3 Epinions founders sue VCs, co-founder Nirav Tolia

From New York Times :

Partners at two prominent Silicon Valley venture capital firms deceived four of the five founders of a start-up company, withholding critical information and thereby cheating them out of tens of millions of dollars, according to a lawsuit.

The suit, filed in Superior Court here last week, was brought on behalf of three of the five founders of Epinions, a consumer product review Web site founded in 1999 that quickly became one of the dot-com era's more celebrated start-ups. The suit named J. William Gurley of Benchmark Capital and John R. Johnston of August Capital, both original investors in Epinions and directors of the company, and an Epinions co-founder, Nirav N. Tolia.

"It's rare for the founders of a company to sue their financial backers," said Paul T. Friedman, a partner at Morrison & Foerster in San Francisco. "Venture is a small world in which relationships are very important. Most people find a way to avoid disputes so they can live another day."

The plaintiffs include two co-founders of Indian origin: Naval Ravikant and Ramanathan Guha. Interestingly, Naval Ravikant used to work with August Capital (after he had left Epinions). He's no longer listed as part of the fund's team.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Enterprise software maker Ramco Systems' new bet

One of the first software products company in India, Ramco Systems, has been struggling to make a mark. While the company's ambitious ERP software Marshall failed, Ramco’s VirtualWorks, a platform for developing enterprise applications, seems to be doing better, says this Express Computers report.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

New advertising firm offshores creative work to India

After IT, BPO, equity research and of course, editorial services, now it is the turn of advertising work to go offshore from the US to India. Bannerjee Partners has launched with its USP of a "Blended Outsourcing Model that offers unprecedented value to clients". The company will have offices in Mumbai and Bangalore.

ʺWe believe (that our) blended outsourcing model will cause clients to question the value proposition of traditional agencies,ʺ Dave Banerjee, Founder, says in the company's launch press release. ʺWith creative and production teams based in India and supported by Internet-age efficiencies, Banerjee & Partners offers award-worthy advertising at costs that are 40 to 60 percent less than industry averages," the release adds.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Vignette 2: Flextronics Does a Cisco Act

A key highlight of 2004 was the emergence of Singapore-based contract electronics manufacturer Flextronics as an active investor in – and acquirer of - Indian technology companies.

The company moved swiftly to invest in most of the leading communications software companies in the country: it acquired FutureSoft and Deccanet Designs (both Intel Capital portfolio companies) and invested $226 million to acquire the 55% stake held by News Corp. in publicly-listed Hughes Software Systems.

As part of the company’s plans to make India its global center for technology products design, Flextronics also led a $10 million investment in chip design firm inSilica and acquired multimedia technology firm Emuzed.

Vignette 1: An Unusual Exit Story

Thanks to a strong interest among global staffing services firms to enter India, three HR and recruitment services companies provided exit routes to their private equity investors during 2004: Ma Foi Management Consultants (acquired by Dutch staffing services firm Vedior), JobsAhead.com (by Monster.com) and PeopleOne Consulting (Adecco).

On a related note, here's a recent Businessworld cover story on the rise and rise of temperory staffing services.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Vignettes from the Venture Intelligence India Roundup-Annual-2004 report

The Venture Intelligence India Roundup Annual 2004 report will be released next week.

Here are a few highlights from the report:

Venture Capital and Private Equity firms invested about US$ 1.1 billion* in 66 India-based companies during 2004. The amount invested was significantly higher compared to the $507 million invested during 2003.


Warburg Pincus’ $149 million investment in optical storage media maker Moser Baer was the largest VC / PE investment during year
Investments in Business Process Outsourcing declines

Late stage and publicly-listed companies corner majority of the investment pie

ICICI Ventures emerges as the most active VC

Companies based in South India corner over 50% of investments

Mumbai threatens Bangalore’s lead as top destination for VC investments

VC and PE firms obtained exit routes for their investments in as many as 30 companies during 2004

Six venture-backed companies pulled off successful IPOs during the year

Venture backed IT services company Patni Computer Systems and biotech firm Biocon raised $95 million and $71 million respectively via their IPOs

IBM’s $160 million purchase of Daksh eServices was the largest M&A exit

This week, we will also be publishing some other vignettes - especially some of the unusual trends gleaned while analysing the annual data - on our blog.

In case you aren't a Venture Intelligence India subscriber, please email us at info@tsjmedia.com to order the Venture Intelligence India Roundup-Annual-2004 report.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Singapore's new wave of investments in India

Businessworld magazine recently published a country report on Singapore including the renewed interest among Singaporean funds like Temasek and GIC as well as Singaporean companies like Ascendas (best known for its IT park in Bangalore), Singtel and Singapore Ports.

Extracts:

The Government Investment Corporation (GIC) of Singapore - the one housed in Capital Towers - manages a figure that inspires awe in Singapore. "Upwards of $100 billion: that's the number associated with GIC," says the chief investment manager of a large US-based private equity fund operating from Singapore. Temasek, whose offices are in the Atrium, manages a portfolio of $90 billion.

GIC is secretive - no published account of its finances exists. Temasek, too, was opaque till a while ago, but this October, it published its finances for the first time, causing a sensation in the region. For the record, Temasek, which was created in
1974, has delivered a return of 16 per cent on an annualised basis over a 30-year-period. No such figure for GIC is available, but it too is said to deliver returns of 11-12 per cent on an annualised basis.

In China, GIC has changed its investment style. It invests directly into the companies. "There weren't many private equity funds in the region until recently and there aren't many with a long track record in these markets so we are more cautious," says Peng. It has put money into China International Capital Corporation, a private equity fund. In China, GIC has invested close to $500 million. It looks for a 20-25 per cent return in the US and Europe, and about 25-28 per cent in Asia.

India is now in GIC's sights because of its strong economic growth. GIC wants to invest both in domestic industries - consumer goods, financial services, infrastructure - as well as in knowledge-based industries like software services, business outsourcing, pharmaceuticals and light engineering. "Apart from direct investment, we also want to invest in India-focused funds that give us deal flow as well as deal intelligence. We would look at a minimum deal size of $20 million for every deal," says Kunnah Chinniah, executive vice-president, GIC Special Investments.

Temasek is poised to invest more than $15 billion in Asia and India should be a major recipient of this corpus.

"Champagne year for investment bankers"

Businessworld magazine has declared 2004 as a "Champagne year" for investment bankers thanks to the large number of IPOs and cross-border M&A activity.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Telecom "Hot-Box" company Tejas Networks' 3rd Round investment to last until exit: VC

The $15 million third round funding raised by Bangalore-based telecom equipment firm Tejas Network's will be the last round before the company goes public or gets acquired, BusinessWeek's newly launched VC blog reports quoting Carl Stjernfeldt, partner at the round's lead investor Battery Ventures. Other investors in Tejas include Intel Capital, IL&FS VC, and Sycamore Networks founder Desh Deshpande.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

"VC bubble forming in late-stage investments in China"

From a Businessweek interview with DCM-Doll Capital Management's David Chao

Q: Which sectors look attractive in China?
A: There are a lot of semiconductor-design companies that work on next-generation chips. Another area is media services, as the overall advertising industry grows in China. We also look at next-generation Internet infrastructure plays. And the last category would be mobile platforms, like next-generation game companies or mobile-services companies.

Q: Is a VC bubble forming in China?
A: On the late-stage side of the fence, there's definitely a bubble. Things are being overpriced. It's natural. You have foreign investors going into China. They probably don't have the wherewithal to do the early-stage, hands-on growing of a company. So they end up investing in late stage because they have to do less of that. When they narrow themselves to that, and there's so much money chasing that, naturally prices are going to go up.

With US VC funds starting to make direct investments in India, it makes one wonder whether the late-stage bubble phenomenon will happen here as well.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

VC, Entrepreneur collaborate to start new blog

In an interesting experiment, Venky Ganesan, a Managing Director with Globespan Capital, and Narasimha Chari, Co-founder and Chief Architect at Tropos Networks, have come together to create a blog, VenChar, sub-titled "Ideas, analysis and opinions on technology".

A sample extract below from "Ven":

I have had a chance in the last few months to talk to quite a few senior software execs from a variety of software application companies. A constant theme appears:

* The software business has changed irrevocably and has matured
* The glory days of growth are over
* Technology does not matter; its all about maintenance revenues and consolidation
* No white space remains in the software landscape

Hearing all their lamentations reminds me of an episode from my salad days when I had a real job. I was at Microsoft in the mid 90's and was lucky enough to be one of a few microsofties invited to have dinner with Bill Gates and Mike Maples (they had a program in which they selected 30 odd employees every month to have dinner with the big cheeses.) After dinner, Bill and Mike would run a 30 minute question and answer session. I asked Bill that day if he was starting out his career in the 90's and he wanted to create a big company what would he do? Bill earnestly said (and I felt he was being very honest) that the big opportunities in technology was done and that he would do something in Biotech. He felt then (this is 1993) that the software industry has matured and there was not going to be much growth anymore. Mike Maples also agreed. Obviously in retrospect they were wrong. They missed the Internet. They missed BEA, Siebel, Veritas, Verisign and other countless B2B software companies that created billions in value.

Extract from an interesting "Char" post on how Business Objects chose to "Cross the Chasm" using a "horizontal niche" approach.

The company was not trying to create a new platform to work with all database technologies, but rather was positioning itself as a “complement” to Oracle.

Interesting market entry strategy for several reasons: (1) horizontal rather than vertical strategy, (2) leverage the large installed base of a big successful company and sidestep the Early Adopters and the Chasm, (3) by creating a complementary offering, you get to work with BigCo’s salespeople, help them win more deals, make their product work better, etc., (4) since the product is complementary and improves the performance of the established product, this opens up the possibility of an acquisition down the line. Another example of this strategy would be PayPal and eBay.

I also found this "Ven" post on leadership lessons from the 2004 US elections interesting.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

"All VC firms will have blogs": VC Journal

I'm quite proud about spotting and writing one of the first articles (way back in early September 2004) on the trend of VCs taking to blogging. I wrote about it here at the Venture Intelligence India blog as well at Always-on Network.

My article was followed up in the San Jose Mercury News on September 21, 2004. And now, Venture Capital Journal has decided that the trend is important enough to make it as their cover story for the first issue of 2005.

"In the not-too-distant future most venture capital firms will have at least one blog. They will be as common as websites, but far more useful. Venture capital, when all is said and done, is a relationship business. And blogs, by their interactive nature, foster relationships and bring together like-minded people," writes Lawrence Aragon, VCJ's Editor in his leader. "If an entrepreneur has two similar term sheets in front of him, wouldn't he be more attracted to the one from the VC who has shown (through his blog) that he truly understands a particular market or technology?" he adds.

The VCJ issue includes comments from active VC bloggers about their blogs. For example, here is Brad Feld (in my opinion, the best VC blogger out there right now):



Tom Stein's article in the same issue, points to some potential negative effects of VC blogging. "Some entrepreneurs may take to holding back details or simply avoiding certain VCs if they believe their private conversations will later be broadcast to the world in the form of negative blog postings". "It worries me that some entrepreneurs may have the perception I'll write something negative after they pitch me," Dave Hornik of August Capital says in the article.

The article also points out that most VC bloggers are also voracious readers of other people's blogs and consider tracking blogs as a very efficient way to stay abreast of trends and viewpoints they would not normally find in newspapers or trade magazines.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.