Venture Capital Cools Off in 2008; Five Notable Deals

2008 was supposed to be the golden year of venture investing in India. I was optimistic that investments would breach the psychological $1 billion mark. After the $875 million (according to Venture Intelligence) invested during calendar year 2007, it seemed logical. But, as per Venture Intelligence’s estimates, investments till November 2008 were at $735 million. It is unlikely that December, which has been the worst hit since the US recession became official, has been a great month for deals.

Overall, India’s private equity (including venture capital) investment numbers for 2008 are down. Grant Thornton India, reporting numbers till December 15, puts total investments at $10.42 billion against $19.03 billion in 2007 (full year) — that’s a drop of over 45 per cent. The total number of deals has dropped from 1081 in 2007 to 751 in 2008.

Here’s a look at five notable venture deals in 2008:

1. TutorVista: There are few startups that make raising capital look like a walk in the park. Krishnan Ganesh’s TutorVista was that company in 2008. It raised $18 million in Series C funding from Sequoia Capital and LightSpeed Venture Partners in July. The Bangalore-based online tutoring company, which is currently also in the middle of an aggressive build-out of an offline learning products business, raised $2 million in Series A from Sequoia in June 2006 and followed up with $10.7 million, Series B, from Lightspeed, Sequoia and Silicon Valley Bank that December. Serial entrepreneurs have it easy, you might say. Ganesh knows better. That’s why he follows a simple rule – keep it simple.
2. mKhoj: Kleiner Perkins Caulfield & Byers (KPCB) gave this Mumbai-based startup $7.1 million in Series A funding this April after it flipped its business model from mobile search to mobile advertising within about six months of starting up. I’m sceptical of any business that relies only on advertising for revenues, but it is noteworthy that the mKhoj founders were sensible enough to switch the business model quickly when they realized that their original plan/hypothesis was going nowhere. Great move because it got them a top quartile Silicon Valley venture capitalist on board.
3. AyurVaid Hospitals: Non-profit venture investor Acumen Fund invested $1.13 million in AyurVaid in June. The long-term social benefits of this particular venture are pretty obvious — low cost healthcare for chronic diseases such as diabetes and arthritis. The interesting bit is that the hospital chain, promoted by Kochi-based First Health Services, combines traditional ayurvedic medicine with contemporary medicine and healthcare delivery systems. Further, it expects middle and low income patients to account for 60 per cent of its bed capacity. Social venture capital is not new in India, but still quite rare. Innovative businesses in conventional spaces, in this case healthcare, could change that.
4. Attero Recycling: This Noida-based e-waste management startup picked up $6.3 million from Draper Fisher Jurvetson and NEA-IndoUS Ventures in August. Anything related to the environment is becoming a popular investment theme with venture capitalists in India. Once again, this mirrors what has been happening in Silicon Valley during the past couple of years. For once the mimicry is welcome, though environment-related issues and opportunities in India are different from those in the Valley.
5. Hummingbird Suites: A few years ago, service apartments in Bangalore were a one-off phenomenon in neighbourhoods close to information technology parks. Today, it is a business model and Hummingbird Suites is a service apartments operator that has ambitious national expansion plans — it raised $4 million from Helion Venture Partners in August. To me, Hummingbird is perhaps the perfect example of a venture-fundable business in India. It is innovative, solves a big and very local problem (everyone knows the miserable story about India’s hotels) and therefore is highly scalable. And the best part about it is that it has nothing to do with information technology or Web 2.0. Perhaps a sign of things (deals) to come.

Write in about which deals you thought made a statement and why in 2008.