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TECHNOLOGY e-ventures On Ice With two-thirds of its staff sacked and overseas partners closing the tap, a high-flying, extravagant venture-capital fund hits the deck. Is this the start of the great VC shakeout? By Roshni Jayakar
I have had my fun The carpets are as plush, the marble is as shiny as the day the fun began. But 16 months after the great dotcom crash, everything at the 11,000 sq ft office of venture capital poster people, eVentures India (eVI), is going down real slow. It all began on April 26, 2001, when the entire team of 30 was asked to assemble in the conference room of the internet venture incubator's (eVI's first description) office in Worli, Mumbai. Managing Partner Neeraj Bhargava, 38, told everyone that ePartners, a News Corp-sponsored internet fund, was capping its investments in eVI at $130 million. That's just 20 per cent of the funds it had committed. Twenty of the employees who listened to this disappointing information have since been laid off. Burly Rajesh Jog, 37, Chief Financial Officer and one of the four-man management team, is setting up another VC fund. And despite reassurances, there is a distinct disquiet among the survivors of the 15 companies funded by eVI in the last 22 months. Are we seeing the death throes of a VC? Bhargava-formerly a McKinsey consultant who did the rounds of New York and London-denies it vehemently. ''This does not mean eVI is shutting shop,'' he says. ''We are in the maintenance mode.'' What that means is that while they won't make any new investments, they will keep their old investments going-for now. ''We are all committed to the portfolio,'' says Bhargava, who is chary of revealing his future plans. ''I am not done at eVI... it's a full-time situation for some time, and even later we will continue to be available on call, and support the portfolio.'' The halycon days of being in the public eye are done. All the four partners-who once filled column inches and pixels-want their life on ice to remain out of the limelight. None will agree to a photograph. How much the times have changed was evident from the comments of Mark Booth, Managing Director of ePartners, from Hong Kong while capping the fund in April. ''We raised our funds in a very different economic climate than we find ourselves today,'' said Booth, who when contacted said he had nothing more to say now. ''We do not believe that new investments can generate the type of returns we expected at this time, no in the time frame we had planned on... we have ensured an adequate provision for follow-on investments.'' As eVI goes on ice, observers say this might mark the beginning of the great venture capitalist shake out. It's something the pundits have been predicting ever since the tech cycle began its journey into the trough of disillusionment. More than $2 billion (Rs 200 crore) have been invested by VCs in Indian companies, and as recent history shows-and eVI's story will reveal-there was much avoidable extravagance. There are certainly indications that the shakeout has begun. Recently, Connect Capital-set up in May 2000, with a clutch of international backers, including Microsoft-failed to get further capital from its investors, and was taken over by Singapore Technologies. ICICI Ventures, another high-profile fund in the glory days, is starting to pull the rug from under its companies. There are others conserving cash and making sure portfolio companies achieve their business plans. ''The current situation has arisen because of financial excesses and the pace of investments,'' says Hetal Gandhi, Managing Director of IL&Fs Venture Corporation. IL&Fs is itself sitting on $20 million for the last few months, their last investment made in January 2001. Chrysalis Capital-once notorious as a dotcom backer-with an investment fund of $200 million has shifted focus to mid-stage companies, like BFL software, where it invested Rs 45 crore in June 2001. Downsize. Rightsize. Economise. These are the
mantras all over the vc world. Says Subbu Subramaniam, Partner, Barings
India Investments: ''We are in for a phase of consolidation.'' Man ... The good times are history. Since no new investments will be made by eVI, says Jog, ''there is a need for rightsizing''. Hence, the sackings at their office. What the partners will not say is that there is no longer money for establishment excesses of the past. And there were clearly some, from the salaries eVI paid to its employees to its generous investments in companies with little prospect of earning much money. The story of eVI and its millions began in October 1999, when it was set up as a 67:33 joint venture between Japanese investment bank, Softbank, and ePartners with steel tycoon P.K. Mittal of the Ispat group. The incubator focussed on internet properties, as well as emerging businesses in new media and business based in India. The leanings of eVI's partners towards the internet were evident even before they signed up. Bhargava, Sandeep Singhal, and Jog had in August 1999 launched Acquavit Inc. an it incubator, which planned to invest $20 million in net start-ups. But when eVI was formed on October 4, 1999, the new start-up ceased, and the trio joined as partners. With so much money coming in during the dotcom boom, salaries were fancy. It's like this: any fund pays its bills with a management fee, which is typically 1.25-1.5 per cent of the money invested. Add on any returns from investee companies-in this case, none. As with most incubators in India, eVI ran its operations with its management fee, which was 2 per cent on its investments of $70 million ($40 million from its first fund, the rest from its second). 1 | 2 |
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