Exits are rare in India. When one comes along, you take it — Phanindra Sama

On Friday, Phanindra Sama, Sudhakar Pasupunuri and Charan Padmaraju, founders of Bangalore-based Pilani Soft Labs, which runs online bus ticketing platform redBus, became richer by a few million dollars. South African Internet and media conglomerate Naspers sealed a deal to acquire redBus for an undisclosed amount, through its subsidiary Ibibo Group (MIH India). Various media reports put the deal size at anywhere between $100 million and $135 million. The acquisition creates very profitable exits for redBus’ venture capital backers Seedfund, Helion Venture Partners and Inventus Capital who invested a combined $8 million in the company over multiple stages. At the reported valuation of more than $100 million, the acquisition also spells the first mega venture capital exit to come out of Bangalore’s startup ecosystem, specifically in the Internet sector.

We spoke to Phanindra Sama over the weekend about the deal, remaining ‘independent’ and the competitive environment. Edited excerpts:

redBus’ acquisition has taken a lot of people by surprise. What tipped the scales in Naspers’ favour?

Actually, six months ago if you had asked me, there was nothing of the sort on the cards. This whole thing (the acquisition) in some sense also took us by surprise, though a pleasant one. Since we had financial investors on board it was our responsibility to create an exit for them. There are only two ways to exit. Either through an IPO or through the M&A route. The IPO route takes a longer time. There were several other investors who wanted to buy out our existing investors. When the Naspers offer came along it gave us an opportunity to create a good exit for the existing investors and continue to operate independently. This was not a merger offer. So it made sense to go with them.

Also, the way we look at things is to evaluate what we are getting rather than what we are losing. Yes, we may have made more money but exits are rare in India. So when one comes along, you take it.

You were in the market to raise a fresh round of funding. When did Naspers enter the picture?

We had been working on raising funds since November-December last year. We even received termsheets from 7-8 investors. The Naspers offer came in last month, in May, and then things started to move pretty quickly. We (redBus management and investors and Naspers representatives) locked ourselves into what we call the war room for a week, around the third week of May, to figure out the terms and conditions of the deal.

Were there any specific reasons you were in the market to raise funds?

We were raising capital to strengthen our balance sheet. We didn’t need the money. We had all of our Series C round money in the bank (the company raised $6.5 million in the Series C round). But as revenues increase, one needs to have a healthy balance sheet to make the company robust to overcome any unanticipated financial pressures.

Your investors owned a controlling stake in the company. To what extent did this influence the sell-off?

Our investors were actually happy to remain invested in the company. They fundamentally believed in the business model. But when we had a practical look at all factors it did not make sense to continue to stay invested (Seedfund, Inventus and Helion collectively owned more than 70 per cent of the company).

Apart from the founders, how many redBus employees have made significant profits from the deal?

I’m not at liberty to discuss the numbers but ESOP (employee stock option) holders, which includes past and present employees, have made money. We now have several crorepati employees!

You’ve said that the company will continue to operate independently. What does ‘independent’ mean?

Well ff this was a merger situation, where let’s say any airline ticketing company had acquired us, then because they already have 2,000-odd employees and their primary interest is travel, what they would do is probably merge the two entities and look at exploiting synergies. For example, why have two finance departments or why have two different testing departments or separate call centers. That’s a natural thing for companies to do. But in this deal it is very clear that everything remains as is and we (the redBus team) continue to build the company. Naspers is known for doing this both in India and globally. They have acquired companies like Gaadi and Tradus and those continue to remain independent. They don’t share any common resources.

But it would still make sense to exploit synergies within the group…

Those synergies will come from knowledge exchange. I am actually very impressed with the kind of knowledge sharing that they enable. Every 3-4 months they have a gathering of all their CEOs or CFOs. I did speak to some of the founders of some of the companies in the group and they said that the learning at such gatherings was quite phenomenal. This whole world of Internet and ecommerce is so new, not just in India but in emerging nations, and sharing knowledge on how to measure, for instance, the cost of customer acquisition, is very useful.

Post-acquisition, what will be the company’s corporate structure? Who will the CEO report to, for instance?

We’ll be run by a board of directors. I think we will have a 4-5 member board. This was the situation before the acquisition also. I will be on the board. It will be a balanced board with representatives from Naspers and redBus.

From a market point of view, what changes, additions are expected from redBus in the next six months?

We are introducing a new version of BOSS, the ERP for bus operators. A couple of months ago we released the new version of Seat Seller and that is growing tremendously. In terms of consumer features, last week we released the new version of our Android app. It is a travel buddy kind of app for consumers before they take a bus. There are many other additions and features coming up.

The company, according to your last RoC filings, grew net revenues revenues more than 170 per cent to $5.55 million (Rs 32.8 crore) in the financial year ended March 31, 2012. What kind of growth rates do you expect for 2012-2013 and in the current financial year?

Unfortunately, now that we are a 100 per cent subsidiary of a public company, I will not be able to disclose any operating numbers.

Tell us how you see the competitive environment for redBus going forward.

We are significantly larger than our nearest competitor. Recently, the annual results of our nearest competitor were released and the total number of bus ticket transactions they did last year was 5.5 lakh. We do that volume of transactions in half a month.

Finally, with all that money in the bank, any plans for angel investing?

Honestly, I don’t know as of now. All this happened so suddenly, I haven’t yet thought about what to do with the money!

Also read our August 2012 interview with Phanindra Sama.