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Extreme investing: finally, some VC action in adventure sports

Extreme investing: finally, some VC action in adventure sports
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First Published: Tue, Jun 09 2009. 01 21 AM IST

Flying high: Sky Waltz, which operates six hot-air balloons, is the first adventure sports company in India to get venture capital funding.
Flying high: Sky Waltz, which operates six hot-air balloons, is the first adventure sports company in India to get venture capital funding.
Updated: Tue, Jun 09 2009. 10 42 AM IST
Bangalore: Last month, a New Delhi-based firm received Rs2 crore funding from a venture capitalist, or VC. There was nothing unusual about the deal—except that it was the first investment by a venture capital firm into an adventure sports venture in the country.
Rajasthan Venture Capital Fund took a 13% stake in Sky Waltz, the hot-air ballooning business of E-Factor Adventure Tourism Pvt. Ltd, a subsidiary of event management firm and celebrity wedding planner E-Factor Entertainment (P) Ltd.
Flying high: Sky Waltz, which operates six hot-air balloons, is the first adventure sports company in India to get venture capital funding.
The deal stood out as venture capitalists tend to be extremely risk-averse. And the global economic slowdown has turned them even more cautious. Also, before investing in a firm, venture capitalists ask for a so-called proof of concept or evidence that the business model will fly. This is not available for adventure sports in the country due to the unorganized nature of its business.
Girish Gupta, chief executive of Rajasthan Asset management Co. Pvt. Ltd, which manages Rajasthan Venture Capital Fund, says he was aware of the risks involved in this kind of business, but the prospect of launching hot-air balloon safaris across the country assured him of safe returns.
“VC business is all about taking risks, what’s the perception of the risk in that business. We felt it’s a new product, which has great appeal to tourists, both domestic and foreign,” Gupta said.
Sky Waltz currently has six hot-air balloons and it operates out of Jaipur, Ranthambore and Udaipur in Rajasthan between September and March. Flights are also available on request in the National Capital Region. A one-hour flight for seven people costs Rs8,000 per person.
Adventure sports, also referred to as extreme or action sports, involve activities with high level of inherent danger. These sports broadly include sky and scuba diving, surfing, rock climbing, skiing, mountaineering, hand gliding, bungee jumping and hot-air ballooning.
The current market for adventure sports in India is estimated at $250 million (around Rs1,200 crore), and is growing at 32% year-on-year, according to Praveen Krishnaiah, chief executive, XtremeZone Sports and Services Pvt. Ltd, a Bangalore-based paintball sports firm.
Though tourism is on an upswing in the country, and travel portals have been backed strongly by investors at various stages, venture capitalists are yet to invest in adventure sports firms.
“We spoke to 8-10 firms at different levels. It was difficult… It’s a niche market and there are no records available to show how profitable a firm can get,” said Jai Thakore, director, E-Factor Entertainment. Also, for VC firms, it is difficult to predict their exits particularly as not many adventure sports firms are listed globally, Thakore added.
What mostly goes against these firms is their localized nature. A majority of them operate on a local basis in locations such as Bangalore, Rishikesh, Manali, Rohtang Pass, Lakshadweep, Goa and Pune, offering varied services. Not a single firm has come up in the country offering several adventure sports under one roof.
As the firms themselves are minuscule, their capital needs also tend to be small. Not many mainstream investors tend to do sub-$0.5 million deals. “I would say people are looking at specialized areas of leisure. Is the market large enough to attract VCs? No,” said Nikhil Khattau, managing director, Mayfield Advisors Pvt. Ltd.
Helion Venture Partners’ managing director Kanwaljit Singh agrees: “It’s still a very niche area and may not be of interest to the VC industry.”
But there are investors such as Draper Fisher Jurvetson India’s Mohanjit Jolly who say there is a fairly significant market in the highly affluent, price-insensitive group in India. Though they are small in number, they do make up for it in terms of Aspu (average spend per user), Jolly said. “I would say this segment would fall in the category of ‘bootstrap it, at least start proving the business model’ and then approach the investor community.”
Also, investors say, it would be interesting if there is an online component to adventure sports, such as gaming, community and leagues. If this ends up being a purely offline play, then scalability is time consuming as well as capital intensive, they add.
Jolly says adventure sports may also fit into the larger plans of existing travel and tourism firms.
E-Factor may have also been lucky. Bangalore-based investment banker Viedea Capital Advisors Pvt. Ltd says it has been approached by three adventure sports firms seeking help in raising funds. The investment bank refused to pick the mandate because the scalability issues were quite obvious, said Deepak Srinath, co-founder, Viedea Capital Advisors. “There is a limited appetite for such sports. It mostly appeals to the urban youth.”
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First Published: Tue, Jun 09 2009. 01 21 AM IST