Draper Fisher to enter India this month with $75 mn war chest

Draper Fisher to enter India this month with $75 mn war chest

Mumbai: Not many venture capital firms in the Silicon Valley can lay claim to seeding two of the most fascinating Internet companies of all time: Hotmail and Skype.

Menlo Park-headquartered Draper Fisher Jurvetson holds that distinction. Co-founded and led by maverick venture investor Timothy C. Draper, the firm opens for business in India this month out of offices in Bangalore and Hyderabad. Over the next three years, Draper will deploy $75 million out of its $600 million DFJ IX fund and plans to build a portfolio of 12-15 companies within that time.

Numbers aside, Draper’s formal entry in India, after nearly two years of peering in from the sidelines, moves start-up and early stage investing in the country to the next level.

The firm’s decision to set up a direct base here, instead of its usual practice of signing up a local fund as an affiliate, endorses the promise of the second phase of start-up entrepreneurship currently under way in the country.

Mohanjit Jolly, director at Draper’s Menlo Park offices, is moving to Bangalore and will lead investments here, flanked by Sateesh Andra in Hyderabad.

“With Fund IX, which closed earlier this year, there was very strong interest on the part of the LPs (limited partners) to establish a presence as part of the core fund in both India and China, which is precisely what DFJ has done," said Jolly in an email interview to Mint (read that full interview on www.livemint.com/jolly.htm).

This, however, is not the first time that the Draper name will be making a play for India. Tim Draper’s father, William Henry Draper III, invested here through Draper International India in 1996.

Portfolio investments from that fund include Rediff.com India Ltd and Indus League Clothing Ltd.

In its second run, Draper, which is not affiliated to Draper International, has chosen a phased entry into the country. It launched the Draper India Venture Challenge with The Indus Entrepreneurs in 2005 as a first step towards understanding the market. At the time, there was talk of a $200 million dedicated India fund, but it has since revised those plans and, instead, opted to allocate funds from the global fund. Over the last two years, it has already made four investments, including in Reva Electric Car Co. Pvt. Ltd and Seventymm Services Pvt. Ltd in Bangalore.

Like most Silicon Valley venture capitalists in recent times, Draper has also begun to look for investment opportunities in non-US markets to balance lower returns back home. The firm, in fact, was one of the first to export the Silicon Valley investing model to non-US markets. In 1999, the firm set up DFJ ePlanet, its global investment vehicle based in London, in collaboration with ePlanet Partners, to expand in Europe and Asia through a network of affiliated funds.

This year, the joint venture with ePlanet was replaced with a similar one with Espirit Capital Partners, now formalized as DFJ Espirit. The change of strategy was driven by a need to have more localized collaborations for investments. The overall affiliate network now comprises 22 funds that together manage $5.5 billion in capital. The drive into non-US markets has paid off handsomely for the firm. Its two most successful exits in recent times were from non-US companies—Skype Technologies Ltd, the Luxembourg-based Internet telephony start-up, was bought by eBay for $2.6 billion, and Baidu.com Inc., the Chinese-language search engine start-up, which debuted on the Nasdaq in 2005 and soared 350% on launch day. Draper owned 10% and 28% in these companies, respectively.

In India, Draper’s investment focus this time around will be much broader than its traditional focus in the US. While US investments emphasize on intellectual property, it will look at not just high-tech companies with strong intellectual property but also at non-traditional sectors such as information technology enabled services, retail, logistics and distribution, and infrastructure. It will invest an average of $5-7 million per deal over the life of the company.