Name the sectors that you will prefer to invest in 2009

• Healthcare delivery.
• Food and Agriculture
• Clean Technology that addresses basic needs.
• Selective parts of education and skills development.
• Services and products for semi-urban nd rural markets.
• Infrastructure in specific sections supported by the government and addressing

Name the sectors that you will not look at investing in 2009

• Consumer Internet/ Web 2.0 (people will stop paying for eye balls)
• Off-shoring KPO/ BPO (scalability issues/ increasing costs/ less differentiation)
• Pre Revenue Businesses that have high consumer acquisition costs and longer break even periods (e.g.: online travel/ hospitality industry)

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Posted by admin on March 27th, 2009 :: Filed under Economic meltdown, Interview, Investment strategy, Limited Partners (LPs), Sarath Naru
Tags :: agriculture, deal-making, early-growth, energy, exits, food processing, healthcare, India, infrastracture support services, Interview, IPO, Limited Partners, listed companies, LPs, M&A, mature-growth, PE, private equity, Sarath Naru, valuations, VC, VC/PE, venture capital, waste management, water

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One of Sarath Naru’s recent interviews where he speaks his mind on the current state of Indian Venture Capital industry while taking quite a contrarian stand on the future scene.

We will publish this in two parts. This is Part-I.

Will you see a slowdown in private equity deal-making in India in 2009?
The obvious answer is “yes”! Having said that is there a less obvious answer? There will certainly be a slowdown for all the obvious macro reasons: Amount of monies available from fund-of-fund investors for PE funds. This has come down dramatically from all reports, and as per some accounts some LPs who have committed are withholding; and all the deals that looked ‘hot’ when the economy was bubbling away, now will appear droll.

But if one looks between the lines, it is possible that in some areas investment will actually be more than the previous years in terms of VC/PE investing. (How insane is the view of mine, only time will tell) The increase will come because of two things: First, India’s growth (slower growth no doubt), but it is not a recession like in other countries; and second, because of India’s basic needs which will specifically spur continuing demand in some sectors.

My crystal ball tells me, that the deals that will get funding are those: (i) that have already built significant competitive advantages and have revenue and profit traction (but there will be very few; of these most would have raised capital already), or (ii) those that expect to further build on these competitive advantages, as well as become profitable within a round of funding (which I call as ‘early-growth’ or ‘rapid growth’ companies). It is in these early-growth businesses that I expect to see a jump in deal making.

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Posted by admin on March 19th, 2009 :: Filed under Economic meltdown, Interview, Investment strategy, Limited Partners (LPs), Sarath Naru
Tags :: agriculture, deal-making, early-growth, energy, exits, food processing, healthcare, India, infrastracture support services, Interview, IPO, Limited Partners, listed companies, LPs, M&A, mature-growth, PE, private equity, Sarath Naru, valuations, VC, VC/PE, venture capital, waste management, water

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This is a text of the speech that Sarath Naru, Managing Partner, VenturEast, delivered at the BYST Growth Fund launch function.

Welcome to the Honourable Minister, Shri Malla, Shri Sinha, Shri Viswanathan, Shri Prabhakar, Shri Gopal Srinivasan, well wishers, entrepreneurs and mentors, the media, and my colleagues from BYST and VenturEast.

If a commercial, crass vulture capitalist like us, Ventureast; If a non-profit organization like BYST; If sophisticated institutions both international and domestic that typically focus on big initiatives not small ones like ours, such as the IFC and SIDBI; If Industry captains such as Prabhakar of Newgen, Kris Gopalakrishnan of Infosys, Dr. Anji Reddy of Dr. Reddys; and others pick this effort despite many other worthy options to support; If eagerly sought after IIT and IIM graduates such as Pranay and Snigdha come and work for a pittance; If a leading micro-equity fund manager like Aavishkaar can join in; And finally, and importantly, if an important Minister follows an initiative from his past portfolio despite the huge commitments of the current portfolio, and if all these have come together, then the time must have come !

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Posted by admin on January 27th, 2009 :: Filed under BYST Growth Fund, Launch function, Sarath Naru

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Ventureast is a venture-style investor, investing across all stages.

In this blog, we look at the impact of the current global financial crisis, and the strategies that seem appropriate in its wake. We will introduce our life sciences fund in the next post.

The investment opportunities in India are being driven by the needs of specific markets, rather than industry sectors. For perspective, the 9%+ growth in India’s GDP in the past few years have come primarily from the urban/metro markets, and from infrastructure/large enterprise sector. While the growth in these sectors will continue, it is expected that the bulk of India’s future growth will come from the semi-urban and rural markets and from serving the small and medium enterprises (SMEs). This was the going-in investment thesis of the Ventureast Proactive Fund (early-to-growth stage investments) as well as Ventureast Tenet II fund (seed stage investments) in mid-2007. But the question now is, “Is this hypothesis still valid in the current global meltdown scenario?”
Pundits around the world and in India are still trying to make sense of what is happening, find parallels from the past and come out with action steps. We recently held the annual investors’ meeting of our funds, with some savvy investors and experienced investee company CEOs, as well as a couple of well-known economists in attendance. Expectedly, the discussions, both by design and by the sheer every-day impact that it would, had to veer to action steps in the current scenario. The messages were very instructive, and as a Fund Manager we are certainly fortunate to have had this input.

1. It’s not the ‘end of the world’! Both the Indian economy and its stock market will move up, with the next stock market peak projected to be about four years on.
2. Some of our savvy investors, who have been away from the public equities since the early signs of a slowdown last year, are now back into the public equity markets of developing economies with significant commitments.
3. India and China will still grow robustly, despite some slow down. India is expected to grow at a reduced annualized rate of 7-8%. Investment opportunities and challenges would be very similar to the past, but will require one to focus more on the “fundamentals” of investing and business building.
4. Private equity/ venture capital valuations will have to be really sharp in order to compete with PIPE (private investment in public equity) deals, where valuations have come down very dramatically, indicating that the way forward must include PIPE deals.
5. A detailed discussion on which sectors to focus on indicated that the impact of the current stock market downturn is expected to hit the urban segments more than the semi-urban and rural segments, but the SME’s could be worse hit. The industrial sectors that appeared most secular or even growing faster appeared to be healthcare, education, food & agriculture, and distributed energy & clean energy/water.

Investee Company Founders were clear in their message of the need for rapidly improving productivity, making every rupee/ dollar count. They had developed plans to last through the next 18-to-24 months with their current funding. This is the way to go because PE/ VC investments at the early stage might dip a little with the funds focussing on attractively priced deals in public equities. There will still be early stage investments made, though lesser in number and smaller in size, in companies that are ‘fundamentally’ strong in sectors mentioned above.

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Posted by admin on January 8th, 2009 :: Filed under Economic meltdown, Investment strategy

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