Early last week a venture capitalist in Bangalore remarked to me: “I’m a bit concerned that our limited partners have not given us any kind of direction. We’ve heard of other firms in the US having annual meetings with their limited partners and being told to be cautious. Ours have not even said let’s set up a call and talk. I’m wondering whether that is good or bad.” We were chatting about whether limited partners — a high networth and secretive community of individuals and institutions which lend money to venture capital funds — had been delaying the release of committed capital because of the US recession. More than 90 per cent of India’s venture capital money comes from the US, notably from Silicon Valley.
A couple of weeks ago, while working on a story (on the day job) on whether India’s private equity industry will remain flush with capital in the next 12-18 months, I came into closer contact with limited partners from across the US and Europe. The conclusion, in that story, was that limited partners themselves are scrambling to hold on to whatever money they have left and this means that 2009 will see the private equity industry strapped for cash. Read more about who exactly limited partners are and how their woes could trip India’s private equity party here. Venture capital is a smaller subset of private equity, chiefly in terms of the quantum of money involved. But, if private equity gets squeezed, the same is inevitable in venture capital — they, in fact, often share the same limited partners. The Silicon Valley is already in the throes of an acute funds crunch — read earlier post — and India cannot escape getting scarred.
I hate being alarmist, even in the worst of times, but it is also difficult to completely ignore all the bad news that’s being doing the rounds in the past weeks with regard to venture capital and startups. The US Silicon Valley is certainly in deep crisis and some of it, as I noted in my previous post, will spill over into India. That said, India’s fledgling startup economy has survived in the past inspite of testing and sometimes seemingly hopeless conditions — do take the poll at the end of this post. On that note, take a look at what’s been happening so far:
Top of the charts in terms of bad news would be Sequoia Capital’s ‘gloom and doom’ slides released in early October — see the 56-page presentation at SlideShare. If you have trouble opening the link, send me an email for a PDF version of the same. It’s an intelligent piece of research, though the ‘death spiral’ on page 48 was a shudder.
The US Silicon Valley’s venture capital industry, the primary source for venture capital in India, is in crisis with exits via initial public offerings down to a trickle — only six worth $470.2 million in the first nine months of 2008 (Source: NVCA). Trouble with exits implies that investments in new companies also slow down. Indian startups will find it tough to raise fresh funds and the environment will get tougher as growth slows down in the Indian economy. What can startups do to ride out these difficult times. Suvir Sujan, co-founder and CEO of Nexus India Capital, a Mumbai-based venture capital firm that manages $320 million in funds, shares some tips. Sujan has been an entrepreneur who lived through and survived the difficult dotcom crash era (he co-founded and led online marketplace Baazee, now known as eBay India).
By Suvir Sujan
Ten Tips for startups to ride out the economic slowdown:
Don’t panic! Economic cycles are a part of life. The best companies are built in the worst of times. If you panic, your employees will panic.
Conserve cash. Delay spending on non-critical things that do not result in revenue generation. Renegotiate vendor contracts, rental contracts, etc.
Improve productivity. Get more out of your team.
Did someone say slowdown? After Helion Venture Partners earlier this year — see post — Mumbai-based Nexus India Capital has raised its second fund — the $220 million Nexus India Capital II, LP. The firm, which launched operations here in 2006 with a $100 million Fund I, has invested in 13 companies so far. List below:
- Dimdim: Open source web conferencing (2006)
- DLight: LED lighting products
- Games2Win: Online gaming
- Kirusa: Voice SMS services
- Komli: Online advertising (2007, Rs 30 crore, with DFJ and Helion)
- CE Info Systems: Navigable maps (2007, Rs 10 crore)
- Mistral Solutions: Embedded systems
- Mobile2Win: Mobile value-added services