’ll separate the boys from the men. In spaces where there are too many players, you’ll see a shakeup.

It’s deja vu for Me. We started MMT in 2000. I think that’s going to help us now. We run a really tight ship, but we’re benefiting from the diversification which we started 18 months ago - we make money from things other than just airline ticketing. In fact, when we began shopping, we went against the entire board, apart from one independent director, Sanjeev Bikhchandani. We weren’t cutting any ice on holidays, and we set up 12 lines of business, including small holidays. Domestic holidays is making up for us. You don’t want to be exposed just to Airline tickets.”

Shantanu Prakash, Founder of Educomp
Important to reinvest cash and reinvent customer value propositions. Our business has a core proposition, and businesses like concentric circles around that core proposition. We will still be impacted, because of cost of debt has gone up. We’re building schols, and it’s capital intensive. Also, financial capital isn’t everything. You can build a business around intellectual capital, over financial capital.

Some comments on the Economic Crisis
– We’re seeing a time that we’ve not seen before; It’s almost like capitalism is being questioned. We’re entering territory where we’ll be questioning how capitalism works.
– The reality is that at the same time India started growing to 9 percent growth, there was a credit boom in the US. It was as if someone just printing cash, that spilt over to the rest of the world. We are going back to reality. As a country, we’ve only reformed when we’ve had a crisis.

Sequoia Capital India Closes $725mn Growth Fund

Sequoia Capital India has announced the closing of its second growth equity fund dedicated to India. $725 million has been raised to invest in late-stage, pre-IPO and public market investments. Sumir Chadha, MD of Sequoia Capital India has said that the new fund will focus on companies with a topline of over $50 million. Thus the investment size is also set to increase - to $20-70 million.

Sequoia doubled its money in Idea Cellular (invested $45 million and got $90 million), which listed last year. Around six to eight of their companies could go public within the next 12-18 months. A fairly http://www.vccircle.com/news/with-venture-and-growth-we-are-a-one-stop-shop-for-entrepreneurs target=_blank>detailed interview at VCCircle.

– Ideacts Gets $5 Million From Sequoia Capital; Launches Cybercafe Focused, Ad-Supported Product CLINCK
– SatNav Raises $7 Million From Sequoia Capital India

Naspers Picks Up 25 Percent Stake In Mobile Ad & Social Net Co Buzz City For $10 Million

BuzzCity, which runs a mobile advertising network and social networking site called myGamma.com has raised $10 million of growth capital from Naspers, the South African parent of MIH. BuzzCity CEO Lai Kok Fung has said on the mygamma blog, that this is for a 25 percent stake in the company. Naspers was more interested in the mobile advertising side of the business than paid services, which Buzz City launched with.

This annoucement comes a few months after exchange4media had reported that they’re in talks with an Indian entity for a strategic partnership, which Fung has denied.

Initial Investors Exit: The 3i Group, BancBoston Capital and Singapore Press Holdings Multimedia (SPHM) have exited, though SPHM will retain a small stake. What’s interesting is that BuzzCity had received $10 million in its second round of funding as well…so have these investors exited even at par? Fung has said that BuzzCity is “financially viable with earnings that adequately meet our operating expenses.”
Update: Was Naspers brought in just to give BuzzCity investors an exit?

On Buzz City India and Ibibo
India is their second largest market after Indonesia, with claims of 6,69,000 users here. On the ad network side, Buzz City claimed to have advertisers and publishers like HDFC Standard Life, Indiatimes, Tata AIG, Nazara, ICICI Bank and Kodak. The company launched their India operations in 2005, and Milind Naik and Manish Mishra represent Buzz City here.

It will be interesting to see how this plays out in India - Naspers also has a 30 percent stake in ACL Wireless which has its own mobile community - frenzo, and Ibibo also has a significant mobile community play. Everyone’s talking Mobile in India, and more and more communities and social applications are being launched here, the idea being that there are enough mobile users to go around.

So how big is the Mobile Internet base in India?

SeventyMM Gets $11.4 Million In Series C Round Led By NEA-IndoUS Ventures; Change Of Business Model?

SeventyMM, the online movie rental business, has made another pit-stop, and will chug along for a few more laps. Refueling the business with close to Rs. 50 crores ($11.4 Million) are NEA-Indo US Ventures, and VCs from earlier rounds - Matrix Partners India, Draper Fisher Jurvetson and ePlanet Ventures. Vani Kola of NEA-Indo US Ventures has joined the board. [via Television Point]

In the movie rentals space, SeventyMM competes with BIGFlix from Reliance ADA Group and Showtime from Nimbus. In the world cinema downloads space, they’re competing with Gaurav Dhillons Jaman.

SeventyMM has changed tracks: they were probably being lapped again and again by the movie pirates, and the web 1.0 model has been replaced a one which has a bit of both - user interactivity and movie rentals. Some of you may remember that the Web 2.0 model was deemed a waste of time last year by investor Avnish Bajaj of Matrix Partners, an investor in SeventyMM.

The brand new look - with video clip promos, a photo, audio and video gallery, also allowing users to upload content in these formats. I do hope they’re not penalized for users uploading copyrighted content since the Digital Millenium Copyright Act isn’t applicable in India. Apart from that they also have quizzes and other features, trying to involve the fan base. But there isn’t any advertising yet on SeventyMM, so it appears that they’re currently seeking to convert those discussing movies and browsing promos, into customers.

What SeventyMM hasn’t done yet, is launched the online movie streaming and movie downloads they had mentioned here in September last year, and neither do we see any edutainment services.

So far, they’ve raised around $21.4 Million - $11.4 million in this round, and around $10 million in previous rounds (pdf). Note that SeventyMM had acquired Delhi based movie rental business MadHouse, a little over a year ago. Madhouse founders have since quit to launch Morpheus Venture Partners.

Netcore Funding Falls Through; MD Rajesh Jain On Raising Venture Capital

A little over a month ago, we’d heard murmurs of Rajesh Jain’s company Netcore raising a round of VC Funding. Netcore runs the Push SMS Service MyToday, with around 3.6 million subscribers, sending around 12 million SMS’ a day. Some sources put the funding amount at $10 million, others at $25 million; neither was confirmed by company sources. In fact, I was a little surprised that Netcore was raising funds, since Jain, as we know, has reserves from the famous IndiaWorld deal with Sify. Now it appears that appears that Netcore’s funding has fallen through, and here’s what Jain has to say about it:

VCs and Me
by Rajesh Jain

In my fifteen years as an entrepreneur, I have never managed to raise venture capital for my own company. (Some of the companies I have invested in over the past three years have been very successful with their own fund-raising efforts.) Very recently, a deal that I was negotiating with for Netcore fell through as it neared its closing. And that made me think through the years since I started IndiaWorld about the ten failed efforts to raise venture capital. Most of these endeavours were from 1995-99 while I was growing IndiaWorld. In Netcore, I said No a couple years to an investment offer, and this time around, a set of cascading efforts led the prospective investors to withdraw. Given the string of fruitless efforts, I can only conclude that VCs and I are not made-for-each-other!While the reasons for these aborted attempts to raise funding are many, I can distill them into two key areas: valuation not being right, and deep disagreement on issues on which neither of us would compromise. A relationship with a VC is like a marriage - and one in which divorce is not a possibility. So, both sides have to be absolutely sure before entering into the relationship. It is better not to enter into a relationship if either party has doubts.

In my case, two things have helped me be more choosy. In IndiaWorld, we were profitable from the early days so I was never in a situation where I had to take capital for survival. In Netcore, I have the ability to invest my own capital - which I have done over the past 5+ years. Maybe, this makes us a most unlikely target for venture capital going ahead!

There have been more than a few VCs whom I would have liked to have got on board - and in all cases, it was for the person at the firm who I believed could add tremendous value (beyond money) to help build the business. At the end, this is perhaps the most important criteria. If the value is not in the person (VC), then it becomes a pure financial investment - which, depending on the situation, may or may not be the right thing to do.

In the past 15 years, I have always found discussions with VCs helpful. They bring in an objectivity as outsiders which every business needs. At times, we as entrepreneurs and managers are so closely involved in the thick of the trees that it becomes easy to lose sight of the wider forest one is navigating through.

So, back to Netcore. We are at an exciting stage in our evolution. The foundation has been laid, much of the management team is in place. It will still require great execution from here on to realise the dreams we have in the coming years. Capital is only one of the raw materials. As I look back, I can only speculate on what life would have been with a VC.

© Rajesh Jain. Reproduced with permission from Emergic.org

Also see:
– Why Push SMS Services Would Need As Much As $10 Million In Funding
– Your Take On The Cost Issues Of Push SMS Services In India

Website For Dare, CyberMedia’s Magazine For Entrepreneurs, Goes Live

Sometime early this month, the website for CyberMedia’s Dare, the magazine for entrepreneurs, went live.

The most interesting element of the site is the lead story by Group Editor Krishna Kumar - “Who will be the next manufacturing superpower“, not because of the topic, but because Dare is offering its readers the opportunity to complete the cover story with their opinion, and win a Blackberry. So far, the story has received 40 comments - some of them very, very long. It will be interesting to see if Dare makes a habit of this - of driving readers from its highly regarded magazine (many entrepreneurs I know read it), cross-media to its website.

Content discovery is also being encouraged - the index page displays tags, the latest comments, latest blog entries, stories from different sections of the site. It appears to be a Joomla based site (correct me if I’m wrong).

Dare’s website has taken a lot time to launch - while the magazine itself was launched sometime in October last year, visitors to the site Dare.co.in were subjected to a “Coming Soon” notice over the next many months.

The content on the site is divided along four categories - Opportunities, People, Strategy and Funding, and the site also features blogs. Much of the content on the website is magazine content, and frankly, if there aren’t daily updates, repeat usage will be an issue.

Some suggestions

I’d put blogs right up there, in the proverbial “first fold”, and at least have daily updates. A magazine faces a key issue online - its content is updated weekly, fortnightly or monthly, while users online expect daily updates; in some cases, many times a day. The importance of recency cannot be understated - so either have content that is updated often, or offer users interactivity. Some suggestions:

– Adding relevant wire stories to the site: Digital Today did this for its magazines Business Today and India Today. Editorial selection is of great importance here, since irrelevant or badly written stories (many of those on the wires) will hurt the brand.
– Adding blogs that are updated frequently, and have an editorial mandate: Dare does have blogs, but they aren’t being updated frequently enough, and they don’t appear to have finalized the editorial mandate for the blogs yet. I quite like what Mint has done with its blogs, in terms of content.
– Linking out/Aggregating: I’ve said this before - content is a service. In the b2b space that we are in, you’re providing your readers with inputs that help them make better decisions. In that case, if you’re pointing them towards articles and stories that could be of use to them - why not? Would it hurt Dare to link to a site like VCCircle, which has excellent, relevant content? I don’t think any mainstream publications in India are linking out.
– A discussion forum: forums are grossly underrated, but if you get the right kind of community discussing issues, a site can take on a life of its own. Or even…imagine enabling a live chat session for selected entrepreneurs with mentors or VCs

What do you think Dare should do to increase interactivity?