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Startups

Startups: Burrp acquisition by Infomedia18, Low Internet Valuations in India

Talking to Nikhil Pahwa on the phone about financial shenanigans and a recent acquisition of Burrp! (a restaurant review site as I know it) and some subsequent research yielded a tidbit that, it seems, was a useful piece of information. Nikhil wrote about it on MediaNama:

According to a filing with the Securities & Exchange Board of India (SEBI), Infomedia18 had paid a total amount of Rs. 4.255 crores for acquiring Burrp. Previously, the amount paid was undisclosed.

(Thanks Nikhil for crediting me)

Now this seems to be an interesting deal. Earlier reports at MediaNama indicate a murmur that Haresh Chawla, the Infomedia 18 Managing Director, had funded Burrp with a loan or a convertible debt of sorts; technically, is that a related party transaction, if Haresh didn’t own shares? I guess not, because the SEBI filings haven’t mentioned it.

Rajiv Dingra’s take on it at WATBlog analyzes the valuation; at 300K unique visitors a month, the valuation of Rs. 150 per user is a miniscule $3 per unique visitor.

That sounds quite reasonable but it’s unlikely the founders would’ve made much if the Haresh Chawla debt story is true. Still, this acquisition is going to be yet another low valuation overall; You want to see huge successes and massive payoffs but the M&A part of Indian business is yet to scale up.

Examples: HT’s acquisition of Desimartini was announced as “less than $10 million” but it turns out that figure was overstated – don’t know by how much. But a look at the 2007-08 balance sheet of HT Media reveals:

  • Desimartini was acquired by Firefly e-Ventures, a fully owned subsidiary of HT Media
  • Firefly, which was capitalized in the same fin-year, had an equity capital of 10 cr. and another 9.85 cr. loan/payable to HT Media. So 19.85 cr. is about the max they ever had – Firefly’s total assets are shown as 17 cr. at the end of the year.
  • Desimartini will be listed as an asset, most likely at cost.
  • Firefly also owned Shine.com in this period, and that’s likely to have accounted for around half of what’s in there.

So the Desimartini transaction was probably less than 10 cr.

Slightly bigger stories: Jobsahead, a job startup, was acquired by Monster for 40 cr, around $9m at the time. But it had a $5m funding from Chyrscap which would’ve taken at least 1x liquidation preference (meaning they make at least 1x their investment even if company sells for lower valuation) – but the remaining 4 million would have given the founders/angel investors/employees 16-18 cr. to share. Baazee of course was an incredible $50m, which looks like a fabulous return for the founders.

Update: Manish points me to the TravelGuru sale which was at $9-10m, which after a $25m investment from the Sequoia type VCs, would hardly have left much on the table for founders. The other big players in the travel space – Yatra, MakeMyTrip and Cleartrip – have serious funding, and just-as-serious competition in the form of larger overseas players like Travelocity, or from the Airline web sites directly. (I still use MakeMyTrip/ClearTrip to find the airline/price I want, and then hit the airline web site to see if I can get a better deal.)

This is good money in an absolute way but doesn’t make the founders filthy rich (I would say each founder making > 50 cr. is seriously inspiring).

A U.S. example: an acquisition in 1999 – of clearstation.com, a very cool financial site, by E*Trade, was for around $28 million (E*Trade paid with 469K shares, and it was around $60 at the time) Clearstation had 90K registered users – that is $30 per user, though you must remember this was the height of the internet boom.

Still, the difference is incredible. Most Indian web site M&A deals seem to be very low on valuation, and the culture of big payoffs like the US has just not come here. We’re at early internet stages in India right now, but given the relatively low payoffs and the high attrition (lemme throw a guess: 80% or more of web startups fail) the “expectancy” of the web startup isn’t positive. That’s a trading term – basically it means if only 20% of startups succeed then the payoff must be at least 4x of investment, to make up for the losses of the other 80%.

Having said that, it seems like these are great times for online startups – the internet growth is starting to show, and in mobiles, I’m seeing more and more scale. Indian Celebrities are using Twitter. Indians are pretty huge on Facebook now. Maybe this is the right time to start!

Note: One marked difference is in InfoEdge’s valuation – the owner of Naukri.com gets a 35 p/e on the market. Maybe the right thing for startups to do is to hope to get listed instead of this M&A thing.

Note 2: The Indian VC community sits at the top end; at the early stage there are few or no angel investors. Read this discussion at Venturewoods for some interesting insights and an angel funding framework; the idea is that if the angel community develops we’ll see better startups and perhaps more big payoffs.

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