VCs enter scene as financiers stay away from films
17 Feb, 2009 | The Mint

SPECIALIST BACKERS - VCs enter scene as financiers stay away from films

With a population of 1.1 billion and movie tickets priced among the lowest in the world, India is home to the world's largest filmgoing audience. The film business, estimates consultancy firm PricewaterhouseCoopers, is compounding at 13% annually and will record revenues of Rs17,600 crore by 2012.

It is not as if this market skipped the attention of venture capital, or VC, firms that have been active in almost every Indian business in the last five years.

It is just that such specialist movie backing firms have taken time gaining acceptance in the film world. "It took time for people to realize there was a gap between funds needed and capital available and that there could also be a regularized source available for providing capital," says Sheetal Talwar, managing director of India's first regulated film fund, Vistaar Religare Film Fund, or VRFF.

Since its launch in March with a corpus of Rs200 crore, VRFF- backed by Religare Enterprises Ltd, a financial services business promoted by the Singh family, earlier the controlling shareholders of Ranbaxy Laboratories Ltd, in collaboration with Vistaar Entertainment Ventures-has invested in 11 films so far. The Harman Baweja-Amrita Rao starer, Victory, its first project, was released on 30 January and has received a poor response at the box office. Still, says Talwar, "We are cherry pickers and look for opportunities to fund a vision. The market is robust…there are good opportunities, which will come to the right people." The optimism at VRFF and its peers comes from the growing reach of Indian cinema. Coming a long way from a time when local cinema catered strictly to India-resident audiences, films made in Bollywood, as the Mumbai film industry is better known, and other Indian cities are gradually making their presence felt across the world-through cinema chains, DVD releases and, even, satellite television.

Calling the concept of a film bombing at the box office and the investor's money sinking an old perception, Talwar says there are a few other revenue streams that can buffer such a loss. "If I do not catch my audience in theatre, I catch them on DTH, if not here, then through satellite and through DVDs. If all fails, I catch them on flights or the Internet," he says. DTH is short for direct-to-home television.

Another VC fund, Cinema Capital Venture Fund, sees immense investor potential backing local cinema but prefers to back production houses. "By investing in a company, which will have a continuous roll-out of movies, I will be in a position to spread out my risk in projects," says senior partner Samir Gupta.

With an investment peg of Rs8-40 crore, the firm is set to announce its first deal later this month. "Anyone looking at building a company over the next four years will come to us," Gupta says.

Experts say films usually get funding through debt, equity, or so-called pre-sale arrangements.

Pre-sale, which is based on the film's cast and script, means selling the right to distribute a film in different territories before it is produced. A mix of these sources is considered ideal.

Vikash Mantri, a media analyst with ICICI Securities Ltd, says some producers prefer sourcing capital from VCs, given the high cost of funds from traditional film financiers. "While funding a film project, a VC may have a structure in place wherein they can ask for the cost of investment be met first, but this mode of financing is not drastically different from that of financiers," he says. Cost of capital from financiers typically ranges from 16% to 20%.

With even such funding becoming squeezed, producers now prefer funding from investors. "I don't think I would get my film funded by an individual, I would rather go to a bank or a VC," says producer Bobby Bedi, who has produced films such as Mangal Pandey-The Rising, Maqbool, Saathiya and Bandit Queen in the past. His latest film, The Stoneman Murders, is backed by VRFF. Still, some film specialist VC aspirants are holding back.

Chennai's Pyramid Saimira Group, which had planned to launch two film funds last year, has deferred its plans citing market conditions. "All physical work has been completed and we will wait for markets to improve before launch," says P.S.

Saminathan, managing director and chairman, Pyramid Saimira, which is also India's largest distributor of films.

SAVING BROKERAGE - Minimizing payouts to property middlemen

Those not blessed with family and friends munificent enough to provide shelter in Mumbai find it a waste of money to pay their property broker the equivalent of a month's-in some cases, two months'-rent when taking up leased accommodation in the city. The common refrain is why the prospective tenant should pay when the landlord pays an equal amount.

Munificient Ventures Pvt. Ltd, founded by 20-something business school buddies Shubham Rai and Jaideep H. Patankar, and the more senior Uday Vijayan, runs an online portal that helps, in a way, solve this puzzle for tenants. Called Rentimental.com, the website matches landlords and tenants online, charging a fixed fee from the landlord and allowing the tenant to have a brokerage-free transaction.

The start-up has competitors in Sulekha.com, Makaan.com and Magicbricks.com.

So how does the website make sure it aggregates the most relevant and current data, and beats competition? What about the well networked bunch of offline property brokers the city boasts of?

"Yes, it is a challenge to source accommodation availability, but we keep updating our database every 4 hours.

We've built a network of watchmen throughout residential colonies in Mumbai who keep us informed of any flat/accommodation falling vacant," said Rai.

Besides, the website has tied up with some firms to find accommodation for staff moving to Mumbai, Pune or Bangalore, the cities where Rentimental.com offers its services. But only 30% of its revenue comes from accommodation.

Working on the premise that the "world's on rent", it aims to provide anything and everything-including furniture and vehicles-on rent.

The next step for the portal is to launch in Hyderabad, New Delhi and Kolkata, and to make people and their skills available on hire. "It could be a chartered accountant, a lawyer, a cook, an electrician or a plumber," said Rai. All this will require external funding. "We haven't approached any venture capitalist yet. Neither has any venture capitalist approached us. We wanted to show that we can run a company on bootstrap money." "It's a good opportunity, but the entry barriers for this business are not large... Unless the management team is extraordinary and they are able to execute much better than competition, I don't see how the business is scalable," said Sasha Mirchandani, senior investment director of BlueRun Ventures in India and an active angel investor.

Munificient Ventures Pvt. Ltd and CafeGadgets.in are among the nominated companies in the Tata NEN Hottest Startups competition, of which Mint is the official print media partner. Details of the competition can also be accessed at www.livemint.com/hotteststartups