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Product Code: IVCJ01-09
Page No.: 01-88

Authors: IVCJ Research
HEDGE FUNDS IN INDIA
IVCJ Volume 1, Issue9 THE EXPERTS SPEAK
Product Description:
The current Indian economic health, coupled with the introduction of new trading products, has opened
doors to Hedge Funds in the country. Further, the recognition of Hedge Fund managers as a separate
class of investors, by the Government, is an added incentive to accelerate the growth of the domestic
Hedge Funds' market. Taking into account its relevance, the editors of this issue have chosen to explore
the current standing of the Indian Hedge Funds market, with the backdrop of the global landscape.
Enriched with experts' opinion, the article sets the background to discover the pros and cons of investing
in the Indian Hedge Funds market.
Additionally, the Journal also features relevant trends and issues within the Indian Private Equity and
Venture Capital space.
September 2008 ISSN 0973-1636
PRIVATE
EQUITY
Private Equity Journal for India
This issue also includes:

HEDGE FUNDS IN INDIA:
JOURNAL UNVEILING THE LEGAL AND TAX ASPECTS

Mr. Siddhartha Shah and Mr. Divaspati Singh,
“
Nishith Desai Associates Page 62
At some point in time, FOR INDIA CREATING THE RIGHT MODEL FOR
THE INDIAN HEALTHCARE INDUSTRY
IVCJ Research Page 31
I will need new capital
THE ROLE OF VENTURE CAPITALISTS
to propel my growth.
IN DRIVING INNOVATION
Dr. Martin Haemmig and Mr. Gil Forer Page 81
Has that time come?
REVEALING HELION VENTURE
What are my first steps? PARTNERS' JOURNEY
Who can articulate my business plans? IVCJ Research Page 79
Who can get me the right PE partner?
WHO CAN TAKE ME FROM

HERE TO THERE?”
HEDGE FUNDS
Page 49 IN INDIA: THE EXPERTS SPEAK
68
Looking for an Equity Partner to fuel your Growth?
Indian Venture Capital Journal brings to you

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Key Features:
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Contents
From the Editor's Desk 01
Market Watch 05
Conference Talk
Innovation in Healthcare Delivery
Model: Creating The Right Model
for India 31
VC Stories
Ideacts Innovations: Enjoying
Richer Coffers 39
BCCL: 'Nursing' Healthcare 40 Globetrotting

A research paper authored by Dr. Martin
Haemmig and Mr. Gil Forer, elaborating
AXIS PE: Riding the Infrastructure on the growing importance of innovation
Opportunity 41 in the Venture Capital arena.
Sector Focus: Hedge Funds Pg. 81
Technology: The Way to Go 42
Exploring their Course in India Tuscan Ventures: Tapping the Logistics
A comprehensive paper authored by
the IVCJ Research Team, offering in-
Industry 43
depth analysis of the Indian Hedge
Funds industry, with the backdrop of
Healthcare: The Emerging
an overview of the global milieu. Investor Magnet 44
Fund Managers' Interviews Advertising: Approaching the Limelight 45

Presenting the Indian Hedge Funds
industry from several Fund Managers' Manhattan Communications:
perspectives A Strategic Step Ahead 46
Mr. Kanwaljit Singh
Hedge Funds Co-Founder, Helion Venture Partners
Exploring their Course in India 49 In Good Company
IVCJ Research IVCJ profiles Helion Venture Partners, a
stage independent venture capital fund,
with US$ 300 million of funds under
The Experts Speak: management.
www.vcindia.com Mr. Rajiv Baddepudi 52 Pg. 79
Mr. Kalpesh Kapadia 54
About us:
www.vcindia.com/about-ivcj.asp Mr. Siddhartha Shah 56
Mr. Krish Krishnan 58
Publications:
www.vcindia.com/publication.asp Mr. Janak Jethmalani &
Mr. Pashupati Advani 60
Press releases:
www.vcindia.com/press-rel.asp
Tax Angle
Contact: Indian Hedge Funds Industry:
www.vcindia.com/contactus.asp Tax Angle
Legal and Tax Aspects 62 A comprehensive paper that presents the
legal and regulatory environment of the
In Good Company Indian Hedge Funds sector.
Pg. 62
Helion Venture Partners 79
For advertisements
Globetrotting
and sales enquiries:
Email: sales@vcindia.com Innovation: The growing importance of
Venture Capital 81
ISSN 0973-1636 Issue 9

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Distressed Asset Funds
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distressed asset fund industry, with in- IVCJ's Private Equity Journal for India has taken due care and caution in compilation of the data for this product. Information
depth analysis and experts' opinion. has been obtained by IVCJ from sources which it considers reliable. However, IVCJ does not guarantee the accuracy, adequacy
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Igniting Information for the VC and PE marketplace
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01
From the
Editor’s Desk
Current Issue:
Continuing with its trend of bringing relevant and truly edifying articles to its readers, IVCJ is
pleased to present the latest issue, focussing on the Indian Hedge Funds marketplace.
CURRENT ISSUE: IT/ITES SECTOR

The global economic slowdown has painted a grim picture of the US and UK markets.
Consequently, hedge fund managers are now turning towards the emerging markets in Asia.
Considering its timeliness and relevance, this issue of the Journal portrays the current
scenario of hedge funds industry in India. With industry experts voicing their opinion in our
articles, I'm sure our readers will be able to derive value out of this issue.
PAST CONFERENCE
IVCJ's recently concluded 3-Day Executive Training Programme on 'Private Equity & Venture
Capital at the Fund and the Company Level, held from 25th- 27th August, 2008, in Mumbai,
was an event to remember. A distinguished panel of over 14 speakers covered interesting
topics such as, how GPs can raise funds and how investors can become LPs in private equity
funds as well as how entrepreneurs can raise capital and how private equity professionals
should seek to invest it. With as many as 50 attendees, this well-attended workshop served as
a knowledge disseminating platform for the industry.
Next Conference:
FORTHCOMING CONFERENCE
I take this opportunity to announce IVCJ's upcoming event - Real Estate Funds and
Infrastructure Investment Forum 2008, scheduled to be held from 23rd-26th September,
2008
2008, in Mumbai. While unearthing the investment prospects, this one-of-its-kind event
Real Estate Funds serves as a platform to discuss and debate the compelling issues prevalent within these
& INFRASTRUCTURE sectors. Over 60 eminent speakers across 20 panels will be engaged in delivering knowledge
Investment Forum
23 rd - 24 th September 2008: Taj Lands End, Mumbai and good 'take-home' value. With 16 hours of networking time, I'm optimistic that even this
25 th - 26 th September 2008: JW Marriott, Mumbai
conference will emerge as India's leading annual investment platform for developers, fund
managers and facilitators in the real estate and infrastructure industry.

Speaking or
Sponsoring, Log on to:
02
FORTHCOMING ISSUE
The Indian economy relies heavily on industries such as, real estate and other labour-
intensive sectors that are not able to pass higher production costs to customers. In such a
scenario, factors such as, fraud, economic slowdown, poor management decisions and
rising borrowing costs have contributed to the growth of the distressed asset investment
opportunities. Recognising the need, IVCJ's forthcoming issue will unveil the Distressed
Asset Funds landscape in India.
I would like to thank all our sponsors, advisory board members as well as readers for
extending their continued support in making every issue of IVCJ's Private Equity Journal for
India a grand success.
Manoj Saha
Managing Editor
manoj.saha@vcindia.com
opportunities
GROWTH NEEDS MULTIPLE RESOURCES...

...CAPITAL IS ALSO ONE OF THEM
The IL&FS Financial Centre, Plot No. C-22, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051, India.
Tel: 9122 - 2653 3333 / 2653 3232 Fax: 9122 - 2653 3056
05
Indian Venture Capital Journal
Market Watch
Sector-wise Break-up of VC/PE Investments in India (Jan '08 - Jul '08)
INVESTMENTS (JAN 2008)
3500 60
Amt in US$ Mn
3000 50
No of Deals
2500 40
2000
30
1500
1000 20
500 10
0 0
IT/ITES
Infrastructure
Manufacturing
Telecommunications
Travel & Hospitality
Others
Entertainment
Textile and Clothing
Life Sciences
Rela Estate
Banking & Financial
Media &
Services
Sectors
Investment in 2008 Investment in 2007 No of Deals in 2008 No of Deals in 2007
Source: IVCJ Research

INVESTMENTS
January 2008
Private equity investor: 3i India Infrastructure Fund 3i India Infrastructure Fund invested US$ 101 million for a minority stake in
Investee company: Soma Enterprise Hyderabad-based engineering and construction firm, Soma Enterprise. The
Sector: Infrastructure company has planned to utilise the funds to invest in Build Operate and Transfer
Amount: US$ 101 million projects.
Private equity investor: Edelweiss Capital, Lehman Leading investment banker and institutional brokerage firm, Edelweiss Capital,
Brothers, Galleon Partners and Shuaa Capital together with foreign investors, Lehman Brothers, the Government of Singapore,
Investee company: ECL Finance Galleon Partners and Shuaa Capital, invested about US$ 100 million in ECL
Sector: IT/ITES - Information System Finance.
Amount: US$ 100 million
Private equity investor: Orient Global Orient Global, a Singapore-based investment group, invested US$ 141 million in
Investee company: India Infoline India Infoline on a preferential basis. Following the deal, Orient Global acquired
Sector: IT/ITES - Information system 3.7 million shares in India Infoline, representing 6.48% of the company's equity
Amount: US$ 141 million capital. The capital provided by Orient Global is to provide resources for India
Infoline's continued development.
Private equity investor: HSBC Private Equity HSBC Private Equity Technology (Asia) invested US$ 8 million in New Delhi-based
Technology (Asia) Newgen Software Technologies for a minority stake in the company. HSBC Private
Investee company: Newgen Software Technologies Equity Technology (Asia) is a wholly owned subsidiary of The HSBC Asian Ventures
Sector: IT/ITES - Software Fund. The funds raised are expected to be used to facilitate Newgen's plans to
Amount: US$ 8 million expand their sales and marketing activities in new markets across the globe.
Private equity investor: DE Shaw Global private equity major, DE Shaw picked up a 14% stake in Delhi-based
Investee company: Security and Intelligence Security and Intelligence Services (SIS) India Ltd., for an undisclosed amount. The
Services (SIS) India Limited funds are expected to be used to scale up SIS' operations. SIS is targeting
Sector: Other acquisitions and eyeing the overseas market.
Amount: N.D.
Private equity investor: Carlyle Group Private equity firm, Carlyle Group invested US$ 28 million in Repco Home Finance
Investee company: Repco Home Finance (RHF), a subsidiary of state-owned Repatriates Co-operative Finance and
Sector: Banking & Financial Services - Microfinance Development Bank Ltd., that focusses on the rural and semi-urban housing loan
Amount: US$ 28 million market. The fund is to be used to expand RHF's branch network and loan portfolio.
Private equity investor: ICICI Ventures IVEN Medicare, a SPV floated by ICICI Ventures, invested US$ 36 million in Pune-
Investee company: Sahyadri Hospitals based Sahyadri Hospitals for an undisclosed stake. The investment, accomplished in
Sector: Life sciences - Healthcare Delivery two phases of 18 months each, is expected to be used for building a network of
Amount: US$ 36 million tertiary care hospitals, secondary care hospitals, centers of excellence, specialty
spokes and boutique hospitals across Maharashtra. Sahyadri runs a 250 bed
speciality hospital; it plans to increase the number of beds to 1,000, by end-2008 and
3,000, by end-2010.
06
INVESTMENTS
INVESTMENTS (JAN & FEB 2008)

January 2008
Private equity investor: Motilal Oswal Venture Motilal Oswal Venture Capital Advisors picked up a minority stake in Effort BPO
Capital Advisors for US$ 63 million. Effort BPO is an integral service arm of most of the leading
Investee company: Effort BPO banking and financial institutions, across business functions from sales to
Sector: Banking & Financial Services - Banking customer services. Effort is increasing its presence in tech support and
Amount: US$ 63 million consumer-oriented business segments such as, airlines and retail, other than
banking and financial as well as telecom services.
Private equity investor: BCCL Bangalore-based new generation software product development and services
Investee company: Mindlogicx Infotech company, Mindlogicx Infotech sold its stake to Bennett, Coleman & Co Limited
Sector: IT/ITES - KPO (BCCL). Mindlogicx Infotech provides end-to-end solutions in KPO, virtual
Amount: N.D. learning, online knowledge and skills assessment, business intelligence and IT
consulting.
Private equity investor: DE Shaw Group The DE Shaw Group, a global investment and technology development firm,
Investee company: Soham Renewable Energy India picked up a minority stake in Soham Renewable Energy India for US$ 15
Sector: Infrastructure - Conventional Energy million. Soham, which generates power from renewable sources, plans to use
Amount: US$ 15 million the fund to increase generation capacity in the next five years. The company
has commissioned a 22-megawatt (MW) hydro project, downstream of Jog Falls
at Shimoga in Karnataka.
Private equity investor: Gland Pharma Limited The Gland Pharma Ltd signed an agreement with Evolvence India Life Sciences
Investee company: Evolvence India Life Sciences Fund, a private equity fund focussed on investments in life sciences businesses
Fund in the country, for a capital infusion of US$ 30 million. The fund is to support the
Sector: Life sciences - Healthcare Delivery expansion of the manufacturing facilities of Gland Pharma Ltd.
Private equity investor: SAIF Partners Specialty Restaurants Pvt Ltd (SRPL), an Indian food services company that
Investee company: Specialty Restaurants Pvt owns specialty fine dining restaurant chains, Mainland China and Oh!
Limited (SRPL) Calcutta, sold 20% stake to SAIF Partners, a leading Asian private equity firm,
Sector: Food & Beverages for US$ 22.5 million. This fund is to be used for the expansion of the number of
Amount: US$ 23 million SRPL restaurants across the country from 40 to around 100, by the end of 2008.
Private equity investor: George Soros' Quantum OnMobile, a Bangalore-based value-added software products and services
Fund, Bessemer India Capital and Wardferry India player, raised US$ 30 million in a pre-IPO placement. George Soros' Quantum
Reconnaissance Fund Fund, Bessemer India Capital and Wardferry India Reconnaissance Fund
Investee company: OnMobile collectively picked up close to 5% equity stake in the company. With this deal,
Sector: Food & Beverages Quantum Fund now holds a 3.54% stake, Bessemer India Capital, 0.9 % and
Amount: US$ 30 million Wardferry India, 0.95% in OnMobile.
Private equity investor: JM Financial India Fund JM Financial India Fund, a US$ 225 million private equity fund set up by JM
Investee company: PreMedia Global Financial and Old Lane (currently owned by Citigroup), invested US$ 18 million
Sector: Media & Entertainment Print Media for a minority stake in the e-publishing company, PreMedia Global USA Inc
Amount: US$ 18 million (PMG). PMG develops content for college and school textbooks as well as
journals in the US and Canada, in all electronic formats such as, PDF and XML.
Private equity investor: RREEF Deutsche Bank real estate investment arm, RREEF invested US$ 70 million in
Investee company: Golden Gate Properties Limited Bangalore-based real estate firm, Golden Gate Properties Ltd., for an
Sector: Real Estate undisclosed stake. The company is engaged primarily in residential projects
Amount: US$ 70 million and is building 20,000 homes with a total built-up area of 23 million sq.ft., in
cities such as, Bangalore and Hyderabad.
February 2008
Private equity investor: ICICI Venture ICICI Ventures purchased New Vemon Bharat's 40% stake in Chennai-based
Investee company: Updater Services integrated facility management company, Updater Services (UDS) for about
Sector: IT/ITES - Information System US$ 25 million. Advisors to the deal were Veda Corporate Advisors. In January
Amount: US$ 25 million 2006, New Vemon Bharat had invested US$ 10 million for a minority stake in
Updater Services.
07
Market Watch
INVESTMENTS (FEB 2008)
INVESTMENTS
February 2008
Private equity investor: Silicon Valley Bank, Private equity players, Silicon Valley Bank, Columbia Pacific, Sequoia Capital
Columbia Pacific, Sequoia Capital and Oddyssey and Oddyssey Capital invested US$ 37 million in Vikram Akula promoted, SKS
Capital, ICICI Venture Microfinance. This was the third round of equity infusion in SKS Microfinance.
Investee company: SKS Microfinance
Sector: Banking & Financial Services -
Microfinance
Private equity investor: NEO Indo-US Ventures NEO Indo-US Ventures picked up an undisclosed stake in Chennai-based Bay
Investee company: Bay Talkitec Talkitec for US$ 3 million. This marked the ninth investment made by NEO Indo-
Sector: IT/ITES - MVAS US Ventures. Bay Talkitec is a VAS company that specialises in media
Amount: US$ 3 million convergence solutions and wireless network. The company plans to offer audio
and video service in VAS segment for mobile operators in India and worldwide.
Private equity investor: Ojas Venture Partners India-based venture capital firm specialising in technology start-ups, Ojas
Investee company: Tyfone Inc Venture Partners invested US$ 3 million in Tyfone Inc. The company develops
Sector: Technology - Hardware software and hardware platforms for mobile banking, mobile contactless
Amount: US$ 3 million payments and retail merchant services.
Private equity investor: Matrix Partners India Venture capital fund, Matrix Partners India invested an undisclosed amount in
Investee company: eBay eBay's Indian classified site, Kijji India. This was an early stage deal for the
Sector: IT/ITES - E-Business venture capital fund. The two companies will jointly own Kijji India, an online
Amount: N.D. classifieds-style website “that allows local community to meet, help one
another and interact over shared interests.”
Private equity investor: Mayfield Fund, Yahoo! and Mayfield Fund, Yahoo! and Canaan Partners picked up an undisclosed stake for
Canaan Partners US$ 12 million in Cosim Info, formerly known as Bharat Matrimony. This deal
Investee company: Cosim Info will enable Cosim Info to launch its online matrimony business abroad. This
Sector: IT/ITES - E-Business was the second round of funding received by the company. The company is
Amount: US$ 12 million expected to use proceeds of the financing to accelerate business growth and
expand its footprint domestically as well as internationally.
Private equity investor: Reliance Technology Reliance Technology Ventures Ltd, the corporate venture capital arm of Reliance
Ventures Limited ADA Group, invested an undisclosed amount in Sequans Communications.
Investee company: Sequans Communications Sequans, a leading WIMAX semi-conductor company, provides innovative
Sector: Technology system on chip solutions for fixed and Mobile WIMAX systems.
Amount: N.D.
Private equity investor: Citi Venture Capital Citi Venture Capital International, a part of Citigroup, invested US$ 41 million in
International New Delhi-based brokerage house, Globe Capital Market. Citi's shareholding in
Investee company: Globe Capital Market the company was to be in the range of 10-15%, depending on the size of the
Sector: Banking & Financial Services - Exchanges warrant issue the promoters planned to subscribe. The fund is expected to be
Amount: US$ 41 million utilised to expand the company's retail network and arbitrage business.
Private equity investor: GIC Special Investments An overseas arm of Ballarpur Industries Ltd (Bilt), a leading Indian
Pvt Limited and JP Morgan manufacturer of paper and paper related products, raised US$ 175 million from
Investee company: Ballarpur Industries Limited two major private equity funds - GIC Special Investments Pvt Ltd and JP
(Bilt) Morgan's Principal Investment Management Group. These funds are expected
Sector: Manufacturing to pick up 21% stake in Ballarpur Paper Holdings B.V. (BPH), a wholly-owned
Amount: US$ 175 million subsidy of Bilt in Netherlands.
08
INVESTMENTS
INVESTMENTS (FEB 2008)

February 2008
Private equity investor: Amitayus Investments LLC Satya Vani Homes, a Hyderabad-based real estate developer, received US$ 10
Investee company: Satya Vani Homes million from private equity fund, Amitayus Investments LLC, to part fund a
Sector: Infrastructure green homes project near the city. The developer also has plans to invest US$
Amount: US$ 10 million 100 million in four greens homes projects near Hyderabad.
Private equity investor: State Bank of India In a private equity deal, State Bank of India (SBI), the largest public sector bank
Investee company: ARSS Infrastructure Projects of the country, picked up 7.8% equity in Orissa-based ARSS Infrastructure
Limited Projects Limited. The deal was for 10 lakh shares out of the company's total
Sector: Infrastructure equity base of 1,25,54,000 shares of US$ 0.25.
Amount: N.D.
Private equity investor: Matrix Partners India VC firm, Matrix Partners India invested US$ 10 million in luxury and premium
Investee company: Brand Marketing India Pvt goods distributor, Brand Marketing India Pvt Ltd (BMI). BMI, promoted by
Limited (BMI) Mumbai-based Murjani Group, has exclusive licensing rights to top global
Sector: Other brands, including GUCCI, Jimmy Choo, French Connection, Calvin Klein, La
Amount: US$ 10 million Perla and Bottega Veneta.
Private equity investor: Bennett, Coleman & Co Bennett, Coleman & Co Ltd (BCCL) invested in Bangalore-based integrated HR
Limited (BCCL) solutions company, Next Link. The firm provides both, recruitment and training
Investee company: Next Link services under the NEXT brand. The company is looking at servicing the US$
Sector: Other 1.25 billion opportunity in the training space through a mix of own and
Amount: N.D. franchise training centres on a pan-India basis. Currently, they have presence
in Bangalore, Chennai, Delhi, Hyderabad, Coimbatore, Kolkata, Mumbai, Pune
and Visakhapatnam.
Private equity investor: Blackstone, Merrill Lynch, In a pre-initial public offering (IPO) deal, four global private equity majors
Deutsche Bank and Galleon Group together picked up 2.25% stake in Pipavav Shipyard (PSL) for around US$ 26
Investee company: Pipavav Shipyard (PSL) million. The firms - Blackstone, Merrill Lynch, Deutsche Bank and Galleon
Sector: Other Group - picked up 13 million shares of the port and shipping company. Global
Amount: US$ 26 million (approx.) private equity major, Blackstone picked up 5 million shares through its India
Fund, Merrill Lynch acquired 4 million shares, Deutsche Bank picked up 2
million shares and Galleon Group purchased 2 million shares of the company.
The shares were all bought at US$ 2 each, which is close to the company's IPO
price band.
Private equity investor: Frontline Ventures US-based private equity firm, Frontline Ventures purchased 10% stake in
Investee company: Futura Infraprojects Mumbai-based infrastructure and real estate firm, Futura Infraprojects for US$
Sector: Real Estate 40 million. With this inflow of capital, Futura Infraprojects is expected to fund its
Amount: US$ 40 million expansion plans, including the development of townships, foraying into hotel
business and setting stone quarrying and mining units. The company has
already procured land banks adding up to 1,500 acres in Mahabaleshwar,
Panvel, Pune and Aurangabad in Maharashtra.
Private equity investor: ICICI Ventures ICICI Ventures picked up an undisclosed stake in Vikram Hospital for US$ 24
Investee company: Vikram Hospital million. The investment was made through I-Ven Mediacare, the private equity
Sector: Life sciences - Healthcare Delivery firm's special purpose vehicle (SPV). Vikram Hospital is now looking at
Amount: US$ 24 million expanding its presence across Karnataka through a combination of greenfield
and brownfield initiatives. This was ICICI Venture's fourth investment in a
hospital, following investments worth US$ 10 million in Delhi-based RG Stone
Hospital; US$ 16.5 million in Kolkata-based Medica Synergie and US$ 36
million in Pune-based Sahaydri Hospitals. The company is anticipated to make
seven more investments in this space.
Private equity investor: Kubera Cross-Border Fund India-based information technology and outsourcing company GSS America
Investee company: GSS America has offloaded 10.22% stake to UK-listed investment firm Kubera Cross-Border
Sector: Technology Fund (KUBC) for an estimated US$ 10 million. KUBC is managed by Kubera
Amount: US$ 10 million Partners that invests in Western-headquartered cross-border companies,
leveraging resources in India and Asia.
09
Market Watch
INVESTMENTS (FEB & MAR 2008)
INVESTMENTS
February 2008
Private equity investor: IDG Ventures India IDG Ventures India, an early stage technology venture capital fund, announced
Investee company: Aujas Networks an investment of US$ 3 million in Aujas Networks, a pure play digital security
Sector: Other services start-up. Aujas offers security services across a broad range of
Amount: US$ 3 million technologies, including core wireless networks, voice over internet protocol and
cyber forensics. The company plans to utilise the investment to build its sales
presence in India, West Asia, Europe, Asia Pacific and North America and
enhance its service offering.
Private equity investor: Bennet Collman & Co Global roaming solutions provider, Matrix received an undisclosed amount of
Limited. (BCCL) investment from Bennet Collman & Co Ltd. (BCCL). Matrix is a provider of a
Investee company: Matrix country-specific mobile SIM cards and global data cards to international
Sector: IT/ITES MVAS travellers, enabling them to make significant savings in telecom cost. The
Amount: N.D. tremendous reach of BCCL is expected to enable MATRIX to build a stronger
brand and a greater connect with its customers spread across various sections,
geographical locations and age groups. Matrix's services are being used by
corporates, students and leisure travellers.
Private equity investor: Argonaut PE UK-based global private equity fund, Argonaut PE, which manages more than
Investee company: Vallabhdas Kanji Limited US$ 3.5 billion in capital, invested US$ 7.5 million in Kochi-based spices major
Sector: Other Vallabhdas Kanji Ltd (VKL). The funding is expected to allow VKL to expand its
Amount: US$ 7.5 million global sales and marketing for private label businesses.
Private equity investor: American International Bangalore-based hospital, Narayana Hrudayalaya Pvt Ltd (NHPL) sold a 25%
Group Inc. (AIG) and JPMorgan stake to the private equity arms of global financial services firms, American
Investee company: Narayana Hrudayalaya Pvt International Group Inc. (AIG) and JPMorgan, for US$ 100 million. The two
Limited (NHPL) leading individual promoters of NHPL are Dr. Devi Shetty, Founder, Narayana
Sector: Life sciences - Healthcare Delivery Hrudayalaya and Kiran Mazumdar-Shaw, Chairman and Managing Director,
Amount: US$ 100 million Biocon Ltd. AIG and JP Morgan each invested US$ 50 million in the hospital.
The funds are expected to be used by NHPL to build a nationwide chain of
health cities in the state capitals. NHPL is planning to create 5,000-bed
hospitals in most State capitals, reaching 20,000 beds within five years.
Private equity investor: George Soros Billionaire investor, George Soros bought 3% of Reliance Entertainment, the
Investee company: Reliance Entertainment films-to-mobile gaming company founded and owned by Anil Ambani. The
Sector: Media & Entertainment company sold its stake for US$ 100 million to a fund owned by George Soros.
Amount: US$ 100 million The money is expected to be used to expand George Soros' presence in these
March 2008
Private equity investor: Business Angel Fund iXiGO.com, India's most awarded travel search, received an undisclosed sum as
Investee company: iXiGO.com first round financing from Business Angel Fund (BAF), a leading Singapore-
Sector: Other based investment company. The investment was anticipated to fund iXiGO's
Amount: N.D. aggressive marketing plans and its innovative strategy to scale up searchable
travel content.
Private equity investor: Monsoon India and Gurgaon-based Acme Tele Power Limited raised US$ 100 million from two
Jackson Heights Investments hedge funds, Monsoon India and Jackson Heights Investments. The investors
Investee company: Acme Tele Power Limited picked up a 3.35% stake in the company. Acme is a manufacturer and supplier
Sector: Manufacturing of energy conservation solutions for telecos. This was the second round of
Amount: US$ 100 million private placements in Acme.
10
INVESTMENTS
INVESTMENTS (MAR 2008)

March 2008
Private equity investor: NYLIM Jacob Ballas India Saravana Global Energy Limited (SGEL) received equity investment of US$ 25
Fund III LLC million from NYLIM Jacob Ballas India Fund III LLC, a Mauritius-based private
Investee company: Saravana Global Energy equity investor. The deal was syndicated by MAPE Advisory Group. The
Limited (SGEL) investment is anticipated to be utilised to finance the setting up of a new state-
Sector: Infrastructure - Conventional Energy of-the-art high voltage insulator manufacturing facility with a capacity of
Amount: US$ 25 million 24,000 tons per annum.
Private equity investor: Goldman Sachs Chennai-based Non Banking Financial Company (NBFC), Shriam Credit, sold
Investee company: Shriam Credit 20% stake to Goldman Sachs, one of the world's largest investment banking
Sector: Banking & Financial Services - NBFC firms. The valuation of the firm is US$ 375 million. Through this deal, Goldman
Amount: US$ 75 million Sachs invested US$ 75 million to become a significant minority partner.
Goldman Sachs processed the deal through its 100% subsidiary, the Mauritius-
based GS Strategic Investments.
Private equity investor: Peepul Capital Universal Power Transformers, a Bangalore-based manufacturer of power
Investee company: Universal Power Transformers equipment received US$ 15 million from Peepul Capital, a private equity fund.
Sector: Manufacturing The size of the fund is US$ 325 million and it is expected to be utilised by UPT
Amount: US$ 15 million for the expansion of its existing facilities, for increasing the working capital and
for acquiring Moloney Electric Inc.
Private equity investor: DE Shaw Mauritius-based hedge fund, DE Shaw invested US$ 250 million in Mack Star
Investee company: Mack Star Marketing Marketing, a unit of Mumbai-based Housing Development and Infrastructure
Sector: Infrastructure (HDIL), a realty developer. The percentage of the stake picked up was
Amount: US$ 250 million undisclosed. This fund is expected to be used for developing nearly 0.5 million
sq. ft. of commercial complex, Kaledonia, in Andheri, a Mumbai suburb.
Private equity investor: Draper Fisher Jurvetson With its third round of funding, Cleartrip Travel raised funds to the tune of US$
India Advisory Services Pvt. Limited and others 18.5 million. Venture Capital Company, Draper Fisher Jurvetson India Advisory
Investee company: Cleartrip Travel Services Pvt. Ltd. led the investment by channelising US$ 10 million into
Sector: Other Cleartrip Travel. This was the private equity firm's largest investment in India.
Amount: US$ 10 million The remaining four VC players invested an amount of US$ 8.5 million in the
estate, hospitality and gaming business, Cleartrip Travel.
Private equity investor: Future Capital Holdings Centrum Capital, which is into foreign exchange and wealth management
Investee company: Centrum Capital business, received investments worth US$ 25 million for its two subsidiaries,
Sector: Banking & Financial Services - Foreign from Future Capital Holdings (FCH), a financial services company of the Future
Exchange Group. FCH invested US$ 18.75 million for 50.1% stake in Centrum Direct, the
Amount: US$ 25 million foreign exchange money changing business of Centrum Capital. A sum of US$
6.25 million for 50.1% stake was invested in Centrum Wealth Managers, the
company that manages Centrum Capital's existing retail broking, portfolio
management and financial products distribution businesses.
Private equity investor: Mayfield Fund In its initial round of funding from institutional investors, Servomax India,
Investee company: Servomax India received an investment of US$ 4 million from Mayfield Fund, a US-based VC
Sector: Infrastructure - Power fund. Servomax India is a Hyderabad-based power equipment maker
Amount: US$ 4 million enterprise, which has 22 branches across India and client base of about 1000
corporate clients.
Private equity investor: Blackstone Kolkata-based Titagarh Wagons received investments from private equity
Investee company: Titagarh Wagons company, Blackstone for a minority interest, for US$ 16.8 a share in a pre-IPO
Sector: Other placement. Blackstone purchased the stake from the Strategic Ventures Fund
Amount: US$ 4 million (Mauritius) through the transfer of nearly 2.35 lakh shares for around US$ 4
million. Titagarh Wagons also had plans of selling an additional 23.8 lakh
shares in the primary market through an entirely book-build issue.
Private equity investor: Blackstone Hyderabad-based infrastructure company, Nagarjuna Construction sold 3.2%
Investee company: Nagarjuna Construction to its existing investor, US-based private equity player, Blackstone. FIPB has
Sector: Infrastructure approved this stake sale, which is amounting to a consideration of US$ 50
Amount: US$ 50 million million. In July 2007, Blackstone acquired 9% stake in the company.
11
Market Watch
INVESTMENTS (MAR & APR 2008)
INVESTMENTS
March 2008
Private equity investor: International Finance Ahmadabad-based Meghmani Finechem Limited (MFL) sold 25% stake in its
Corporation (IFC) chlor-alkali project for US$ 12 million to the World Bank-affiliate, International
Investee company: Meghmani Finechem Limited Finance Corporation (IFC). Other than equity investment, IFC is also expected to
Sector: Infrastructure provide US$ 18 million to MFL as a long-term loan for a maturity period of 10
Amount: US$ 12 million years at a rate of 11% and also subscribe to warrants of up to US$ 1.25 million
by March 2010.
Private equity investor: Nexus India Capital Organic farming company, Suminter India Organics Private Limited, raised
Investee company: Suminter India Organics funds from city-based venture capital firm, Nexus India Capital. The company
Private Limited focusses on organic produce for textile and food industries. The investment was
Sector: Consumer Products & Services estimated at US$ 2-5 million. This fund is expected to be used to expand its
Amount: US$ 2-5 million reach to 10 Indian states. Suminter is also planning to set up an organic food
park with high-end machinery for processing.
Private equity investor: Abraaj Capital Dubai-based private equity firm, Abraaj Capital purchased around 9.4% stake
Investee company: Osian's Connoisseurs for US$ 20 million in Osian's Connoisseurs of Art. Arif Masood Naqvi, Vice
Sector: Other Chairman and Group Chief Executive Officer, Abraaj, joined the board of
Amount: US$ 20 million Osian's. Abraaj Capital focusses on West Asia, North Africa and South Asia.
Private equity investor: Orient Golbal Tamarind Cairn India, an oil exploration and production company, raised US$ 625 million
Fund through a private placement, by selling 5.97% stake. Malaysia's state owned oil
Investee company: Cairn India company, Petronas and Singapore-based private equity firm, Orient Golbal
Sector: Infrastructure Oil Exploration Tamarind Fund, purchased stakes in Cairn India.
Private equity investor: Baring Private Equity Citigroup Venture Capital (CVC) sold its stake, acquired through secondary sale
Investee company: Citigroup Venture Capital (CVC) for US$ 60 million from Mumbai-based brokerage firm, Sharekhan to Baring
Sector: Banking & Financial Services - Stock Private Equity. With this deal, as well as additional capital infusion by existing
Broking shareholders, the stake of CVC was lowered from 75% to 63%.
Private equity investor: Unitus Equity Fund LP Private equity player, Unitus Equity Fund LP (UEF) invested US$ 2 million in
(UEF) Moksha Yug Access (MYA). The investment is anticipated to enable MYA to
Investee company: Moksha Yug Access (MYA) build supply chain as well as infrastructure for dairy farming and healthcare
Sector: Banking & Financial Services - centers; continue to create key market linkages between the rural community
Microfinance and upstream players; strengthen its technological platform to gear the
Amount: US$ 2 million business for volume-driven activities and expand its microfinance arm.
Private equity investor: New Vernon Private Equity New Vernon Private Equity increased its stake in the Chennai-based
(Please confirm) engineering and construction company, Shriram EPC, by 1.06%, post-IPO.
Investee company: Shriram EPC Earlier, New Vernon held 4.62% stake in Shriram EPC, which had come down to
Sector: Infrastructure - Construction 4.08% post issue. As of now, the promoters hold 43% in Shriram EPC, along
Amount: N.D. with other institutional investors including, Bessemer Venture Partners
(24.45%) and UTI Ventures.
April 2008
Private equity investor: Yatra Capital Yatra Capital, an India-focussed real estate investment company, channelised
Investee company: Palladium Constructions and US$ 44 million in two realty joint venture projects based in Bangalore. The
Platinum Hospitality Services promoter of one of the projects is Palladium Constructions and that of the other
Sector: Real Estate is Platinum Hospitality Services.
12
INVESTMENTS
INVESTMENTS (APR 2008)

April 2008
Private equity investor: Morgan Stanley and Morgan Stanley and Company International Limited, Mauritius, picked up
Company International Limited another 3.85% in Power and Telecom tower maker, Sujana Towers Limited. The
Investee company: Sujana Towers Limited Morgan Stanley stake in the company now values at 7.04%.
Sector: Infrastructure - Power Distribution
Amount: US$ 44.27 million
Private equity investor: Greater Pacific Capital Mascon Global received a strategic investment of US$ 27 million from London-
Investee company: Mascon Global based private equity company, Greater Pacific Capital. With this deal, the
Sector: Other private equity company picked up a 14.9% stake, at an offer price of US$ 0.5 per
Amount: US$ 27 million share. Greater Pacific Capital settled 50% of the capital by issuing Global
Depository Receipts (GDRs) through Luxembourg Stock Exchange and the
remaining through direct market purchases.
Private equity investor: Henderson Equity Partners Europe's leading investment company, Henderson Equity Partners, invested
Investee company: Sharda Worldwide Exports US$ 22 million in Mumbai-based Sharda Worldwide Exports, a leading Indian
Sector: Life sciences - Healthcare Pharmaceuticals agrochemical Company. Sharda had plans to spread out into the US and
Amount: US$ 22 million European markets.
Private equity investor: Nalanda Capital The Singapore-based private equity investment firm, Nalanda Capital picked up
Investee company: WNS 5.25% in NYSE-listed WNS (Holdings), the second largest BPO firm in India, for
Sector: IT/ITES - BPO an undisclosed amount.
Amount: N.D.
Private equity investor: Merrill Lynch A special purpose vehicle (SPV) managed by Hyderabad-based logistics player,
Investee company: DRS Group DRS Group, raised US$ 100 million from Merrill Lynch. The logistics firm is
Sector: Logistics planning to set up a US$ 17.5 million Logistics Park, spread over 43 acres on
Amount: US$ 100 million the Hyderabad-Nagpur highway.
Private equity investor: Tano Capital LLC Tano Capital LLC made a US$ 7 million investment in Anil Printers Limited. With
Investee company: Anil Printers Limited this investment, APL plans to manufacture smart cards and RFID labels in
Sector: IT/ITES - E-Business technical collaboration with Muhlbauer High Tech International of Germany.
Private equity investor: Indivision Capital The private equity arm of Future Capital, Indivision Capital picked up 10% stake
Investee company: Percept Limited in Percept Ltd, a flagship company of the Percept Group, for around US$ 17
Sector: Media & Entertainment - Production House million. Future Ventures, a group company of the Future Group, created three
Amount: US$ 17 million joint ventures with Percept, in the fields of media buying, retail and
entertainment and investor relations management businesses.
Private equity investor: Bennett, Coleman & Bennett, Coleman & Company (BCCL) invested US$ 15 million in Broadlyne
Company (BCCL) Technologies, which is engaged in the business of providing education
Investee company: Broadlyne Technologies management services to schools and colleges, for an undisclosed stake.
Sector: IT/ITES - E-Learning
Private equity investor: Goldman Sachs Chennai-based, TVS Logistics Services Ltd. sold minority stake for US$ 25
Investee company: TVS Logistics Services Limited million to Goldman Sachs. TVS, an integrated logistics service provider believes
Sector: Logistics it has a huge market to expand. It had picked up 50% stake in Mumbai-based,
Amount: US$ 25 million Greenarches Ltd and rechristened it to TVS Infrastructure Limited.
Private equity investor: Altima Partners, T Rowe Fashion retailer, Provogue India offloaded 12% stake to UK-based retail
Price, New Vernon, Genesis Indian Investment and infrastructure developer, Liberty International, along with a group of private
Acacia Partners equity investors such as, Altima Partners, T Rowe Price, New Vernon, Genesis
Investee company: Provogue India Indian Investment and Acacia Partners, for US$ 79 million. The deal took place
Sector: Textile & Clothing via the preferential allotment route. The funds are to be utilised for expansion in
Amount: US$ 79 million its retail infrastructure subsidiary, Prozone. IDFC and SSKI were the advisors to
Provogue in the deal.
13
Market Watch
INVESTMENTS (APR 2008)
INVESTMENTS
April 2008
Private equity investor: Warburg Pincus PE firm, Warburg Pincus invested in Firstsource Solutions for a minority stake.
Investee company: Firstsource Solutions Warburg Pincus had bought 4.43% in the company. Firstsource was earlier
Sector: IT/ITES - BPO known as ICICI Onesource.
Amount: N.D.
Private equity investor: Sabre Capital Sabre-Abraaj India Private Equity Fund I (Sabre Abraaj), managed by Sabre
Sabre Capital Capital, invested US$ 25 million in Hyderabad-based ECI Engineering and
Investee company: ECI Engineering and Construction Company (ECI). The investment was made through preferential
Construction Company allotment to Sabre Abraaj. Edelweiss was the sole financial advisor to ECI for
Sector: Manufacturing Construction this deal.
Amount: N.D.
Private equity investor: Darby Overseas Investments Bangalore-based Amalgamated Bean Coffee Trading Company Ltd, popularly
Limited known as "Coffee Day", received an investment of US$ 25 million from Darby
Investee company: Amalgamated Bean Coffee Asia Mezzanine Fund II. The fund is instituted by Darby Overseas Investments
Trading Company Limited Ltd (Darby), the private equity arm of Franklin Templeton Investments. The
Sector: Food & Beverages investment is expected to be used for expanding Coffee Day's presence across
Amount: US$ 25 million India and in parts of Europe.
Private equity investor: Fidelity International and Hyderabad-based Coastal Projects, an engineering, procurement and
Sequoia Capital construction (EPC) company sold about 20% stake to private equity firms,
Investee company: Coastal Projects Fidelity International and Sequoia Capital. The corpus of US$ 40 million is
Sector: Other expected to be directed towards its hydropower projects (Build-Operate-Own-
Amount: US$ 40 million Transfer) and the purchase of construction equipment.
Private equity investor: India Debt Management India Debt Management, a group company of Hong Kong-based, ADM Capital,
Investee company: Kitply Industries invested US$ 30 million in plywood firm, Kitply Industries for restructuring the
Sector: Other company. The investee company plans to use the fund to repay lenders and
Amount: US$ 30 million revitalise its operations.
Private equity investor: Sherpalo Ventures Futurebazaar.com, Future Group's e-commerce portal sold 15% stake to Kleiner
Investee company: Futurebazaar.com Perkins Caufield & Byers (KPCB) and Sherpalo Ventures.
Sector: Consumer Products & Services
Amount: N.D.
Private equity investor: Future Ventures Godrej Adhaar, a company focussed on retailing and agri-services in rural
Investee company: Godrej Adhaar areas, sold 70% stake to Future Ventures. The investor is a group company of
Sector: Other Kishore Biyani's Future Group. This investment enables the increasing
Amount: N.D. penetration of Future Group's Insurance business, micro-finance, credit
business as well as the sourcing of agri-products.
Private equity investor: Actis Actis raised its equity holding to almost 60% in Paras Pharmaceuticals, an
Investee company: Paras Pharmaceuticals Ahmadabad-based company. The private equity fund had plans to bring in an
Sector: Life sciences - Healthcare Pharmaceuticals external professional as the CEO. Earlier in 2006, Actis had acquired 23% stake
Amount: N.D. for an amount of US$ 43 million.
Private equity investor: Bennett, Coleman & Co Ensemble Infrastructure India (EIIL), sold an undisclosed stake to Media House,
Limited (BCCL) Bennett, Coleman & Co Ltd (BCCL). EIIL designs and builds interiors since 2003.
Investee company: Ensemble Infrastructure India It has presence across Mumbai, Pune, Bangalore, Chennai and New Delhi.
(EIIL)
Sector: Infrastructure
Amount: N.D.
14
INVESTMENTS
INVESTMENTS (MAY 2008)

May 2008
Private equity investor: HDFC Fund Mumbai-based real estate developers, the Lodha Group, received an
Investee company: Lodha Group investment of US$ 54 million from HDFC-sponsored real estate fund registered
Sector: Infrastructure in Mauritius, for one of its special purpose vehicles (SPV). The HDFC Fund had
Amount: US$ 54 million bought 45% stake in Lodha's SPV for the development of the Group's luxury
residential and commercial project in Hyderabad. The advisor for the
transaction was Mumbai-based Trustcap.
Private equity investor: Yatra Capital Limited and Real estate major, Parsvnath Developers Ltd (PDL) raised an investment of US$
Saffron India Real Estate Fund I 47 million for a 15% stake in two Saffron Group managed funds, Yatra Capital
Investee company: Parsvnath Developers Limited Limited and Saffron India Real Estate Fund I for a bus depot development
Sector: Real Estate project. A special purpose vehicle (SPV), Jarul Promoters and Developers Private
Amount: US$ 47 million Ltd (Jarul), a subsidiary of Parsvnath Developers, is looking into the
development activities.
Private equity investor: Apax Partners Apax Partners bought an additional stake of 1.8% in Apollo Hospitals through
Investee company: Apollo Hospitals an open market transaction worth around US$ 11 million. Apax had already
Sector: Life sciences - Healthcare Delivery picked up 11.41% stake in the hospital group in October 2007, through
Amount: US$ 11 million preferential allotment. The stake holding of Apex Partners, including its various
investments in the company, totals to 14.5%.
Private equity investor: Indus Capital Two special economic zones (SEZs) of Delhi-based real estate developer, Uppal
Investee company: Uppal Group Group, received an investment of US$ 52 million from the US-based hedge
Sector: Real Estate fund, Indus Capital. For this transaction, Indus purchased a 25% stake in the
Amount: US$ 52 million Noida SEZ for US$ 25 million. Further, the company also picked up 50% stake in
the Greater Noida SEZ for US$ 26.5 million.
Private equity investor: Seedfund and Aavishkaar Seedfund, an Indian early-stage venture capital firm and Aavishkaar India
India Micro Venture Capital Fund Micro Venture Capital Fund, invested an undisclosed amount in the healthcare
Investee company: Vaatsalya Healthcare Solutions startup, Vaatsalya Healthcare Solutions Pvt. Ltd. With this investment, Vaatsalya
Pvt Limited plans to set up a hospital network in the rural and semi-urban areas across the
Sector: Life sciences - Healthcare Technology/ country that offer primary and secondary care services.
Products
Amount: N.D.
Private equity investor: Helion Venture Partners, Helion Venture Partners, Charles River Ventures and Maverick Capital Fund
Charles River Ventures and Maverick Capital Fund invested US$ 10 million in Gridstone Research, a financial information and
Investee company: Gridstone Research search company. This investment marked the closing of Gridstone's series B
Sector: Banking & Financial Services - NBFC funding. The fund is expected to be utilised in further product development and
Amount: US$ 10 million expansion of the sales force.
Private equity investor: Goldman Sachs Prannoy Roy and Radhika Roy, Founders of New Delhi Television Ltd, sold
Investee company: New Delhi Television Limited 7.85% stake to Goldman Sachs for US$ 54 million. The fund purchased 5.1
Sector: Media & Entertainment million shares of the media firm.
Private equity investor: Providence Equity Partners Aditya Birla Telecom Limited (ABTL), a wholly-owned subsidiary of Idea Cellular
Investee company: Aditya Birla Telecom Limited Limited (Idea) received US$ 640 million of capital from Providence Equity
Sector: Telecommunication Partners against the sale of 20% stake. ABTL is a wireless communications
Amount: US$ 640 million company in India.
Private equity investor: CDC Group Actis' third series of emerging markets funds, Actis Emerging Markets 3
Investee company: Actis Emerging Markets received funding of US$ 650 million from CDC Group, a UK Government-
Sector: Other backed private equity, emerging markets fund of funds investor. The series
Amount: US$ 650 million consists of a global fund and four regional funds focussed on Africa, South
Asia, China and Latin America.
Private equity investor: Axis Private Equity Delhi-based railway line manufacturer, Harish Chandra India Limited (HCIL)
Investee company: Harish Chandra India Limited received capital infusion from Axis Infrastructure Fund-I, a recently launched
(HCIL) fund of Axis Private Equity. The private equity player acquired a 25% stake and
Sector: Infrastructure - Railways two board memberships in the company.
Amount: N.D.
15
Market Watch
INVESTMENTS (MAY 2008)
INVESTMENTS
May 2008
Private equity investor: Unitus Equity Fund II Unitus Equity Fund II, the second fund of Unitus invested US$ 40 million in
Investee company: Legatum and Omidyar Network Dubai-based Legatum and Omidyar Network. The private equity firm, Unitus is
Sector: Banking & Financial Services - Microfinance focussed on social investment as well as microfinance opportunities and has a
Amount: US$ 40 million notable presence in India. UEF II is anticipated to be investing in growth
oriented MFIs.
Private equity investor: BTS India Private Equity Fund BTS India Private Equity Fund invested around US$ 7 million in Chandigarh-
Investee company: Parabolic Drugs based Parabolic Drugs. The raised investment is expected to be utilised to fund
Sector: Life sciences - Healthcare Pharmaceuticals its next level of growth and largely for significant expansion of capacities for its
Amount: US$ 7 million existing and new products. Yes Bank was the strategic advisor to Parabolic
Drugs for the deal.
Private equity investor: PremjiInvest HealthCare Global (HCG), an oncology care hospital chain, received US$ 20
Investee company: HealthCare Global (HCG) million of investment from a private equity fund, PremjiInvest for an
Sector: Life sciences - Healthcare Delivery undisclosed stake. The fund is sponsored by Azim Premji, who owns Wipro Ltd.
Amount: US$ 20 million The investment is anticipated to help HCG to enlarge its vision of backward
integration in cancer management on a pan-India basis and realise its aim to
make treatment accessible to wider sections through a hub-and-spoke model.
Private equity investor: Norwest Venture Partners A provider of web video contents through mobile phones, Veveo raised US$ 8
Investee company: Veveo million as series-B funding from Norwest Venture Partners. The company plans
Sector: IT/ITES - MVAS to use this investment to offer its mobile video content services in the Indian
Amount: US$ 8 million market, with the launch of its flagship product, vTap.
Private equity investor: Dubai Ventures The Coimbatore-based wind turbine manufacturer, Chiranjeevi Wind Energy
Investee company: Chiranjeevi Wind Energy Ltd (CWEL), sold 40% of its equity for an undisclosed sum, to Dubai Investment
Limited (CWEL) Group, the diversified financial services company of Dubai Holding. Dubai
Sector: Infrastructure - Energy Investment Group made the investment through its subsidiary, Dubai Ventures.
Amount: N.D.
Private equity investor: FirstRand (Ireland) PLC Lizer Cylinders Limited received US$ 10 million investment from South Africa-
Investee company: Lizer Cylinders Limited based Rand Merchant Bank's (RMB) private equity arm, FirstRand (Ireland)
Sector: Technology PLC, a leading foreign private equity investor. Rosewood investment Advisors
Amount: US$ 10 million Pvt. Ltd advised RMB for investments in India. The sole financial advisor to the
company for this transaction was Anand Rathi Financial Services Limited.
Private equity investor: Blackstone, New Vernon Everonn Systems Limited received US$ 42 million from Blackstone, New Vernon
and Reliance and Reliance (part of ADAG) for equity shares. The private equity players
Investee company: Everonn Systems Limited invested around US$ 23 million initially. Apart from this amount invested, the
Sector: Other promoters also channalised US$ 12.5 million towards Everonn Systems Limited,
Amount: US$ 42 million for warrant issues.
Private equity investor: MPM Capital Hyderabad-based contract research firm, Sai Advantium Pharma Limited received
Investee company: Sai Advantium Pharma Limited US$ 20 million from MPM Capital. Mr. William Greene, MD, MPM joined the board
Sector: Life sciences - Healthcare Pharmaceuticals of Sai Adventium. Earlier, Sequoia Capital had also invested in Sai.
Private equity investor: Venrock Associates and The US and India-based power point online sharing company, SlideShare.com
others raised US$ 3 million from venture capital fund, Venrock Associates and a group
Investee company: SlideShare.com of angel investors. The group of angel investors includes Dave McClure, Mark
Sector: Other Cuban and Jonathan Abrams, besides others such as, Ariel Poler, Hal Varian,
Amount: US$ 3 million Yee Lee and Saul Klein.
16
INVESTMENTS
INVESTMENTS (MAY & JUN 2008)

May 2008
Private equity investor: Footprint Ventures, Draper Bangalore-based Canvera received an undisclosed amount of funding from
Fisher Jurvetson, Mumbai Angels and others Footprint Ventures joined by Draper Fisher Jurvetson, Mumbai Angels and a
Investee company: Canvera couple of angels from the UK. Josh Bornstein from Footprint and Mohanjit Jolly
Sector: Other from DFJ joined the board of Canvera, the provider of online/offline services to
Amount: N.D. professional digital photographers.
Private equity investor: Baer Capital Partners and Chennai-based New Horizon Media received an undisclosed investment from
Emergic Venture Capital Beacon India Private Equity Fund, sponsored by Baer Capital Partners. Apart
Investee company: New Horizon Media from this investment, the Chennai-based multi-language, multi-format book
Sector: Other publisher also received funding from its existing promoters and Emergic
Amount: N.D. Venture Capital. The fund is expected to be used to strengthen its sales as well
as distribution network and introduce more files.
June 2008
Private equity investor: Acumen Fund The US-based venture capital fund, Acumen Fund made an investment of US$
Investee company: AyurVaid 1 million in AyurVaid, a group of Ayurveda hospitals. The company is promoted
Sector: Life sciences - Healthcare Delivery by Kochi-based Kerala First Health Services Private Limited and has a long-
Amount: US$ 1 million term strategy to start a chain of 200 Ayuveda centres across India.
Private equity investor: Sequoia Capital The IT products' company, Sat Nav Technologies, secured US$ 7 million in the
Investee company: Sat Nav Technologies first round of venture capital funding from Sequoia Capital. The funds are
Sector: IT/ITES - Information system expected to be utilised to enhance the company's current portfolio as well as
Amount: US$ 7 million add depth to its map content, which is the backbone of all its products.
Private equity investor: D E Shaw D E Shaw, a global private equity firm with US$ 36 billion in investment and
Investee company: UTI Ventures committed capital, picked up 35% stake from UTI Ventures for US$ 31 million.
Sector: Other UTI Ventures is planning to invest US$ 200 million in education sector in India.
Amount: US$ 200 million It is expected to offer e-learning, distant learning, vocational training and so on.
Private equity investor: Sequoia Capital Fund, Genesis Colors, the holding company of designer women's wear, diluted a
Mayfield Fund and Silicon Valley Bank minority stake for US$ 26 million to Sequoia Capital Fund, Mayfield Fund and
Investee company: Genesis Colors Silicon Valley Bank. The funds raised will be used for retail expansion, brand
Sector: Consumer Products & Services building and technology upgradation. The funds are also expected to be
Amount: US$ 26 million deployed for marketing and retailing of its lingerie brand “BWITCH.”
Private equity investor: Goldman Sachs Goldman Sachs acquired a minority stake in Shapoorji Pallonji's arm, Sterling &
Investee company: Sterling & Wilson Wilson for over US$ 47 million. The company is expected to expand its operations
Sector: Infrastructure domestically as well as internationally. Post acquisition, Shapoorji Pallonji owns
Amount: US$ 47 million 51% stake in the company. The key areas of development are infrastructure
activities such as, engineering, design, housing, hospitals and so on.
Private equity investor: Bennett, Coleman & Bennett, Coleman & Company Limited (BCCL) acquired stake in travel
Company Limited company, Culture Holidays, which owns travelchacha.com and offers travel
Investee company: Culture Holidays and tourism services. It is an inbound travel company and mainly offers service
Sector: Tourism to foreign travellers to India. Currently, the company's business module is
Amount: N.D based on B2C, but it is expected to launch its B2B model in the travel segment.
Private equity investor: Bennett, Coleman & Bennett, Coleman & Company Limited (BCCL) acquired an undisclosed stake in
Company Limited a pharmaceutical company called Panjon Pharma, the manufacturer of third
Investee company: Panjon Pharma generation antibiotics, nutraceuticals, gastroenterology, gynecology and RTI
Sector: Life sciences - Healthcare Pharmaceuticals segments, with focus on nutraceuticals. The company is expected to expand its
Amount: N.D business into the consumer healthcare segment by setting up a plant in
Dehradun.
Private equity investor: Motilal Oswal Fund Motilal Oswal Fund invested US$ 9 million in Dixon Technologies to enable the
Investee company: Dixon Technologies consumer durable manufacturing company to expand its business through
Sector: IT increasing production facilities and set up a new unit. The funds are expected
Amount: US$ 9 million to be used for the expansion of its existing manufacturing capacities.
17
Market Watch
INVESTMENTS (JUN 2008)
INVESTMENTS
June 2008
Private equity investor: Kalpathi Investments Limited The venture funding company, Kalpathi Investments Limited invested US$ 89
Investee company: EdServ Softssystems Limited million for the growth of EdServ SoftSystems. The company, a 4th generation
Sector: IT/ITES - Information system technology manufacturer that is based on web learning, IT consulting and
Amount: US$ 89 million resource deployment, is planning to enter the capital market, with an IPO of US$
96 million.
Private equity investor: Warburg Pincus Warburg Pincus, the global private equity firm, picked up 15% stake in Laqshya
Investee company: Laqshya Media Media for US$ 64 million. Laqshya Media, an outdoor media advertising
Sector: Media company, offers full service OOH (out-of-home). Following this infusion of
Amount: US$ 64 million funds, the company intends to invest in world class media assets, focussing on
top cities and infrastructure projects such as, airports, transit systems, modern
bus queue shelters and pedestrian bridges. UTI Venture is another investor in
the company with US$ 10 million.
Private equity investor: PHI Advisors Mahindra & Mahindra's used car business, First Choice sold 10% stake to PHI
Investee company: Mahindra & Mahindra Advisors for around US$ 19 million, which is an India-based PE fund. The
Sector: Automobile purpose behind selling its stake was to expand its multi-brand used car
Amount: US$ 19 million business and to unlock shareholder value by introducing superstone multi-
brand car concept.
Private equity investor: Actis Bangalore-based real estate developer, Vaishnavi Infrastructures received an
Investee company: Vaishnavi Infrastructures investment of US$ 25 million from private equity investor, Actis. This is the first
Sector: Automobile investment by the US$ 300 million Actis India Real Estate Fund, which is
Amount: US$ 25 million sponsored by Actis. The purpose behind raising the funds was Vaishnavi's
project involving the construction and development of approximately 925,000
square feet of high-end residential and retail space at Yeshwantpur, Bangalore.
Private equity investor: Takamul Investments Takamul Investments, the venture capital arm of Oman Government, entered
Investee company: Oman's Sohar Industrial Estate into a joint venture agreement with Bangalore-based company, Future Metals,
Sector: Aluminum to set up a new aluminium rod extrusion plant at Oman's Sohar Industrial
Amount: N.D. Estate. Following the agreement, Future Metals is expected to have 70% stake
in the joint venture.
Private equity investor: Frontline Strategy's India Shriram SEPL Composites, a joint venture of Shriram EPC and Strategic
Industrial Growth Fund Engineering, sold 26% stake to Frontline Strategy's India Industrial Growth
Investee company: Shriram SEPL Composites Fund (IIG). This marks the first investment from the SME-specific IIG Fund.
Sector: SME Shriram SEPL is planning to manufacture next-generation glass fibre plastic
Amount: N.D. pipes.
Private equity investor: Reliance Technology Pelago, a Seattle-based company has received an undisclosed amount of
Ventures Limited (RTVL) investment from Reliance Technology Ventures Limited (RTVL). RTVL, the
Investee company: Pelago corporate venture capital of ADAG is a wholly-owned subsidiary of Reliance
Sector: Technology Capital Limited.
Amount: N.D.
Private equity investor: Zephyr Peacock India Fund Zephyr Peacock India Fund (ZP), an India focussed private equity fund, invested
Investee company: Miles Software Solutions an undisclosed amount in Miles Software Solutions, a Mumbai-based software
development company. The firm has developed software products for the
financial services industry.
18
INVESTMENTS
INVESTMENTS (JUL 2008)

July 2008
Private equity investor: Eredene Capital The infrastructure arm of Kolkata-based Apeejay Surendra Group, Apeejay
Investee company: Apeejay Infra-Logistics Infra-Logistics (AILPL) sold 50% stake to UK-based Eredene Capital for US$ 10
Sector: Infrastructure million. The private equity firm invested in infrastructure projects as well as in
Amount: US$ 10 million real estate development across India. It focusses on logistics, distribution of
warehouses and port services.
Private equity investor: ChrysCapital The auto components company, Amtek Auto offloaded close to 7% stake to
Investee company: Amtek Auto ChrysCapital for US$ 53 million, through open market purchases. The company
Sector: Manufacturing - Automobile has facilities to manufacture sub-assemblies, iron, gravity and aluminium
Amount: US$ 53 million castings, forging, complex machining as well as ring gears flywheel assembly.
Today, Amtek Auto has a market capitalisation of US$ 764 million.
Private equity investor: Bennett, Coleman & Bennett, Coleman & Company Limited (BCCL) invested in First Altus Resources
Company Limited and Networks, the owners of online income tax return preparation software,
Investee company: First Altus Resources and www.taxshax.com. The contours of the deal were undisclosed.
Networks
Sector: IT/ITES - Software
Amount: N.D.
Private equity investor: Bennett, Coleman & The Clinic, an association of allopathic practitioners, sold an undisclosed stake
Company Limited to Bennett, Coleman & Company Limited (BCCL). The Clinic provides consistent
Investee company: The Clinic services to patients through a network of back-end partners. The focus behind
Sector: Life sciences - Healthcare Delivery raising the funds is to create cost-effective, qualitative health benefits with the
Amount: N.D. help of qualified doctors and a chain of vendors, interested in this sector. The
company expects to expand its operations by opening as many as 10,000
clinics over the next 2-3 years.
Private equity investor: Axis PE Axis PE, the private equity arm of Axis Bank, invested US$ 14 million in
Investee company: Vishwa Infrastructure & Services Hyderabad-based Vishwa Infrastructures & Services through its infrastructure
Sector: Infrastructure fund. Their main focus is to invest in companies that focus on specialised
Amount: US$ 14 million infrastructure projects requiring technology expertise.
Private equity investor: Jacob Ballas Themis Laboratories Private Ltd, one of the leading drug delivery systems (DDS)
Investee company: Themis Laboratories Private companies in India, provides a range of effective solutions to optimise the
Limited delivery of pharmaceutical products sold minority stake to Mauritius-based
Sector: Life sciences - Healthcare Pharmaceuticals private equity fund, New York Life Investment Management, Jacob Ballas Fund.
Amount: N.D. The funds are expected to be used to expand its business in the American and
European markets.
Private equity investor: AB Group Arm Aditya Birla group private equity arm acquired 25% stake in V Mart Retail.
Investee company: V Mart Retail Promoted by Lalit Agrawal, V Mart Retail caters to the middle and lower-middle
Sector: Textile & Clothing segment of the retail market and its major income is from its apparel business.
Amount: N.D. It mainly focusses on II/III tier-cities that work for the welfare of the society.
Private equity investor: ChrysCapital Private equity major, ChrysCapital acquired around 5% stake in HCL
Investee company: HCL, Infosys Technologies for US$ 220 million and slightly more than 1% in Infosys for US$
Sector: IT/ITES - Technology 200 million. ChrysCapital is looking at opportunities in the secondary market.
Private equity investor: Eastgate Capital Group Eastgate Capital Group, a Dubai-based private equity firm, bought 15% stake in
Investee company: Avendus Capital Avendus Capital, a financial services firm. This is Eastgate's first investment in
Sector: Banking & Financial Services - Investment the country. Its main focus is on consumer-centric sectors in the emerging
Banking markets-consumer goods, retail healthcare and also certain aspects of
Amount: N.D. financial services. These sectors are expected to benefit from the growth in the
middle income segments of these economies.
Private equity investor: GE Commercial Finance Controls & Switchgear Company Limited (C&S), a leading Indian manufacturer
India of power management products, raised US$ 23 million private equity funding
Investee company: Controls & Switchgear Company from GE Commercial Finance India. The company is anticipated to use these
Limited funds towards its plans for capacity expansions, strengthening its R&D
Sector: Banking & Financial Services - Investment credentials and pursuing inorganic growth opportunities.
Banking
19
Market Watch
INVESTMENTS
July 2008
Private equity investor: Ridgeway Capital Partners Daiwa Securities Group, Daiwa Securities SMBC Principal Investments
and India Knowledge Fund Company, SBI CAPS and private equity players, Ridgeway Capital Partners and
Investee company: Soma Networks India Knowledge Fund invested US$ 51 million in Soma Networks, the mobile
Sector: IT/ITES - MVAS WIMAX products and professional services provider. The purpose of the
Amount: US$ 51 million investment was to expand its international operations and deployments,
including the ongoing support of the industry's largest WiMAX network with
Bharat Sanchar Nigam Limited (BSNL).
Private equity investor: JP Morgan Chase The global financial services firm, JP Morgan Chase purchased 33% stake in
Investee company: Alok Infra SPV Mumbai-based Alok Infra SPV, a realty company for US$ 30 million. The funds
Sector: Infrastructure are raised to develop a realty project at a prime location in Mumbai.
Private equity investor: Sequoia Capital and Private equity players, Sequoia Capital and LightSpeed Venture Partners,
LightSpeed Venture Partners invested US$ 18 million in TutorVista.com, the consumer online education
Investee company: TutorVista.com services company. The funds are raised to support its expansion into a hybrid
Sector: IT/ITES - E-Learning (online-offline) education model. The company plans to take its Edurite Tutorial
Amount: US$ 18 million brand forward by standardising education across geographies.
Private equity investor: Bennett, Coleman & Bennett, Coleman & Company Limited (BCCL) picked up an undisclosed stake
Company Limited for US$ 0.32 million in Lotus Eye Care Hospital in a pre-IPO placement. Lotus
Investee company: Lotus Eye Care Hospital Eye Care Hospital had sold 2.55 lakh shares of Rs. 10 each at a price of Rs. 50
Sector: Life sciences - Healthcare Delivery each. The company proposes to enter the capital market with a public issue of
Amount: US$ 0.32 million US$ 10.5 million.
Private equity investor: DE Shaw DE Shaw, a private equity major invested US$ 158 million in Noida-based
Investee company: International Amusement International Amusement Ltd (IAL), the promoters of Appu Ghar. IAL had issued
Limited (IAL) a convertible instrument to the investor. Enam Securities was the sole advisor to
Sector: Other the investment. The company plans to utilise the funds for its 350-acre Jaipur
Amount: US$ 158 million amusement park and some other ongoing projects.
Private equity investor: SIDBI Venture Fund SIDBI Venture Fund invested US$ 8 million in Chennai-based Anabond Limited,
Investee company: Anabond Limited through its SIDBI Growth Fund (SGF). Anabond is planning to utilise a major
Sector: Manufacturing - Metals part of the funding for the green field project for manufacturing Tantalum metal
Amount: US$ 8 million and its allied products. The rest of the corpus is expected to be directed for the
growth and expansion plans of the adhesive segment.
Private equity investor: ICICI Venture Funds PVR's wholly owned subsidiary, PVR Pictures raised US$ 30 million from ICICI
Management Company and JPMorgan Global Venture Funds Management Company and JPMorgan Global Special
Special Opportunities Group Opportunities Group, one of JPMorgan Chase Bank's private equity arm.
Investee company: PVR Pictures
Sector: Media & Entertainment
Private equity investor: HDFC Property Fund HDFC Property Fund raised US$ 750 million through international investors,
Investee company: ACME Group gaining a stake of 50% in ACME Group's housing project in Thane. The fund
Sector: Infrastructure has been raised to develop an eco-township. ACME group expects the project to
Amount: US$ 750 million reach completion in four years.
20
INVESTMENTS

July 2008
Private equity investor: Mayfield Fund, Kleiner PayMate India, the mobile payments solutions provider, raised US$ 9 million in
Perkins Caufield & Buyers and Sherpalo Ventures the second round of funding from private equity players - Mayfield Fund,
Investee company: ACME Group Kleiner Perkins Caufield & Buyers and Sherpalo Ventures, for an undisclosed
Sector: IT/ITES - MVAS stake.
Private equity investor: Axis Bank Axis Bank's private equity arm invested US$ 36 million in the hospitality sector.
Investee company: Neesa Leisure Limited and The transaction includes investments of US$ 18.75 million in Neesa Leisure
Corrtech International Private Limited Limited and US$ 16.75 million in Corrtech International Pvt Limited.
Sector: Travel & Hospitality
Private equity investor: SIDBI Venture Capital SIDBI Venture Capital Limited invested US$ 8 million for a minority stake in
Limited Mumbai-based, Centaur Group. The group consists of Centaur Chemicals and
Investee company: Centaur Group Centaur Pharmaceuticals.
Sector: Travel & Hospitality - Hotels & Resorts
Private equity investor: Lehman Brothers Unitech Limited received US$ 188 million from Lehman Brothers for its 97 acre
Investee company: Unitech Limited project in Koliwada, Santacruz. The leading real estate developer has formed
Sector: Infrastructure 50:50 joint venture with Pune-based Rohan Group for the massive commercial
Amount: US$ 188 million cum residential development, costing US$ 500 million. Unitech has invested
US$ 125 million in the joint venture.
NEW FUNDS (JAN & FEB 2008)

NEW FUNDS
January 2008
Private equity investor: Red Fort Capital Advisors Red Fort Capital Advisors Pvt Ltd, a real estate focussed private equity investor
Pvt Limited plans to launch a US$ 250 million domestic fund, which will buy land in key
Fund: N.D. cities across India. Red Fort is looking to raise the corpus from high networth
Sector: Other individuals, corporates, trusts and institutions in India. The fund could either
Amount: US$ 250 million look at selling the land assets to realise their turn on investment or it could look
at partnering with a real estate developer to develop the land parcels.
Private equity investor: Motilal Oswal Venture Motilal Oswal Venture Capital Advisors Pvt. Ltd, a subsidiary of Motilal Oswal
Capital Advisors Pvt. Limited Financial Services Ltd, closed its fund-raising at US$ 125 million for its India
Investee company: India Business Excellence Fund Business Excellence Fund - crossing 25% more than the expected target. The
Sector: SME fund is expected to invest US$ 3-10 million in small and medium sized firms
Amount: US$ 125 million that are public, about to go public or expanding over three-five years.
February 2008
Private equity investor: Future Capital Holdings Future Capital Holdings, a subsidiary of Future Group, has launched a logistics
Fund: Logistics fund. The fund is expected to invest US$ 70 million and US$ 1 billion to set up
Sector: Infrastructure warehouses across India's seven key metros within a couple years. The fund is
Amount: US$ 350 million planning to raise US$ 350 million in equity and the remainder in debt.
Private equity investor: Kotak Investment Advisors The alternate asset company and a subsidiary of Kotak Mahindra Bank, Kotak
Fund: Infrastructure Investment Advisors is on its way to launch a new infrastructure fund. The fund
Sector: Infrastructure is expected to focus on verticals such as, roads, ports, airports and power.
Amount: N.D.
Private equity investor: ICICI Venture ICICI Venture, the largest home grown private equity firm, is launching a US$ 3
Fund: N.D. billion infrastructure fund to invest in road, port and power projects in country.
Sector: Infrastructure ICICI Venture will raise money from domestic and institutional investors.
Amount: US$ 3 billion
21
Market Watch
NEW FUNDS (FEB & MAR 2008)
NEW FUNDS
February 2008
Private equity investor: Pragnya Pragnya, a Mauritius-based private equity fund, focussed on the real estate
Fund: N.D. market in India, plans to launch a US$ 150 million Pragnya Fund 2 in the next
Sector: Other few months. The fund will invest in realty and hospitality projects particularly in
Amount: US$ 150 million South.
Private equity investor: Clear Trade Clear Trade, a US-based private equity firm, has floated a US$ 12 billion fund in
Fund: Clear Investments Power Infrastructure Fund association with leading US private equity companies. Known as Clear
Sector: Infrastructure - Power Generation Investments Power Infrastructure Fund, it is expected to exclusively invest in
Amount: US$ 12 billion upcoming power and infrastructure projects, over a five year period.
Private equity investor: SBI Capital Markets SBI Capital Markets, a subsidiary of State Bank of India, is planning to set up an
Fund: N.D. US$ 100 million venture capital fund. SBI Capital Markets has already entered into
Sector: Other 50:50 joint venture with Softbank Investment Holdings Inc of Japan. The India
Amount: US$ 100 million Knowledge Fund will target specific sectors in India including IT, KPO, Clinical
Research Outsourcing, Nanotechnology, Online and Mobile Businesses,
Environmental Technology and Alternative Technology. The fund is expected to
invest primarily in unlisted, high growth companies through initial commitments
ranging from US$ 3-10 million.
Private equity investor: Millennium Spire Millennium Spire, a real estate investment fund, is expected to invest US$ 1
Fund: N.D. billion in the real estate opportunities in India. The company envisages a pan-
Sector: Real Estate India investment plan in excess of US$ 1 billion over a period of time, with a
Amount: US$ 1 billion clear focus on South India and other key geographies. The plan will also include
National Capital Region (NCR). The company will not invest in land, but fund
the development on a partnership basis.
March 2008
Private equity investor: Religare Enterprises Religare Enterprises Limited, the publicly traded brokerage arm of drug maker,
Limited Ranbaxy Laboratories Limited, in association with the film production
Fund: N.D. company, Vistaar Entertainment Ventures, launched India's first regulated film
Sector: Media & Entertainment - Production House fund -Vistaar Religare Film Fund (VRFF). The fund is expected to be sold through
Amount: N.D. Religare's existing channels. It is planning to produce films in both, Hindi as
well as regional languages.
Private equity investor: Subhkam Ventures Private equity company, Subhkam Ventures, is slated to launch its first domestic
Fund: N.D. formal fund, having an estimated corpus of US$ 100-125 million. The fund is
Sector: N.D. expected to be utilised over a period of six months to a year. The focus areas of
Amount: US$ 100-125 million the fund include power and ancillary infrastructure projects.
Private equity investor: ePlanet Ventures California-based venture capital company, ePlanet Ventures is expected to
Fund: N.D. complete raising its first solo fund with a target of US$ 500 million. This fund
Sector: N.D. plans to target growth stage and late stage deals, with the sector focus on retail,
Amount: US$ 500 million education, healthcare and consumer-driven businesses. ePlanet Ventures also
invests as an affiliate fund with Draper Fisher Jurvetson (DFJ) since 1999.
Private equity investor: Larsen & Toubro Larsen & Toubro, the diversified engineering IT Company, has announced plans
Fund: N.D. to enter the Indian private equity space with its US$ 1 billion-plus fund,
Sector: IT targeting real estate related infrastructure projects. Infrastructure Development
Amount: US$ 1 billion Projects (L&T IDPL), a subsidiary of L&T is expected to make investments of
about US$ 200 million in the fund.
22
NEW FUNDS
NEW FUNDS (MAR & APR 2008)

March 2008
Private equity investor: Soros, Google, Omidyar The Soros Economic Development Fund (SEDF), Omidyar Network and
Network Google.org have come together to create a US$ 17 million investment
Fund: Soros Economic Development Fund (SEDF) company, focussing on India. This joint investment company, known as, Soros
Sector: SME Economic Development Fund (SEDF) is expected to provide capital to small and
Amount: US$ 17 million medium businesses in underserved markets. The investment company is
anticipated to hire an experienced investment advisor and two experienced
senior investment analysts, based in India, to recommend and build the
pipeline of portfolio investments.
Private equity investor: Helion Venture Partners Bangalore-based Helion Venture Partners, focussing on early-stage businesses
Fund: N.D. has raised its second fund. The company is now looking at expanding its focus
Sector: Technology beyond technology powered businesses. Helion invests in companies running
Amount: US$ 210 million businesses in the Internet, wireless and outsourced services space. The focus of
its new funds is towards its outsourcing, internet, mobile, technology products,
retail services, education and financial services.
Private equity investor: Quantum Equity Advisors Quantum Equity Advisors has launched a US$ 500 million private equity fund
Fund: N.D. focussed on Indian infrastructure. Quantum Equity is looking at targeting
Sector: Infrastructure Indian infrastructure projects and companies.
Private equity investor: Red Fort Capital Red Fort Capital, the investment manager of Cayman Islands-based Red Fort
Fund: Red Fort India Real Estate Fund II India Real Estate Fund I, is planning to launch Red Fort India Real Estate Fund
Sector: Real Estate II, a second offshore fund next month with a corpus of US$ 800 million to invest
Amount: US$ 800 million in Indian real estate. The Foreign Investment Promotion Board (FIPB) had
rejected a proposal by Red Fort India Land and Realty Fund to bring
investments from offshore corporate entities owned by non-resident Indians
(NRIs) into its US$ 250 million domestic fund.
April 2008
Private equity investor: Kotak Investment Advisors Kotak Investment Advisors Limited (KIAL), a subsidiary of Kotak Mahindra
Limited (KIAL) Bank, closed its third private equity fund - Kotak India Growth Fund II, with a
Fund: Kotak India Growth Fund II total corpus of US$ 440 million.
Sector: Other
Private equity investor: UTI Asset Management The country's leading fund house, UTI Asset Management Company, has
Company entered the private equity market by setting up a US$ 600 million PE fund. The
Fund: N.D. company joined hands with HSH Nord Bank of Germany and Shinsei Bank of
Sector: Infrastructure Japan. The corpus is expected to focus on the infrastructure sector. The three
Amount: US$ 600 million partners have committed US$ 25 million each, towards the fund and the rest is
planned to be raised over the following two years.
Private equity investor: Lok Capital LLC An India focussed microfinance venture capital fund, Lok Capital LLC has
Fund: N.D. increased its fund size by about 80% to US$ 22 million. This will be the final
Sector: Banking & Financial Services - Microfinance close of the first fund having an investment period of four years. Prior to this,
Amount: US$ 22 million institutional investors such as, CDC, FMO, KFW and IFC contributed to the fund.
Private equity investor: Gujarat Venture Fund Gujarat Venture Fund Limited (GVFL) has raised US$ 15 million for its SME-
Limited Technology Venture Fund. The fund is expected to be utilised within a year for
Fund: SME-Technology Venture Fund various projects of both, small and medium technology companies. The
Sector: IT investment size for each project is anticipated to range between US$ 1.25
Amount: US$ 15 million million to US$ 3.75 million.
Private equity investor: Nomura Holdings Inc. Japan's largest securities firm, Nomura Holdings Inc., plans to raise as much as
Fund: N.D. US$ 495 million to invest in private equity funds focussed on the Asia-Pacific
Sector: Infrastructure region and it will start operating in October. This will include funds that invest in
Amount: US$ 495 million public infrastructure and retail companies in India.
23
Market Watch
NEW FUNDS (APR & MAY 2008)
NEW FUNDS
April, 2008
Private equity investor: Merrill Lynch & Co. Inc. Merrill Lynch & Co. Inc. is raising about US$ 3 billion for a property fund, focussed
Fund: N.D. on Asia. The fund is expected to be utilised to invest in real estate in places, such as
Sector: Real Estate Japan, Australia, India and other parts of Asia. Merrill Lynch is also planning to set
Amount: US$ 3 billion up other funds for infrastructure, real-estate and private equity for Asia.
Private equity investor: Squadron Capital Squadron Capital, an affiliate of Hong Kong's Search Investment Group is
Fund: N.D. launching a fund of US$ 400 million this year to invest in private equity funds in
Sector: General Asia. This fund of funds is expected to be launched in May and will particularly
Amount: US$ 400 million target India and China. Squadron has raised investment from endowments,
family offices and other institutional investors, including the San Francisco
Employees' Retirement System.
Private equity investor: 3i Group PLC 3i Group Plc, UK-based private equity major has raised a corpus, 20% higher
Fund: 3i India Infrastructure Fund than its initial target of US$ 1 billion for its 3i India Infrastructure Fund. The US$
Sector: Infrastructure 1.2 billion fund has received commitments from 16 investors, across ten
Amount: US$ 1 billion countries, each of them contributing US$ 250 million to the fund. 3i
Infrastructure Limited and 3i have made the largest investments to the fund.
Private equity investor: Global Healthcare US-based, Global Healthcare Investments and Solutions (GHIS), is planning to
Investments and Solutions (GHIS) raise a US$ 500 million fund solely dedicated to the booming Indian healthcare
Fund: N.D. industry. The fund is eyeing companies providing hospital services, including
Sector: Life sciences - Healthcare Delivery diagnostics, radiotherapy, wellness, health insurance and loyalty programmes.
May 2008
Private equity investor: Azim Premji Wipro chairman, Azim Premji has announced plans to launch a PE fund with a
Fund: N.D. corpus of around US$ 1 billion. The India focussed fund is expected to invest
Sector: Other across different sectors. Mr. Sudip Banerjee will be handling this investment
Amount: US$ 1 billion arm. He is expected to raise funds for this purpose from outside investors.
Private equity investor: Rabobank The Netherlands-based financial institution, Rabobank plans to set up a US$ 100
Fund: N.D. million private equity fund in India, with a focus on the agriculture value chain.
Sector: Other This fund is looking at investing in small and medium-sized companies. The size of
Amount: US$ 100 million the deal is expected to be in the range of US$ 3 to 10 million per transaction.
Private equity investor: Warburg Pincus The global private equity firm, Warburg Pincus has closed Warburg Pincus
Fund: Warburg Pincus Private Equity X, L.P. (WP X) Private Equity X, L.P. (WP X) US$15 billion fund. Sectors forming the focus of this
Sector: Other fund include financial services, healthcare, industrial, technology, media and
Amount: US$ 15 billion telecommunications, energy, consumer, retail and real estate.
Private equity investor: Motilal Oswal Ventures The India Business Excellence Fund of Motilal Oswal Ventures Capital Advisors
Capital Advisors has planned to make investments in 10-12 companies by the end of 2008. This
Fund: India Business Excellence Fund growth stage fund is expected to invest across all sectors, except retail and real
Sector: Real Estate estate. The fund closed on December 2007 and has a corpus of US$ 125 million.
Private equity investor: UTI International UTI International, in association with Shinsei Bank, a leading Japanese
Fund: N.D. commercial bank and HSH Nordbank, a German Bank specialising in financial
Sector: Banking & Financial Services services for the transportation sector, has set up a corpus of US$ 600 million for
Amount: US$ 600 million private equity investments in infrastructure companies and projects across India.
UTI International is a subsidiary of UTI Asset Management Company Limited.
24
NEW FUNDS
NEW FUNDS (MAY & JUN 2008)

May 2008
Private equity investor: Lighthouse Funds LLC Lighthouse Funds LLC has launched the India 2020 Opportunity Fund, during
Fund: India 2020 Opportunity Fund the second India-Oman Business Forum, organised by the Indian Embassy. It is
Sector: Other a Mauritius-based fund focussing on the robust, lower middle market segment.
Amount: N.D. The US and Mumbai-based investment firm, Lighthouse Fund specialises in
providing long-term, active capital to small and mid-sized companies.
Private equity investor: Lehman Brothers Lehman Brothers is planning to launch two funds in Asia, Greater China Equity
Fund: N.D. and an India real-estate fund. Currently, Lehman Brothers Private Equity
Sector: Other invests in merchant banking, venture capital, real estate, credit related
Amount: N.D. investments, infrastructure and private fund investments.
Private equity investor: Sandalwood Partners An early stage venture capital firm, Sandalwood Partners is set to raise US$ 350
Fund: N.D. million to launch a new fund in late 2009. Sandalwood is already operating
Sector: N.D. US$ 120 million as its first fund. The new fund is expected to be sector agnostic,
Amount: US$ 350 million targeting early-stage investment opportunities, across different industries.
Typically, the firm invests around US$ 10 million in an enterprise.
Private equity investor: State Bank of India (SBI) The nation's largest lender, The State Bank of India (SBI) is soon to tie up with
Fund: N.D. the country's second biggest publicly traded real estate company, an affiliate of
Sector: N.D. Unitech Limited, to launch a private equity (PE) real estate fund. The initial
Amount: N.D. investment amount is undecided. Earlier, the State Bank of India (SBI) launched
a US$ 2 billion infrastructure fund with Australia's Macquarie Group.
Private equity investor: Franklin Templeton Real US-based Franklin Templeton Real Estate Advisors is expected to launch a fund
Estate Advisors of funds for the Asian opportunity. Franklin Templeton has US$ 4 billion worth
Fund: N.D. of assets under management across three fund of funds and another US$ 2
Sector: Infrastructure billion in other funds that invest in property securities.
Amount: N.D.
Private equity investor: Baring Private Equity Asia Baring Private Equity Asia has raised around US$ 1.52 billion for a fund to
Fund: N.D. target mid-sized growth companies in the region. The new vehicle is expected
Sector: Other to focus on alternative energy, media, financial services, consumer and
Amount: US$ 1.52 billion industrial sectors for their investments. The investors to the new fund include
the Ontario Municipal Employees Retirement System (OMERS), Partners Group,
University of Texas Endowment, Universities Super Annuation Scheme of the
UK and Goldman Sachs Asset Management.
Private equity investor: Morgan Stanley Morgan Stanley has announced the closure of its fund, Morgan Stanley
Fund: Morgan Stanley Infrastructure Partners (MSIP) Infrastructure Partners (MSIP). The corpus of the fund is US$ 4 billion, which is
Sector: Infrastructure more than their initial target of US$ 2.5 billion. The capital for the fund is raised
Amount: US$ 4 billion from North America, Europe, Australia, the Middle East and Asia. Investors to
the fund are major pension funds, insurance companies, high net worth
individuals (HNIs) as well as Morgan Stanley and its employees.
Private equity investor: Lightspeed Venture Lightspeed Venture Partners recently announced the closure of its US$ 800
Partners million Lightspeed VIII Fund. With this fund, the firm intends to focus on multi-
Fund: Lightspeed VIII Fund stage companies in India and China and early-stage technology investments in
Sector: Technology Israel and the US. With a global investment horizon, Lightspeed's interest in
Amount: US$ 800 million India includes technology-led opportunities, as well as non-technology
businesses stemming from the strong growth in domestic consumption and
infrastructure development.
June 2008
Private equity investor: ING Group Dutch financial services conglomerate, ING Group is planning to buy an equity
Fund: ING Group firm in India for the welfare of small and medium enterprises. The company is
Sector: N.D. looking at investing in US-based investment bank, Lazard's proposed US$ 300
Amount: US$ 300 million million India-focussed PE fund.
Private equity investor: SBI, Macquarie and IFC India's biggest lender, State Bank of India (SBI) is considering the launch of
Fund: Infrastructure Fund various equity funds and mobile telephone-based services. SBI is planning to
Sector: Banking float a private equity firm along with Macquarie and IFC to launch an
Amount: N.D. infrastructure fund.
25
Market Watch
NEW FUNDS (JUN 2008)
NEW FUNDS
June, 2008
Private equity investor: India Rising Fund India Rising Fund is the first and the only SEBI registered venture fund for small
Fund: N.D. and medium enterprises making defence equipments. It has plans to raise US$
Sector: Defence 130 million through foreign investors. It has expectations of profit of over 70%
Amount: US$ 130 million by 2010.
Private equity investor: State Bank of India State Bank of India (SBI) is in the process of setting up a fund for the welfare of
Fund: N.D the SMEs. The public sector bank is expected to hold 20% stake in the fund and
Sector: SME the balance will be given to the private equity. The fund is being raised to bring
Amount: N.D in incentive schemes for the employees.
Private equity investor: Frasers Hospitality Singapore-based Frasers Hospitality, Asia's biggest serviced apartment
Fund: N.D operator, is planning to set a private equity fund to invest in China, India and
Sector: Housing Southeast Asia. The funds are anticipated to be raised for new developments in
Amount: N.D the housing sector. The motive behind setting up funds in these two countries is
that, according to Frasers, while the world is facing fears of recession, China
and India are expected to continue growing.
Private equity investor: Inventus Capital Partners Inventus Capital Partners has launched its first US$ 125 million for investments
Fund: N.D in India. It is promoted by Silicon Valley angel investor and founder of The Indus
Sector: IT Entrepreneurs (TiE), Kanwal Rekhi. The fund are expected to primarily focus on
Amount: US$ 125 million early stage technology companies, addressing global and local markets. It is
also expected to invest in businesses such as, consumer, internet and media,
mobile services, embedded software, IT and its services.
Private equity investor: SS Venture Service India Knowledge Fund, managed by SS Venture Service, has initiated the
Fund: India Knowledge Fund process of fund allocation. The company has signed a deal with Mumbai-
Sector: IT/ITES - KPO based, Aptiva Consulting that provides risk management consulting and
Amount: US$ 125 million implementation solutions. It is also in negotiations with a technology company
as well as a life sciences firm. SBI Capital Markets and SBI Holdings Japan
together contributed US$ 100 million towards SS Venture Service. The fund is
expected to be invested only in knowledge-driven companies that have a good
track record and a huge potential.
Private equity investor: IFCI Venture Capital Funds IFCI Venture Capital Funds Limited has launched three funds amounting to US$
Limited 232 million for investments in the auto, knowledge and clean technology
Fund:India Automotive Component Manufacturers projects. The funds include the India Automotive Component Manufacturers PE
PE Fund, Green Venture Fund and India Enterprise Fund, with a target of US$ 92 million; the US$ 8 million Green Venture Fund as
Development Fund well as the US$ 6 million India Enterprise Development Fund to invest in
Sector: Auto, KPO and Infrastructure - Clean Energy knowledge-based projects.
Private equity investor: SIDBI The venture capital arm of Small Industries Development Bank of India (SIDBI),
Fund: N.D SIDBI Venture Capital Fund (SVCL) is looking at launching its third fund. This
Sector: Banking & Financial Services fund is expected to invest in early and growth stage companies across various
Amount: US$ 125 million verticals. SVCL has launched more funds, during the current fiscal.
Private equity investor: National Bank of Kuwait National Bank of Kuwait is setting up its first India focussed PE fund, which will
Fund: N.D be a fund of funds, promoted amongst its private banking clients across the
Sector: Banking & Financial Services region. This is expected to be a close-ended fund of 10 years, with a minimum
Amount: N.D ticket size of US$ 500,000.
26
NEW FUNDS
NEW FUNDS (JUL 2008)

July 2008
Private equity investor: Jacob Ballas Capital India Jacob Ballas Capital India, a non-banking finance company, is planning to
Fund: N.D. launch US$ 500 million private equity fund. The fund is expected to be
Sector: Infrastructure, IT/BPO, Textiles, focussing on infrastructure, IT/BPO, textiles, pharmaceuticals and the financial
Pharmaceuticals and Financial Services services sector in India. Currently, the company serves as an advisor to three
Amount: US$ 500 million India-focussed private equity funds and manages a total of US$ 445 million.
Private equity investor: DLF DLF, India's largest real estate firm, is planning to set up US$ 197 million
Fund: N.D. venture capital fund for investments in small companies that will manage
Sector: Infrastructure equipment, construction material and manpower. This measure is a step
Amount: US$ 197 million towards ensuring faster execution of the projects undertaken by DLF.
Private equity investor: Ozone Capital Advisors Pvt Investment bank Ozone Capital Advisors Pvt. Limited is considering the launch
Limited of a media inventory based fund that will offer advertising space from India's
Fund: N.D. media firms against equity stakes in small, growing companies. The company
Sector: Media & Entertainment - Radio, OOH intends to raise an estimated US$ 300 million worth of advertising space from
Advertising about 15 media houses in India across print, broadcast, radio and outdoor
Amount: US$ 300 million advertising, in its first round.
Private equity investor: Cinema Capital Venture

Fund India's first regulated entertainment venture capital fund, Cinema Capital
Fund: N.D. Venture Fund, (CCVF) with a corpus of US$ 125-175 million, is expected to be
Sector: Media & Entertainment launched shortly. The fund is anticipated to be a close-ended fund.
Amount: US$ 125-175 million
Private equity investor: Kotak Investment Advisors Kotak Investment Advisors (KIAL) is planning to launch US$ 1 billion
Fund: Infrastructure Fund infrastructure fund. For this fund they are also planning to tie up with global
Sector: Infrastructure players. Kotak Investment Advisors (KIAL) is expecting to raise funds from
Amount: US$ 1 billion overseas markets for its private equity and real estate funds. The fund plans to
get its first close by the end of 2008 or early 2009.
Private equity investor: Gaja Capital Partners Mumbai-based private equity firm Gaja Capital Partners has announced the
Fund: Gaja Capital Fund I launch of Gaja Capital Fund I. The fund is expected to make equity and equity-
Sector: Other related investments in high growth, India-focussed companies. The targeted
Amount: US$ 200 million corpus of the fund is of US$ 200 million and the investments will range
between US$ 5-15 million in the services and manufacturing sectors. The
International Finance Corporation has committed around US$ 15 million for
the fund.
Private equity investor: India Equity Partners India Equity Partners (IEP), India focussed private equity fund, plans to raise a
Fund: N.D corpus of around US$ 1 billion next year for investment in India. The fund is
Sector: Other expected to target the sectors such as, financial services, education, media and
Amount: US$ 1 billion infrastructure, from the long-term growth perspective.
Private equity investor: SIDBI SIDBI Venture Capital promoted by R.M. Malla is planning to launch US$ 232
Fund: N.D. million fund. This fund is expected to be focussing on the auto components,
Sector: SME food processing and agricultural products with respect to small and medium
Amount: US$ 232 million enterprises.
Private equity investor: Tata Capital Limited (TCL) Tata Capital Limited (TCL), promoted by Mr. Praveen P. Kadle, is planning to set
Fund: N.D. up a private equity fund. The Tata Capital fund plans to provide financial
Sector: Life sciences - Healthcare Technology / services ranging from personal loans, car loans, distribution of financial
Products products and broking, wealth management, small and medium enterprise
Amount: N.D. (SME) finance, infrastructure finance, capital markets and private equity. The
fund is expected to be focussing on mid-cap, technology and healthcare
sectors.
Private equity investor: Forum Synergies The Bangalore-based private equity firm, Forum Synergies is to launch India-
Fund: N.D. focussed SME fund. The fund is anticipated to raise money from both, overseas
Sector: Others as well as domestic investors. The offshore fund is expected to invest through
Amount: N.D. the window provided for foreign direct investment. It will have an investment
horizon of 4-6 years for each of its transactions.
27
Market Watch
NEW FUNDS (JUL 2008)
NEW FUNDS
July 2008
Private equity investor: Canara Bank India's second largest public sector bank, Canara Bank is planning to launch a
Fund: N.D. venture capital fund through its venture capital subsidiary. Worth US$ 119
Sector: Banking & Financial Services - Banking million, the fund is slated to become the largest one set up by the bank. Canara
Amount: N.D. Bank has launched as many as four funds so far, having a total corpus of US$
26 million, with investments in 80 companies.
Private equity investor: Edelweiss Alternate Asset Edelweiss Alternate Asset Advisors (EAAA), the distressed assets arm of
Advisors investment bank Edelweiss Capital, is to set up US$ 200 million distressed fund.
Fund: N.D. The fund is expected to focus on SME and large corporates. Initially, EAAA is
Sector: SME targeting a corpus of US$ 200 million, which is anticipated to raise up to US$
Amount: US$ 200 million 400 million depending on investor demand.
Private equity investor: Milestone Capital Advisors Milestone Capital Advisors, the real estate venture capital fund, is to launch
Fund: N.D. US$ 142 million private equity fund. Promoted by Ved Prakash Arya, the fund is
Sector: Real Estate expected to focus on sectors such as, education and infrastructure. The
Amount: US$ 142 million company currently manages four real estate funds worth US$ 567 million.
Private equity investor: Erasmic Venture Fund and Bangalore-based early stage investment firm, Erasmic Venture Fund has
Silicon Valley merged with Silicon Valley-based Accel Partners to form an Accel India Venture
Fund: Accel India Venture Fund Fund. The fund will pursue a multi-sector strategy, targeting opportunities in
Sector: Other technology, technology-enabled services, internet, mobile, media, life sciences,
Amount: N.D. consumer products and services and other high-growth sectors of the Indian
economy.
Private equity investor: Franklin Templeton Franklin Templeton, the global financial powerhouse, has raised an India-
Fund: Franklin Templeton Private Equity Strategy focussed, US$ 138 million private equity fund. Known as Franklin Templeton
Sector: Other Private Equity Strategy, the fund is expected to focus on investing in unlisted
Amount: US$ 138 million companies in infrastructure services, manufacturing and consumer-driven
sectors.
Private equity investor: Inventus Capital Partners Inventus Capital Partners has launched its first US$ 125 million for investments
Fund: N.D. in India. It is promoted by Silicon Valley angel investor and founder of The Indus
Sector: Other Entrepreneurs (TiE), Kanwal Rekhi. The fund is anticipated to primarily focus on
Amount: US$ 125 million early stage technology companies, addressing global and local markets. It is
also expected to invest in businesses such as, consumer, internet and media,
mobile services, embedded software, IT and its services.
EXITS
EXITS (JAN & MAR 2008)
January 2008
Private equity investor: Citi Venture Capital The venture capital arm of Citigroup Inc, Citi Venture Capital International sold
International 40% of it's holding in Emaar MGF Land Ltd. Originally, Citi had picked up stake
Investee company: Emaar MGF Land Limited in Emaar, as part of its hedging strategy. Despite the stake sale, Citi retained a
Sector: Real Estate majority stake in Emaar.
Amount: N.D.
March 2008
Private equity investor: ChrysCapital ChrysCapital sold 10% of its holding in Shriram Transport Finance Company to
Investee company: JP Morgan JP Morgan for US$ 35 million. In January 2005, ChrysCapital picked up shares
Sector: US$ 35 million in three companies of the Chennai-based Shriram Group for US$ 25 million.
Amount: N.D. ChrysCapital made the investments through its vehicle, UNO Investments.
Apart from ChrysCapital, financial institutions such as, New Bridge, Citicorp
and Axis Bank have equity stakes in the company.
Private equity investor: Citigroup Venture Capital Citigroup Venture Capital (CVC) sold its stake, acquired through the secondary
Investee company: Baring Private Equity sale for US$ 60 million from Mumbai-based brokerage firm Sharekhan, to
Sector: Banking & Financial Services - Stock Broking Baring Private Equity. With this deal as well as additional capital infusion by the
Amount: US$ 60 million existing shareholders, the stake of CVC was lowered from 75% to 63%.
“
At some point in time,
Has that time come?

What are my first steps?
Who can articulate my business plans?

HERE TO THERE?”
ICICI Venture is one of the largest and the most successful private equity firms in
India, with over US$ 2.4 billion funds under management. Since 1988, it has
pioneered the private equity industry in India and has launched several funds,
over the years, spanning multiple economic and investment cycles.
ICICI Venture currently focusses on three types of practices - the Private Equity
practice, the Real Estate practice and the Mezzanine practice. Over the years,
ICICI Venture has developed a broad expertise and has built an enviable portfolio
of companies, across sectors including Life Sciences, Information Technologies,
Media, Manufacturing, Retail, Financial Services and Real Estate.
Assets Under Management

Private Equity
India Advantage Fund Series 2 US$ 841 million
India Advantage Fund Series 1 US$ 267 million
ICICI Emerging Sector Fund/Others US$ 692 million
Real Estate
India Advantage Fund (Real Estate Series 1) US$ 562 million
Mezzanine Fund
India Advantage Fund (Mezzanine Fund Series 1) US$ 125 million
31
Conference Talk
Innovation in Healthcare Delivery Model:

Creating the Right Model for India
IVCJ Research
Winds of corporatisation have swept past the Indian healthcare industry, leaving it brimming with opportunities. Healthcare
conglomerates are now faced with the challenge of creating viable models. Further, issues concerning the creation of talent and the
management of it, are not far behind. At the same time, they see global opportunities anchoring on Indian shores. IVCJ's 2nd Healthcare
Investment Forum 2008 held at J W Marriott, Mumbai on 11th March, 2008, featured an interesting discussion on the creation of a domestic
opportunity and leveraging it to establish a global footprint.
Highlighting the changing scenario of the Indian healthcare 'To my mind, there are a couple of challenges, while there are huge
delivery space, Mr. Vishal Bali, CEO, Wockhardt Hospitals, revealed, opportunities. Particularly, the opportunity of going into the Tier II
'The Indian healthcare delivery space is going through a dynamic space will create a new order of healthcare delivery in this country.
change. If you look at the trajectory with which the sector is going to The reason governing this change is that for many years now,
expand over the next couple of years, the Healthcare delivery space healthcare is focussed on the urban locales of the country. First of
is in for tremendous growth. For the first time, this budget has all, the penetration of healthcare delivery is not very deep. It is
recognised Healthcare Delivery in a manner, where it actually talks minuscule as compared to the population it services. In my opinion,
about infrastructure creation and foray into Tier II cities as well as the future growth of the healthcare delivery space is definitely going
new geographies. There is recognition of the fact that healthcare to happen in the Tier II cities', said Mr. Bali.
has arrived.'
Elaborating on the challenges, he stated, 'The challenges are on
With this backdrop, Mr. Bali emphasised the need to create viable three fronts. The first challenge is to create good, viable and
as well as sustainable business models for the future. He opined profitable models. Even if it is free healthcare, it must have viability
that many a times, healthcare tends to get too much on the social attached to it, as that creates continuity. The second issue is in terms
side and the viability side of it gets affected. This creates multiple of talent creation and management. We all talk about young India.
problems, particularly for people, who are funding ventures and However, we also know that in this young India, in many ways than
looking at generating revenues as well as value out of this sector. one, mediocrity of talent is getting rewarded as there are no good
Note: Full proceeds of the conference can be purchased on DVDs at www.vcindia.com

32
IVCJ’s 2nd Healthcare Investment Forum 2008 Private Equity Journal for India
chain starts with their R&D operations. That's where the crux is - how
‘‘We cannot deny the do you approach the value chain - by developing a blockbuster
fact that if we don't do model or by understanding the needs of the patients? As a result,
brand is getting squashed', he said. He further described 'brand' as
it, our neighbours will.’’ something that offers utility, as well as value for money.
Talking about brands, one cannot ignore the possibility of smaller

- Mr. Vishal Bali players getting lost in the pure play of the larger groups. This gives
Wockhardt Hospitals rise to several questions. Moving forward, will the model revolve
more around branded healthcare delivery? Are big brands the ones
that are eventually going to survive? Or even in a branded
environment, will one witness centers that are doing very good work
people available. The third challenge is creating an opportunity that
geographically, excelling and continuing to survive in the long run?
is domestic on one side and global on the other side. Today,
Dr. Smarta shared his views on these issues. 'In my opinion, smaller
globalisation is a trend across the entire Asian continent. We cannot
players will continue to survive. Today, we see that the business
deny the fact that if we don't do it, our neighbours will.'
model in the pharmaceutical industry is being bifurcated and every
aspect of business is becoming viable. Eventually, we are gearing to
Striking a balance - A social as well as a profitable model witness a similar phenomenon even in the healthcare delivery
Throwing light on the need to evolve a social and profitable space. Going forward, the big brands and small players will co-exist,
business model, Dr. Alok Roy, Chairman & MD, Medica Synergie Pvt. provided the smaller brand displays quality and sustainability', he
Ltd said, 'As far as healthcare is concerned, viability is, of course, opined. He further said that today, there are few Health Maintenance
important. However, the real transaction is emotional. Viability needs Organisations (HMO). Going forward, once the network is built, the
to be built within that. The best part about the budget this year was small as well as big players will have their individual utilities. Further,
that the Government has agreed to fund the insurance of as many even from a viability point of view, big brands will have to turn to
as 30,000 people, who fall in the 'below the poverty line' (BPL) small players in the industry.
category. This is expected to drive a lot of entrepreneurship on the
field.'
“Building a brand involves
Talking about the viability and the longevity of the Yashashvini the compilation of a
scheme initiated by Medica Synergie Pvt. Ltd, Dr. Roy added, 'The
scheme drove several doctors to create bigger hospitals. In fact, number of things such as,
today there are several such schemes running in the country. This safety, image, credibility
has stimulated the growth of community insurance. This is one way and performance.’’
of making healthcare more affordable and building viability into the
healthcare delivery systems.' Consequently, from a viability - Dr. R. B. Smarta
perspective, the social insurance schemes are definitely one of the Interlink Consultancy
ways forward.
‘'As far as healthcare is Where is Indian healthcare delivery industry headed?

concerned, viability is, of Comparing the Indian healthcare delivery sector to that in the west,
Mr. Vishwa Chandra, Partner, Singularity Ventures averred, 'The
course, important. western healthcare market has great strengths such as, coverage
However, the real and network. In the USA, one can get access to good doctors across
transaction is emotional." the country. This network has been developed by HMOs and
- Dr. Alok Roy organised healthcare players. In India, we do need this organised
Medica Synergie Pvt. Ltd network. We'll never get to the point of building enough boxes to
cover the entire country. As we look at the country on the whole, we
need to innovate ourselves and look at other opportunities to bridge
that service gap, be it through technology, telemedicine or
government as well as private initiatives. The other thing the west
Building a Brand does very well is interaction between technology providers and
Taking the backdrop of growth for branded healthcare as the next doctors. While this is happening in India, it is not to an extent I'd like
wave of change, Dr. R. B Smarta, Founder, Interlink Consultancy to see.'
divulged his views on brand building, 'If you look at the healthcare
delivery space, it will be some time before we see the formation of 'We have to find a way to leverage the infrastructure we have. Unless
brands, in terms of uniformity. Today, the creation of brands in this we have our technology providers and our medical universities
arena is driven by two things - environment and location. Building a working closely, we're never going to get there and make a real
brand involves the compilation of a number of things such as, safety, difference amongst the population', he concluded.
image, credibility and performance. Further, there are also a number
of aspects to it such as, management audit, performance audit, skills
Opportunity at the bottom of the pyramid
audit and manpower audit.'
One of the real opportunities that is now the talk of the town is
unlocking the potential of the rural and the semi-urban markets.
Dr. Smarta further accentuated that today, healthcare companies are
Presenting an investor's perspective on the unearthing value across
identifying a niche to build their brands around. This may not be
the rural and semi-urban markets, Dr. Roy said, 'We have to innovate
useful from the viability and the sustainability point of view. 'We are
and leapfrog. Technology is going to become the biggest enabler. As
talking about healthcare delivery. Here, the value chain begins with
a result, we have to use technology, community-based insurance
the patients, unlike pharmaceutical companies, where the value
and forge links with entities that already have a presence across the
33
look for enterprises with the necessary management bandwidth for

“We have to innovatively their future growth.'
look at bringing all the
Mr. Chandra expressed his opinion on the availability of manpower
stakeholders under the in this industry, from an investor's perspective. He said, 'The senior
same roof.’’ doctor pool in the country has not grown much. We do have 30,000
medical graduates coming out of the country every year, but they still
- Dr. Alok Roy have a lot of training to go through. On the other hand, we have
Media Synergie Pvt Ltd several new hospitals opening up. They are tapping into the army
medical doctors and the universities. The point here is - what's going
to happen to your future generation of doctors when all the talented
rural realm. We have to build capacity. Trying to set up hospitals in professors are pulled out of the universities? This impacts the quality
every village will be foolishness. Furthermore, the Government of our graduates. That is also a concern right now.'
already has the necessary infrastructure in place. Consequently,
public-private partnerships can also be considered.' Following the interesting discussion was a pertinent question - what
kind of balance can an entrepreneur and an early stage private
Dr. Roy also accentuated the need to involve all the stakeholders in equity player strike, in terms of creating management bandwidth as
the process of creating a nation-wide healthcare delivery well as a sustainable growth and talent pool? As per Mr. Bali,
mechanism. 'Today, quacks are at the cutting edge of healthcare 'Fundamentals are the most important core competency areas
delivery in this country. We have to try and bring them into the fold. around management and therefore, an entrepreneur needs to have
We have to educate them about what not to do. This is how we have 3-4 clear cut competencies on the board, before he even approaches
to innovatively look at bringing all the stakeholders under the same a private equity player. Firstly, one needs to put his finance in a good
roof.' Dr. Roy believes in leveraging technology to create inclusive shape and have a good finance manager. Further, the need to create
growth. a good pool of general management also cannot be undermined.
Today, every organisation is adopting strong focal points such as,
Overcoming the 'Manpower Challenge' communication, marketing or Public Relations. These competencies
Today, India, a net exporter of talent is talking about becoming a net enable the creation of a strong brand. Moreover, unless there is a
importer of patients. How does this pan out in terms of competence competent nursing head, you are not a strong organisation, as that is
building? According to Dr. Smarta, 'We have a dichotomical situation the largest bandwidth of management you have in an enterprise.'
here. However, if we consider the realignment of the stakeholders
involved, our business becomes viable. That is a good model by itself.
In terms of manpower, competency is available. Today, 36-38% of “What's going to happen
manpower, almost everywhere in the world, is Indian. The issue is to your future
'why not in India?' We certainly need to develop the requisite skill- generation of doctors
sets and attitude.' when all the talented
professors are pulled out
Dr. Smarta continued, 'Today, I see three distinct areas that can be of the universities?’’
strengthened. They are social entrepreneurship, which is the
amalgamation of society and business; combination of technology
- Mr. Vishal Chandra
as well as skills; and behavioural skills. We have good doctors that Singularity Ventures
offer excellent healthcare delivery to patients. However, what is
missing is the skill-set expected from B-Pharm and M-Pharm
students. There is no infrastructure to teach them. We need to He continued, 'Before going to a private equity player, the internal
develop the system in such a manner that we educate them, not management has to be taken care of and these competencies have
individually, but collectively.' to be in place. The private equity investor will then be confident in the
organisation.'
“Today, whether India is
truly building a pipeline Mr. Chandra gave his views from an investor's perspective, 'Investors
of healthcare talent for are getting knowledgeable about the healthcare market. They now
the future, remains a understand the substance of healthcare. Moreover, there are also
concern.’’ opportunities for the investors to partner with other institutions to
help provide that to the healthcare entrepreneurs.' Citing the
- Mr. Vishal Bali example of Singularity Ventures, he further said, 'A professor at IIM B
Wockhardt Hospitals has created a two week programme that she runs at FORTIS. The
programme is meant for doctors, who are senior managers. The
programme passes huge value to the investors. Entrepreneurs or
early stage doctors need to have an expert's opinion on the exact
work that is supposed to be done. One has to build up or acquire
At this juncture, Mr. Bali added, 'Today, whether India is truly building management skills.'
a pipeline of healthcare talent for the future, remains a concern.
According to me, that's where a lot of work needs to be done. Selecting the right investor
Organisations are not doing enough to create the next band of As per Mr. Bali, segmentation has now begun to happen. Today, we
talent, which is internal. If a good model has to come up in the future, have single specialty institutions, multiple specialty institutions,
then it has to incorporate ways and means to create an internal cluster specialty institutions and large general hospitals. Considering
talent pool that ensures sustainability. This talent pool should be the current scenario, he posed a pertinent question - purely from a
across areas such as, medical, para-medical, nursing as well as the value-creation perspective, on a profit and loss basis, how are
managerial practices. As investors access companies, they need to providers sub-segmented? Mr. Chandra revealed, 'At Singularity
Ventures, we are into seed and early stage financing and
34
consequently, we look at 5 As - the ability of the company to deliver

services, their accessibility to the target population, acceptability of ‘‘The core concept has
the product being offered, affordability and accountability. As Dr. Roy to have some value
mentioned earlier, the Government has built an incredible
infrastructure across the country. However, the system is not working, generation for an
so how can it be leveraged? These 5 As help us to decide whether investor to put his
what the company is doing will work in the environment and then, money in.’’
it's all about execution.' He also spoke about the concept of multi-
cities which include entertainment, hospitality, food and beverage. - Mr. Vishal Chandra
However, he also stated that there were concerns from investors Singularity Ventures
about whether such projects can actually be executed. He also
stressed upon the fact that selecting the right investor is important as
investment horizons and returns also come into play. going in for brand versus value and this should change. As investors
start understanding the healthcare market and as they start getting
to know the business of health delivery, they are going to realise that
“There is a debate about they can get into value. The biggest challenge is that most people
sticking to the knitting. investing in healthcare right now, do not have a medical
Are we truly in the era of background. In the west, there are many medical professionals in the
investing industries and that makes a key difference.'
core competencies?’’
- Mr. Vishal Bali Mr. Bali then turned to Dr. Smarta with a question, 'Does good
Wockhardt Hospitals management create a good model and how do you see that
panning out, particularly from a competence perspective?' Dr. Smarta
replied, 'There are two aspects to it. One needs to look into value-
creation from the investor as well as the patient perspective. From the
patient's perspective, value creation can come through the technical
Healthcare Delivery Models expertise of the doctor. If the doctor is not accompanied with
Talking about suitable business models for hospitals, Mr. Bali asked, management practices, he will not be able to create value for the PE
'There is a debate about sticking to the knitting. Are we truly in the player. Investors have two issues - risk and time. In my opinion, the PE
era of core competencies? Should hospitals stick to what they believe player can become a part of the value chain. Value is generated
they are doing best? Is that really the model to follow?' Responding to through the management expertise of the PE investor. At times, other
these questions was Dr. Roy, 'Yes. Hospitals should stick to what they management institutions can get coupled with, to deliver value.'
do best. Having said that, healthcare is evolving over a period of time.
Today, people understand healthcare. Nonetheless, it is difficult for He further said, 'PE players are interested in funding a venture only if
them to approach banks and PE players for funding. From a PE they get their returns within a stipulated time frame. Today, it is seen
perspective, investors should be risk taking. There is enough talent in that PE investors are losing out on patience and are unable to
the country, with good core competencies.' identify the right ventures to invest in. On the other hand, enterprises
are also finding it difficult to identify the right investors. As a result, we
Mr. Bali differed in his opinion on PE investors funding only large, need competencies at both the ends. Management expertise,
established entities. According to him, 'Traditionally, PE players have without a good value proposition may not be very profitable. At the
burnt their fingers in this industry. This is either because they really same time, a highly valuable proposition from a medical doctor or a
did not understand the nuances of the sector or they succumbed to technological person with no management perspective, will also not
high valuations.' Dr. Roy further believed, 'Healthcare never really got be good. Having said that, competencies can always be developed.
promoted by healthcare specialists. It got promoted by people who There could be models for competencies. A doctor can be given
wanted to take their money home before it got established. Today, training on management issues and a management person can
technocrats are building hospitals. Earlier, hospitals were built by also be trained on managing issues related to the industry.'
people looking at diversification. The time has come to differentiate
between the wheat and the chaff and invest into the right model.'
‘‘Unfortunately, in
Mr. Chandra divulged his opinion about the 'right' healthcare healthcare,
delivery model. 'Being a seed and early stage investor, Singularity entrepreneurship is
Ventures considers technology and services around healthcare. constantly looked at for
Furthermore, we are very excited about the need of the entire the creation of just that
healthcare ecosystem around healthcare infrastructure. There has one hospital.’’
been a resetting of expressions around returns. Across the board,
people are getting more realistic. Once you go the smaller players,
- Mr. Vishal Bali
Wockhardt Hospitals
wearing an investor's hat, the risk component on it rises. As this
happens, the expected returns increase. From an investee
perspective, managing the risk and to be able to address the risk
component is a critical way to come to medium-term, middle ground Mr. Bali pointed out, 'Unfortunately, in healthcare, entrepreneurship
with investors', said Mr. Chandra. is constantly looked at for the creation of just that one hospital. If you
look at many of the entrepreneurship ventures, which were started
Healthcare in this country is a doctor-driven model. Great doctors by single entrepreneurs, they have remained as single ventures. The
make great institutions, but whether they can make multiple great point here is that good management practices coupled with good
institutions, remains a question. As per Mr. Chandra, 'The core entrepreneurship create good businesses. Going forward, we would
concept has to have some value generation for an investor to put his like to see the ability to scale up both, from a management as well as
money in. However, in reality, you'll find people chasing teams. a technology perspective.'
People are pumping money into known brand names. Investors are
35
people coming out of their net, which is more problematic for them
“There are multiple small than getting people into the net. Further, even the Y-on-Y health
hospitals with low insurance bracket is falling down.'
investments and high
revenues.’’ Dr. Roy also gave his inputs, 'People in India are not becoming richer
and at the same time, healthcare is not becoming cheaper. As a result,
healthcare and insurance will grow more where it is needed most, at
- Dr. Alok Roy the middle and lower level class of people. In my opinion, the
Media Synergie Pvt Ltd Government will be forced to pay for the insurance of the unorganised
sector, which includes people below the poverty line (BPL). Such
insurance will drive the entire healthcare industry. The beneficiary, in
turn, will be the higher class of people. It will just get reversed, as there is
Managing capex no way by which we can make people afford healthcare.'
Traditionally, healthcare is capex driven. The general perception
among investors is that the amount of re-investments required in Insurance will be the key driver for the growth of the healthcare
this business will leave no money on the table. Investors do not see sector. However, insurance will not play the role of being at the
long term cash flow within the sector and also, the breakeven points central point of the entire negotiation process of this sector,' Mr. Bali
are multiple years. Where are the models that are actually viable? concluded.
As per Mr. Roy, 'The cost of setting up a hospital in Mumbai, Delhi Throwing light on statistics regarding the total healthcare spending
and Kolkata is highly capex driven. If the hospital is not very big, the in India, Mr. Bali revealed, 'There is a US$ 19 billion of healthcare
capex can come down to 10-15%. It depends on the kind of model delivery spend and currently, 65% of this is on the in-patient side. The
that is chosen. For instance, it is not advisable to initiate cardiac remaining 35% comes from out-patient and primary care.
surgery in hospitals in Tier II cities. As a result, capex can be Considering its focus on future growth, the in-patient volume is
distributed over a large number of beds and the cost of setting up going to grow at an estimated CAGR of about 35-40%, over the next
beds can lie in the range of Rs. 2 lakh to Rs. 10 lakh. Capex can thus 7-8 yrs.'
be distributed. There are multiple small hospitals with low
investments and high revenues. The risk has to be distributed widely Elaborating on the creation of database, Mr. Bali stated that the
with a large basket and a larger footprint.' healthcare industry has not capitalised on the true value of IT. He
added, 'The creation of healthcare delivery medical records and the
Here, Mr. Bali mentioned Wockhardt as an example. 'At Wockhardt, portability of the medical records will evolve faster if we develop
we have undergone a huge exercise for managing capex. In order to better hospital information systems. Today, we are struggling to know
create super specialty healthcare hospitals across the country, from what the ideal system is. Intra-operability as well as the availability of
an investor's perspective, we are looking at crushing the cash break- records to healthcare providers will be the biggest driver that will
evens to 18-24 months. It is possible to achieve such targets and come with insurance. This is because insurance companies will not
Wockhardt has proved it', he said. However, he emphasised the need align themselves with a provider, to track their patient as per the
for investors to strike a balance and not over-invest in the sector. provider.'
'Investors should know when not to invest in technology or into
something that has little consumption. With careful investments, it is Today, medical records fall in the grey areas of the Indian healthcare
possible to create EBIDA levels of 27-28% in this market and achieve industry, but are poised to change. Many players are now looking at
cash break-even in one and half years. A perfect model that is it for a domestic, as well as a global purpose. In order to sustain their
focussed on specialties, irrespective of the market opportunities, is growth in the global space, they have realised the need for portability
required. This will give the investors an idea about what the of medical records', said Mr. Bali.
entrepreneur or the respective group is doing', he advised.
Medical Insurance “This sector will also

Today, insurance is not the main driver for the Indian healthcare benefit from global
industry as compared to the US. However, this scenario is in for a competitions.’’
change, 5 years hence. Insurance is a consumer driven market, with
private spending accounting for 80% of the expenditure. It remains
to be seen as to whether insurance will actually play a bigger role,
over the next 5-10 years. - Mr. Vishal Bali
Wockhardt Hospitals
Mr. Bali asserted positively to the question, 'Today, insurance is
growing at 40-50%, as compared to last year, when it recorded a
growth of over 30-35%. Over the next half a decade, we are definitely
going to see a faster momentum around insurance growth. However, The insurance sector is driving towards an influx from foreign
insurance companies start dictating terms to you, when you are players. This could either work as a threat or a catalyst for the sector,
upwards of 80%.' from the industry player perspective. Further, from a private equity
perspective, the nexus of foreign insurance company operating in
He believes, 'Although today, insurance companies are pushy, they India, could catalyse an influx of foreign competition and undermine
cannot remain so beyond a point, as they do not have the core value the valuation concepts for Indian players. According to Mr. Bali, the
sitting with them. Currently, India stands at about 10% of its coverage sector needs to become competitive. He gave the example of the life
through third party payment mechanism. It will be 7-10 years, before insurance sector, which, because of global competition in the
the country witnesses even a 30 to 40% insurance coverage. I'm sure, industry, has matured in comparison with its position 5 years ago.
today everybody has learnt lessons about insurance. Insurance
companies themselves have learned the lessons as they have seen He further added, 'The moment you have global play happening in
things that happened abroad. In the US, insurance companies have any sector, the entire industry undergoes a huge, random change. In
36
my opinion, this sector will also benefit from global competitions. The
industry will become a lot more transparent. Moreover, this entire ‘‘Today, investors have
space has much to offer in terms of structure. Comparativeness is begun to see new
going to drive quicker structuring of the sector. This will in turn balance sheets and
improve the value to the patient, as well as add value to the delivery valuations, with healthier
process. I'm very upbeat about the fact that there are international returns coming in faster.’’
players looking at the Indian healthcare sector. The building up of
professional competencies will only improve the valuation process.' - Mr. Vishal Bali
Wockhardt Hospitals
Role of enterprises in improving the sector
What role do enterprises play for themselves and in a larger context,
for the sector, in terms of improving its original quality? Addressing
this question, Mr. Bali reveals that the sector is mired in knowledge Agreeing with Mr. Chandra's point of view, Mr. Vishal Bali stated,
gap. He further added, 'At Wockhardt, we are doing a lot of work in 'Earlier, the government frame work also had a role to play in
terms of improving nursing standards, educating small competitive restricting FDI in the healthcare delivery space, which is not the case
nursing home owners about good management, ratios from the today. Further the valuations as well as the expected returns were not
finance point of view and also showing them the scope of at par with the other markets in the world. All of a sudden, that game
improvement from the service delivery perspective.' is changing. Today, investors have begun to see new balance sheets
and valuations, with healthier returns coming in faster. The Indian
It is believed that specialists bring in the quasi unfair practice into the growth story around healthcare delivery is as exciting as other
system and the urge to make money is pushing people to lower sectors. Consequently, funds will start flowing in India. There are
standards. What could hospitals, as enterprises, do to make profits some big players who have already entered the sector and have
whilst maintaining higher levels of ethics and quality, whereby they taken serious positions here.'
also keep the patients happy? Mr. Bali believes, 'Changes happen
through the entry of a couple of good players in the sector. However, the question remains - what is stopping the John Hopkins
Fundamental changes such as, full time versus part time specialist or Clevelands to set up hospitals here? Mr. Vishal Bali replied, 'As
engagements could become effective. This can be developed as a their models are not competitive, it is very difficult to work on similar
model. When an enterprise has part time specialist engagement, it is, structures in India. The sustainability of the US healthcare system is
at all times, being served by a group of people who will never have around research and several other activities that bring in huge funds.
loyalties with it and their engagement process with every institute is It is a complete private healthcare driven structure. In India, there is
going to continue to be the same. However, if the enterprise has an more competitiveness, with different cost structures and viabilities.
in-house dogmatic clinical strategy, it is going to have the process of However, other players in the Asian context are entering the Indian
institutionalisation. These are certain fundamentals which many healthcare arena, as the structure within the continent is similar.'
healthcare players are now beginning to realise.'
In conclusion....
He further said, 'You need to have confidence within yourself as an Throwing light on the evolution of a perfect model, Mr. Bali
organisation, to be able to create an institutional process of growth, continued, 'In the Indian context, there is huge opportunity of
rather than an individual process of growth. Organisations are now inclusive growth. There is healthcare infrastructure in the country. In
beginning to realise that at the end of the day, they need to create our ground field concept at Wockhardt, we are entering into
value for themselves, rather than just create value for a couple of partnerships with existing players in various parts of the country and
individuals associated with them.' converting them into super specialty hospitals. In this process, we are
crushing our capex by 50%. This is an example of how a model is
“You need to have created.'
confidence within He further stated that the model creation must look at where the
yourself as an returns are sitting. 'Firstly, develop a focus around what you believe is
organisation, to be able going to create value. Secondly, models with an inward movement of
to create an institutional talent and a possibility of creating a future talent pipeline, will
process of growth.’’ definitely have long-term future sustainability. Further, insurance is
definitely going to drive growth in the country. Growth will not
- Mr. Vishal Chandra happen unless we create an opportunity for third party payment
Singularity Ventures mechanism. Insurance is going to create a catalyst for future growth
and it is not going to ruin businesses. Investors should bear this in
mind while studying the industry.'
Challenges
Today it is seen that despite the opportunity, foreign investors are yet Speaking about medical tourism, Mr. Bali said, 'Serious medicine will
to enter the sector in a big way. In such a scenario, is the sector ever drive the real growth of medical tourism in India. Groups that are
slated to witness real consolidation? able to incorporate serious medicine into the global opportunity of
Mr. Chandra opines, 'This environment will undergo a change as medical tourism are going to impart value to the model. Furthermore,
international investors get more comfortable with the Indian growth leveraging technology will also create value. Technology will also
story. The investors will first invest through funds, as that is their layer reduce capex as it will bring down the cost of creation and that
of security. However, as they develop a better understanding of the infuses viability into the system. Today, Indian hospitals are using
market and see the emergence of large players such as, Wockhardt only 3-4% of the available technology. Moreover, even management
and Apollo to partner with, there may be more of consolidation.' pays very little attention to the utilisation of technology for faster
returns. Investors need to consider these aspects in order to get a
better value proposition.'
INDIA EMERGING CAPITAL P. LTD.
New Delhi.
India
39
VC Story
Trend Setter
Ideacts Innovations: Enjoying Richer Coffers

Sequoia Capital, a venture capital firm promoted by Donald Valentine invested US$ 5 million in Ideacts Innovations Pvt. Ltd (IIPL),
an entrepreneurial new age Internet media venture.
Sequoia Capital specialises in seed, startup, early stage, and

'The cyber café market is doing well
growth stage investments. The firm seeks to invest in all sectors
in terms of footfall into the cafés
with a focus on services, software, systems and components. That
and online spends seem to be on
explains their investment in Ideacts Innovation's "Clinck," which is
the rise as well.'
an active desktop application. It runs on cyber café terminals that
reach out to internet café users across the country, whilst
providing a stable platform for advertisers to display their
communication. Throwing light on the current market scenario, Mr. Rudrajit Desai
CEO, Ideacts Innovations.
Mr. Rudrajit Desai, CEO of Ideacts Innovations, in an exclusive
interview with IVCJ Research, revealed, "We launched Clinck in
May 2008 and we've met with an acceptance from both, partners
as well as advertisers. The cyber café market is doing well in terms
Mr. Bhatnagar believes that today, media is a strong investment
of footfall into the cafés and online spends seem to be on the rise
sector, considering that advertising revenues in newspapers and
as well. So far, the equation seems to be working. IIPL plans to go
television grew by nearly 20%. The time of radio and internet too
live across the 8 cities that it has ventured into, with extensive
has arrived, with growth touching nearly 50%. Furthermore,
reach of Clinck. The non-metros and mini-metros as a market will
be included in the network as the second phase of the roll out." foreign players entering are the market and this trend is expected
to continue. Having a current advertising worth of over US$ 23
Throwing light on the current market scenario, Mr. Mohit
million, the internet is also a key focus area. With around 30
Bhatnagar, the Operating Partner, Sequoia Capital India, in an
million users hooked on the net, the number is set to grow bigger
exclusive interview with IVCJ Research, revealed, "Sequoia Capital
with the penetration of the internet further in India. The media in
India is excited to partner with Ideacts Innovations. We believe
this sector is poised for growth. An optimistic Mr. Bhatnagar
that their new solution has created a whole new media platform
further added, "Like any growing sector growing there are
for advertisers, who can now reach out to the growing tribe of
teething issues, but with the right support from the government
cyber café users and will propel advertising to a different level."
and continued innovation in the sector, one can expect to
Sequoia Capital India adds value to its portfolio companies by
overcome any issues."
lending its domain knowledge, as well as the benefits of its
extensive network and reach. Ideacts Innovations has a strong Recent investments in the media sector include Warburg Pincus'
market presence across eight cities in India, including Bangalore, investment into Laqshya Media. It is learnt that Lehman Brothers,
Mumbai, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Goldman Sachs and ICICI Venture are planning to invest in Serve
Chandigarh. There were no advisors to the deal. & Volley, an outdoor media advertising company.
40
VC Story
BCCL: 'Nursing' Healthcare

Bennett, Coleman & Co (BCCL) picked up an undisclosed stake in The Clinic, a consortium of allopathic practitioners,
with a network of 250 clinics. There were no advisors to the deal.
The Clinic acts as a network facilitator through IT enabled services by

providing doctors and patients online medical records, access to 'The opportunity in Healthcare sector
emergency services and home delivery of healthcare products. This already existed, but now we will get to
makes them pioneers in their field as they use a high-tech 'electronic see a new avatar of the sector through
medical records' programme, coupled with a personalised approach. prevention and management of
The company plans to grow exponentially, from 250 clinics in 12 lifestyle-based diseases'.
cities to 1000 clinics, in the current financial, and to more than
10,000 clinics, over the next 5 years.
Dr. Ankit Khambati
This enormous vision pulls in Bennett, Coleman & Co (BCCL) to lend CEO, The Clinic
its strategic partnership for providing extensive media exposure. In
exchange of the stake, The Clinic is expected to leverage BCCL's
experience and wide reach for the promotion of its products and Despite the lack of government support and medical infrastructure,
services, across the country. Today, consumers across all age groups The Clinic has successfully created an ecosystem that redefines
are taking a more active role than ever before in their health and healthcare. It provides doctors with systems such as, clinical
well-being. As a result, healthcare service providers are on a rise, protocols, value added services and medical records. It also enables
leading to a competitive market environment. This demands a 360 patients to enroll for programmes related to the management of
degree spectrum of media assets in print, television, radio, internet lifestyle diseases. These programmes also provide accesss to
and events for capturing the target audience. BCCL is best known in vendors such as, labs, hospitals, pharmaceutical companies and
this space with its Times Private Treaties, and is aptly termed as, other participants of this ecosystem. This new model offers
“ADD” venture capitalist. healthcare merchandise that passes cost benefits to the patients.
In an exclusive interview with IVCJ Research, Dr. Ankit Khambati, Following this investment, The Clinic is now looking at expanding its
CEO, The Clinic, said, “The opportunity in Healthcare sector already business with the consolidation of information infrastructure. As per
existed, but now we will get to see a new avatar of the sector through Dr. Khambatia, 'The business idea would gather a very large
prevention and management of lifestyle-based diseases. Healthcare database of patients through media, marketing and innovative
is viewed differently from curing cough, cold and malaria to products. It will be collated into our client banks for our doctors to
preventive management of life style diseases, such as, diabetes, high diagnose them”. This would reform the information system and
blood pressure, arthritis, asthma and heart diseases.” Some trends serve the patient in different ways. Firstly, it is expected to facilitate
that are expected to fuel the growth of the sector, over the next informed decisions about a patient. Furthermore, by furnishing the
decade, are doubling of disposable incomes and the number of details of doctors, it will also ensure patient safety. The Clinic will
middle-class households; greater penetration of health insurance as also be in a position to measure the outcome of its tertiary care
well as rising prevalence of chronic diseases. hospitals. It will further add to the responsibility, accountability, cost
reduction and higher returns. The Clinic has established its
The transition that India's ascending economy has brought in the presence in Mumbai, Chennai, Ahmedabad, Baroda, Hyderabad,
healthcare sector, has made this space more vibrant and Bangalore, Meerut and Pune. It expects to set up shop in New Delhi
considerable. The escalating demand and the numerous benefits and Kolkata this year.
from healthcare are too large to be ignored. There has been an
evolution in the structure of healthcare delivery, which is becoming Apart from this deal, recent investments in the healthcare sector
corporatised. The emergence of healthcare conglomerates are include the over US$ 20 million deal between Manipal Health
changing the rules of the game. Eager to capitalise on the growth of Systems and IDFC Private Equity Fund; the over US$ 10 million deal
the healthcare sector, established players are striding into between Bangalore-based HealthCare Global Enterprises and IDFC
this industry. and the over US$ 8 million transaction between Metropolis Health
Services, a diagnostic chain, and ICICI Venture.
41
VC Story
AXIS PE: Riding the Infrastructure opportunity
Axis Private Equity (Axis PE), the private equity arm of Axis 'investment in a company, which is a
Bank, has invested US$ 15 million in Hyderabad-based participant in high growth sector and
Vishwa Infrastructures & Services, an integrated urban has demonstrated a healthy growth
infrastructure company specialising in water supply and rate, is very attractive.'
sewage projects. The investment is made out of Axis
Infrastructure Fund. ARA Law were the legal advisors for the Mr. Alok Gupta
CEO, Axis Private Equity Ltd
deal whereas KPMG served as the accounting and financial
advisor.
Axis PE is the manager of Axis Infrastructure Fund, which Eredene Capital has picked up 50% stake in Apeejay Infra-
focuses on companies engaged in infrastructure industry. The logistics.
investors to the fund include domestic financial investors,
overseas bank and large corporates. Axis PE is mainly The infrastructure sector has taken a hit from the high
targeting infrastructure enablers and developers operating in inflation levels that have pushed up input prices and the rate
diverse infrastructure sector including power, roads, ports, of interest which has increased the borrowing costs. Growth in
railways, logistics, water supply and sanitation, hospitality, and six infrastructure industries slowed down to 3.5% in May.
education sectors. Vishwa Infra is engaged in the water supply There are some issues such as input cost having gone up
and sanitation sector. That explains the fund's investment in primarily for some of the building materials, steel and cement.
Vishwa Infrastructure.
According to Mr. Alok Gupta, “There is tremendous growth in
Throwing light on the current market scenario, Mr. Alok Gupta, the water supply and sanitation sector. A number of cities and
CEO of Axis Private Equity Ltd, in an exclusive interview with towns are in need of revamp and expansion of their existing
IVCJ Research, revealed, “Vishwa is a company which is water supply systems. In many places, there is not much being
operating in a space that is very attractive. It's a great business done in the fields of waste treatment. There are these areas
focussing on the fast growing water supply and sanitation which government is looking at inviting private companies to
sectors and the management of the company is participate in through ownership of the assets. Today,
entrepreneurial. As a result, investment in a company, which companies such as, Vishwa Infra that make infrastructure
is a participant in high growth sector and has demonstrated a development happen, need capital to expand, scale up and
healthy growth rate, is very attractive. The infrastructure sector take advantage of the opportunities that lay ahead.” The
in India offers tremendous investment opportunities.. The funding comes in at a right time for Vishwa Infra as it gears to
Government is anticipating an investment of US$ 492 billion participate in BOT projects. At this juncture, Axis PE will lend its
in infrastructure over the next 5 years to keep up with the expertise and act as an in-house financial advisor to the
current rate of growth.” This clearly unpins the investment company. It has also brought in new, robust systems such as,
opportunities, the sector puts forth. MIS and ERP which are slated to enhance efficiency.
Several PE players have made investments in the Going forward, Axis PE is planning to raise money for its Axis
infrastructure industry. Recently, DLF has set up US$ 190 Infrastructure Fund and is eyeing returns to the tune of 20-
million fund for investments in this sector. Furthermore, UK's 25%, from the fund.
42
VC Story
Technology: The Way to Go

The deal between Ubona Technologies and Capital18 is testimony to the fact that investors cannot resist the whiff of lucrative,
innovative businesses. Ubona Technologies has clinched an undisclosed amount as Series A funding from Capital18, the private
equity arm of Network18. There were no advisors to the transaction.
The recently established, Bangalore-based Ubona Technologies

develops infrastructure for deploying viable consumer services in
the telecommunications and mobile space. Its flagship product
'Foodie Hotline' is already launched in Bangalore. Foodie Hotline
is a patent-pending speech recognition software that can
understand local languages, accents as well as dictions. The well-
thought-out deal serves as a step towards funding the growth
aspirations of Ubona Technologies. In an exclusive interview with
beta
IVCJ Research, Mr. Jyotirmoy Chakravorty, CEO, Ubona

Technologies, revealed, 'The funding will enable us to scale the
company fast. Our vision is to create a new medium. Our
partnership with Capital 18 will provide us with an opportunity to
understand the nuances of the medium. Further, Capital18 also
brings pertinent relationships to the table. It will also furnish Today, Indian product companies can account for a larger chunk
content for our services. We are looking at running the company of the market by deploying technology-enabled delivery platform.
for one and a half years with the fund.' Further, the domestic market is turning to the development of
It is no secret that the Indian IT/ITeS and technology sector has products that are tested in India and taken to the international
created ripples as the lynchpin of the economy. The industry is now markets. Indian companies are also increasingly adopting
gearing itself to scale newer heights. Commenting on the future of software in a bid to enhance their productivity. These factors
the sector Mr. Chakravorty opines, 'In India, anything related to unearth the huge opportunity that lies in store for software
phones is perceived as a big opportunity. In order to really do a development companies. Enterprises focussing on the
transaction through the mobile phone, one needs have the GPRS, development of innovative and niche products certainly have a
which is not very successful, not only in the Indian context but also long way to go in the industry.
globally. With innovative services such as, voice-recognition, we
are bringing in the most natural way of communication and Recently, the sector also witnessed a US$ 9.5 million deal between
investors view this as a lucrative opportunity.' iYogi and SAP Ventures. Other deals in the industry include US$
2.25 million transaction between NEA Indo-US Ventures and
The Indian software product development space is yet to gather IDENIZEN. Further, Microqual Techno has also announced plans
pace as compared to the software-services or the BPO industry. to raise US$ 20 million funding from private equity players.
43
VC Story
Tuscan Ventures: Tapping the Logistics Industry

Tuscan Ventures picked up 12% stake in Mumbai-based freight forwarder firm, LCL Logistics, for an undisclosed sum. The deal was
sourced and executed in-house.
Tuscan Venture is an investment company specializing in value

"The emergence of organised retail,
creation via operational excellence. Tuscan Venture is able to
which currently accounts only 3%;
capitalize on a strong regional network, which allows the firm and
there are expectations with further
portfolio investment to benefit from cross border opportunities
growth in retail sector, logistics
growth. LCL Logistics is one of the freight forwarders and 3PL
industry will also show rapid
service providers, their core product and service offering includes
growth in coming years."
tailored containerized logistics solutions to all major destinations
globally. The Company already have a CFS in Pipavav (Gujarat) Mr. Vishal Sharma
and they own/manage a number warehouses including, CEO, Tuscan Ventures
Ahemedabad, Pune, Nagpur, Calcutta.
Mr. Vishal Sharma, CEO of Tuscan Ventures, in an exclusive

interview with IVCJ Research, revealed, "This investment will Currently logistics cost in India as a percent of total cost is one of the
enable them to expand this footprint nationally. It will enable them highest at 13% as opposed to 4-6% in the west.
to become an end-to-end logistics player combining international
freight-forwarding with national distribution. This improves top- Throwing light on the current market scenario Mr. Vishal Sharma
line and bottom-line by capturing more value in the entire chain" said "Logistics sector right now is where IT was back in 1990s."
Tuscan Ventures will be actively involved with management team From an investment perspective, more and more family run
at LCL on business plans, operating strategy, fund raising strategy, companies across the various sub-sectors of logistics industry are
improving governance, HR. They also will be providing assistance coming out to raise growth capital from investors. Because of the
in finding suitable partners in the Far East, Africa, and Latin traditional in its mind-set, many of the small family firms are too
America since the Tuscan team has international work experience late to professionalize and gain scale. They will suffer over the
and relationships. next two-three years as consolidation begins.
The Indian logistics industry is currently US$120 billion and is The main issues faced by the sector today can be summed up as
slated to grow at a compound annual growth rate (CAGR) of over infrastructure limitations, complex regulations, inadequate
16% from 2007-10. Adding further Mr. Vishal also said, currently funding and industry fragmentation.
the industry is still fragmented and there are expectations of
consolidation. The recent uptrend in this industry is mainly In LCL's case, Tuscan Ventures are looking at public listing as its
because of retail boom in India. With the emergence of organised exit option.
retail, which currently accounts only 3%; there are expectations Going forward, Tuscan Ventures will be looking at investments
with further growth in retail sector, logistics industry will also show across the value chain of 3PL, ports, rail, warehousing, cold chain,
rapid growth in coming years. trucking, and express cargo. Operating businesses and investments
India's merchandise trade is growing at over 20% annually, having are designed in such a way so as to be mutually synergistic. The
touched USD 400 billion in the fiscal 2007-08. India is carving a Company also expects next few deals to come from within our
strong position on the world trade map as a manufacturing proprietary industry network as well as sourced by our independent
powerhouse. Merchandise exports from India touched USD 155 advisory arm, Tuscan Advisory. The company is eyeing to generate
billion in FY 2008, more than double of USD 63 billion in FY 2004. net returns upwards of 25% over the next 5-7 years.
44
VC Story
Healthcare: The Emerging Investor Magnet
The Indian healthcare sector is a testament of changing times.

Bolstered by increased competition for superior healthcare 'The domestic sterile healthcare
delivery, growing patient awareness and the promotion of market is growing at around 12%
medical tourism, the industry is a groundswell of per annum.
opportunities. The aroma of this growing Indian healthcare
Mr. Vishal Manchanda
pie has certainly reached the investors' circuit. IFCI Venture Analyst, Mehta Partners
Capital Fund Limited (IVCF) is one such optimistic investor that
is here to make the most of the sunshine. In a recent deal, IVCF
invested US$ 5 million in the sterile healthcare formulation
manufacturing and marketing company, Marck Bioscience.
Teaming up with IVCF, a subsidiary of IFCI Ltd and a public
The stake acquired remains undisclosed. Mehta Partners
financial institution, is particularly relevant to Marck
served as advisors to the deal. IDBI Ventures is the other
Bioscience. With this deal, the healthcare firm now has access
private equity player that holds a stake in Ahmadabad-based
to IVCF's portfolio companies in terms of getting customers as
Marck Bioscience.
well as supplier relationships. The private equity firm is
This infusion of funds is expected to fuel the expansion plans targeting a minimum of 25% rate of return, with an
of Marck Bioscience. In an exclusive interview with IVCJ, Mr. investment horizon of 3-4 years. IVCF has launched three new
Vishal Manchanda, Analyst, Mehta Partners, divulged, 'Marck funds, India Automotive Component Manufacturers Private
Bioscience plans to expand its position globally. The company Equity Fund1Domestic (IACM-1-D); India Enterprise
is awaiting regulatory approvals for its manufacturing Development Fund (IEDF) and Green India Venture Fund
facilities in the countries of US, UK and South Africa. They are (GIVF).
also looking at expanding their current manufacturing
Much as IVCF, investors are gradually turning towards the
facilities.' With these expansion plans, Marck Bioscience is
healthcare industry. When asked about the general investor
gearing itself for the exciting times the sector is slated to
perception of this sector, Mr. Manchanda replied, 'This is a
witness. Speaking about the market growth, Mr. Manchanda
segment where not many investors have ventured into.
revealed, 'The domestic sterile healthcare market is growing at
However, the timing is right. It can be scaled up. There are no
around 12% per annum. However, there has been no capacity
issues from the pricing aspect.' He is equally upbeat about the
expansion by different players in the segment since the last
overall fund raising climate in the country, 'The valuations are
many years. As a result, the sector is currently facing a
taking a hit. Right now, private equity investors may plan to
demand-supply gap. This is the right time to expand
renegotiate deals, which are in the pipeline, on the valuation
capacities, not only to fulfill the domestic market needs, but
front. PE players are looking at more deals at this time as they
also to establish a strong foothold in the regulated markets.'
can get good bargains.'
The sterile healthcare contract manufacturing arena has also
morphed into a profitable business proposition. Currently Other deals in this sector include Acumen VC's US$ 1 million
worth US$ 2.5 billion, the market is anticipated to chart a investment in Ayurvaid; the deal between General Atlantic
CAGR of 14%. Moreover, as the industry is highly capital and Wockhardt Hospitals; IFC's investment in Rockland
intensive, it poses significant entry barriers for the Hospitals and BCCL's stake acquisition in The Clinic.
unorganised players.
45
VC Story
Advertising: Approaching the Limelight

Private equity is ramping up its presence in India's outdoor advertising play, coined as out-of-home advertising by the industry.
Serve and Volley, promoted by Mr Nitesh Shetty is one of India's largest integrated out-of-home (OOH) advertising companies, is
planning to sell 20% stake to Lehman Brothers, Goldman Sachs and ICICI Venture for US$ 58.2 million.
The company plans to raise US$ 69.86 million for its

expansion. Serve and Volley offers a glut of futuristic
services and solutions to its clients. The company's industry
experience and vendor network offers an effective medium,
thus being an interface as an integrated media buyer in the
field of outdoors for all clients. It caters to hi-end clients
such as, Toyota, ABN Amro, ING Vysa, TVS and Britannia. IVCJ organised retail, there is a need for outdoor advertising such
Research had approached the PE companies and Serve and as billboards, hoardings, mobile vans, bus shelters and
Volley, but received no response. promotional activities at the point of purchase and
television screens. Recent investments in this sector include
Currently the Indian advertising industry is worth US$ 4.73 Warburg Pincus US$ 64.27 million investment into
billion and is expected to grow at a CAGR of 18% for next LAQSHYA MEDIA.
five years. This indicates healthy potential in the industry
which is attracting PE interest. It is learnt that PE investors have managed to garner a
higher stake in media companies for a lesser price, as
Private equity and venture capital funds are increasingly compared to other sectors such as banking or
eyeing media firms, in search of lucrative investment infrastructure. However, it is important to consider that the
opportunities. The Indian Department of Economic Affairs sector has its own challenges in terms of government
has calculated that US $450 billion need to be invested in policies, inflation and its impact on the overall spending by
the country's infrastructure by 2012. This heralds good news the client. Considering the current economic scenario, it
for the Indian out-of-home advertising industry. With the remains to be seen is what valuation will occur in the near
emergence of new airports, roads, highways, malls and future?
46
VC Story
Manhattan Communications: A Strategic Step Ahead

Increasing businesses and entrepreneurs are byproducts of the growing Indian economy. Companies are vying for a greater share
of the markets they operate in. Branding and effective marketing are soon serving as imperatives for success in these increasingly
competitive times. Riding piggyback on this environment is the public relations sector. Anticipated to chart an increasing growth
curve, the industry houses lucrative investment prospects for the VC/PE world. Through its latest deal with Manhattan
Communications, BCCL is one such investor prompt in bagging the opportunity offered by the industry.
investor, they believe in our ability to service our clients.'

'It goes in line with our belief that When asked about the general fund raising scenario in the
brand building can help enhance country, Mr. Sen opined, 'Several sunrise sectors in India,
the value for enterprises in very such as, new media and healthcare are seeing a strong PE
varied industries. push. We foresee this to continue in the near term. We also
anticipate new sectors to come up, which should be
Mr. Sandeep Kapur
General Manager, BCCL
attractive to PE funds.'
The Indian public relations industry has moved beyond

drafting press releases to handle strategic and complex
Bennett, Coleman and Company Limited (BCCL) has picked
communications. Having developed an in-depth
up a 26% stake in Manhattan Communications (India) Private
understanding of businesses and the impact of
Limited through its private equity arm, Times Private Treaties.
communications, public relation agencies are now enjoying
Private advisors and a Mumbai-based CPA company advised
their moment in sun. Statistics reveal that the Indian public
Manhattan Communications on this deal. BCCL is
relations industry is currently pegged at US$ 3 billion and
considering this deal as a long-term investment option. Mr.
owing to increasing competition from players in building
Sandeep Kapur, General Manager, Times Private Treaties, in
brands, industry experts expect it to touch US$ 6 billion by
an exclusive interview with IVCJ Research, said, 'BCCL,
2010. As per the Quarterly India Venture Capital Report, the
through Private Treaties, offers easy mechanism for
second quarter of 2008 witnessed venture capital
Manhattan Communications to build its brand name in India.'
investments to the tune of US$ 89 million in advertising and
An integrated affiliate of US-based MediaMorphosis Inc., marketing companies, accounting for nearly 37% of the
Manhattan Communications India Private Limited total amount invested in India during that period. Speaking
specialises in total marketing solutions including, on this sector, Mr. Kapur said, 'It goes in line with our belief
advertising, branding, public relations, marketing and that brand building can help enhance the value for
events in India. In an exclusive interview with IVCJ, Mr. enterprises in very varied industries. BCCL is extremely
Animikh Sen, Director & Executive Vice-President - Business happy that it got the opportunity to open up this sector.'
Innovation and Technology, Manhattan Communications,
revealed, 'BCCL, with its flagship TOI, allows Manhattan to 'Several sunrise sectors in India,
better serve its clients, though this association. In a such as, new media and
connected world, we believe that the ability to serve our healthcare are seeing a strong PE
clients globally increases with this tie-up on account of the push.
network we bring to the table for them. The BCCL backing
will allow us to open more doors for our clients globally and Mr. Animikh Sen
competitively. Further, BCCL is the number one brand in the Director & Executive Vice-President
Indian media sector, with a very diverse portfolio. As an Manhattan Communications
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Focus:
Hedge Funds: Exploring
Exploring their Course in India The Experts Speak:
The Indian growth story as well as introduction In an exclusive interview with IVCJ Research,
of newer trading products have led to fund managers active in this space voice their
interesting times for the domestic hedge funds opinions and concerns regarding the current
market. Today, the Indian Government industry scenario. Pg. 54
recognises hedge fund managers as a separate
class of investors, which has enabled their entry Indian Hedge Fund Industry: Legal and
into the Indian financial markets through the FII Tax Aspects
route. In this paper, IVCJ Research has A detailed report presenting the legal and the
attempted to examines the current scenario of regulatory landscape within the Indian hedge
the nascent Indian hedge funds industry, along funds industry, along with tax implications for
with a list of the top 25 hedge funds in the the domestic and international players. Pg. 62
country. Pg. 50
50
their Course in India

Hedge Funds: Exploring their Course in India
The chronicles of history will document the year 2008 in a section different from a couple of
preceding fiscals. With economic slowdown affecting all sectors, the turn of events during
2008 is certainly not as desired. Responding to the turmoil in the financial markets, even
the hedge funds industry has failed to live up to its name.
The Global Milieu consolidating the Indian capital market, SEBI is currently allowing
According to Reuters, the global hedge fund industry stood at US$ these funds to enter through FIIs. As many as 20 hedge funds were
2.65 trillion till April 2008, more that double from US$ 1 trillion in registered with the regulator, until February 2008. Funds that have
2005. However, their performance plummeted in the last quarter of already received approvals for operating in India include,
2007, following the slowdown. This has led to a spate of trends Renaissance Technologies, DE Shaw, Vikram Pandit founded Old
within the hedge funds industry. Having reported losses, a Lane LP, Oz Management, Eton Park, Oaktree Capital Management
substantial number of hedge funds have closed up shop. In a bid to and Ecofin.
skirt losses, wary players are now withdrawing their investments.
Furthermore, fund managers are also looking at reducing The recent market melt-down has failed to dampen the spirits of
intermediary costs to attract investors. Conventionally, high net hedge fund managers targeting India. With the Indian economy
worth (HNI) individuals chart the hedge fund route. Of late, painting a promising picture over the next 10 years, players see a lot
according to Prequin Hedge, institutional interest in hedge funds is of depth in the domestic markets from a long-term perspective.
also increasing. Furthermore, capital markets are also becoming increasingly
organised and liquid, with the introduction of new products. While
Innate as it is, investors cannot resist the lure of opportunities. As a these factors form an encouraging environment for the Indian
result, the repelling investment landscape of the US and the UK has hedge funds industry, the need for deeper debt markets to further
thrust hedge fund managers towards the emerging economies in accelerate their growth, cannot be undermined. Today, the debt and
Asia. As per Eurekahedge, the Asian hedge funds industry the bond markets are the least developed segments of the Indian
constitutes an approximate US$ 150 billion of Assets Under financial industry. However, appropriate measures are already
Management (AUM), with about 1,150 funds operating in this being taken to bring them at par with the other segments.
region. These statistics are attributed to the fact that Asia houses
many fast growing economies. Hedge fund managers are taking a With the ingress of hedge funds, India is slated to witness a new
bullish stance on markets such as India, China and Taiwan. class of investors. Experts believe that it will not be long before SEBI
recognises the need of setting up domestic hedge funds and
accordingly, sets up pertinent laws. This will counter the threat
The Domestic Landscape stemming from a possibility of FIIs pulling out of the capital markets.
According to Eurekahedge, hedge funds allocated purely to India
are mostly off-shore or multi-strategy funds, with US$ 5-6 billion of
Though nascent, the Indian hedge funds market has displayed the
AUM. Participatory Notes form the traditional route of entry for
potential to grow. However, it banks on support from the regulators,
hedge funds into the Indian financial markets. In September 2007,
as well as market participants. On a cautionary note, these funds
SEBI tightened the noose around hedge funds by imposing
have to be closely regulated to avoid major defaults in the Indian
stringent regulations on the entry of Participatory Notes in the
capital markets.
country. However, after realising the importance of hedge funds in
51
Hedge Funds Private Equity Journal for India
Top 25 Asia-investing Funds by Size

Fund Name AuM Regional Manager FY 2007-08 FY 2006-07
(USD mn) Mandate Location Return (%) Return (%)
Artradis AB2 Fund 2589 Asia inc Japan Singapore 71.24 21.52
Bennelong Asia Pacific Multi Strategy Equity 2311 Asia inc Japan Channel 18.66 4.77
Fund Ltd - Class A Unrestricted USD Islands
SR Global Fund (Class B) Asia (Inc and LP) 2304 Asia inc Japan NULL 14.96 9.57
Indus Asia Pacific Fund 2100 Asia ex Japan United States Not Disclosed Not Disclosed
Artradis Barracuda Fund 1938 Asia inc Japan Singapore 48.07 6.79
Joho Fund 1600 Asia inc Japan United States Not Disclosed Not Disclosed
Indus Japan Fund 1500 Japan United States Not Disclosed Not Disclosed
Platypus Australian Equity Fund 1494 Australia / Australia -3.06 30.87

New Zealand
Tantallon Fund 1475 Asia inc Japan Singapore 9.07 18.30
OCM Emerging Markets Composite 1284 Asia inc Japan United States Not Disclosed Not Disclosed
Boyer Allan Pacific Fund Inc 1253 Asia inc Japan United Kingdom 18.91 3.05
Penta Asia Fund 1250 Japan Japan Not Disclosed 52.89
Ashmore Asian Recovery Fund 1248 Asia ex Japan United Kingdom 14.02 15.10
Portfolio Partners High Growth Shares Trust 1121 Australia / Australia 1.41 16.06
New Zealand
WF Asia Fund 1116 Asia inc Japan Hong Kong 14.55 12.63
Marathon Vertex Japan Fund - Class A 1095 Japan United Kingdom Not Disclosed Not Disclosed
BGI Japan Market Neutral Strategy Fund 976 Japan Australia Not Disclosed Not Disclosed
Value Partners Classic Fund 952 Greater China Hong Kong 8.62 26.19
LIM Asia Arbitrage Fund 933 Asia inc Japan Hong Kong 13.79 11.05
ADM Galleus Fund 918 Asia ex Japan Hong Kong 5.37 0.64
WMAM Long Short Trust 898 Australia / New Australia -4.55 24.07
Zealand
CC Asia Absolute Return Fund - USD Class 861 Asia ex Japan United Kingdom 5.75 34.59
Asian Century Quest Offshore Fund Ltd 853 Asia inc Japan United States Not Disclosed 8.24
Evolution Master Fund Ltd SPC - Class M 837 Asia inc Japan United States 11.87 8.18
Swordfish Fund Limited 786 Asia inc Japan Singapore 3.34 12.12
Source: Eurekahedge
52
Interview With Rajeev Baddepudi

Mr. Rajeev Baddepudi other security bourses, most of the funds are multi-strategy off-shore
Senior Analyst, Eurekahedge funds, adopting the long-short strategy.
Currently, the 45 to 50 pure India-focussed hedge funds have an

combined assets under management (AUM) of about US$ 5-6
billion. However, this number tends to be defected because these
talk purely about India dedicated funds. There is a host of Asia, ex-
Japan, allocating funds and we also have Indian allocation from
China. Considering the breakdown by regional mandate, operating
on recent years within the Asian region, there are more funds
focussed on countries such as, India, China and Taiwan.
Currently, the 45 to 50 pure India-focussed

hedge funds have an combined assets under
management (AUM) of about US$ 5-6 billion.
However, this number tends to be defected
because these talk purely about India
dedicated funds. There is a host of Asia, ex-
Japan, allocating funds and we also have
Indian allocation from China.
Breakdowns in terms of specific regions, about 40% of over US$ 60

billion, is in broader Asia ex-Japan mandate, 20% in Japan, another
30% in global emerging markets funds that have Asia allocation
and the remaining 10% is scattered amongst funds purely focussed
on countries such as, Korea, Taiwan and Australia.
Typically, hedge fund managers are based out of the US or UK and

they account for the total number of assets managed in that
particular region. However, in recent years, we have seen a sharp
rise in managers based out of the 4 key Asian regions such as,
Japan, Singapore, Hong Kong and Australia. Roughly, they manage
Profile of Mr. Rajiv Baddepudi about US$ 25-30 billion each and that adds up to the remaining
Mr. Rajeev Baddepudi is the Senior Analyst at Eurekahedge, an funds from the US and the UK. As a result, the market share of the
Alternative Investment Research and Consulting House, with Asian locations is eventually growing.
offices in Singapore, Hong Kong, London and New York. Rajeev
is responsible for monitoring and reporting industry trends in How do you perceive the growth of hedge funds in Asian and
each of the alternative investment spaces and the regions they
Indian markets?
pertain to, and providing content to the in-house monthly
If you look at the regulatory side of hedge funds, the Participatory
newsletter, as well as a wide range of external publications. He
graduated with an MBA from the National University of Notes issue that cropped up in November 2007 has had really quite
Singapore in 2004 and prior to that, has worked in India in a long time line and the expected thing was phased liquidation over
auditing and tax advisory services. the market to about 40%. In my opinion, those issues do not have
too much of bearing on India-focussed hedge funds. Today, there is
Profile of Eurekahedge uncertainty in the economy itself, resulting from the slowdown in
Eurekahedge has a suite of database products (online as well as the US economy. However, the overall outlook is fairly positive for
hard-copy directories) in the Hedge Fund, Private Equity, Private India, other emerging economies such as, the BRIC countries and
Real Estate Fund, Islamic Fund and Fund of Funds universes. Asia. Funds focussing on these regions have short-term volatility
The databases support qualitative in-house research. The firm strategy and are long-term value driven. As a result, they bring in
also provides consulting and marketing services.
some long-term benefits. If you look at an event driven strategy, the
market slowdown is taken into consideration. During the first
What is the current hedge fund market scenario in India and
quarter of 2008, the net flow of money was directed towards event-
Asia like?
driven funds. This data supports that all managers preferred
Looking at the hedge fund data towards the end of 2007, the total controlling or value buys.
Asian hedge fund industry has about 1,150 funds, managing about
US$ 150 billion. Since the Asian equity markets are broader than
53
Today, Private Equity funds are taking advantage of attractive What is expected of the Indian markets for the development of
valuations. Are hedge funds following this trend? Hedge Funds?
Opportunistic strategies such as, event-driven and distressed debt In the Indian hedge funds industry, there is quite a bit of run that can
tend to straddle the line between hedge funds and private equity be covered such as, real estate. In emerging markets, investment
funds. As a result, they tend to be longer term rather than long-short funds are typically based on equity markets or multi-strategies. This
or multi-strategy. Consequently, there is definitely an element of is expected to result in the deepening of the Indian market by
value-driven holding period return. Furthermore, as markets exchange of products and increasing addition of debt-based
deepen, either in terms of the number of players or products instruments. We will be seeing a lot of event driven funds. Actually,
available, it experiences a period of shorting. Since we already have we are yet to witness a phase where newer products are added and
a liquid derivatives market, the issue of shorting is taken care of managers are allowed to take positions with debt.
automatically. In my opinion, there is certainly room for branching
out of hedge funds, specifically offshore. We broadly classify funds into ten strategies and India only covers
two right now. Going forward, there is still improvement for growth in
Furthermore, there is also a possibility of influx of talent into the the remaining 8 strategies.
industry. Following the shake out from financial institutions, people
want to start their own funds. In the past 2-3 years, we have seen Can you name the strategies?
quite a few of, not just domestic, but cross-border M&As, outside Broadly speaking, there are the directional funds, long-short, global
India. It can be expected that at least some of these talents will have macro and CDA managed future funds. We also have opportunistic
experience in that area. Considering these factors, I am positive that strategies such as, event-driven and distressed debt. Further, we
more funds will be trying out these opportunistic strategies. have the quasi-market neutral or market-neutral strategies such as,
arbitrage and realistic value. There are also the multi-strategy funds,
PIPE funds and funds based on residual strategy. Of late, we are
In the past 2-3 years, we have seen quite a few witnessing the launch of funds based on market neutral strategies,
of, not just domestic, but cross-border M&As, which has ample room for growth.
outside India. It can be expected that at least
some of these talents will have experience in
that area. Considering these factors, I am Broadly speaking, there are the directional
positive that more funds will be trying out funds, long-short, global macro and CDA
these opportunistic strategies. managed future funds. We also have
opportunistic strategies such as, event-driven
and distressed debt. Further, we have the
Apart from long-short and multi strategies, what other quasi-market neutral or market-neutral
strategies are prevalent in India?
strategies such as, arbitrage and realistic value.
In India, by and large, long-short and multi strategies are the most
prevalent. However, in recent times, we are witnessing the launch of
value-driven strategies. In late 2007, arbitrage-driven hedge funds What is the future outlook?
were also launched. Going forward, volatility-based hedge funds Roughly speaking, we are positive in our outlook for the Asian
such as, arbitrage and broader market-centric strategies are going region as a whole. Any projections at this point in time, in terms of
to have more play. total assets in 2009 or 2010, are not going to be realistic.
How do you see the US recession affecting Asia and India? Roughly speaking, we are positive in our
It is a sort of cycle where many factors have an effect. Funds that are outlook for the Asian region as a whole. Any
already operating in India, have more experience in the region, will projections at this point in time, in terms of
try to minimise their losses and costs. I am uncertain for the next 3-4
total assets in 2009 or 2010, are not going to
months, but looking at the end of 2008 or early 2009, the recession
be realistic.
will not adversely impact India or Asia to a great extent.
54
Interview With Mr. Kalpesh Kapadia

Mr. Kalpesh Kapadia comprises offshore investments from China, Taiwan, Europe and
CIO, Indusino Capital Bahamas, as well as onshore investments from Cayman Islands.
Indusino Capital revolves around the long-short strategy, with an

investment horizon of 12-18 months. As part of its strategy, the
fund also invests in US or European companies that benefit from
those in Asia. In 2007, Indusino Capital was ranked the second
best performing hedge fund in the Asia ex-Japan category.
What is your investment criteria?

Our investments are based on five distinct principles. Firstly, we look
for a large market opportunity. The total available market has to be
quantifiable in billions of dollars or hundreds of millions of units.
Furthermore, the target market or the industry has to grow 2 to 3
times the GDP. After identifying our target markets, we look for
companies that are competitively best positioned through their
products, technology, business model and strategy. In other words,
their competitive advantage has to be durable and sustainable. We
are not interested in niche businesses, but in large enterprises that
are scalable.
After identifying our target markets, we look for

companies that are competitively best positioned
through their products, technology, business model
and strategy. In other words, their competitive
advantage has to be durable and sustainable. We
are not interested in niche businesses, but in large
enterprises that are scalable.
We also seek a competent management team with good execution

Profile of Mr. Kalpesh Kapadia skills. Moreover, their management incentives have to be aligned
Mr. Kalpesh Kapadia is the Founder and Chief Investment with the interests of the minority shareholders. Lastly, we look for
Officer of Indusino Capital Management, a San Francisco bay- reasonable valuations, relative to the growth prospects of the
area based asset management fund, investing in India, US and business.
China. Prior to founding Indusino, he earned an MBA from
What is your view of the Indian market?
Carnegie Mellon University, after which he had a successful
The Indian macro story is mixed right now, given that we have not
career as a stock analyst on Wall Street. In 2004, he was ranked
built the infrastructure which is needed to propel growth. We have
the #1 analyst across all sectors in the US by the Wall Street
squeezed out incremental growth from debilitating infrastructure
Journal.
and limited labour force. We need to work on these aspects in order
Profile of Indusino Capital to sustain the growth rate that we have had for the last five years.
Initiated in October 2005, Indusino Capital is a 2 and a half year However, in terms of micro story, India is great. There are always a
old fund, with operations in India and US. Having already set up handful of companies that fit our criteria of fast growing markets,
offices in Singapore, it is yet to begin operations there. The US$ well-positioned enterprises, scaleable businesses, great
150 million fund invests between a third to half of its assets in management and reasonable valuations. Nonetheless, we are not
India and the remaining in Asia, ex Japan, which includes China, bullish or bearish on India.
Taiwan, Korea, Singapore, Hong Kong, Thailand and Vietnam.
Over the next 6 to 12 months, inflation needs to be controlled and
Currently, Indusino Capital operates two funds. One is US-based
the Government is working towards it. However, it needs to improve
and the other is Cayman Islands-based. Both the funds have
the supply bottleneck to further drain out inflation.
investments from investors holding the FCCI license from
Mauritius. The US-based fund, which is the larger of the two, has
investments from investors based in the US. The other fund
55
Which sector do you look at for investing in India? How can Indian regulators improve the hedge fund scenario in
In India, there are largely four sectors that receive investments. the country?
These sectors are infrastructure, domestic urban consumption, In first quarter of 2008, there was liquidity dry up in the stock market.
outsourcing and domestic rural consumption. We are not investing In such a scenario, the process of capital raising, to fund the growth
in rural economy as it is growing slower than the overall GDP. We of mid-cap small cap companies gets stifled. As a result, such
are not investing in outsourcing as it is dependent on the western companies have to access debt, as opposed to equity. Today, the
companies. However, we are invested in infrastructure and in Indian debt markets for corporations are not as developed as the
domestic urban consumption. equity markets. There is a need to develop the corporate debt market
in order to enable the companies to borrow money to fund their
growth. The regulators also need to improve liquidity. In my opinion,
In India, there are largely four sectors that broader participation from mutual funds and individual accounts is
receive investments. These sectors are required. Furthermore, SEBI also needs to educate investors and
infrastructure, domestic urban consumption, highlight the long-term advantages or benefits of investing in equity
outsourcing and domestic rural consumption. markets. However, it's a long process and will take over five years to
We are not investing in rural economy as it is take shape. By and large, the regulators in India are smarter than
any other country.
growing slower than the overall GDP.
In my opinion, broader participation from

What do you think of SEBI's view on the Indian hedge funds mutual funds and individual accounts is
industry? required. Furthermore, SEBI also needs to
Of late, SEBI is more open to hedge funds registration. Since October educate investors and highlight the long-term
2007, they have started phasing out Participatory Notes. A number advantages or benefits of investing in equity
of hedge funds are now registered and SEBI is inviting people to markets. However, it's a long process and will
come to the front door, which is very encouraging. take over five years to take shape.
How will the US recession affect your fund?
In the first quarter of 2008, all the emerging markets have recorded Today, private equity players are taking advantage of the falling
significant corrections on account of the US recession. At Indusino valuations of companies. Are hedge funds doing the same?
Capital, our approach is based on company-by-company Today, we are witnessing several PIPE transactions, where the
microanalysis. Of course, we are affected by the macro scenario. company issues equity to private players. Hedge funds are also
However, as long as we can find companies that fit our investment following this trend. Only difference between hedge fund and
strategy, we are going to do fine, over the next 3 to 5 year period. private equity is that the investment time horizon for the assets are
very small. Private equity funds have a 3-5 yr lock up period. In case
If the US recession is deep and long, it will affect the world. However,
of hedge funds, there are monthly withdrawals and subscriptions.
if it is short and shallow, its impact will be less. In my opinion, the US
For instance, if you have an asset, which you buy long term, and if
recession will be long, lasting over 12 months and shallow. This
your investor wants to withdraw, it can interrupt your investment
forms an ideal scenario for investing in the high growth economies
strategy. That is the only reason why hedge fund managers are not
of Asia.
doing it more.
If the US recession is deep and long, it will

affect the world. However, if it is short and
shallow, its impact will be less. In my opinion,
the US recession will be long, lasting over 12
months and shallow. This forms an ideal
scenario for investing in the high growth
economies of Asia.
56
Interview With Mr. Siddharth Shah

Mr. Siddharth Shah Profile of Nishith Desai Associates
Partner, Nishith Desai Associates Nishith Desai Associates (NDA) is a research-based legal and tax
counselling law firm with offices in Mumbai and Bangalore,
India, Palo Alto (Silicon Valley), USA and Singapore. The Company
advises its clients on both, in-bound and out-bound transactions.
It's legal and tax advice is backed by business strategies. It also
enables corporations to globalise their businesses by
anticipating the regulatory environment of today and tomorrow
brought about by bodies such as, the WTO, OECD and so on. NDA
also assists government (India and Overseas) in carrying out
public policy reforms.
NDA was awarded 'The Indian Law Firm of the Year 2000' and
'The Asian Law Firm of the year 2001 (Pro Bono)' by the
International Financial Law Review (IFLR), a Euromoney
Publication. In September 2003, in an Asia survey conducted by
International Tax Review, the Company was voted as a top-
ranking law firm and was recognised for its cross-border
structuring work.
What is the current regulatory scenario for hedge funds

operations in India?
SEBI perceives hedge funds as hot capital, which, if the markets are
adverse, may go away overnight. This would have far-reaching
implications, in terms of the exchange risk. Until September 2007,
the regulators were not comfortable with these effects of hedge
funds. However, things have changed post September 2007, owing
to a number of factors. Firstly, we now have sufficient foreign
exchange reserves. Furthermore, the RBI and SEBI have developed a
degree of comfort with the capital going out. Consequently, they
have opened up a regime for hedge funds to come into India as FIIs
or sub-accounts to FIIs. In my opinion, that is a significant change in
the mindset. Today, international hedge funds operate quite
regularly in the Indian market, either as an FII or through the FDI
route. In fact, they have actually turned out to be one of the biggest
competitors for private equity players in India and they are much
Profile of Mr. Siddharth Shah more aggressive.
Mr. Siddharth Shah heads the Funds Practice Group at Nishith
Desai Associates, a prominent Indian law firm, with a strong Unlike private equity players, who also look for a significant amount
focus on the funds industry. He has a vast experience of working of involvement in the management and administration of a
on a variety of funds, including domestic and offshore private company, hedge funds are still sticking to their approach of being
equity funds, offshore investment funds and mutual funds. mere financial investors. As a result, at times, they are preferred over
Within the Funds Practice Group, he deals with issues related to private equity investors in certain situations, where the funding is
structuring, regulatory framework, exchange control, incentive- more critical than their involvement in the management.
based management structures and so on. Besides the Funds Consequently, hedge funds are entering into a lot of deals that
Practice Group, he is also a member of the firm's M&A and could have otherwise, gone to private equity players.
Banking and Structured Finance groups. He focusses on
advising clients on corporate and securities law issues and on Are there any domestic hedge funds operating in India?
structuring of inbound, as well as outbound investments. No. This is primarily because the regulatory framework today does
not allow or facilitate the creation of such private vehicles. Today,
He has authored various articles as well as research papers and there is a category of unregistered products that have come up for
has also spoken at several conferences. Prominent among these private equity purposes, which are not subject to any regulatory
articles and research papers are "Venture Capital at Crossroads", restrictions. However, it is unclear in terms of what such private
presented at the CII Venture Summit at Bangalore; "Securitisation equity funds can invest into. Furthermore, there are not enough
and Reconstruction of Financial Assets and Enforcement of products for derivative, hedge funds or corporate hedge funds that
Security Interest Ordinance, 2002 - Boon or Bane?"; "ADR operate in the Indian market. Traditionally, hedge funds would have
Offerings by Indian Companies"; "Acquiring Companies in the operated in a hedge position and that is why they actually prefer an
US"; "Issues in the domestic takeover of companies" for The FII or off-shore structure where they could go long on a stock and on
Economic Times, India; "Legal and Tax issues in Cross-border the back of it, go out and buy a Participatory Note with a put option.
M&A" and "Foreign Investment into India - in comparison to In the domestic context, some of these products do not exist. That is
China", OFC Asia Pacific Journal, December 1996, Campden the other reason why we have not seen a significant amount of
Publications, London Practice. domestic hedge fund interest. However, things are going to change.
57
In India, many of the mutual funds are looking at some form of intended to be. Traditionally, hedge funds accepted a few million
adopting a hedge fund strategy. Over a period of time, we may see dollars as minimum investments. Over a period of time, this
mutual fund using a hedge fund strategy. minimum investment size has come down to a few hundred
thousand dollars. Furthermore, hedge funds, by nature, use
You earlier mentioned that although SEBI is welcoming hedge aggressive investment strategies that run a higher risk. Clearly, from
funds, there is still some controversy in terms of hedge fund a risk appetite perspective, not all investors will find hedge funds
registration with SEBI. Could you please elaborate on this issue? suitable. Consequently, investors who do not have enough network,
will not be able to withstand such a write off. In my opinion, this is a
I would say that here, there are two phases. The initial phase was significant issue that may arise.
where the regulators did not recognise hedge funds as a separate
category and treated them as any other offshore fund. Many hedge Secondly, many hedge funds have consequential commitments
funds at that stage actually got registered as an FII. This was from their general partners or sponsors. This could lead to a
followed by a phase, where even overseas regulators recognised situation, where GP interest becomes substantial, as compared to LP
the size and might of a hedge fund. Consequently, this turned over interest. As a result, one expects a conflict of interests.
a new chapter in the hedge funds industry. However, the regulators
then became aware of the size and implications of the hedge funds There is also a third issue from an investor perspective. Traditionally,
operating in the market and they felt the need to monitor it. many of these hedge funds are being operated, based on an
Considering the market size and the kind of foreign reserve India individual track record. Consequently, they are more individual-
had at that point in time, allowing hedge funds to freely operate in centric than institutional-centric, unlike mutual funds. Over a period
the market could have created a significant amount of volatility in of time, in case individual efficiency goes down or if you lose the key
the market. Furthermore, the risk of flight of foreign capital is individual, the expected return from the hedge fund is likely to get
significantly higher with such players. As a result, the regulators significantly impacted.
developed an internal policy view that did not recognise hedge
funds under the FII route. Consequently, most hedge funds were From the hedge fund perspective, I would say that as they grow,
operating through Participatory Notes in the Indian market and they investor expectations rise consequentially. In my opinion, many
continued to get exposure in the domestic arena. hedge funds have not been able to live up to the expectations of the
investors. This is a challenge in terms of raising capital for new
In September 2007, the regulators curtailed Participatory Notes hedge funds.
exposure, on account of concerns regarding their transparency.
SEBI also recognised that India now has sizeable foreign exchange Considering the ongoing sub-prime crises, leveraging gain is a
reserves and the domestic markets are generally attractive, with bigger challenge. This is primarily because hedge funds thrive on
greater depth, as compared to the earlier situation. I believe it may the leverage to deliver super normal returns. The moment there is a
allow funds with a contrarian strategy such as, hedge funds as it credit squeeze; there is a direct impact on the investment strategy of
could help in balancing out some of these sentiments in the Indian hedge funds. For example, in the Indian context, leveraging for
market. In September 2007, the regulators formally announced that investing into shares is currently not permitted by RBI. Clearly, there
hedge funds would be allowed to invest under the FII route, as long is no finance available and that poses another challenge for
as they fulfill the required criteria. The only reason why hedge funds domestic hedge funds. Severe restrictions on External Commercial
may still not be eligible to come under the FII route or SEBI may not Borrowings do not permit domestic hedge funds to leverage from
grant them registration is because they do not fulfill the required international markets, which could prove cost effective for them.
criteria as FII. For instance, some hedge funds are not regulated,
which is an important criterion for an FII registration. Some of them From an investee company perspective, today, there is enough
do not have audited financial statements. Hedge funds that are not choice available in the market place on which player to really
willing to comply or do not comply with these requirements are not approach. However, it is possible that an investee approaches a
eligible, prima-facie, to get an FII registration. At least in our hedge fund considering it to be a private equity player or vice-versa.
experience, SEBI has not been rejecting any applications on the In order to avoid such an information mismatch, entrepreneurs
grounds of it being a hedge fund alone, which used to be the case should be careful while choosing an investor.
earlier.
SEBI has drafted a regulation that is an equivalent of the Investment Looking at the current scenario of US recession from a legal
Advisors Act of the US. The draft was out for public comments, last perspective, how would it affect the hedge funds industry?
year and post-implementation; we might see some degree of Today, a major chunk of private capital, whether it is venture capital,
regulation for advisors or managers of the fund. Furthermore, a lot PE or a hedge fund, comes from US. As a result, an economic
of private funds that are currently being advised or managed by slowdown or credit squeeze in the US is expected have an impact on
other unregulated entities are expected to fall under the purview of the ability of an institutional investor to deploy capital outside the
this regulation. US. Furthermore, in order to deal with the recessionary trend, a lot of
domestic regulatory policies in the US may encourage investments
What are the possible controversies that could arise from the to go back into the domestic economy, than go into the other
perspective of the stakeholders of a hedge fund? emerging markets.
Considering an investor's perspective, there are more controversies On the positive side, the US recession may compel some of these
around domestic hedge funds than offshore funds. This is because, for funds to diversify and consider other emerging markets. This could
an offshore investor, India is just another market. In case of regulatory lead to an increase in the amount of capital flowing into the other
issues in the country, these funds will go to other markets. markets. It is early to predict which way the trend will go. The
positives and negatives of the US recession will only evolve as the
First of all, hedge funds are unregulated. Additionally, over a period markets continue to develop.
of time, these funds have become a lot more retail than they initially
58
Interview With Mr. Krish Krishnan

Mr. Krish Krishnan, Why Carbon credits?
CEO, Green Venture Capital Different issues have been coming through in the environment
space. Today, climate change and global warming are a concern,
within the green space. These are directly related to CO2 or carbon
emissions and foot prints issues. Today, there is a consensus that the
increasing CO2 levels are leading to climate change and there is a
need to address it. According to me, the most fascinating part of the
carbon issue is that for the first time, it is polarising the green
movement, as well as the financial movement. What is seen as a
very broad consensus in order to make a good short-term impact
and a good strategic long-term impact, is to deal with CO2 emission
level reductions, which is really a guiding force. However, there is
clear recognition that regulation alone is not going to do the trick. It
is going to need a lot of participation from other stakeholders and
regulators, who write issues such as, complaints and so on.
Furthermore, it is also going to be market participants such as,
investors, local communities and NGOs that will create the impact.
This is the first time that there is enthusiastic participation from all
the various participants and that is what we refer to as carbon
commerce.
What is your mission?

We call ourselves 'carbon commerce catalysts'. Looking at our fund
and various other initiatives, we see ourselves playing a very critical
role in serving as a catalyst or a facilitator in making things happen
to the best of our ability. We can pick on this unique role of being
carbon commerce catalysts and bring about changes, which make
a positive impact on the regulators, the community, the investors, as
well as the employees.
We have an incredible opportunity in front of us because it is not

often that one has a chance to do well by doing good. There are a lot
of ways such as, equities and derivatives to trade and make money,
but here we have a chance to trade and do good. Moreover, that is
what is exciting to all of us - be it in our Mumbai office or our
associate offices in New York or London, this is our theme. Of course,
we are a fund interested in investor relations. However, we are not
purely concerned about money matters and are quite focussed in
our chosen area of operations.
Profile of Mr. Krish Krishnan
Mr. Krish Krishnan is a Chemical Engineer from IIT Chennai and
How do you identify companies for investments?
has done his Masters in Environment Engineering from Cornell,
US. Having spent 20 years in the US, he has started 4 different Our initial area of focus is renewable energy, small-scale hydro, mid-
enterprises in the green space. Though largely US-centric, he has scale hydro and solar projects. Of late, we also invest in bio mass
experience in the global market. projects. We look to find these projects at an early stage or when
they are just getting off the ground. We work very closely with project
sponsors or developers and lend our environmental expertise. We
Profile of Green Venture Capital do not work as services providers and consequently, do not charge
Initiated in 2002, Green Venture Capital is an alternative for sharing our knowledge. We help our investee companies with
investment fund. It is a series of funds that operates around the entire carbon credit identification process followed by a rigorous
concepts that are tried and tested around the world. Typically, documentation procedure, as a part of our due diligence and
Green Venture Funds are a dedicated family of funds that are support to a project. As a result, we are pro-active buyers. We
focussed on the carbon commerce area. This holds true for this develop projects from the design stage onwards and build
fund. In order to avail the tax benefits, the fund is based out of relationships in mid-tier companies. We even identify projects that
Grand Caymans and its investment manager is based out of may be ignorant about carbon credits and we educate them about
New York. The fund represents money from North American and the concept. Ultimately, when the project yields carbon credits, we
contractually buy them. Our's is a classic dis-intermediation strategy.
European investors. Apart from Mr. Krishnan, Green Ventures
We wanted to understand the market dynamics and identify areas
Fund has other founding partners based out of New York and where we can bring in efficiencies in such a young market. Sitting
London. on the sidelines, we have spent about 2 years studying the Indian
market and we have also done consequential market signification
India Carbon Fund 1, with an initial capital allocation of Euro studies. As a result, we know exactly where to put our money.
200 million, is the first fund launched by Green Venture Capital.
As the name suggests, India Carbon Fund 1 is a purely India- What is the current carbon credit market like?
focussed fund that is expected to invest in clean energy projects Considering the carbon credit market today, typically, a project
yielding carbon credits. In a way, it is also considered as a sponsor will contract a consultant to find a buyer. The consultant will
commodity fund or carbon finance fund. also charge fees to the project sponsor. However, today, most of the
59
consultants have neither the credibility nor the network to find a MCX is trying to launch a carbon credit fund-trading platform.
buyer. As a result, they approach the next level of consultants, who Will this affect you? How do you see it?
have potential buyers. Consequently, there are many intermediaries According to me, it could be an important and a positive move in the
involved, resulting in an increase in the final price of carbon credit. market. Considering the chaotic nature of the markets today, price
Today, we have approximately 3-5 layers of intermediaries to take discovery is an issue. How do you value a carbon credit? Sometimes,
care of the company's carbon reduction targets, which are there are irrational expectations from sellers, mostly because of
according to the Kyoto Protocol and the EU's Emission Trading misguided information from various intermediaries. When you look
Scheme (ETS). at carbon asset classes, within carbon credit, we have the Certified
Emissionaries (CERs), which are traded. We also have projects at the
At Green Venture Capital, we try to bring in classic efficiencies green field stage and there are credits evolving at various stages
through disintermediation and elimination of all the layers of through the certification process. If you really were to consider a
intermediaries. We pay for and do it ourselves. As a result, we give a classic commodity fund, they all represent different asset class of
better price to both, the buyer as well as the seller. It is a simple investments. Today, there is confusion between CER and EUAs,
model and we are able to apply it in India as the domestic carbon which are the commodities traded in Europe. All of these have a
credit market is at an early stage. The 3-year old Indian carbon credit different price point. From that standpoint, a major player such as,
market is very fragmented. We are rigorous with our due diligence MCX can actually get involved and generate enough volumes to
and risk management practices. That is our carbon credit strategy, have a real market. This will result in good price discovery, as well as
which is the focus of the first fund out of the Green Ventures Fund price setting mechanism. With the trading platform in place, there
family. will not be crazy prices for immature asset classes or Indian asset
classes, which are tradable. While today, expectations regarding a
What are your future projects? global price mechanism might not be true, eventually, all of that will
be rationalised. We will see what happens. If it works out, it is going
We are coming up with a series of Carbon Commerce Funds in to be good. Be it disintermediation role or price discovery, I believe, all
different parts of the world, with India taking the lead. More of these things will make the market more efficient.
importantly, I see our Indian office becoming larger considering the
availability of the required talent. Moreover, this will enable us to How does valuation happen for Carbon credits?
position ourselves as an internal KPO for our family of funds. India is
a KPO for other hedge funds and we see no reason why it cannot be In Europe, basically, there are two yardsticks - the EUA trading and
so for carbon credit. That is a part of our larger mission. Yes, it is a the secondary CER trading. Though not very liquid, there is a carbon
fund but it is also little beyond that. That is a unique sort of design in credits market in Europe.
terms of Green Ventures Fund.
From our perspective, there are projects at the idea stage such as, the
Presently, we are in the process of teaming up with a Chinese equity classic green field stage projects, which have submitted documents
fund to set up a Carbon Commerce Fund. This is because the for various stages of approvals. For us, each of these stages
Chinese carbon credit market is bigger than India. Furthermore, the represents a certain type of discount from the price point perspective
Government of China often gets involved as a facilitator in bringing to the other two yardsticks. Another thing is the intrinsic project risk
large projects off the ground, resulting in lower risks. This fund will itself. For example, if you are investing in a biomass project, you need
purely focus on the carbon area. We will jointly manage it as co- to look into the fundamentals such as, consistent supply, because
investors. I hope that the fund will be set up by the end of the year carbon credits are multi commodities. If the supply dries up, the plant
and will be our next fund. In 2009, we are planning to set up a will shut down in 2 years and there will be no credits then. We look at
Shariat fund that is compatible with Islamic principles. It will be a those kinds of things. We have developed our own risk
family of hedge funds. management methodology.
What are your plans apart from Carbon Credit Funds? Fundamentally, there are two types of risks - one is the stage of
maturity of the carbon credit as an asset class and second is in the
Apart from Carbon Credit Funds, we are interested in developing intrinsic project risk.
our own projects. Today, there are interesting clean technology
opportunities in India that are relatively untapped. We have
expertise in this area on account of our experience. We actually SEBI wants to make the Indian hedge funds industry more
have an operating company under Green Venture - Green Ventures regulated. Does Green Venture Capital come under the purview
Renewable India, where we are in the process of developing our of this decision of SEBI?
own series of renewable projects. Every renewable energy project, At Green Venture Capital, we are playing our role as buyers of an
when commissioned, will earn carbon credits, which will go to our export commodity, which is bringing in Foreign Exchange earnings.
fund. In a way, it is synergistic. It is an extension of our broader Today, several concerns are irrelevant to us, even the current
carbon commerce approach, where we are not just carbon credit regulatory guidelines. However, in the future, if there is enough
players, but also renewable energy players. Similarly, we are looking activity in this space, where there is a different type of tax treatment
at opportunities to sponsor energy efficiency projects. We will be and TDS is put in effect, we will have to look at another type of
getting into other clean technology projects. We are getting into regulatory treatment.
renewable energy projects either as investors or as developers, all
under our operating company. What is the outlook of this sector?
We always look to find partners, whether it is financial partners,
We have grand goals, but realised that we needed to learn the local project sponsor partners or just entrepreneurs with great ideas, as
market. It was a bit of a challenge, but we decided to study the market we are focussed on developing a series of projects with specific
and build the network for some years before plunging into it. relationships. We are not looking at a series of transactions in the
market and that is why, we are not passive investors. We are more of
carbon credit catalysts.
60
Interview With Mr. Janak Jethmalani,

Mr. Pashupati Advani
Mr. Janak Jethmalani
Founder & MD, Avatar Investment Managers representing over 600 brokers across the nation. He was also
Mr. Pashupati Advani instrumental in founding the Securities Industry Association of
Investment Advisor, Avatar Investment Managers India and has represented the Indian broking community on
several policy-making committees of Securities and Exchange
Board of India. Pashupati is a popular commentator on the
markets on CNBC and NDTV.
Profile of Avatar Investment Managers

Avatar Investment Managers is a SEC registered, Mauritius-based
fund, with 60% of its investors as foreigners.
What role does an hedge fund play and what is your main
objective?
Mr. Jethmalani: Hedge funds, to a large extent, serve the role of
being able to extract more from the market than its true valuation.
We try to make money on both the sides of the market. However,
sometimes in the rising markets, all stocks go in one direction and
we lose money on one of the two sides. Nonetheless, the main
aim is to try to make money on both sides of the market.
How do you view the SEBI guidelines and why are they so
stringent for hedge funds?
Mr. Jethmalani: Hot money causes a problem for capital markets in
India. At times, markets do not perform well because of the hot
money going out of the country. Considering the amount of volatility
it brings, I certainly do agree with SEBI's attitude towards hedge
funds. However, on the other hand, some funds are here to stay.
Their earnings and quarterly reports make a lot of difference. The
fact that hedge funds are here to stay and in the long-term will ride
out these markets, says something about the management of the
hedge funds. In my opinion, to avoid hot money, hedge funds can
have a lock up of one year. That way, there will be no money that can
jump when the market collapses or goes down and that is a way to
avoid hot money.
Mr. Janak Jethmalani
Mr. Advani: Today, the hedge fund industry is a US$ 3 trillion market
and consequently, it cannot be ignored. Technically speaking, a
Profile of Mr. Janak Jethmalani private equity fund is also a hedge fund but with a longer lock in
Mr. Janak Jethmalani is a graduate from the McGill University, period. In my opinion, SEBI is trying to manage the volatility in the
Montreal and a former member of the Institute of Chartered market and is not being stringent towards hedge funds in particular.
Accountants of Ontario, Canada. From 1982 to 1994, he worked
in the financial services industry in New York, acquiring There are different types of hedge funds. Where do you classify
experience at, among others, Touche Ross & Co, Drexel Burnham your fund and in what ways do you invest?
Lambert Inc, DBL Liquidating Trust, and New Street Capital. Since
Mr. Jethmalani: We are a general long-short fund. We are not involved
1997, he has been advising non-US clients on alternative
in Mergers & Acquisitions or statistical arbitrage. We are specialised in
investment strategies. Currently, he manages in excess of US$
stock picking, sector allocations and portfolio constructions. Based on
116 million. Having played an advisory role in the mergers of
our specialisation, we have developed a portfolio that fulfils the need
several large Indian corporations such as, Union Carbide, Torrent
to survive in these markets and earn good returns. However, we do not
Power and Nutrine, Janak also has significant experience in the
specialise in any sector. Today, we are relatively new, but we have plans
field of Mergers and Acquisitions.
to become a US$ 200 million fund in time.
Profile of Mr. Pashupati Advani Mr. Advani: We plan to close the fund at US$ 200 million. Today, the
Mr. Pashupati Advani has over two decades of experience in market is mired in several issues. Over the past 2-3 months, we have
capital markets. A graduate of the Imperial College in London seen several large funds, which have not been able to get out of some
and an MBA from the University of California, Berkeley, positions. Once we set-up the US$ 200 million fund, we will carefully
Pashupati became one of the youngest ever partners at Bear plan our investments in accordance with our strengths.
Stearns and Co in New York City in the 1980s. In 1990, he moved
back to India in order to rejuvenate his family stock-broking firm. What made you consider India for investments?
His combination of international exposure and intimate Mr. Jethmalani: We believe in the long-term growth story of India.
knowledge of the domestic markets have made him an We see absolutely no reason why this economy cannot grow at 7.5-
influential figure in the Indian capital markets. He is a former 10% per annum. The earnings growth rate in India is certainly
President of the Association of NSE Members of India, a group higher than America or Western Europe. Today, very few economies
grow at this rate. Furthermore, in the long-term, I see a lot of
61
potential in this stock market, as opposed to its western We are also interested in the pharmaceutical industry and we are
counterparts. present across that sector. I wish, there were higher allocations
towards the pharma sector. We are not too bullish on the Power
Mr. Advani: In terms of size, India has a distinct deep market. Unlike sector as we feel that today, it is subjected to market risks. The beta of
several other countries, India presents lot of investment that sector is so high, that it may come down at a faster rate than the
opportunities. If the market is not big, you cannot absorb huge market and therefore, that is something we would try on the short
amounts of funds. This is a change that has been witnessed in side.
Private Equity market as well. We are confident of our knowledge
about the Indian market. India is one of the few countries, which Mr. Advani: The media and the cable industries are other interesting
commands country-specific funds, as opposed to region-specific sectors from our perspective. Despite the fact that the media sector
funds, seen elsewhere. This is because, in India, there is a need of a tends to be overvalued as compared to others, it is lucrative as the
strong local presence to outperform the market. This is a proven fact. end users are still there. The cable industry looks exciting and will
Today, almost every fund has a local office in India. make more sense once the Conditional Access System (CAS) is
implemented. Sometimes, more than the sector, the suppliers to the
Owing to the market volatility, the valuations of the companies sector are more promising. For example, last year, we invested in the
have come down and the market players are taking advantage suppliers of auto ancillaries, rather than auto ancillary themselves.
of the situation. Do you think even hedge funds are in a
position to benefit from such a scenario? Mr. Jethmalani: This year also, we are long on the engineering sector
Mr. Jethmalani: If you can like the stock at 100, you should also like that is supplying the power sector but are short on the power sector
it at 70, but it is relative to the market. As a hedge fund, we have the itself.
flexibility of having bought a stock at 100 and maybe sold NIFTY
against it. Therefore, at 70, NIFTY, in theory, will be 30 points lower Mr. Advani: The power sector is a regulated industry. Moreover, with
than from where we sold it. Possibly, we would put the trade on the elections coming, the regulators are not going to be able to raise
relative to NIFTY. That is the flexibility we have. However, we face a lot the prices. Power companies will be forced to give power away. As a
of competition from private equity players. They operate in the small- result, some compression in the margins will happen. This whole
cap sector, as it also provides liquidity and price for them. Many thing may take around 6 months to play out.
private equity funded companies have merged with sleeping listed
companies. Mr. Jethmalani: We also consider the financial sector. Within a sector,
our strategy is to identify the winners and losers. For example, on the
Looking at the global economic slowdown, will your fund be mobile communication side in the telecom sector, we are mulling
affected by this environment? over the options for which we could take a long position and hedge.
Mr. Jethmalani: Definitely. America is the largest economy and there We have already identified Bharti Telecom, RComm, and Tata
is still no doubt that when America sneezes, the rest of the world Telecom as the apparent investment options.
coughs. India too, is affected by this American sneeze. Money has
already gone out of the country and that is the reason why the What are your comments on the issue of Participatory Notes?
market has gone down. Furthermore, everyday I see the relation Mr. Advani: Since we are registered directly, we do not have that
between the Indian and the US market increasing. The decoupling issue to face. We look at Participatory Notes as a way of doing
between the markets is not happening. Assuming that the US is business. In my opinion, they are gradually going to be phased out.
going to go into recession, the Indian market, as a result, is going to As there is no incremental new business, they are gradually
get affected. However, the question now is - what do you do to compressing their position. The registration process is still
mitigate certain risk factors? If you run a smaller balance sheet and cumbersome for a worldwide fund, which may not want to have a
have less exposure to the market, you can survive very well. You take large position in India.
this opportunity as it comes once in a lifetime. Today, investing in
stocks makes sense, but we still have to protect ourselves on the Participatory Notes also serve counter productive in case of funds
downside, to ensure that we do not run into problems when the registered offshore from US and have a US structure, where a
market collapses again. Mauritius feeder is required. In the end, if a fund is willing to disclose
its final buyer, then it will be able to operate, and I hope that is the
Which sectors does your fund focus on? way SEBI takes it. At the end of it all, there is economic efficiency -
Mr. Jethmalani: Our fund is broken down into sectors we like and that will matter.
sectors we do not like. We take a long position in sectors we like,
such as securities. We take a short position in sectors we do not like,
such as the brokerage industry. Particularly, if you look at the Participatory Notes also serve counter
financial services area, we like the big private banks. In our opinion, productive in case of funds registered offshore
more bad news is expected to come on the brokerage side of the from US and have a US structure, where a
businesses as volumes have dried up. Furthermore, anybody who is
making money, is doing so by rotating or block trading and that is Mauritius feeder is required. In the end, if a
not going to sustain their business models. On the other hand, fund is willing to disclose its final buyer, then it
corporate lending is still required in case of banks. Their net interest will be able to operate,
margin may suffer because of the rise in inflation. However, I believe
that the stipulated earnings out of long-side will far outweigh the
brokerages that we have on the short-side.
62
Energy Sector
Tax Angle
Hedge Funds - An Indian Perspective

Siddharth Shah & Divaspati Singh
Nishith Desai Associates
Abstract
In this paper, Mr. Siddharth Shah and Mr. Divaspati Singh of Nishith Desai Associates present the legal and the regulatory environment for operating
domestic as well as offshore hedge funds in India. This paper also encompasses the tax aspects associated with the Indian hedge funds industry.
Introduction were responsible for the phenomenal rise of Bombay Stock

Exchange (BSE) in December 2003, as well as for Black Monday in
Termed as rogue investors, blamed for global market anarchy,
January 2004 when the BSE fell by over 1,400 points in afternoon
hedge funds have been a hot topic for debate amongst regulators
and governments worldwide. There is no precise definition of hedge trading1. However, considering the requests from various fund
funds and even in the country of their conceptual birth, USA, hedge managers and taking into account the fact that such hedge funds
funds have remained undefined, unregulated and unregistered as were continuing to invest in India through the Offshore Derivative
per the federal and state laws. Amongst the various kinds of funds Instruments (ODI) issued by various FIIs, which is a much less
catering to different strata of the society, hedge funds are specifically regulated and difficult to control regime, SEBI formally opened the
designed to cater to high net-worth individuals or institutional floodgates for such hedge funds to get registered as FIIs in the
clients. second half of 2007. This was also partly with the regulators
realising that there is some depth in the Indian markets and hedge
Hedge funds, as the name suggest, use a wide variety of investment funds at times can act as a very important counter balancing force
strategies to maximise their gains. Hedge funds target at achieving in a unidirectional market and can play an important role in
specific returns regardless of the underlying trends in the financial bringing stability into the market. This article is devoted to discuss
markets and therefore, use a plethora of investment strategies the various structures and options available for structuring and
available to them ranging from equity, fixed income, commodity setting up of such hedge funds outside and within India. This article
trading advisors, global macro, mathematical algorithms and so on, is primarily divided into two parts - Offshore Funds and Domestic
depending upon the way they trade, risk management and their Funds.
involvement in the portfolio.
Offshore Funds
In relation to India, the term hedge fund was an enigma in the Structures
minds of the Indian regulators and other market investors until There are various alternatives available for structuring of hedge
some time back. The Reserve Bank of India (RBI) and the Securities funds, to invest in India. Depending upon the investment strategies
and Exchange Board of India (SEBI) were extremely apprehensive to be adopted by the fund manager, the comfort of the investors and
about such funds investing in India and as a policy measure SEBI the investment opportunities available to them, the fund managers
was not according Foreign Institutional Investor (FII) registration to structure their funds in a wide variety of ways. Some of the most
such funds. Hedge funds have been blamed continuously across commonly used structures are provided for below.
the world for market turmoil and it is widely believed that such funds
1
On January 5, 2004, BSE fell by 316 points intraday.
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US & Other Non-US US Tax exempt US Taxable

Jurisdictions Investors Investors Investors
Cayman/Jersey/
Guernsey/ Feeder Vehicle I Feeder Vehicle II
Delaware
Regulated Jurisdiction Tax Haven

Investment
FII/Investment Management Fund
Manager Agreement A B C D
India Investment Advisory

Agreement
i. Plain Vanilla
One of the simplest and the most widely used structure for hedge Indian Advisor
funds investing in India is the classic master-feeder structure, with
an investment manager based in a regulated jurisdiction. The
General Partner (GP) of the feeder funds are mostly setup in tax
favorable and administration friendly jurisdictions like Cayman, iii.Offshore Mutual Fund Route (OFO)
Jersey, Guernsey, or Delaware (from a US perspective), and Under this alternative, a mutual fund based in India floats a special
depending upon the nature of investors, they are structured in the scheme dedicated for the Fund. The special scheme could be
form of a limited partnership or a company. These feeders then structured as a multi-class scheme, which replicates the multi class
invest into the master fund which is set up in a tax favourable share structure of the Fund. The Fund will subscribe to all the units of
jurisdiction for India like Mauritius or Cyprus, and which primarily is the dedicated scheme and this scheme will be managed by an India
setup for making investments in India. In the instant structure, the based manager. The Fund will execute a unit purchase agreement
entity of the investment manager or the GP, which is regulated and with the mutual fund, whereby it will exclusively subscribe to all the
registered will apply for a FII registration and will simultaneously units of the scheme. The scheme, in turn, will invest in the Indian
procure a sub-account registration for the Mauritian master fund portfolio companies. SEBI has introduced the fund-of-fund regime
with SEBI. Most of these funds also setup an advisory entity in India w.e.f. May 29, 2003, whereby a mutual fund is permitted to invest in
to do the ground work and conduct research on the Indian markets. other schemes of the same mutual fund or other mutual funds
Such advisory entities render advice on a non-binding basis and without the inter-scheme restriction. As a result, the dedicated
are paid advisory fees on an arm's length basis by the investment scheme can make investment in other schemes of the same or other
manager. mutual funds.
Under this arrangement, the scheme (including the entire
Jurisdictions Investors Investors Investors arrangement with the Fund) will have to be approved by the SEBI.
The Offshore Fund would have to file the following documents for
Cayman/Jersey/ registration with SEBI:
Delaware ¡ Proposed offering memorandum
Regulated Jurisdiction
Investment
¡ Investment Management Agreement and
FII/Investment Management Fund
Manager Agreement (FII Sub Account) ¡ Unit Purchase Agreement
Tax Haven
As per a circular2 issued by the SEBI, the requirement to obtain RBI's
India Investment Advisory FII Sub Account invests prior approval for issue of units, remittance of dividend and
Agreement directly into Indian portfolio
companies redemption of units to the overseas investors in the OFO has been
done away with. A single window application process has been
Indian Advisor Portfolio Cos
introduced, whereby, the Fund would need to obtain only SEBI's
approval and SEBI in turn, would co-ordinate with the RBI for its
ii. Multimanaged Structure for PE, MF, PMS Investments approval.
In this case, the Fund is established as a multi-class vehicle, and
Thus, once SEBI's approval is obtained for launching the Fund, the
comprises of separate classes of shares, with each class of shares
asset management company of the mutual fund can issue/redeem
representing direct or indirect interests in a down line Indian
units, export unit certificates and repatriate distributions/dividends
product, such as, cash equities, listed derivatives, mutual funds,
fixed income, structured products (bonds/equity-linked debentures from the dedicated scheme, provided, the reporting3 requirements
listed on SEs), portfolio management schemes and so on. Each specified by SEBI have been complied with.
portfolio of the Fund shall comprise of a separate and distinct Although the SEBI (Mutual Funds) Regulations, 1996 do not
collection of investments from the investors, through separate class contain any specific provisions in regard to broad-basing of the
structures. As a result, the Fund will issue different classes of shares OFO, SEBI at the time of granting its approval generally subjects
to the overseas investors, with each class of share representing a the approval to the SEBI (FII) Regulations, 1995, which are
separate portfolio, which would further invest in different products explained later in this article.
in India.
2
A.P.(DIR Series) Circular No.35, dated November 14, 2003.
3
The SEBI has prescribed the following requirements to be reported on a fortnightly basis: (i) Date of launch of the offshore funds, (ii) No. & Date of SEBI
Approval letter (iii) Amount authorised to be raised by SEBI (iv) No. of Units issued to the Off-shore fund (v) Amount of inflow in US Dollars (vi) Amount of Dividend
remitted, if any, up to the current quarter (vii) No. of units redeemed (viii) Amount repatriated in US Dollars (ix) No. of Units Outstanding (x) Value of Fund in US Dollars &
NAV per Unit and (xi) Management fees received/other out of pocket expenses reimbursed.
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Jurisdictions Investors Investors Investors
Cayman/Jersey/
Delaware
Regulated Jurisdiction Investment Tax Haven

Management
Investment Manager Agreement Fund
Advisor Unit Purchase Agreement
India MF Dedicated Scheme

of MF
Trustee Co.
• means an entity with at least 20 investors, with none of them
Indian Advisor Portfolio Cos Portfolio Cos holding more than 49% of the paid-up capital of the sub-
account. However, if the entity has institutional investors,
then it shall not be necessary for the entity to have twenty
Regulatory Aspects investors. Further, if any of the institutional investors holds
i. FII Registration more than 49%, then that institutional investor must itself be
The FII Regulations were introduced by the SEBI in 1995 and is a broad based.
preferred route of investment for foreign investors, primarily hedge
funds that are looking at high liquidity in their investments and do
¡ a proprietary fund of a registered FII;
not wish to take control in the management of Indian companies. • means an entity setup for the investment of FII's own funds
An FII desiring to invest into India must register itself with SEBI and ¡ a foreign corporate;
must comply with the provisions of FII regulations. The RBI has • means a body incorporated outside India which has its
given a general permission to FII applications cleared by SEBI. As a securities listed on a stock exchange outside India, has an
result, RBI approval is no more required. asset base of not less than US$ 2 billion and had an average
net profit of at least US$ 50 million during the three financial
FIIs are also permitted to invest on behalf of their sub-accounts. The years preceding the date of application.
FII Regulations as applicable to Foreign Institutional Investors (FIIs)
and their sub-accounts are detailed in the following paragraphs. ¡ a foreign individual; or
• means a foreigner who holds the passport of a foreign
FII Registration country for a period of at least five years preceding the date of
In order to make investments into India under the FII route, an entity the application, has a net worth of at least US$ 50 million and
having a track record in investment management and registered holds a certificate of good standing from a bank. He must
with appropriate regulatory authority, can register itself as an FII also be a client of the FII or any other entity which belongs to
under the SEBI Regulations. Even certain fund entities such as, the same group as the FII, for a period of at least three years
pension funds, endowments, mutual funds can be registered as FIIs. preceding the date of the application.
There are certain other conditions to be met for grant of registration
as an FII4. For the purpose of grant of the certificate, generally SEBI ¡ university fund, endowment, foundation, charitable trust or
considers, amongst other conditions, the track record of the charitable societies who are eligible to be registered as a foreign
applicant in fund management (typically, this is a minimum of one institutional investor under these regulations.
year), whether the applicant is regulated by an appropriate
regulatory authority and so on. SEBI has clarified that in case the FII The FII Regulations restrict NRIs5 from investing as a FII or sub-
applicant is a newly set up fund, the track record of fund managers account. However, as per SEBI FII (Amendment) Regulations, 2008,
who have promoted the fund will be considered for the purpose of an asset management company, investment manager or advisor or
ascertaining the track record of such newly setup fund. Further, the an institutional portfolio manager set up and or owned by NRIs
fund manager would also need to furnish details in respect of shall be eligible to be registered as FII, subject to the condition that
disciplinary action, if any, taken against it. they shall not invest their proprietary funds.
The deemed FII status, which was earlier available for a short time
Registration with the SEBI as an FII takes around 4-6 weeks and is
and since then has been discontinued, can be considered for
approved on a case-by-case basis. If for any reason it is not possible
reintroduction as several quality domestic fund managers can use
for a fund entity to register itself as an FII, then that entity desiring to
this regime to manage/advice their offshore clients.
take the benefit of the FII route can register as a sub-account of an
existing FII. FII Investments:
Pursuant to the FII regulations, FIIs and their sub-accounts
Types of Sub-accounts registered with the SEBI are permitted, subject to certain restrictions,
As per the FII regulations, an application for obtaining registration to invest in all securities in the primary and secondary markets in
as a sub-account can be filed by the following: India including securities of companies unlisted, to-be-listed or
¡ a broad-based fund or portfolio, incorporated or established listed on a recognised stock exchange in India. Further, unless
outside India; specific approval is obtained from the SEBI, at least 70% of the total
investments made by a FII and its sub-accounts must be in equity
and equity-related instruments.
4
Regulation 6 of the FII Regulation lists out the eligibility criteria required to be fulfilled by an applicant.
5
See, Regulation 2 (vi) FEM (Deposit) Regulations, 2000, NRI is defined as follows:
“… means a person resident outside India who is a citizen of India or is a person of Indian origin.”
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Under the FII regulations, FIIs and the sub-accounts are permitted
to invest only in the following:
¡ securities in the primary and secondary markets including
shares, debentures and warrants of companies, unlisted, listed
or to be listed on a recognised stock exchange in India
¡ units of schemes floated by domestic mutual funds including Investment P
Unit Trust of India, whether listed on a recognised stock ortfolio
exchange in India or not
¡ units of scheme floated by a Collective Investment
Scheme
¡ dated government securities ¡ Borrowing of equity shares by FIIs shall only be for the purpose of
delivery into short sale.
¡ derivatives traded on a recognised stock exchange in
India ¡ The margin/collateral shall be maintained by FIIs only in the form
of cash. No interest shall be paid to the FII on such
¡ commercial paper and margin/collateral.
¡ security receipts6 (sub-accounts cannot invest in security The designated custodian banks shall separately report all
receipts) transactions pertaining to short selling of equity shares and lending
and borrowing of equity shares by FIIs in their daily reporting, with a
Further, where a FII or sub-account holds equity shares in an suitable remark (short sold/lent/borrowed equity shares) for the
unlisted company and continues to hold such shares after initial purpose of monitoring by the RBI.
public offering and listing thereof, such shares shall be subject to
lock-in for the same period, if any, as is applicable to shares held by However, since the borrowing period for stocks under the stock
a foreign direct investor placed in similar position, under the policy lending scheme has been capped at 7 days and since the
of the Central Government relating to foreign direct investment for transaction of lending and borrowing has to be undertaken through
the time being in force. the stock exchange mechanism, there have not been many takers
for this scheme thus far. Hopefully, with better and improved regime
for stock lending and borrowing, short selling would actually take off
Reserve Bank of India has also issued a circular7, which permits
in the Indian markets.
investments by FII in Perpetual Debt instruments and Debt capital
instruments issued by banks. Participatory Notes and Derivative Instruments
As per the SEBI FII (Amendment) Regulations, 2008, only FIIs would
The investment permitted by FII in the above-mentioned now be permitted to issue offshore derivative instruments up to a
instruments is as follows: certain limit laid down by the SEBI. As a result, sub-account entities
a) The investment by all FIIs in Perpetual Debt instruments are henceforth prohibited from issuing offshore derivative
issued by a bank should not exceed an aggregate ceiling of instruments. The FIIs are required to disclose on a monthly basis,
49% of each issue, and investment by individual FII in a bank details regarding, inter alia, names and the locations of persons to
should not exceed the limit of 10% of each issue. whom these instruments are issued; nature and type of investors;
b) The investment by FIIs in Debt capital instruments issued by a and quantity and value of these instruments and the underlying
bank shall be within the limits stipulated by SEBI for FII Indian securities. Information for each month shall be submitted
investment in corporate debt. within 7 working days from the end of the month. The SEBI has levied
a ban on the FIIs from issuing offshore derivative instruments to
Short Selling entities/investors other than 'person regulated by an appropriate
Ability to short sell is invariably an integral part of any hedge fund foreign regulatory authority'.
strategy. Unfortunately in India, short selling has always been
perceived negatively by the authorities as they believe this creates Offshore derivative instrument is defined under the SEBI FII
speculative interest in the markets and hence results in volatility. (Amendment) Regulations, 2008 to mean any instrument, by
Accordingly, SEBI had prohibited FIIs and sub-accounts from whatever name called, which is issued overseas by an FII against
engaging in short selling (except derivatives) and hence were securities held by it that are listed or proposed to be listed on any
allowed to engage only in delivery-based trading. Also lack of an recognised stock exchange in India, as it's underlying.
effective stock lending and borrowing framework was another Further, as per the SEBI FII (Amendment) Regulations, 2008, an FII is
reason why short selling did not exist. However, SEBI and RBI have not permitted to issue offshore derivative instruments with
now been permitted to engage in short selling, subject to the derivatives tradable on any recognised stock exchange in India as
following conditions: the underlying asset.
¡ The FII participation in short selling, as well as Further, issuance of offshore derivative instruments by FII in any
borrowing/lending of equity shares will be subject to the period of twelve months shall not exceed 5% of the total value of its
current FDI policy and short selling of equity shares by FIIs shall assets under custody. However, such issuance should not result in
not be permitted for equity shares, which are in the ban list the total value of offshore derivative instruments exceeding 40% of
and/or caution list of RBI. the assets under custody.
6
Section 2(1)(zg) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, defines a security receipt as: “a receipt or other security, issued by a
securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an
undivided right, title or interest in the financial asset involved in securitisation.”
7
RBI/2005-2006/289 A.P. (DIR Series) Circular No. 24 dated January 25, 2006.
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The phrase 'person regulated by an appropriate foreign regulatory

authority' is defined to include the following:
¡ Any person that is regulated/supervised and licensed/registered
by a foreign central bank
¡ Any person that is registered and regulated by a securities or
futures regulator in any foreign country or state
¡ Any broad based fund or portfolio incorporated or established
outside India or proprietary fund of a registered FII or university
fund, endowment, foundation, charitable trust or charitable
society, whose investments are managed by a person covered
by any one of the above two conditions
a portfolio manager.” Thus, a fund incorporated outside India and
Consequently, for an unregulated hedge fund that cannot register setup as a FII or sub-account can invest into select PMS Schemes
itself as an FII, accessing the Indian markets through ODIs remains managed by different Portfolio Managers. Each such Portfolio
the most preferred and easiest way and at times a preferred route Manager would have to create a separate bank account for the
too, from an administrative convenience. Also, ODIs offer a better Funds, from where it will manage its investments.
opportunity for hedge funds to leverage outside of India as leverage
through a FII or a sub-account may have some difficulties. However, though such an enabling provision is there in the PM
Regulations, SEBI frowns upon FIIs and sub-accounts availing of
Ownership Restrictions portfolio manager services for investments into India, because of
The ownership restrictions applicable to FIIs and their sub-accounts the administrative difficulty in maintaining and monitoring the 10%
are as follows: limit by a FII or sub-account in an underlying Indian company.
¡ The aggregate FII holding in any Indian company cannot
iv. Takeover Code
exceed 24% of the entire paid-up share capital of that company
Funds investing into listed securities will also have to comply with
whose limit can be further extended to the applicable foreign
the provisions of SEBI (Substantial Acquisition of Shares and
investment limit in a specific sector, if the board of directors of
Takeovers) Regulations, 1997 (Takeover Code), which was
the company pass a resolution followed by a special resolution
introduced by SEBI with the objective of protecting the interests of
by its shareholders to that effect. Currently, barring a few sectors
investors and regulating the process of takeover and mergers so as
such as, telecom services and banking, foreign investment up to
to safeguard the integrity of the securities market. Mandatory
100% is permitted in most sectors, subject to certain
disclosures consequent to reaching certain acquisition thresholds
conditions.
form the most important part of the takeover code and have to be
¡ No single sub-account of an FII or an FII can hold more than considered in any large scale acquisition of Indian shares.
10% of the issued share capital of an Indian company. If the
sub-account is registered as a foreign individual or foreign While under the FII regulations there are separate investment limits
corporate, then this limit of 10% is reduced to 5%. of 10% for FII and sub-accounts if the sources of capital for the two
are distinct; if the FII and the sub-account are persons acting in
Registration and Costs involved concert8, then the limit of 15% of the open offer trigger under the
Application for the registration of sub-accounts should be done in Takeover Code becomes the defacto limit for the aggregate
compliance with procedure and particulars laid down in Form AA of investments by the FIIs and the sub-accounts9. Under certain
the First Schedule. The FII through whom the application for structures where there are separate investment routes from the
registration is made, will be required to submit undertakings that same entity, the three routes might be held to be persons acting in
the sub-account is eligible for registration in the manner specified concert. To subvert any Takeover code implications, it will have to be
in Form AA of the First Schedule. Further, SEBI would inter-alia take shown that all the three routes are being independently managed
into account the following additional matters while granting a sub- and that they do not have any common objective of substantial
account registration: acquisition of shares or voting rights or gaining control over the
target company in pursuance to any agreement or formal/informal
ii. MF Regulations understanding. The Takeover Code provides that an FII and its sub-
With respect to the investments to be made by the Funds in Mutual account are deemed to be persons acting in concert and for the
Fund schemes in India, it is pertinent to note that the schemes of purpose of the trigger of the takeover regulations, the shareholding
Mutual Funds in which it invests would have to comply with the of the FII and the sub-account is consolidated. The concept of
SEBI Circular on “Minimum Number of Investors in Schemes/Plans 'persons acting in concert' varies with the factual matrix of each
of Mutual Funds”. This circular requires that each scheme and case. Therefore, the concept has to be weighed and analysed on a
individual plan(s) under the schemes should have a minimum of case-by-case basis. We believe that different FIIs and sub-accounts
20 investors and no single investor should account for more than belonging to the same group but having a different management
25% of the corpus of such scheme/plan(s). and control, may not be held to be persons acting in concert.
iii.PMS Regulations An important aspect to be considered is where a single hedge funds

Regulation 16A of the SEBI (Portfolio Manager) Regulations, 1993 manager floats separate funds with different strategies. Whether in
(PM Regulations) states that “foreign institutional investors and such cases, all funds will be taken to be persons acting in concert,
sub-accounts registered with the Board may avail of the services of because they are managed by the same manager. Though, this can
8
The FII and its sub-accounts are deemed persons acting in concert under the Takeover Code.
9
Regulation 10 of the Takeover Code provides, “No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons
acting in concert with him), entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire
shares of such company in accordance with the regulations.”
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be argued from both the sides, that the investment manager is which is not public and is unpublished price sensitive information as
basing his decisions on the strategy and focus as provided in the per the Insider Trading Regulations, any subsequent investment
offering memorandum of a particular fund, which is totally different could potentially create Insider trading risks. There may be variety of
from the other fund, it will be extremely difficult to prove the same ways in which such risk can be mitigated such as, limiting the due
as the central management and control lies with the same entity. diligence only to publicly traded information, disclosure of any UPSI
to public before investment, engaging an independent advisor by
Another situation to be analysed is one wherein certain institutions the company for due diligence and so on.
and other high net worth individuals are investing in various funds
aimed at the Indian capital markets. Such investments would Prevention of Money Laundering Act (PMLA)
trigger Regulation 2(1)(e)(2)(x), which mentions deemed persons Pursuant to the coming into force of the PMLA and the rules enacted
acting in concert and provides that “any investment company with thereunder, a FII is required to maintain a record of all transactions
any person who has an interest as ……, or as a shareholder having having value of more than Rs. 1 million. FIIs are also required to
not less than 2% of the paid-up share capital of that company or appoint a principal officer who is obligated to report suspicious
with any other investment company in which such person or his transactions and cash transactions above Rs. 1 million to the
associate holds not less than 2% of the paid-up capital of the later Director of the Financial Intelligence Unit set up by the Ministry of
company”. As a result, all entities which have common Finance. Further, in terms of the relevant rules, FIIs are required to
shareholding would trigger this above regulation and will be formulate and put in place an anti money laundering policy based
deemed to be persons acting in concert. This may have huge on the guidelines issued by SEBI in this regard. Accordingly, MSIP
repercussions on such entities under the Takeover Code, if there is a and Offshore Fund may furnish such information, to SEBI or RBI as
slight indication of common management or control. may be necessary for it to fulfill its obligations under the PMLA and
Consequently, such entities should clearly maintain and show that rules including provision of any information, as may be sought by
they are independently and separately managed. the Financial Intelligence Unit. By investing in the Offshore Fund, the
investors are deemed to consent to the disclosure by the Offshore
Insider Trading Fund and MSIP of any information about them to the Financial
Funds will also have to be mindful of SEBI (Prohibition of Insider Intelligence Unit and regulators in India including SEBI and RBI
Trading) Regulations, 1992 (Insider Trading Regulations), which upon request, in connection with money laundering and similar
prohibit an insider from dealing, either on its own behalf or on matters under PMLA.
behalf of any other person, in the securities of a company listed on
any stock exchange when in possession of unpublished price Tax Aspects
sensitive information. The insider is also prohibited from i. Favourable Fund Jurisdictions
communicating, counselling or procuring any unpublished price While discussing Hedge Funds and India, Mauritius cannot escape
sensitive information while in possession of such information. In being mentioned. Apart from the tax perspective, Mauritius also has a
2002, SEBI amended the Insider Trading Regulations to provide good fund regime and proves to be cost effective for management of
certain defenses to the prohibition on insiders in possession of large offshore funds. Other jurisdictions like Spain, Netherlands, Cyprus,
Unpublished Price Sensitive Information (UPSI) dealing in Cayman Islands, Malta, Greece, Luxembourg etc. can also, for various
securities. All directors, officers and substantial shareholders in a reasons, be used as jurisdictions for organising offshore funds. While
listed company are required to make periodic disclosures of their India has entered into tax treaties with some of these countries, the
shareholding as specified in the India Insider Trading Regulations. terms are not as favourable as the India-Mauritius tax treaty. With some
In addition to the disclosure requirements under the Takeover of these countries such as, Cayman Islands, India does not have a tax
Code, a person holding more than 5% of the shares of an Indian treaty. Even in case of Cyprus, where India has a favourable treaty (in
listed company is required under the Insider Trading Regulations to some respect even better than that between India and Mauritius), the
disclose to the company a change in its share position or voting collective investment regime is not well settled and we believe that the
rights, if there has been a change from the last disclosure made in procedure for the setting up of a fund in Mauritius (including
excess of 2% of the total share position or voting rights in the administration and regulatory approvals), are simpler as compared to
company, even if such change results in the share position falling Cyprus. However, it must be noted, that though the India-Mauritius tax
below 5%. treaty provides for an exemption from Indian capital gains tax, it does
not provide for any beneficial treatment with respect to interest. Thus, in
case of funds pursuing a number of debt investments, Cyprus is a more
The most significant liability for a fund under the Insider Trading preferable jurisdiction, as the India-Cyprus tax treaty provides a good
Regulations is at the time of due-diligence of a listed company in regime in respect of taxation of interest. However, there have been
pursuance to a PIPE deal. Here, if the fund manager, lawyers or strong rumors about the Cyprus treaty getting renegotiated, but there
accountants of the fund come in contact with any information has been no official communication yet on this front. It may also be
possible to use multiple structures, wherein, the main fund can be
organised in Mauritius, which could make equity investments into
India, whereas the debt investments directly in Indian portfolio
companies are structured through a 100% owned subsidiary of a
Mauritius fund in Cyprus.
Further, it is important that the Fund is not managed or controlled
from India, as in the event it is, the tax treaty benefits shall be denied,
as a consequence of which the profits of the Fund that are
attributable to India shall be subjected to tax in India. Thus, either the
Board of the Offshore Fund or the investment manager which is set
up outside India should manage the Offshore Fund.
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Private Equity Journal for India Hedge Funds
ii. Taxation of the Fund income. As mentioned in the preceding paragraph, the Fund elects
Taxation of income in India is governed by the provisions of the to apply the provisions of the Tax Treaty if they are more beneficial
Income Tax Act, 1961 (ITA) as amended by the Finance Acts, from than the provisions of the ITA.
time to time. As per Section 4 of the ITA the 'total income' of an
Character of Income Received By the Fund
individual is subject to income tax in India. Section 5 discusses the
Characterisation of income is critical to examine whether the
scope of “total income”. As per Section 5, residents are taxable in income of a Fund is eligible for beneficial tax regime or if it will be
India on their worldwide income, whereas non-residents are taxed taxable under the normal provisions of ITA, as business income.
only on Indian source income, i.e. income received or deemed to be Business income would be taxed in India if the Fund has a
received in India, income that accrues or arises to them in India or is Permanent Establishment (PE) (under the relevant treaty) or
deemed to accrue or arise in India. business connection (under the Income Tax Act).
Section 90(1) of the ITA provides inter-alia that the Indian Various factors are considered while making this characterisation,
Government may enter into a Double Taxation Avoidance including the intention of the parties12. In case of FIIs, who trade on
Agreement (DTAA or tax treaty) with a foreign Government for the the stock market on a regular basis, the volume and regularity of
avoidance of double taxation or to promote mutual economic trades is usually taken into account in determining whether the
investments held by them are capital assets or stock in trade. Most
relations, trade and investment. The fund that may be a resident of a
importantly, Indian courts have taken into account the method and
country with which India has signed a DTAA, has the option of being manner in which the transactions take place. Therefore, where
taxed according to the provisions of the tax treaty or the ITA, buying and selling is done in a business-like manner, the income
whichever is more beneficial to such fund. Generally, as per the from the same could be characterised as business income.
provisions of a tax treaty, business income would be taxable in India
only if the fund has a Permanent Establishment (PE) in India. Unless otherwise suggested by facts and circumstances, the gains
Further, only that component of income of the fund which is realised by FIIs from sale of securities in India would amount to
attributable to the Indian PE will be subject to tax in India. Since the capital gains13. Such capital gains are taxable in India even if the
scope of PE is much narrower than business connection, it is FIIs or sub accounts do not have a PE here.
advisable for the foreign entity to take the benefits as per the The contention that the income from purchase and sale of
provisions of the respective tax treaty. securities by FIIs/sub-accounts could be treated as business
Further, comprehensive transfer-pricing regulations (TPR) have income, finds support in the earlier ruling given by the Authority of
Advanced Rulings (AAR) in the case of GE Pension Trust14, where
been introduced, effective from April 1, 2001, with the objective of
the AAR did not accept the argument of the tax department that the
preventing MNCs from manipulating prices in intra-group taxability of FII should only be determined in terms of the special
transactions such that the profits are not shifted outside India. regime under section 115AD of the ITA.
Under TPR, international transactions between two or more
associated enterprises (including PE) must be at arm's length Various advance tax rulings15 in case of FIIs have ruled that their
prices10. Thus, all transactions between the investment manager income from investment activities was business income i.e of
and any related party in India which has been setup primarily to revenue nature, arising from trading of securities. Such business
render investment advisory services, will have to be in compliance income has been held not to be taxable in India, in absence of a PE
with TPR. in India.
Taxation under Tax Treaties In determining whether such investment income is of revenue
As mentioned above, the ITA11 provides that in case of a taxpayer, nature or capital nature, the AAR16 laid down the following
who is a resident of a country with which India has signed a Tax principles17;
Treaty, the provisions of the ITA would apply to the extent they are (i) where a company purchases and sells shares, it must be
more beneficial than the provisions of the Tax Treaty between India shown that they were held as stock-in-trade and the mere
and its country of residence. existence of the power in the memorandum of association to
For the purposes of being eligible to claim benefits under a Tax purchase and sell shares is not decisive of the nature of
Treaty, two key criteria have to be satisfied: (a) the entity must be a transaction;
“person” as defined under the Tax Treaty and (b) such “person” must (ii) the substantial nature of transactions, the manner of
be a “resident” of one of the contracting states as defined under the maintaining books of account, the magnitude of purchases
Tax Treaty. Under a Tax Treaty, a person would normally be regarded and sales and the ratio between purchases and sales and the
as “resident” if the person is liable to tax in the country of residence. holding period would furnish a good guide to determine the
A certificate of tax residency issued by the tax authority of the nature of transactions ;
relevant contracting state would normally be accepted by the other
contracting state to determine the residential status of the Fund for (iii) ordinarily the purchase and sale of shares with the motive of
the purposes of eligibility under the tax treaty. earning a profit, would result in the transaction being in the
nature of trade/adventure in the nature of trade; but where the
In the context of our previous discussion, most of the hedge funds object of the investment in shares of a company is to derive
set up for investing in India are based in Mauritius because of its income by way of dividend and so on, then the profits
favourable Tax Treaty with India (hereinafter referred to as Mauritius accruing by change in such investment (by sale of shares) will
Treaty) especially with respect to the taxation of capital gains yield capital gains and not revenue receipt.
10
Section 92 of the ITA.
11
Section 90(2).
12
The CBDT vide CIRCULAR NO. 4/2007, DATED 15-6-2007, has given general guidance to tax officers on the distinction between shares held as stock-in-trade or as investment. As per
the said circular it is possible for a tax payer to have both investment and trading portfolios subject to different tax treatments. The Circular is attached as Annexure F.
13
Recent ruling given by the Authority for Advance Ruling(“AAR”) in case of Fidelity Northstar Fund, In re., [2007] 158 taxman 372 (AAR - New Delhi) had pronounced that gains from
the alienation of Indian shares by FIIs was in the nature of capital gains.
14
[2006] 280 ITR 425 (AAR).
15
In Re: XYZ/ABC Equity Fund [2001] 250 ITR 194; In Re: Fidelity Advisor Series VIII [2004] 271 ITR 1 (AAR); In Re: Morgan Stanley & Co. International Ltd. [2005] 272 ITR 416 (AAR); In
Re: General Electric Pension Trust A.A.R. No. 659 of 2005.
16
Please note that the rulings of the AAR are binding only on the applicant and the tax department. They are not binding on any court or tax authorities in other cases, though have
persuasive value.
17
In Re: Fidelity Advisor Series VIII [2004] 271 ITR 1 (AAR).
69
Hedge Funds Private
PrivateEquity
EquityJournal
Journal for
for India
India
Interestingly, AAR itself has deviated from the earlier stance taken Domestic Funds
by it as stated above. In case of Fidelity Group and Mathews India
Fund on January 10, 2007, the position taken by the AAR is Apart from offshore structures, which as discussed above, which are
different. The AAR in these cases has pronounced that the outside the reach of most Indian investors in India, we have also
investments made in India through FII will be within the purview of discussed below, some structures available for setting up domestic
capital gains and not business income. hedge funds.
In June 2007 a circular18 by the Central Board of Direct Taxes (CBDT) Structures
on the issue of when the income of a person, from the sale of i. Mutual Fund
shares should be treated as capital gains or as business income The Fund for making investments in different securities in India and
was issued. The circular, issued to aid the tax authorities in for raising money from domestic investors can also be organised as
distinguishing between shares held as capital assets as against a mutual fund as per the SEBI (Mutual Fund) Regulations, 1996 (MF
trading assets, supplements the earlier instructions of 1989. The Regulations). Mutual funds in India are primarily sponsored by a
circular has restated the principles of recent decisions of the AAR
and the prevailing precedents of the Supreme Court and company, registered as a portfolio manager under the SEBI (Portfolio
summarises the following principles in determining the issue: (i) Manager) Regulations, 1993 (SEBI PM Regulations). The company
holding of investments as stock-in-trade, (ii) manner of also acts as the asset management company for the mutual fund for
maintaining accounts, (iii) magnitude of transactions, (iv) managing the funds by making investments in various types of
substantial nature, (v) profit motive. The Circular has reiterated that securities through separate schemes and also appoints the trustee.
the determining consideration is a mixed question of law and fact. The trustee and the asset management company must comply with
all the requirements under the MF Regulations.
Importantly, the circular has advised the tax authorities to consider
the total effect of all principles in determining whether a person is
an investor or a trader in stocks and not only rely upon the business Investors
objects of the entity, which may be merely permitting it to buy and
sell shares.
It is also interesting to note that the Circular has also recognised an
important conception that a person may have two portfolios, i.e., an Investment
investment portfolio and a trading portfolio. Thus, an assessee may Asset Management MF
have income under the head of capital gains and business income. Management Agreement
Company
This seems to suggest that even in the case of FIIs, the actual nature Trustee
of the transaction should determine its characterisation as
opposed to a regulatory classification on the nature of income that
an FII can have. Hence, the onus is on the FII to prove that it has
dealt with shares as a trader as opposed to an investor. In the event
that these foreign investors were treated as traders, if they invest Investee
Companies
from jurisdiction which has a tax treaty with India, their business
income should not be taxable in the absence of a PE in India. While
if the income was held to be capital gains, then the same would be ii Company/NBFC Investments
subject to tax in India in the absence of a beneficial tax treaty in this Another route for making investments in Indian securities can be to
regard, between India and the jurisdiction of the investor.
incorporate a company which will be registered with the RBI as a
Historically, FIIs have been offering their gains from transfer of Non Banking Financial Company (NBFC). The NBFC would qualify
Indian securities to tax, as capital gains and this contention has as an investment NBFC and no foreign investment can be held
been accepted by the Indian Revenue authorities in the past. without the prior approval of RBI. The main drawback of this regime
is the liquidity available to the investors. Unlike a trust, the investors
With regard to investments in PMS, the classification of income is cannot easily redeem their investments in such a company/NBFC
fact driven. Where, inter alia, the purchases and sales are and they will be subjected to provisions of capital reduction and buy
voluminous and the frequency of the same is significant, in our back of shares under the Companies Act. Therefore, this is not a very
view, the gains from PMS should be regarded as 'business profits'
conducive regime for investments due to excessive regulations and
and not 'capital gains.'
high levels of taxation.
However, given the recent ruling in case of Fidelity (supra), an FII
may be able to take a view that the gains arising from transfer of iii PMS Structure
securities is in the nature of 'capital gains' and not 'business profits'. Though this regime is not a quintessential fund regime, it can also be
used by Indian fund managers to pool the assets of their clients and
Recently, the Indian income tax authorities have once again hit the invest in the capital markets. In a PMS structure, the investment
news by issuing notices to FIIs claiming that the income on manager registered as a Portfolio Manager19 under the SEBI PM
Participatory Notes (P-Notes) is taxable in India, since the income
Regulations, will manage the investments on behalf of its clients.
arises due to the sale of the underlying Indian security which has its
situs in India. The genesis of imposing tax liability on the FIIs for Earlier, the portfolio managers could create a single pooled account
issuance of P-Notes appears to stem from the recent Vodafone case and some of the banks were following this structure wherein, they
filed by Vodafone B.V. (registered in Netherlands) against the tax were pooling the assets of their clients into a single account and
authorities in India. In the said case, the tax authorities have investing from there. However, recently, SEBI has issued notice to
attempted to tax profits made outside India on the transfer/sale of such portfolio managers to de-pool such accounts and maintain
shares of a foreign company by one non-resident to another on the individual accounts for each client.
basis that the underlying asset is the interest in the Indian
Company.
18
Distinction between shares held as stock-in-trade and shares held as investment - tests for such a distinction”- Circular No. 4/2007, Dated 15-6-2007.
19
Regulation 2 (cb) of the SEBI PM Regulations, defines a “portfolio manager” as:- “portfolio manager” means any person who, pursuant to a contract or
arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the
management or administration of a portfolio of securities or the funds of the client, as the case may be;”
70
Private Equity Journal for India Hedge Funds
Regulatory Aspects iii. SEBI PM Regulations

i. Mutual Funds It is mandatory for all Portfolio Managers to register under the SEBI
Some of the key regulations applicable to mutual funds under the PM Regulations21. The essential characteristics of a portfolio
MF Regulations are as follows: manager as contemplated under the SEBI PM Regulations read
with SEBI PM Rules are as follows:
¡ The contents of the Trust deed and the investment management
agreement will have to conform with the Third and Fourth ¡ There must be a contract between the portfolio manager and its
Schedule respectively. client
¡ Restrictions on investments: ¡ The portfolio manager must manage or administer a portfolio of:
• No mutual fund scheme shall invest more than 15% of its net • securities or
asset value (NAV) in debt instruments20 issued by a single • funds of the client
issuer, which may be extended to 20%;
¡ He should do so on behalf of his client
• No mutual fund scheme shall invest more than 10% of its NAV
in unrated debt instruments issued by a single issuer and total ¡ He could be a discretionary or non-discretionary portfolio
of such investments should not exceed 25% of the NAV; manager
• No mutual fund under all its schemes should own more than ¡ As a discretionary portfolio manager he has the right to exercise
10% of any company's paid up capital carrying voting rights; a degree of discretion as to the investments or management of
the portfolio of securities or the funds of his client
• The aggregate of inter-scheme investment made by all
schemes under the same management or in schemes under ¡ He shall act in fiduciary capacity with regard to his client's funds
the management of any other asset management company
shall not exceed 5% of the NAV of the mutual fund; ¡ The funds/securities of the client shall be in his possession
• No mutual fund scheme shall make any investment in any ¡ The portfolio manager shall not accept from the client, funds or
fund of funds scheme; securities worth less than Rs. 5,00,000/-
• No mutual fund scheme shall invest more than 10% of its NAV Tax Aspects
in the equity shares or equity related instruments of any i. Mutual Funds
company; As per the provisions of Section 10(23D) of the Indian Income Tax
Act, 1961, there will be no tax levied on any income of the mutual
• No mutual fund scheme shall invest more than 5% of its NAV fund. However, under Section 115R, the mutual fund would be
in the unlisted equity shares or equity related instruments in subjected to tax on any amount of income distributed by it to its unit
case of open ended scheme and 10% of its NAV in case of holders, as under:
close ended scheme.
¡ There will be no tax on income distribution to a unit-holder of
ii. NBFC Regulations equity oriented funds22 or any income distributed by the
¡ The company incorporated to carry out NBFC activities would Administrator of the specified undertaking to unit-holder23
need to apply to the Reserve Bank of India (RBI) for a Certificate
of Registration as an NBFC. Registration with the RBI is a time ¡ There will be a tax of 28.325% on income distributed by a money
consuming process and could take between 3-6 months or market mutual fund or a liquid fund
even longer at times.
¡ On income distributed by a fund other than a money market
¡ The NBFC once registered will have to conform to the Non- mutual fund or liquid fund there will be a tax of :
Banking Financial (Non-Deposit Accepting or Holding) • 14.1625% to any person being an individual or a Hindu
Companies Prudential Norms (Reserve Bank) Directions, 2007 undivided family
(Directions). Some of the important considerations of the
Directions are provided below: • 22.66% to any other person
• Systemically important NBFC: ii. NBFC/Company Structure
The entity set up as a company for making investments in India
1) Total assets of more than Rs. 1 billion. would be subject to tax at multiple levels. At the first level, the gains
2) The Tier II Capital (which includes non-convertible made from the sale of downline investments would be subjected to
preference shares, hybrid debt, subordinated debt etc) of either capital gains or business income (please refer to discussions
the NBFC should not exceed the Tier I Capital (which on Character of Income of the Fund), depending upon the
includes paid up Equity capital, compulsorily convertible frequency of trades entered into by the company. Further, if the
preference shares etc.). company distributes such gains in the form of dividends, it will be
subjected to dividend distribution tax at the company level. If the
3) Single exposure limits become applicable 15% for single company distributes such gains by way of capital reduction or buy
borrower, 25% for the group, equity cap of 15% of its back of shares, the shareholders of the company would be
owned fund for single investment and 25% for a group. subjected to capital gains tax. As a result, to avoid this form of
double taxation, most investment managers avoid setting up
investment fund structures as companies.
20
Rated not below investment grade by a credit rating agency.
21
Regulation 3 of SEBI PM Regulations.
22
“Equity oriented fund” includes such fund where the investible funds are invested by way of equity shares in domestic companies to the extent of more than 65% of the total
proceeds of such funds.
23
In the hands of unit-holders any income received in respect of units of mutual fund (whether it is equity oriented or otherwise) is exempt under Section 10(35).
71
Hedge Funds Private
PrivateEquity
EquityJournal
Journal for
for India
India
Conclusion BSE and NSE clocking record index levels of over 20,000 and 6,000,
respectively. Further, the opening up of the short selling restrictions
Touted as one of the fastest growing economies in the world, India's
primarily to the FIIs and also in light of the possible introduction of
global economic dominance started in the year 1991 when the
currency derivatives and other forms of exotic financial instruments,
government relaxed norms and liberalised the economy. Further,
the authors believe that the hedge fund regime in India has
the development of the domestic industries and the rapid growth in
developed and evolved considerably, as this will further create a
the infrastructure and real estate sectors has seen a major influx of
conducive environment for hedge funds to operate in the Indian
foreign investors post mid-90s, which has grown leaps and bounds
markets. This would open up an additional asset class for
in the recent years. Various foreign investors have invested or have
investments by Indian investors. The next step towards further
shown profuse interest in gaining exposure in India. The number of
liberalisation would be full capital account convertibility, which
FIIs registered with the SEBI has increased to 1,45824 as against less
implies full mobility of capital across countries and may see the
than 1000 at the end of 2006. The registered sub-accounts of these
emergence and the evolution of multi billion dollar funds for and
FIIs have also gone up significantly to 4,40725. FIIs showed huge from India.
interest in 2007, pumping in the highest ever net investment of US$
17.2 billion26 in the equity markets and were instrumental in the
Author's Profile
Siddharth Shah is a Principal at Nishith Desai Associates. He heads the Funds and Capital Markets practice group at
the firm and advises clients on corporate and tax issues relating to setting up of domestic and offshore funds,
including private equity funds, mutual funds, hedge funds, real estate funds and other multi-strategy funds. He also
advises offshore funds on India-entry strategy including advising them on registrations such as Foreign Venture
Capital Investors (FVCI) and Foreign Institutional Investor (FII). He also advises clients in the areas of investments
covering private equity and real estate investments including PIPEs. He also specialises in the area of mergers and
acquisitions wherein, he has advised clients on several domestic and cross border mergers and acquisitions involving both private and
public entities.
He has authored/co-authored various articles in domestic and international publications including "Indian Private Equity: Venturing
into India" for Indian Venture Capital Journal, 2005; "Realty Bites: Indian Regime Governing Real Estate Funds" for Indian Venture
Capital Journal, 2006; "Private Equity Investments into India: Legal & Structural Overview", Euromoney in IFLR Private Equity Yearbook
2001; "Boon or Bane?" (an article on securatisation) in The Economic Times; "ADR Offerings by Indian Companies", "Acquiring
Companies in the US" for The Economic Times, India and "Foreign Investment into India in comparison to China", OFC Asia Pacific
Journal, December 1996, Campden Publications, London."
He is also a regular speaker at various domestic and international conferences in his areas of specialisation.
Divaspati Singh is an Associate at Nishith Desai Associates. He graduated with a degree in B.S.L. LL.B. from
Symbiosis International University in May 2007. He joined the firm in May 2007 and is a part of the Corporate and
Funds team. He has undertaken various transactions involving structuring, setting-up and documentation of
domestic and overseas private equity funds, hedge funds, venture capital funds and real estate funds. He also
advises clients on a day-to-day basis on various issues involving the takeover code and other securities
regulations. He has also worked and assisted in cross border investment deals and acquisitions. He has also
advised and assisted clients on FII registrations and issues relating to FII investments.
24
As on August 8, 2008. Ref. http://www.sebi.gov.in/FIIIndex.jsp.
25
As on August 8, 2008. Ref. http://www.sebi.gov.in/Index.jsp?contentDisp=Department&dep_id=10
26
See http://www.ibef.org/economy/foreigninvestors.aspx
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79
In Good Company
Interview with Mr. Kanwaljit Singh
Co-founder, Helion Venture Partners
which included corporate branding, channel and OEM
marketing and PR. Mr. Singh also spent over 10 years with
Hindustan Unilever Ltd. in various jobs including sales, brand
management and product innovation. He was rated as one of
25 'hottest young managers' by Business Today, a leading
Indian business magazine in 2002.
Mr. Singh has a Bachelors degree in Electrical Engineering

from Punjab University and an MBA in Marketing and Finance
from Faculty of Management Studies, New Delhi.
Can you brief us about Helion Venture Partners?

Helion Ventures Partners is a US$ 350 million India-focussed,
stage independent venture fund, investing in technology-
powered and consumer service businesses in sectors such as,
Outsourcing, Internet, Mobile, Technology Products, Retail
Services, Education and Financial Services.
Our mission is “Partnering with entrepreneurs to build world-

class companies”. We believe that companies are fundamentally
built from inside, but as Board members, we play an active role.
Typically, we help companies in making strategic choices and in
building an organisation that can execute on strategy. We have
world-class executives by our side, that we can bring to our
portfolio companies. We also help in building a high quality
Board of Directors/Advisors.
Which sectors do you focus on, while investing in India and why?
The fund focusses on businesses that are either technology-
powered or catering to the Indian consumer services space. The
focus sectors of investment include-outsourcing, internet, mobile,
technology products, retail services, education and financial
services.
Helion believes that technology businesses and non-technology

businesses that leverage technology constitute an attractive
segment for investment. On an average, businesses in this
segment are growing significantly faster than the overall
economy.
Profile of Mr. Kanwaljit Singh
Technology enablement drives scale in a non-linear way and
Mr. Kanwaljit Singh is a co-founder of Helion and has over 20
increases efficiency. As a result, businesses powered by
years of experience in the areas of venture investing,
technology deliver better Return on Capital Employed (ROCE). It is
marketing and business development across multiple sectors
a fact that there are not enough pure-play technology product
in India. He serves on the Boards of Jigrahak Mobility, Hurix
companies in India. Further, the consumption of technology in
Systems, Amba Research, Asian CERC and Textual Analytics
India is a miniscule percentage of the GDP. and therefore, the
Solutions. Prior to Helion, Mr. Singh was a Director and Co-
opportunity is very large.
head of The Carlyle Group's India venture operations for 4
years. At Carlyle, he helped define the strategy for Carlyle India, Technology enablement drives scale in a non-
invested in over half a dozen companies and worked closely
with the portfolio companies to help them accelerate their
linear way and increases efficiency. As a result,
business. businesses powered by technology deliver
better Return on Capital Employed (ROCE). It is
Prior to Carlyle, Mr. Singh worked for over 13 years in the a fact that there are not enough pure-play
marketing and business development functions of Intel technology product companies in India.
Corporation and Hindustan Unilever Ltd. (a subsidiary of
Unilever, plc). As the Head of Marketing for South Asia at Intel,
Further, the consumption of technology in
he spent about three years in building the Intel brand in India India is a miniscule percentage of the GDP.
80
Additionally, with the rise of entrepreneurial activity within fast Several senior managers as well as corporate
growing domestic consumption sectors, consumer services space
makes a compelling investment proposition for Helion. This is set executives are setting up ventures and are able
to increase even further, as sound policy initiatives and to attract institutional investor money. The fund
technological advancements make it possible for more Indians to raising environment for more established
partake in India's growth. companies has slowed down, partly because of
higher valuation expectations and cautious
With an estimated ten-fold increase in the middle-class
population and three-fold rise in household income, aggregate approach to seeking money through IPOs.
consumer spending in India is likely to more than quadruple from
around US$ 428.69 billion in 2005 to US$ 1.76 trillion in 2025.
Also, as per a study by McKinsey Global Institute, India is likely to We typically take board seats and support the investee
leap-frog from being the twelfth largest consumer market in the companies on various areas such as, strategy, leadership
world to become the fifth largest consumer market in the world. development, globalisation and operational value-add.
What factors do you look for, before investing in a company? Can you throw some light on the post-IPO performance of your
Typically, what is your investment horizon? investee companies?
The most important factor that we evaluate deeply is the quality of Helion, as a fund, was established in 2006. We have not yet exited
the founding team. For young companies, irrespective of the from any of our investment. Our exit horizon is typically 5 years.
sector they are in, the team becomes the key differentiator. We
spend a considerable time with the team and also in formally and Considering the current economic scenario, what challenges
informally referencing them. In addition, size of market do you foresee as an investor in India?
opportunity, scalability challenges and sustainable We believe that the Indian economy is still fundamentally strong
differentiation from competitors become key evaluation criteria. and will continue to show high single digit growth for the next
several years. Consequently, we are actively investing in India at
The most important factor that we evaluate this point. One key challenge overall and particularly for younger
deeply is the quality of the founding team. For companies, is going to be a slower rate of growth. As a result,
young companies, irrespective of the sector investors will need to be more patient and also willing to roll up
their sleeves and help investee companies in their endevour to
they are in, the team becomes the key build successful and sustainable businesses.
differentiator. We spend a considerable time
with the team and also in formally and How would you rate the current fund raising climate in India?
informally referencing them. We are pleased to see a lot of entrepreneurial activity in the areas
of our focus. Several senior managers as well as corporate
executives are setting up ventures and are able to attract
institutional investor money. The fund raising environment for
Our investment horizon, is typically 5 years. more established companies has slowed down, partly because of
higher valuation expectations and cautious approach to seeking
What value addition does Helion Venture bring to its investee money through IPOs.
companies?
Helion's mission is 'Partnering with entrepreneurs to build world- How would you rate India's returns as compared to the rest of
class companies' and we seek to provide 'Active Capital' to the world?
entrepreneurs. India's rate of return has certainly been higher than most other
established markets and we expect that it will remain attractive
In keeping with this mission, Helion plays an active role in for the next several years. We do see some slow down in the
helping companies make strategic choices and in building an number of companies going for an IPO in the current
organisation that can execute on strategy. Apart from the environment, so investors will have to be patient in their exit
investment advisory team, which has strong entrepreneurial and planning.
business building experience, we also have experts in the specific
functional areas of Finance and HR. Natarajan Ranganathan, What are your future investment plans for India?
CFO and Dhruv Prakash, Director HR, work closely with Helion's
We are very bullish and continue to actively look for interesting
investee companies in guiding and mentoring them in the areas
investment opportunities. We will stay focused on our strategy as
of finance and human capital management.
described earlier.
81
Globe Trotting
Innovation: The growing importance of Venture Capital

— Knowledge dissemination & Networking at its best!
Dr. Martin Haemmig and Gil Forer
Abstract
While the primary objective of an investor is to generate returns, venture capitalists expedite the process of value creation by assisting
entrepreneurs in developing business models and generating innovation. In this paper, Dr. Martin Haemmig and Mr. Gil Forer illustrate
the role of venture capitalists as catalysts of innovation.
The venture capital (VC) industry has been on a growth track since business models, venture capitalists catalyse value creation and the
the end of 2004. Last year, venture capitalists put more than US$ 40 emergence of new market-leading companies.
billion to work in innovative companies, globally. The current cycle is
characterised by substantial acceleration in Cleantech investing, Innovation: The Shifting Power Equation
the maturation of the venture capital ecosystem in China and The world is facing fundamental challenges. How will we deal with
growing venture capital investments in India. Increasing investment issues such as, the growing demand for energy and food in the face
by corporations to become active participants in the innovation of limited supply, aging populations and the socioeconomic
pipeline is another major driver of the global venture industry (see challenges and opportunities brought about by advances in
Figure 1). information technology and biotechnology? More and more, the
Figure 1: Global venture capital investment
answer to this question is innovation. With the status quo no longer
tenable, the world needs new ways to generate power, grow food
Capital raised (US$b)
and interact.
$41.7
$38.2 The good news is that global innovation is flourishing, not only in
$32.9
traditional hubs such as, Silicon Valley, but also in new centers that
have recently arisen in China, India and other emerging economies.
New innovation pathways are also being created; the business of
innovation is changing as much as its location is.
2005 2006 2007
Source: Dow Jones Venture One Under pressure from global competition and challenged by the
accelerated rise of emerging markets, corporations fully understand
that to maintain or increase their competitive advantage, they must
No one will argue that the primary objective of venture capital firms reach beyond the boundaries of their own payrolls to find the best
is anything other than to produce a high return on their limited brains and the smartest ideas, wherever they are in the world.
partners' investments. However, the means that venture capitalists Venture capitalists too have recognised these dramatic changes
deploy to achieve this end is what distinguishes venture capital. By and are moving to where the talent is today: everywhere on this
working with entrepreneurs to generate disruptive innovation and planet.
82
Banking and Financial Services Private Equity Journal for India
The most recent annual study by Booz Allen Hamilton of the world's markets is being bridged by an increasing number of incubators,
largest corporate research and development (R&D) spenders finds the launch of provincial or local government funds of funds for
two primary success factors: aligning the innovation model to investments into local and foreign venture capital firms or even
corporate strategy and listening to customers every step of the way. direct investments by science parks into entrepreneurial companies.
However, it is also clear that today, corporate innovation models
cannot rely only on internal R&D. They must implement a more The incubation model has been adopted by many countries
collaborative, flexible and open model, with many innovation because it can be adapted to a variety of needs, from fostering
partners, including venture capital funds and their portfolio commercialisation of university technologies to creating jobs in the
companies. Such a model can be described as an “innovation community and providing seed capital. Incubators have proved to
network.” be most important in emerging markets because creating jobs and
speeding up innovation are high on their national agendas. For
Larry Huston at the Wharton School of the University of example, at the end of 2007, the Chinese Ministry of Science and
Pennsylvania has been building out and advocating the concept of Technology tracked 548 incubators that have helped to incubate
innovation networks as an essential contributor to competitive and grow almost 20,000 technology companies. In India, there are
advantage1. Innovation networks are individuals and organisations about 100 incubators, of which 40 are government sponsored and
outside a company that can form an extended organisation and managed, about 50 are at universities and about 10 are privately
help it solve problems, as well as find new ideas for creating growth. owned. Corporations have become involved with many of these
The benefits of the innovation network include an ability to combine incubators to screen new technologies as part of their need to
internal and external sources of innovative ideas, greater efficiency explore innovation beyond internal research and development.
in converting innovation into products as well as services and better
risk management through partnerships and collaboration. The Impact of the New Innovation Sources
Only a few organisations such as Procter & Gamble, Boeing, and Pathways on Venture Capital
Microsoft and IBM currently have well-developed innovation To capture global innovation opportunities and to get them off the
networks. While these examples are all large companies, Huston ground throughout the entire value chain, collaboration across
also sees small companies benefiting from innovation networks. traditional boundaries will have to continue and accelerate. As the
Indeed, with their resource constraints, small companies naturally importance of global innovation networks increases, corporations,
look for outside help to address challenges. Increasingly, small venture capital funds and entrepreneurs will all have to scale up
companies are emerging as drivers of innovation Huston points best practices and lessons learned in partnerships and
out that they now file 35% of all patents. Big companies need collaborations around the world. Innovating better will provide
innovation; small companies need market access. Innovation competitive advantage not only to large multinationals, but also to
networks provide a structure for them to work together successfully. leading companies in emerging markets and their investors.
The entire innovation value chain is influenced by a number of Innovation networks encompassing collaboration between start-
factors, ranging from culture and education to fiscal policy, ups, venture capitalists and multinationals are even more important
regulation, government and intellectual property rights. Today, in emerging industries such as, Cleantech, which enable business
governments, especially in emerging markets, have come to response to climate change. This fast-evolving space presents vast
understand better, the competitive advantage of an innovation- opportunities for emerging, innovation-based companies to provide
based economy. Consequently, we have seen a growing number of solutions for multinationals as they face the challenges of
national innovation initiatives; more focus on establishing and responding to climate change-related business opportunities, as
enforcing intellectual property rights; gradual improvement of well as the need to become more sustainable and comply with
technology transfer processes and the rise of entrepreneurship climate change regulations.
education, globally.
The need to leverage global innovation has encouraged many
multinationals to set up core R&D centers in the technology hotbeds
Pre-Venture Capital Financing Sources for around the globe, whether Silicon Valley, Eastern Europe, Southeast
Innovation Asia, China or India. These local R&D centers have allowed
With venture capital funds growing in size and the lengthening corporations to penetrate vast emerging markets and tap highly
time between initial investment and exit, venture capital firms have skilled but relatively low-cost talent. At the same time, they have
placed new emphasis on expansion-stage and growth equity supported the entrepreneurial spirit in their communities, attracted
investments to put more money to work and realise returns sooner. foreign venture capital funds and fostered the formation of local
Although there is no overall shortage of capital, the upstream ones, all providing a foundation for a new generation of innovation-
movement of certain funds and the investment risk in emerging based start-ups and promoting the continuing globalisation of
markets have reduced the capital available for seed investments in venture capital.
some regions.
Recent Venture Capital Developments and
In the United States, Europe and other mature markets, angel
investors typically former successful corporate executives or Trends
entrepreneurs, help bridge the financing gap between start-up and The current capital and exit environment in mature markets and
venture capital financing, investing individually and in professional increased global innovation have provided a couple of models for
networks. venture capital funds. They can expand vertically by raising a growth
equity fund or a mega fund that will invest throughout the different
In emerging markets such as, India and China, the angel-investor stages of development from start-up to large growth company. Or
base is still small, with very few professional networks. However, it is they can expand horizontally to new geographic markets. Some
growing. Along with such investors, the financing gap in these funds have done both.
1
"Innovation Networks: Looking for Ideas Outside the Company." Knowledge@Wharton,http://knowledge.wharton.upenn.edu/article.cfm?articled=1837, 14 November 2007.
83
Sequoia Capital and NEA are two examples of mainstream funds Figure 2: Venture-backed IPO activity
that have taken both approaches. Sequoia Capital's fund portfolio
now includes early-stage funds in the United States, China, Israel Proceeds (US$m) Number of IPOs
and India, as well as new growth equity funds in China, India and
74
the United States. NEA raised a more than US$ 2 billion fund that 67
56
invests globally from start-up to growth equity. Other venture capital 22 23
43
19
funds with new growth equity funds include Draper Fisher $1.335 $1.550 $1.454 $4.983 $2.372 $3.716 $6.711
Jurvetson, North Bridge Venture Partners and Redpoint Ventures 2001 2002 2003 2004 2005 2006 2007
(see Table 1).
Table 1: Selected recent growth equity funds 70

89
Fund name Amount

(US$ million) 39
31 37
Draper Fisher Jurvetson Growth Fund 290
13
Index Ventures Growth Fund I 480 9
North Bridge Growth Equity I 545 $731 $75 $126 $884 $2.615 $2.081 $1.079
RedPoint Omega Fund 250 2001 2002 2003 2004 2005 2006 2007
Sequoia Capital Growth Fund III 862

Sequoia Capital India Growth Fund I 400 14
Sequoia Capital China Growth Fund I 430

9
Source: Venture One; venture Capital Journal; North Bridge Growth Equity
6 6
The need to access global innovation and accelerate collaborative

models is reflected in the increase in corporate venture capital 2
activity, both in terms of investments and in the establishment of No VC IPOs
$83 $222 $203 $156 $533
new corporate venture capital business units. In addition to new 2001 2002 2003 2004 2005 2006 2007
entrants to corporate venturing, there are a number of re-entrants-
corporations that had an active corporate venture capital arm in the
30
1990s and are re-starting their programs today. There are a variety of
governance and operating models for corporate venture units,
ranging from a wholly owned business unit that operates as a
passive investor, to a fully autonomous fund that carries the 13
11
13
corporate brand but for which the corporation is only one of the 8
limited partners.
1 1
$228
The competition for talent and innovation has also helped to $48 $34 $1,753 $1,061 $636 $3.642
2001 2002 2003 2004 2005 2006 2007
introduce new dedicated venture capital funds in the early-stage
market. KPCB's iPhone fund, Accel's; Facebook's fbFund; the Source: Dow Jones Venture One
Founders Fund by PayPal founders and other former entrepreneurs Note: For reasons of legibility, the graphs for the different areas are not in
are just three examples. The fbFund will invest between US$ 25,000 scale with each other.
and US$ 250,000 in start-ups dedicated to developing Facebook
applications.
Venture-backed IPO Activity
Changing global capital markets, shifting capital flows and the rise As venture capital funds in China invest in later-stage companies
of sovereign wealth funds will change the limited partner mix in that are revenue-generating or even profitable, China had the
both, mature and emerging markets. Sovereign wealth funds will highest percentage of IPOs by profitable-stage companies last year,
also accelerate the creation of venture capital funds in their while the US, where venture capital investors maintain a focus on
domestic markets such as, the Middle East. early-stage companies, had the lowest percentage of profitable-
stage IPOs.
VC-backed Initial Public Offerings
In addition to the increase in the median time between initial There were numerous cross-border offerings among last year's
investment and exit, the volatility and uncertainty in the global venture-backed IPOs. Many Chinese and Israeli companies favour
capital markets have created significant challenges to venture NASDAQ and the NYSE, while the European companies look to
capital funds this year. The United States had strong growth in VC- Europe-based regional exchanges. Even with the globalisation of
backed activity last year and the highest proportion of VC-backed capital markets and with more than 90% of companies going public
initial public offerings (IPOs) compared with any other country. On on their home exchanges, NASDAQ remains the global leader for
the other hand, European venture-backed IPOs have declined venture-backed IPOs, fuelled by both, domestic and foreign listings.
sharply, while China and Israel have seen strong increases.
Cleantech remained one of the hottest IPO industry sectors. China
was number one in terms of the number of venture-backed
Cleantech IPOs and capital raised in 2007. The US has also shown
steady growth in the amount raised from venture-backed Cleantech
IPOs. Within the Cleantech category, energy generation represented
the largest proportion of IPOs as well as the largest amount raised
last year and energy efficiency emerged as a fast-growing segment.
84
Emerging Markets the year, the Russian government established the Russian Venture
With many global venture capital funds raising larger funds and Company to provide capital to venture capital firms that create
focussing on later-stage investments, there is a vital need in funds and invest in Russia, similar to Israel's Yozma Funds model,
emerging markets for funds, focused on early-stage investments to which sparked the development of the Israeli venture industry in the
support and sustain the local venture capital ecosystem. Emerging early 1990s.
markets are seeing two trends: the establishment of dedicated seed
funds that have mainstream funds and corporations as limited Cleantech
partners, and collaboration between governments as well as local The business transformation in response to climate change
early-stage funds. continues to create significant opportunities for venture-backed
Cleantech companies, which, according to Dow Jones VentureOne,
In India, Seedfund was established with limited partners including amounted to more than US$ 3.0 billion in 221 financing rounds in
Motorola Ventures, Mayfield, Reliance ADA Group, Sierra Ventures China, Europe and the United States in 2007. That compares with
and others. India's National Association of Software and Services US$ 416 million invested in 95 financings in 2002, showing the
Companies launched a US$ 25 million fund in collaboration with significant growth in Cleantech investments in recent years. The
the ICICI Knowledge Park. In China, the China Development Bank largest share of Cleantech investing occurs in the United States
and the Tianjin Binhai New Area signed an agreement to launch a where, last year, US$ 2.5 billion was invested, representing 8% of the
venture capital fund that will provide capital to new technology country's total venture capital investment. It is expected that
start-ups in northern China. investments in clean technologies will continue to increase, not only
in the developed markets but also in the developing markets,
China has seen a growing trend of foreign funds investing through especially China and India.
local teams. Matrix/WI Harper is the most recent example. Another
important trend is the formation of large funds for investments from Outlook
start-up to growth equity. The Kleiner Perkins Caufield & Byers China Venture capital has always been one of the most important catalysts
Fund (US$ 360 million), SAIF III (US$ 1.1 billion) and IDG-Accel II of innovation. We have seen venture capital expand globally as new
(US$ 550 million) are three examples of these new, large, multi- centers of innovation have cropped up around the world. With
stage funds. Along with these trends, the investment activity across innovation as the new byword for corporate competition and the
all stages of growth and industries as well as the successful solution that is looked to for many global challenges, venture
venture-backed IPOs of 2007, demonstrate the continuing capital firms will play an important role in the innovation networks
maturation of the venture capital ecosystem in China. of companies both, large and small. With more than US$ 230 billion
in new funds raised globally since 2001, the venture capital industry
One of the markets that hold great potential for venture capital is well positioned to continue fuelling innovation for the long-term.
investment is Russia. Given the size of Russia's population, its
growing need for new infrastructure, fast-growing standard of living While the global credit crunch and economic downturn in the
and large pool of scientists as well as engineers, Russia may United States will certainly be felt in the venture capital industry, the
become the next wave for foreign corporate investors and venture fundamental drivers of innovation, as well as the need for it, will only
capitalists. The development of the Russian venture capital accelerate, providing venture capitalists with opportunities for both,
ecosystem would possibly spill over to the benefit of neighbouring to change the world and to give their limited partners attractive
countries such as, Ukraine, the Baltic States, Bulgaria and Romania. returns.
It is likely that foreign venture capital investors will encounter many
of the challenges faced in other emerging markets: differences in Key Insights
business culture; a less-developed legal system and a level of • Innovation is the new currency of competition.
unpredictability in the government's impact on business. The • The innovation network model is becoming an important
lessons learned in the venture capital approach to China will, source of competitive advantage.
probably, prove valuable in Russia. • Early-stage VCs are adding growth capital funds focussed on
mature and emerging markets.
In the last couple of years, several investments were made in Russia • The early-stage financing gap is being bridged in China and
by well-known corporate investors and venture capital funds such India with incubators and specialist seed funds.
as, Intel Capital, Index Ventures, Benchmark Capital and Cisco. Last • Russia shows growing potential for venture capital investment.
year, Cisco announced that it would pursue investment • Climate change global drivers are fuelling Cleantech
opportunities not only in Russian emerging technology companies, investment and innovation.
but also investments in local teams as a limited partner. Also during
About the Authors

Martin Haemmig, Adj. Professor, Globalisation of Venture Capital
CeTIM (CENTER FOR TECHNOLOGY & INNOVATION MANAGEMENT)
Martin's venture capital research covers 13 countries in Asia, Europe, Israel and USA. He lectures at UC Berkeley, Stanford,
UniBW Munich, ETH Zurich, as well as at China's Peking, Tsinghua, Renmin, Fudan, and JiaoTong University. He has
authored for books on the Globalisation of Venture Capital (English & Chinese). He was appointed as expert and faculty
to the China Research Centre at UC Berkeley for China. Martin earned his electronics degree in Switzerland and his MBA
and doctorate in California and worked for almost 20 years in global high-tech companies in Asia, Europe and USA
before returning to his academic career. He is also Swiss national champion in marketing in 1994.
Gil Forer is global director of Ernst & Young's Venture Capital Advisory Group, part of Strategic Growth Markets.
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