VCs go in for top-up buys to remain on top
3 Mar, 2009 | DNA

Start up funds are going in for follow up investments in portfolio companies to avoid playing second fiddle to new investors attracted by low valuations.
- Pranav Nambiar

Matching Up

• Kleiner Perkins Caufield Byers, Sherpalo Ventures and Nexus India Capital reinvested in MapMyIndia when Qualcomm Ventures invested in it last month.
• Sequoia Capital upped stake in Apnapaisa Pvt Ltd when JAFCO Asia invested an undisclosed amount in it.
• Silicon Valley Bank has made a second round in One97 Communications which received an investment from new investor Intel Capital.

Topping Up

• ICICI Bank and Anji Reddy founder Dr Reddy's Labs upped funding in rural water purification startup WaterHealth.
• US-based Clearstone Venture Partners and Granite Hill will pump in second round funding in logistics firm Elbee Express
• Canaan Partners too is reviewing all its portfolio to see if there is an opportunity for further investments.

Fear of becoming minority players in their own portfolio companies is driving many venture capital firms into pumping in more money into them. This follows the almost rock bottom valuations for startup companies owing to the slowdown and cash flush VC firms and angel investors who are attracted to them.

VCs are looking to hold on to their stakes in these companies that have become prime targets for others, point out industry watchers.

One route for this has been to co-invest along with new VC investors to prevent dilution of stakes. According to Arun Natarajan, founder & CEO of research firm Venture Intelligence, "VCs want to maintain their current stakes in portfolio companies when a new investor makes a fresh investment. Therefore they pump in further funds to prevent dilution of their equity," he added.

Managing Director of VC firm Inventus Capital Partners Samir Kumar agrees. "If an existing portfolio company is doing well, it makes sense to hold on to your stakes in it. This is the reason why we are seeing many deals in recent times where current investors are co-investing with new investors," he said.

There has been a pick up in such deals in the last two months. For instance existing VC investors in digital maps and navigation services provider MapMyIndia including Kleiner Perkins Caufield Byers, Sherpalo Ventures and Nexus India Capital re-invested in the company when Qualcomm Ventures invested in the company in February.

Similarly Apnapaisa Pvt Ltd, raised an undisclosed investment in its second round of funding from JAFCO Asia and existing investor Sequoia Capital. Also Silicon Valley Bank has been involved in a second round of funding in its portfolio company One97 Communications which received an investment from new investor India Capital.

VCs are also looking to up their stakes in portfolio companies that have trusted business models. This would enable VCs to have a better control in their operations. Investment Banking firm Viedea Capital's Director Dipak Srinath said, "Several VCs flush with funds are playing it safe by betting on portfolio companies whose business models and managements they are familiar with rather than risk investing in a new company that may succumb to the downturn. VCs will look to increase their stakes in those companies which have great business models," said Srinath.

VCs feel the trend is here to stay as companies will settle for a lower valuation under the present conditions when funds are hard to come by. "It is a good opportunity for VCs to increase stakes and I expect this trend to continue for sometime. Canaan is also currently reviewing all its current investments to see if there is an opportunity to further fund any well performing existing company that warrants the investment," said Alok Mittal, general partner at Canaan Partners.

For instance recently rural water purification startup WaterHealth, received another round of funding from ICICI Bank and Anji Reddy or Dr Reddy's Laboratories while similarly US based Clearstone Venture Partners and Granite Hill are expected to own 50% in the Mumbai-based express delivery company.

Activecubes solutions wins TATA-NEN startup award

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City based activecubes solutions, has won the first TATA-National Entrepreneurship Network (NEN), Hottest Startup Award 2008 along with four other startups from across the country. The award has been instituted by the TATA group and NEN, the non-for-profit initiative of the Wadhwani Foundation. The other winners include Lakshya, StarAgri, takeovercode.com and The Loot.

The five Winners reflect the diversity and dynamism of today's entrepreneurial India - the winning startups cut across educational, legal & IT consulting, agriculture and retail, a press release from the organizers said on Monday. Apart from this the winners also represent a unique blend of cities with two of the five located in tier two cities Patiala in Punjab and Kota in Rajasthan.

The competition launched in August 2008, attracted more than 600 entries from over 40 cities in the country covering nearly 20 industry segments.