Bangalore: Firms providing directory services have found favour with local venture capital firms, with four such companies finding funders since February.
Betting right: Suvir Sujan (left) of Nexus India Capital, and Deepak Srinath of Viedea Capital Advisors.
The trend started earlier this year in February, with Helion Venture Partners investing Rs20 crore in the New Delhi-based GETIT Infoservices Pvt. Ltd, a publisher of phone directories and yellow pages.
In May, Nexus India Capital Advisors Pvt. Ltd invested $5 million (nearly Rs24 crore today) in New York-based classifieds firm OLX Inc. In July, Sequoia Capital India invested Rs40 crore in directory services firm Just Dial Pvt. Ltd, and Quikr Mauritius, the holding firm of horizontal classifieds portal Quikr India Pvt. Ltd, raised Rs20 crore from Matrix Partners and Omidyar Network.
Investors say the segment is generating interest because there are limited media channels in India that allow businesses to target specific areas and consumers.
“Very large yellow pages businesses don’t exist in India. In several other markets, valuable businesses have been built, which help local merchants connect with buyers. This is expected to emerge in India as well,” said Bejul Somaia, managing director of Lightspeed Advisory Services India Pvt. Ltd.
Lightspeed is an early entrant in the segment and had funded in 2007 Four Interactive Pvt. Ltd that runs AskLaila, which offers local listings through multiple media platforms, including mobile phones. According to industry estimates, classified advertisements have a market of about $100 billion across the globe. In India, the online classifieds market is currently estimated to be in the range of Rs800-900 crore. It is interesting to note that none of the four recent investments have been in start-up firms, but in companies that have a validated business model, are established and generating revenues.
“Under the broad umbrella of the Internet, classifieds is the only space where people are making money. I think this is the driving factor,” said Deepak Srinath, co-founder of Viedea Capital Advisors Pvt. Ltd, a Bangalore-based investment bank.
Also, investors say there is not yet a dominant market leader in this space outside of the US. Each venture capital firm, therefore, hopes that it will be their portfolio company, which will turn out to be the winner in the long run. “In classifieds, there is a void worldwide,” said Suvir Sujan, managing director of Nexus India Capital.
Sujan is hoping that OLX will become a successful company once it is able to capture a major share of 10-12 markets worldwide. “OLX is there across 45 nations, and we think the company has the potential to become a world leader,” he said. OLX is already the market leader in seven-eight nations, Sujan claimed.
Firms providing directory services in India say the number of consumer using these services is increasing rapidly. As long as buyers and sellers are there, such companies will continue to flourish, said Sidharth Gupta, chief executive of GETIT, adding that these firms now need money to scale up, which in turn is attracting investors.
The last few years have seen other deals in this space as well. These include Sequoia Capital’s investment in Guruji.com Software Pvt. Ltd in 2006, SAIF Partners and Tiger Funds backing Just Dial in 2006 and 2007, respectively, Television Eighteen India Ltd buying out Infomedia India Ltd in 2007, and Norwest Venture Partners funding Sulekha.com New Media Pvt. Ltd in 2006.
In December, Yahoo Inc. acquired a 30% stake in Chennai-based Network Management Co. Pvt. Ltd, which owns Call Ezee, a telephone-based directory search service.
Meanwhile, Viedea Capital’s Srinath said besides funding, there has been a considerable increase in the number of enquiries for merger and acquisition activities in the segment in the past three months. “The focus is more on vertical classifieds like industry-specific listings,” he said, adding that a number of young firms that are in exclusive spaces, such as listing healthcare, biotechnology and environmental technology companies, are in great demand.
Suvir Sujan photograph by Abhijit Bhatlekar / Mint