Kleiner Perkins struggles for exits as start-ups fail to scale up

Mumbai: Silicon valley-based venture capital (VC) firm Kleiner Perkins Caufield & Byers is finding it difficult to exit the Indian companies it’s currently invested in, according to its local representative. Kleiner Perkins has invested some $80 million in 11 companies in India.

Indian start-ups don’t acquire scale quickly enough making exits tough, which is a deterrent for global investors, said Sandeep Murthy, Kleiner Perkins’ India representative. “Scale has not happened yet across the board and India hasn’t proven itself as a great market,” said Murthy. “And the equity markets in general have a problem, which means you have to be at a really good scale and a really good business.”

Kleiner Perkins’ investments include stakes in online travel website Cleartrip Travel Services Pvt. Ltd, payment gateway PayMate, FutureBazaar.com, animation service provider Prana Studios Pvt. Ltd, ecommerce site GreenDust and CE Info Systems (P) Ltd, which owns the brand MapmyIndia. “We invest in the range of $2-10 million and take a board seat,” said Murthy.

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Sandeep Murthy of Kleiner Perkins Caufield & Byers talks about the challenges of investing in India and why many foreign companies remain cautious about it.

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Kleiner Perkins’ global portfolio in the past has included Google Inc., Amazon.com Inc., and AOL Inc.

The VC firm exited Info Edge (Naukri.com) and studyplaces.com—two of its initial investments in India—in 2006 and 2007 through an initial public offering and a strategic sale to Educomp Solutions Ltd, respectively.

Lack of adequate opportunities for start-ups to achieve scale in India has made it necessary for them to expand abroad, Murthy said. “For example, Cleartrip is expanding in the Middle East. Inmobi, a portfolio company into mobile advertising, raised $200 million in September to scout for opportunities abroad.”

Most venture capital funds in India are finding exits extremely difficult, said Deepak Srinath, founder of Bangalore-based investment bank Viedea Capital Advisors Pvt. Ltd, which assists VC funds in India. VC investors prefer to exit through a strategic sale, rather than a listing, he added.

It takes much longer for VC investors to exit in India compared to mature markets like the US, said Srinath. “And the M&A market for exit opportunities doesn’t exist in India,” Srinath said. And some “companies are also India-centric which makes it difficult to take the business abroad”.

Start-ups in the US find it easier to acquire scale through partnerships with bigger companies, said Parag Dhol, director, Inventus Advisory Services (India) Pvt. Ltd, an Indian VC fund. “In our experience, companies in the US are more focused on filling the gaps and thereby partner with start-up companies.” Inventus has made 15 investments in the last 19 years and exited two of its portfolio companies. “Culturally, Indian companies (feel the) need to see a definite revenue stream and follow a risk-free approach before engaging with start-ups here.”

The online services space in India saw 35 investments from VC investors in 2011 amounting to $159 million, more than three times the figure in 2010 ($49 million). In the wireless industry, there were 14 investments amounting to $88 million in 2010, doubling over the previous year.

harini.s@livemint.com