Moritz will continue at Sequoia as chairman and be involved with nurturing fresh investments, the letter says. His realigned role will also involve him working closely with some of the younger members at the firm and overseeing existing funds. Read the full text of the letter here.

Starting out as a reporter for Time magazine, Moritz became a venture capitalist with Sequoia in 1986 and went on to write Silicon Valley history with investments in Internet startups such as Google, Yahoo, PayPal and Apple Computer. He ranks among Silicon Valley venture capitalist royalty, alongside Kleiner Perkins Caulfield & Byers’ John Doer and Khosla Ventures’ Vinod Khosla. He has also authored the book Little Kingdom: The Private Story of Apple Computer.

In India, Moritz steered Sequoia’s entry into this market with the 2006 merger of Bangalore-based WestBridge Capital Partners (the merger was dissolved last year). Since it entry here, the firm has invested in over 50 companies and raised India-dedicated funds worth $1.4 billion so far. Globally, Sequoia is currently investing from a $1.3 billion fund, raised in 2010. Moritz sits on the boards of companies such as LinkedIn, Gamefly and Sugar.

Image Courtesy: Sequoia Capital

HLC was founded in June 2010 as a separate business under Hippocampus, a education services venture started by Bangalore Labs co-founder Umesh Malhotra in 2004. Hippocampus also runs a non-profit called Hippocampus Reading Foundation which sets up active libraries in government schools and community centers in collaboration with government and other non-government organizations.

“The academic year of 2011 was our (HLC) first, full-fledged year of operation. During this period, we worked in 39 villages with 50 teachers and 700 students across two districts in rural Karnataka,” Malhotra told StartupCentral via email responses to queries. The company is currently on a recruitment and set-up drive and aims to start the current academic year with more than 250 teachers who will reach out to over 5,000 students, he said.

Under the HLC model, local teachers, usually women, are employed and trained to coach students between the ages of 3 and 12 at the pre-school and primary levels. It employs an in-house curriculum developed in collaboration with veteran educationists, which is designed to allow children of various age groups to learn at their own pace. Students who attend the center are charged between Rs 60 and Rs 100 per month. The centers are usually located inside the homes of the women who run them or community spaces such as schools or rented premises. HLC pays its kindergarten teachers a salary of Rs 2,000 per month and after-school teachers are paid Rs 1,500 per month. “Teachers are a big priority for us. We recruit less than 20 per cent of applications received. Every teacher goes through a four-round selection process,” said Malhotra. Training follows recruitment and each teacher attends a 10-day training programme. In addition, 12 days of follow-on training are spread through the year.

For Lok Capital and Acumen, the investment in HLC represents their first in the education sector. Delhi-based Lok, a bottom-of-the-pyramid focused investor that is backed by the Rockefeller Foundation, recently raised a $65 million second, India-focused fund. The launch of the new fund has also seen the venture capital investor refocus from its earlier preference for microfinance companies to broader sectors such as education, healthcare and employment services. Read our earlier post on Lok Capital’s realigned investment strategy.

Image Courtesy: Hippocampus

Basix Krishi Samrudhi:

Limberlink Technologies: Online education services startup Limberlink Technologies has raised $2 million from Accel Partners. The Bangalore-based company has developed the JED-I programme to provide engineering students training in core engineering. (Source: The Economic Times).

Cbazaar: Chennai-based ecommerce startup Cbazaar has raised $3.5 million in Series A funding from Inventus Capital Partners and Ojas Ventures. The funds will be used for upgrading technology and expanding marketing operations in India and overseas. (Source: Financial Express).

Image Courtesy: FreeDigitalPhotos.net

Clarity is yet to emerge on what kind of entities would qualify as the proposed notified class of investors. But, Mukherjee’s move to establish a notified class sets the stage for a formal, self-regulated industry association of angel investors, on the lines of Kansas-based Angel Capital Association (ACA). The ACA is the nodal North American trade association of angel groups and private investors that invest in high-growth, early-stage companies. Importantly, it serves as the public policy voice for the professional angel community in the US.

The creation of an ACA-type of body in India will serve two important purposes. One, it will help identify and organize legitimate angel investors on a formal platform. The driving factor behind the Budget’s proposal to tax capital raised from angel investors was to prevent black money from being channeled into startups. Currently, as in the US, there are three kinds of angel investors active in the Indian market:

1. Formal angel networks such as Hyderabad Angels, Indian Angel Network and Mumbai Angels pool the resources of high networth individuals and invest in startups. However, while such networks represent fairly significant amounts of capital, the actual scale of their investments is still quite small. For example, last year, Indian Angel Network, the largest angel network in the country with 200-odd registered members, invested just over $8 million.
2. Professional angel investors, typically small businessmen, serial entrepreneurs and former entrepreneurs who are sitting on capital after successfully selling their own businesses, invest on their own, independent of any formal network. This group also includes professionals who often channel gains from investments in stock markets or real estate to startups. Again, this group is also relatively small in terms of scale of investments.
3. Family and friends, a largely faceless group, constitute the bulk of angel investing activity in India. Given the nascent nature of professional angel investing here, most Indian startups end up raising the first Rs 20 lakh or Rs 50 lakh from these sources. It would not be incorrect to assume that more than 90 per cent of the angel money currently raised by startups comes from this group.

An organized, legally defined platform, that includes all three classes of investors, would go a long way in growing the angel investor ecosystem that is sorely lacking today. It would also, importantly, give startups access to a larger and transparent pool of investors.

The second critical purpose that an ACA-type of platform would serve is that, in future, it can work more effectively with the government on fostering angel investing rather than choke it. For instance, in 2010, the ACA, along with other industry associations, was particularly successful in thwarting proposed amendments in a financial reforms bill that would have potentially hurt angel investments. The amendments proposed to increase the asset requirements of accredited angel investors from $1 million to $2.3 million and require startups raising funding to register with the Securities and Exchange Commission (and wait 120 says for the markets regulator to review their filing).

Of course, a platform for angel investors could be created under the aegis of the Indian Venture Capital Association (IVCA), which is the nodal trade association for private equity and venture capital investors. But given the very unique nature of such investors  – angels invest their own money, much smaller amounts, and roll up their sleeves to work alongside startup teams — and the IVCA’s preponderance with bigger issues, a separate body may serve the angel community better.

This is not the first time that the need for a comprehensive platform that aggregates angel investors has been felt or articulated. Back in 2009, SAIF Partners’ Mukul Singhal, then a part of the Canaan Partners India team, explored the idea of setting up of a platform, under the Canaan umbrella, to help entrepreneurs get in touch with angels more effectively. Singhal’s view was that the angel community was much larger than the already known pool of serial entrepreneurs, big corporate honchos and other high networth individuals. But most of these people never got into the system because either they didn’t know how to didn’t want to join an angel investor group.

We don’t know what happened to that particular initiative. But now is a good time as any to revive it, though as an independent platform. Mukherjee has inadvertently made the first move. Will the angel community take the lead?

Image Courtesy: digitalart / FreeDigitalPhotos.net

In terms of sectors, the most notable decline has been in the consumer sector, which by VentureSource’s definition includes Internet services, media and retail, travel and leisure, said reports. The sector saw $294 million was invested during the quarter, representing a 66 per cent decline compared to the first quarter of 2011. The information technology sector has also been badly hit, reporting investments at just $27 million against $369 million in the corresponding quarter in 2011.

China follows the developed US and European markets in reporting a slump in venture capital investing activity. Earlier, the National Venture Capital Association (NVCA) reported that US venture capital investments in the first quarter stood at $5.8 billion, down 13.4 per cent compared to $6.7 billion invested in the first three months of 2011. Investments in the US market have also declined quarter-on-quarter — investments during the first quarter were down 19 per cent from the $7.1 billion invested in October-December 2011, reported the NVCA.

The European market reported first quarter investments at  Euro 762 million across 241 deals, which represented a 41 per cent decline in value terms and a 7 per cent decline in volumes over the same period in 2011, said a Dow Jones VentureSource press release issued on April 30.

India, which is still a nascent market in terms of venture capital activity, seems to have bucked global trends in the first quarter. Investments during the January-March 2012 period, as per StartupCentral’s estimates (based on information available in the public domain) stood at $358.58 million invested across 54 deals. By comparison, investments in January-March 2011 stood at $101.07 million across 26 deals.

Image Courtesy: FreeDigitalPhotos.net

Compared to five ecommerce deals in March, only two such deals were reported last month – BookAdda and eDabba. April saw two car rental services companies – Savaari and Olacabs – attract venture capital. Overall, technology related companies dominated deal activity, accounting for more than 80 per cent of the capital invested.

The most interesting deal during the month was Seedfund’s Series A round investment in Bangalore-based mobile search engine Innoz Technologies. The company was started by four students from LBS College of Engineering in Kasargod, Kerala, as a college project, and is a rare instance of a students-founded startup in India scaling up to the Series A stage. The Seedfund investment also created lucrative exits for Innoz’s eight individual angel investors.

Snapshot of venture capital investment activity in April (by value of deals)

April 2012 Deals Roundup

If we have missed any deals, or reported any information above in error, please let us know at news (at) startupcentral (dot) in.

Image Credit: FreeDigitalPhotos

As an institution with a developmental agenda, how do you approach private equity investing?

First, let’s step back. IFC has three businesses today. The first is the investment business, which is direct and has two components. The first is where we take direct equity in a company or give them a loan. The second is our fund-of-funds, which is very small. So, for example, if you are looking at our equity portfolio, which we do directly, and our fund-of-funds, the latter is 25 per cent of our overall investments. In both cases, we invest from our own balance sheet.

The second business that we have is called the advisory business, where we provide advice to companies and it cuts across many different levels. It is a very deep business.

The third one is the asset management business, where we actually mobilize money from large, external limited partners (institutions that invest in private equity funds) and invest it on their behalf in emerging markets. The $1 billion Global Infrastructure Fund that we are currently raising is an example.

Our mission in private equity is to start the industry, set the norms and establish the general partners (industry term for managers of private equity funds). If you look at the India context, we’ve backed funds like ICICI Venture and, you know, all of the old funds. We are one of the first limited partners in this market. We were also the first limited partner in South Africa, Mexico, Brazil and China. We work with the managers and learn a lot. We make mistakes as well.

Can you elaborate on some of the lessons and global best practices that have evolved as a result of those experiences?

In early 2000-2001 we took stock. All of the managers that we had invested in were first-time fund managers. So we took stock of which groups worked, why they worked and why they didn’t work. And then we applied it to our businesses. Now when we assess an investment manager, we say, it’s great to have investment experience but we also need somebody who has run companies. Because once you’ve made an investment, you need somebody who is going to go there and work with the management of the investee company. Value is not going to get created by just making an investment. It’s not a stock market investment. In the private equity game you need to really work with the entrepreneurs. You need to gain their trust. The sweat part of much more important than the money that you’re putting on the table. So we look at the team, the composition, their ability to stick together and we look at the incentive structure. We want to make sure that it is well dispersed.

What has been the India-specific experience?

Let me talk about the general experience of limited partners in India. Yes, it has been a bit up and down. A lot of limited partners came in during the early nineties and so forth, it was post liberalization and lots of money did fly into India, both on the listed side and on the private equity side. A lot of general partners were first time fund managers, who did not have a lot of experience. Nobody, even limited partners, had a lot of experience. Also, there was the issue of the entrepreneurs. They were not open to the concept of private equity investors coming in and making money in 4-5 years. I think that you will see that the funds that were ending in the early 2000s would have mixed reviews. Some have done okay. Some have done well. All of them have learnt.

In India, I would look at vintages. Funds from the vintages 2001 till 2004, that were exiting at the height of the market, in 2006 and 2007, have done very well. There are a number of very good managers in India. India Value Fund has done well. Baring India has done well. And they have backed truly entrepreneurial companies that did multiple expansions.

So if you look in totality, you cannot generalize in India. Vintages are important. There are coincidences with the stock market but it doesn’t mean there were bad managers. If there were 100, there are maybe 10 that were good. And you should have just had a better selection process.

What is your checklist for evaluating a fund or fund management team?

One, if a fund manager has already raised more than 50 per cent of the fund from private capital sources, it is very difficult for us to justify an investment. As IFC, we would ask what additional value would we add to these managers. Our job is not to displace the private markets. Our job is to put our stamp of approval so that the manager can attract more private money. But, we also can’t just back a fund where we are the only limited partner. We usually look for four or five other limited partners to come in. And we get there for the most part. So that’s the first test; can they raise money?

Then, we look at the business model; is it sustainable? We do a rigorous analysis of not just the fund manager and their track record, but we also check their background against the business thesis. Given this background, can they implement the strategy? If we feel there are gaps, we make recommendations. Sometimes we start with a team of two people and end up with a team of five, based on those recommendations.

The third thing is that we look is the market. Last year we were looking at fund managers who were only focused on Tier II cities. We visited every state and asked the fund managers to put together a synthetic pipeline of companies.  We went in interviewed those companies.

How many funds will you invest in this year?

We’ve already invested in Ambit Pragma II ($20 million), Zephyr Peacock India II ($15 million), Forum Synergies ($15 million) and Pragati India Fund ($20 million). We’ll probably do another two or three. This includes two climate change focused funds, of which one is a venture capital type of fund (may invest $5 million in CIIE-managed Infuse Capital).

Why is IFC’s exposure to venture capital funds in India so low?

We don’t have a lot of experience in venture, globally. We’ve only done one in China, CDH Investments, which was very successful actually. We’ve done a couple in India; APIDC and Aavishkaar. I think we’ve toyed around doing one in Russia but we decided against it. And then we’ve done one in Mexico and one in Brazil.

If you look at the venture capital model in the US, it’s clustered around really two areas – the Bay Area and the Cambridge Massachusetts area. And maybe pockets here and there in Seattle. So a venture capital firm can just focus on that area. In the venture capital model, you need to make investments in 40-50 companies and get 3-4 great exits. When you look at a country like India, with its population, the entrepreneurs are everywhere. So it’s very difficult and we’re struggling with that. We’re trying to figure out what can we do in this space. It’s not that we’re averse to it. If we do venture capital anywhere, India will be one of the places. But we want to do it right and we just don’t have the formula.

Image Courtesy: IFC

Edabba: Brick-and-click ecommerce startup Edabba has raised $1 million as part of a first round of funding from a consortium of incubators. The company has set up offline contact points in local stores for consumers in Tier II and III towns. It currently has a presence across 100 outlets in four states. (Source: The Economic Times).

YourCabs: Bangalore-based YourCabs Auto Services, which runs an online cab booking service, has raised an undisclosed amount in angel funding from undisclosed angel investors and investment advisory firm Sprism Investment. The company was founded last year by Rajath Kedilaya and Shishira Rudrappa. (Source: VCCircle).

Karadi Path Education: Aavishkaar has made an investment of about $5 million (Rs 26 crore) education services firm Karadi Path Education and renewable energy company Vana Vidyut. While Karadi Path will receive about $1.5 million, Vana Vidyut will get $3.5 million. (Source: The Economic Times).

Olacabs: Mumbai-based Olacabs, a car rentals aggregator, has raised an undisclosed amount as Series A funding from Tiger Global. The company will use the funds to scale up operations nationally and strengthen its technology platform. (Source: StartupCentral).

The draft framework of the regulations, dubbed AIF Regulations, had been opened to public debate on SEBI’s website last August. The final framework takes into account several changed suggested by the private equity and venture capital industry, chiefly through its representative body Indian Venture Capital Association.

A look at the salient features of the regulatory framework in brief:

Scope of the Regulations and Applicability to existing funds

• AIFs whether operating as private equity funds, real estate funds or hedge funds, etc. must register with SEBI under the AIF Regulations.
• SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”) shall be repealed. However, existing VCFs shall continue to be regulated by the VCF Regulations till the existing fund or scheme managed by the fund is wound up.
• Existing funds not registered under the VCF Regulations will not be allowed to float any new scheme without registration under AIF Regulations.
• Existing funds not registered under the VCF Regulations which seek registration but are not able to comply with all provisions of AIF Regulations may seek exemption from the Board from strict compliance with the AIF Regulations.

Categories of Funds

1. Category I AIF: Those AIFs with positive spillover effects on the economy, for which certain incentives or concessions might  be considered by SEBI or Government of India or other regulators in India; and which shall include venture capital funds, SME funds, social venture funds and infrastructure funds. These funds shall be close ended, shall not engage in leverage and shall follow investment restrictions as prescribed for each category. Investment restrictions for VCFs are similar to restrictions in the existing VCF Regulations. Depending upon the specific need of each type of funds, Category I funds shall be given concessions.
2. Category II AIF: Those AIFs for which no specific incentives or concessions are given by the government or any other Regulator; which shall not undertake leverage other than to meet day-to-day operational requirements as permitted in these Regulations; and which shall include private equity funds, debt funds, fund-of-funds and such other funds that are not classified as category I or III.  These funds shall be close ended, shall not engage in leverage and have no other investment restrictions. This forms the residual category, funds which cannot be classified either as Category I or III will be classified as Category II.
3. Category III AIF: Those AIFs which Funds including hedge funds that are considered to have negative externalities such as exacerbating systemic risk through leverage or complex trading strategies. These funds can be open ended or close ended, may engage in leverage subject to limits as may be specified by the Board. Category III funds shall be regulated through issuance of directions regarding areas such as operational standards, conduct of business rules, prudential requirements, and restrictions on redemption, conflict of interest as may be specified by the Board.

The AIF Regulations will be applicable to all pooled investment vehicles, except specifically notified vehicles such as mutual funds, CIS schemes, family trusts, ESOP trusts, employees welfare trusts or holding companies, which are directly regulated by any other regulator in the country.

An Alternative Investment Fund will be required to have a minimum corpus of Rs 20 crore. The minimum investment by an investor in such a fund has been stipulated at Rs 1 crore. Each fund should not have more than 1,000 investors at a time. The fund manager or sponsor of the fund will have to commit 2.5 per cent of the initial corpus or Rs 5 crore, whichever is lower. The regulations also bar the fund manager from adjusting the commitment through the waiver of management fees (private equity fund managers typically charge 2 per cent of the fund corpus as management fee).

The regulations cap investments by a single fund in a single investee company at 25 per cent of the fund corpus. They also restrict the fund from investing in associate companies.

For more details, download a PDF copy of the SEBI press release issued last evening.

SaffromContract: Employment portal StaffonContract.com, owned by Joule Consulting, has raised angel funding of Rs 50 lakh from Indiagames founder Vishal Gondal. The company intends to raise a $1.5 million (Rs 7.6 crore) Series A round soon. (Source: TechCircle).

Exotel: Bangalore-based cloud telephony startup Exotel has raised Rs 2.5 crore in Series A funding from Mumbai Angels and Blume Ventures. The two investors have picked up a 25 per cent stake in the company. (Source: Pluggd.in)

Ujjivan: The Michael & Susan Dell Foundation and Bellwether Microfinance Fund are in talks to sell their stakes in microfinance institution Ujjivan. The two investors own a combined 12 per cent stake in the company and want to sell at Rs 57 per share. Existing investor Lok Capital is one of the buyers in the fray. (Source: The Economic Times)

PoP: Noida-based Proof of Performance Data Services  has raised undisclosed round of funding from YourNest Angel Fund.(Source: TechCircle).

App Surfer: Droid Cloud (now rebranded as App Surfer), a platform through which apps could be accessed from anywhere and from any platform, has raised Rs 50 crore in angel funding from One97 Communications founder Vijay Shekhar Sharma. The platform has been developed by Pune-based RainingClouds Technologies. (Source: afaqs!).