Every third day, we receive news that an Internet, mobile, web2.0 startup has received funding. Recently startup’s like Kreeda, FlightRaja and the much controversial Minglebox received funding. Proto.in is also consciously looking at bridging a platform for startups and Venture Capitals. Heres an exclusive article on what the eminent Venture Capitalist of the country think of the Internet, The web2.0 sphere, its anticipate bubble burst or not. Also these Venture Capitalists have mentioned the traits that they believe a startup should have to catch the eye of a Venture Capitalist. This Information should help our startup entrepreneurs.

Q)"INDIA SEES USD 130 M VC INVESTMENT IN Q1” A lot of this money has gone to the internet and technology sector, what factors do you think this can be credited too?

Mukul Singhal (Canaan Partners) -I am not sure about the number. According to Venture Intelligence Report $322 million went into IT and ITES sector in first quarter. Now it also includes the Private Equity investments. Also, $47 million went into Early Stage and $ 426 mn in Growth Stage.

I can assume that most of the VC investment happened in early stage was in Technology sector than also it makes $ 47 million

Anyways, keep the numbers aside and we all know that the investments in the internet and technology space increased in past some time. Since technology is a very wide areas and includes IT Services like BPO, Product Companies, Mobile Wireless companies and all internet companies. However; I would limit my comments on Internet companies.

If you look some of the investments lately: MapMyIndia, iYogi, Games2Win, HolidayIQ, Some Travel deals like MakeMyTrip, TravelGuru, MingleBox

I find very less Web 2.0 stuff. Except MingleBox all other companies are either pure play internet Web 1.0 stuff or with some limited features of Web 2.0

This brings us to to an interesting question , How much importance and money do VC’s give the web2.0 startups in India?

Ashish Gupta (Helion Ventures) : The term web2.0 has become so abused that it now conveys on the involvement of the internet in some form in the business. The actual nuances of web2.0 are no longer intended when the term is used. I will use the term internet company and not web2.0 because different companies use the internet differently making it hard to put them all in one bucket – especially the web2.0 bucket which is now occupied by many squatters.

The relevance of the internet as a medium can be extrapolated from worldwide adoption – what cannot be extrapolated seamlessly are the business models. For the revenue picture, companies that depend on transactions – like Make My Trip and Naukri – demonstrate the feasibility of driving significant revenues. Hence the appetite from investors who believe that the inflection point is somewhere in the near future. The "content only" plays are yet to be proven and there the investments are driven more by forward looking factors than necessarily evidence. The value of Rediff and Indiatimes gives some more boost to the latter category. Also there is an overall belief that this medium is here to stay so its worth investing in.

Q) What are your views on the web2.0 startups in India? Do you thing the hype created around web2.0 is creating a web2.0 bubble? And is it leading to unreasonable valuation of a company?

Mukul Singhal– Entrepreneurs are trying new models and ideas in Web 2.0 space. It’s pretty encouraging to see the trend. Personally, I am not too averse of the hype and bubble. All these are part of the business cycles and are inevitable for the industry. So see the Top Internet Companies in India: Naukri, MakeMyTrip, BharatMatrimony – And all these companies without any exception are survivors of 1999 – 2000 Internet Bubble (as people say). My belief is: hype and bubble encourage people to try news ideas and ventures. And that brings out some successful companies. The important thing is that our ecosystem should be robust enough to absorb people who couldn’t make it in a particular boom. And I think our economy has created enough Safety Nets that entrepreneurs do take risks.

I am sure we will see some successful web 2.0 companies out of today’s bubble (if at all it is)

On valuation: There is pressure on the valuation but for good companies and teams. Reason is of mis match between Supply and Demand. There are few good companies in the Internet Space. See the public markets.

Naukri is the only true internet company on the Bombay Stock Exchange

Rishi Navani (Matrix Partners) :There have not been too many startups funded here so don’t see a bubble yet, most of these companies may not have a business model. Valuations in the internet sector are certainly stretched.

Ashish Gupta: In India, maybe worldwide, the above question can be asked for many sectors. In India for sure the question can be asked a lot. Late stage businesses are being valued more richly than a year ago, and the same comment was true a year ago. it is hard to argue what is reasonable because a lot of these companies continue to be valued even higher with time. The valuations of mid and early stage businesses, by contrast, are not going up as much. The bubble question therefore is applicable to the whole market. We do not worry about it as much because we mostly play in the mid-to-early stage businesses which need to be prepared for a 5+ year march and hence have to assume value creation despite an economic cycle.

Sarayu Srinivasan (Intel Capital) : Valuation expectations for some early stage consumer plays are high.
The investors that meet this expectation are generally not home grown VCs; they that have limited experience in India and eager to do deals here. Local market dynamics are generally not understood and so applying a Silicon Valley or historical template does not make sense. The India based funds we’ve seen tend to, obviously, understand the market better and therefore are in a better position to value companies. I think Web 2.0 can have a very powerful impact in India but its still very early both from an infrastructure and ecosystem standpoint.

Q) As a VC, why would you invest in a web2.0 startup? List at least 3 – 5 key elements that you would take into consideration?

Rishi Navani (Matrix India) : IF a startup had the following criteria:

• Large Potential Market Differentiated,

• Sustainable Value Proposition

• Strong team.

Sarayu Srinivasan :

In order to invest in a startup we’d need to see the basics: great team, a large opportunity and a defensible or sustainable product-those will be standard criteria for any investment.

In web 2.0 the other items that would matter for us would be

• Growing number of users and consistent or ramping growth

• Stickiness (are users returning to the site?)

• Site focus– what’s the hole being filled, pain being solved?"

Ashish Gupta:

• Good team – flexible, first principles thinkers, good mix of technology and biz skills

• Desire and ability to keep expenses low

• Understanding of the particular problem they are going after or access to people who have that understanding

Hoping this information helped our budding entrepreneur’s.

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