The Year Gone By
Investment Activity In The Technology
Sector In 2013
Foreword
Mergers & Acquisitions I Syndication I Advisory
INVESTMENT
BANKING
The results confirm what we have anecdotally
a...
Executive Summary
Mergers & Acquisitions I Syndication I Advisory
INVESTMENT
BANKING
Caution and a lower risk appetite has...
Executive Summary
Mergers & Acquisitions I Syndication I Advisory
INVESTMENT
BANKING
Hot sectors:
eCommerce
(13 investment...
34
26
8
26
0
5
10
15
20
25
30
35
40
Series A Series B Series C PE & later
VC rounds
Series A investments were only 36% of ...
Lower risk appetite demonstrated by institutional
investors
Mergers & Acquisitions I Syndication I Advisory
INVESTMENT
BAN...
B2C companies garnered more investor interest than
B2B companies
Mergers & Acquisitions I Syndication I Advisory
INVESTMEN...
Active VC investors in the Technology sector
companies
Mergers & Acquisitions I Syndication I Advisory
INVESTMENT
BANKING
...
Trending - PE investments in Technology companies
continues
Mergers & Acquisitions I Syndication I Advisory
INVESTMENT
BAN...
Technology sectors that attracted major investor
interest
Mergers & Acquisitions I Syndication I Advisory
INVESTMENT
BANKI...
Top investments during the year
Mergers & Acquisitions I Syndication I Advisory
INVESTMENT
BANKING
443
420
360
270
50 41 3...
420
384
270
175
135
82
52
17
0
50
100
150
200
250
300
350
400
450
GlobalLogic
Inc.
Bharti
Telecom Ltd.
CSS Corp. WNS Globa...
Summary : What to look out for in 2014
Mergers & Acquisitions I Syndication I Advisory
INVESTMENT
BANKING
 Most of the in...
Key trends – Merisis Observations
Mergers & Acquisitions I Syndication I Advisory
INVESTMENT
BANKING
 IT Consulting Produ...
Contact Us
Sumir Verma
Managing Director
Email: sumir@merisis.in
Mobile: +91 99672 55500
Fazal Ahad
Director
Email: fazal@...
Merisis advisors - Investment activity in the technology sector in 2013
Merisis advisors - Investment activity in the technology sector in 2013
Merisis advisors - Investment activity in the technology sector in 2013
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Merisis advisors - Investment activity in the technology sector in 2013

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Merisis Advisors has a dedicated team focused on fund raising and M&A in the Technology sector. As part of our internal intelligence work, we spent time recently in understanding the key investment trends in the Technology sector in 2013 - with the expectation that this would give us a heads up on the likely trends for 2014 too. The study was based on secondary research backed by conversations with key VC players to validate some of our hypothesis.

The study threw up some interesting trends, useful to both the technology companies as well as the Investor community. We decided then to take the extra effort to put our findings and analysis in the form of a report for the benefit of the larger audience.

Please visit the link http://merisis.in/investment-activity-in-the-technology-sector-in-2013/ to download the report.

Please drop in a mail with your comments at diwakar@merisis.in or sumir@merisis.in.

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Merisis advisors - Investment activity in the technology sector in 2013

  1. 1. The Year Gone By Investment Activity In The Technology Sector In 2013
  2. 2. Foreword Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING The results confirm what we have anecdotally already known – 2013 has been a slow year for growth investments. So we took up the analysis of the deals last year to decipher the trends which we believe will continue into this year. The results throw up some clear trends which help understand key areas of growth and in turn identify future investment verticals. Our focus in this study has been on technology investments. These could be by Venture Capital funds or Private Equity funds. Further, Venture Capital funds typically invest in technology, retail, consumer and healthcare sectors. In this study we have excluded non-technology investments by Venture Funds. However, IT services is included in this study. The analysis is done based on data from VCCEdge, our Knowledge Partner whose assistance has been invaluable and deeply appreciated. Technology companies attracted more than $2.19 bn investment from Angel, VC and PE firms during the year* # Technology companies excludes healthcare technology companies
  3. 3. Executive Summary Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING Caution and a lower risk appetite has affected early stage or Series A funding. This sentiment was also evident in Series B funding where companies already funded took more money in this round from their existing investors and less from new investors. Investors have shown a strong inclination to co- invest along with other investors, a trend which we at Merisis expect to continue in 2014. Although 2013 will go down as a year of subdued technology investment activity, it will be remembered for the iconic deals that made headlines. • The number of Series A investments were only 36%of the total VC/PE investments (excl. Angel/Seeds investments) • Investors demonstrated group behavior, preferring to Co-invest and invest a lesser amount in the investment round Clear demonstration of Caution A blockbuster IPO and importantly the share price trebling post listing A $100mn acquisition giving stellar returns to the investee VCs – Vindicating the premise of VC funds Sheer size of the investment ($360mn) in an Indian eCommerce company $37mn investment in a Indian Company which has potential to take on Yelp Inc. in the US market Our informal survey with several VCs indicate that there will definitely be an upswing in the number of deals this year
  4. 4. Executive Summary Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING Hot sectors: eCommerce (13 investments) IT products & services (7 investments) Classifieds & Lead based models (7 investments) Mobile apps (6 investments) Network security (4 investments) Big data (3 investments) Cloud (2 investments) Expected trend in eCommerce: Growth stage & established eCommerce companies continued to receive a lot of investment but early stage eCommerce companies struggled to attract investors Active investors: Nexus India, Kalaari Capital, Accel India, Sequoia Capital, Intel Capital, Tiger Global, Helion Ventures, IDG Ventures were the most active investors during 2013 Continued Patronage: Investors have continued to support their portfolio companies as 72% of the Series B and higher rounds had follow-on investments from existing investors Preference for B2C over B2B: Continuing the trend, B2C companies received more investment compared to B2B companies. Trending: Product companies with international potential got incorporated internationally much earlier in their life cycle and attracted investment from foreign VCs (Ex: Charles River Ventures, Avalon Ventures, Aeries Private Equity) Trend continuing from 2012 and expected to continue in the future: Some PE investors (Ex: Peepul Capital, Morgan Stanley Invt. Mgt. Inc., Fidelity Growth, Multiples) have invested in high growth VC stage companies, a trend Merisis expects will grow in 2014, as traditional PE verticals continue to show sluggishness 2014 Expected TREND Investors investing across stages: Many VCs have diversified their investment horizon by focusing on seed investments, investments in early stage as well as late stage growth Companies
  5. 5. 34 26 8 26 0 5 10 15 20 25 30 35 40 Series A Series B Series C PE & later VC rounds Series A investments were only 36% of the total VC & PE investments Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING Angel/Seed investors have been active in supporting the startup ecosystem Lower number of Series A investments compared to Series B and later investments 70 24 137 Venture capital Private Equity Angel/Seed (30%) (60%) (10%) 60 The Startup ecosystem has been rapidly developing in India as  Many CXOs are participating in Angel rounds  iSPIRT, accelerators, incubators are providing critical support for startups However, many startups / early stage companies struggled to attract Series A investments during the year as investors have become increasingly cautious. It has become imperative for companies to have an unique positioning, all the processes in place and demonstrate critical customer traction for Series A funding. While companies in Big data, Classifieds & Leads, Mobile applications, Cloud, Security and IT applications/products have received investor favour for Series A investments, it is interesting to note that companies in eCommerce have failed to garner much Series A investments compared to previous years. Classifieds & Leads
  6. 6. Lower risk appetite demonstrated by institutional investors Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING Group behavior being demonstrated by investors Existing investors have put in money in 72% of the Series B & higher rounds investments Lower risk appetite - In an interesting trend, VC/PE investors have been demonstrating Group behavior (Co-investing) showing an inclination to share risk rather than investing all the required money all by themselves The fact that this is also the case in higher rounds beyond Series A, is good news for companies as existing investors have continued to support their portfolio companies Note: Group investments are investment rounds in which more than one investor participated in the round 53% 47% Group investments Individual investments 53% of the Series A and higher rounds have received investments from multiple investors in the same round 72% of the Series B and higher investments rounds received investment from existing investors during the year CO-INVESTMENT 17 17 26 0 5 10 15 20 25 30 Invt. from new investors Invt. from existing investors Invt. from new & existing investors
  7. 7. B2C companies garnered more investor interest than B2B companies Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING B2C Companies ahead of the race in attracting investment The trend of Indian companies moving base abroad continues investments Investors have continued to keep faith in India’s consumption story and in companies leveraging technology to provide better consumer services, and serve latent needs and business models made possible by better internet connectivity and increasing mobile usage Anecdotally what we have observed is that VCs are asking their B2B focused companies to develop a B2C strategy - and get a better multiple and valuation for the next round. However, B2B investments are expected to pick up in 2014, driven by sectors such as Cloud, Big data, Analytics, Security etc. A trend that started last year, and which continued in 2013, has been the migration of companies that built their products in India and have much earlier than anticipated, moved overseas to target international customers. Ostensibly the reasons cited are easier conversions and better ASP per customer. Based on investments in overseas companies in 2013 the names that come up are Magzter Inc., Freshdesk Inc., Unmetric Inc., IdenTrust Inc., ThousandEyes Inc, CloudByte Inc., WizIQ Inc., Unbxd Inc. etc. 70% 30% B2C B2B 19% 81% No. of Companies Incorporated abroad No. of domestic companies
  8. 8. Active VC investors in the Technology sector companies Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING Fund Investee Companies / Brand names Nexus India Scale Arc Inc, Unmetric Inc, Snapdeal, Shopclues, Indix Corp, Housing.co.in, Big Shoe Bazaar, CloudByte Inc., Druva Software, Eka Software, Komli Media Kalaari Capital Zivame, Apalya Technologies, Snapdeal, Power2sme, Robosoft, Simplilearn, Appsdaily Solutions, Magzter, thelabelcorp.com, urbanladder.com, Myntra Accel India Scale Arc Inc, Trivone, TaxiForSure, Flipkart, Freshdesk, Power2sme, Common Floor, Babyoye, , HolidayIQ.com, Myntra IDG Ventures Zivame, Vserv, Apalya, Unbxd Software, Aujas, Heckyl, Newgen, Myntra, Lenskart Sequoia Capital India Dexetra Software, Bright Lifecare, Thousand Eyes, Idea Device Technologies, Druva Software, Cardekho, Citrus Payments, Zomato Tiger Global HolidayIQ, CommonFloor, Babyoye, Carat Lane trading, Ola cabs, Flipkart, Freshdesk Inc, Myntra Helion Ventures Shopclues, Babyoye, Seclore, TaxiForSure, Simplilearn, Mygola, Komli Intel Capital Snapdeal, Bright Lifecare, Nxtgen DataCenter and Cloud Services, Savaari Car rentals, Perpetuuti Technosoft, Policybazaar.com, Olive Telecommunications Nexus India (11 Series A & later investments), Kalaari Capital (11), Accel India (10), IDG Ventures (9) Sequoia Capital (8), Tiger Global (8), Helion Ventures (7), Intel (7), were the most active VCs during 2013 Matrix India, Qualcomm Ventures, Inventus, Bessemer Ventures and Canaan Partners are the other active VCS 11 11 10 9 8 8 7 7 No. of investments Nexus India Kalaari Capital Accel India IDG Ventures Sequoia Tiger Global Intel Capital Helion
  9. 9. Trending - PE investments in Technology companies continues Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING Date Company Investors in 2013 Deal size 13-Jul Flipkart Accel India, Tiger Global, Iconiq Capital LLC, MIH Holdings, Morgan Stanley Invt Mgt 360 13-Oct Komli Media DFJ India, Helion, Nexus India, Norwest Venture Partners, Peepul Capital 30 13-Nov BTI Payments ICICI Ventures 22.5 13-Jan Mogae Media Multiples PE 18.3 13-Apr Big Shoe Bazaar India Catamaran Invt., Nexus India, Fidelity Growth, Qualcomm Ventures 10.2 13-Jan WizIQ Inc Bertelsmann SE and Co. KGaA, Kaizen Education Fund 4.1 13-Jun CloudByte Inc. Nexus India, KAE Capital Fund, Fidelity Growth 4 13-Nov Achindra Online Marketing (Just Eat) Forum Synergies (India Knowledge- Manufacturing Fund), India Opportunities Fund-I NA Most Active Sectors - Payments, Ad networks and eCommerce Date Company Investors in 2012 Deal size Jun-12 PubMatic Inc. Helion, DFJ India, Nexus India, August Capital Partners, SVB India Finance 45.0 Aug-12 AGS Transact Technologies Actis Advisers Pvt. Ltd. 39.8 Jan-12 Applied Solar Technologies India IFC, Bessemer Venture Partners, Capricorn Capital partners 24.6 Nov-12 Transaction Solutions International India CX Capital Management Ltd. 22.0 Aug-12 AbsolutData Research and Analytics Fidelity Growth 20.0 Dec-12 Cogencis Information Services Samara India Advisors 19.9 Mar-12 Yepme Helion, Capricorn Capital partners 7.9 May-12 Kalki Communication Technologies GEF South Asia Fund, IFC 5.1 Dec-12 Manthan Software Services Norwest Venture Partners, Fidelity Growth 4.0 Jun-12 Quatrro Global Services DE Shaw Composite Invts Mauritius) 3.8 Mar-12 Billdesk TA Associates Advisory, Clearstone Venture Advisors - (All figures in $ mn)
  10. 10. Technology sectors that attracted major investor interest Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING 13 7 7 6 6 4 3 3 3 3 2 2 2 Top Focus Sectors (in terms of Volume) eCommerce IT Consulting Products & Services Classifieds/Leads IT Application Software Mobile apps IT Security Car rental aggregators Big data e-learning platform Digital media content Financial Products/Services Payments Cloud technologies & infrastructure $507mn $754mn $96mn $442mn $29mn $33mn $28mn $20mn $16mn $6mn $44mn $16mn $13mn Note: Series A & above investments only taken into consideration; Some deal values are not known and hence not included in total investment Sector Companies/Trade names eCommerce Flipkart, Snapdeal, Zivame, Yebhi, Carat Lane Trading, Babyoye, pepperfry.com, The Label Corp, Urban Ladder, ShopClues, Big Shoe Bazaar India, Myntra, Lenskart IT Consulting Products & Services Anunta Technology Management , CSS Corp., Hexaware Technologies, Infotech Enterprises, Persistent Systems, SemanticSpace Technologies, Source HOV Classifieds/Leads PolicyBazaar, Car Dekho, India Property Online, Housing.co.in, CommonFloor.com, InfoEdge, Zomato IT Application Software e-Sutra Chronicles, GlobalLogic Inc., Idea Device Technologies, Perpetuuiti TechnoSoft Services, ScaleArc Inc., ThousandEyes Inc Mobile apps Appsdaily Solution, Birds Eye Systems, Dexetra Software Solutions, Mogae Media ,Phone Warrior, Robosoft Technologies IT Security Aujas Networks, Druva Software, Seclore Technology, Vaultize Technologies Car rental aggregators Savaari Car rentals, Ola cabs, TaxiForSure Big data Indix Corp., Qubole Inc, Spire Technologies and Solutions e-learning platform Simplilearn Solutions, eDreams Edusoft, WizIQ Inc Digital media content Banyan Netfaqs, RML Information Services, Trivone Digital Services Financial Products/Services Eka Software Solutions, Heckyl Technologies Payments Citrus Payment Solutions, Mswipe Technologies Cloud technologies & infrastructure CloudByte Inc., Nxtgen Datacenter and Cloud Services Ltd. No. of deals
  11. 11. Top investments during the year Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING 443 420 360 270 50 41 35 30 25 0 50 100 150 200 250 300 350 400 450 500 Hexaware Technologies Ltd. GlobalLogic Inc. Flipkart Pvt. Ltd. CSS Corp. Jasper Infotech Pvt. Ltd. (Snapdeal) Eka Software Solutions Pvt. Ltd. Zomato Media Pvt. Ltd. Komli Media India Pvt. Ltd. Druva Software Pvt. Ltd. Deal value ($mn) Target Buyer Hexaware Technologies Baring Private Equity Asia GlobalLogic Inc. Apax Partners LLP Flipkart Accel India Venture Fund, Tiger Global Management LLC, Iconiq Capital LLC, MIH Holdings Ltd., Morgan Stanley Investment Management Inc. CSS Corp. Partners Group AG Jasper Infotech (Snapdeal) Kalaari Capital, Bessemer Venture Partners, Nexus India Capital II, eBay Inc., Recruit Holdings Co. Ltd., Intel Capital, ru-Net, Saama Capital II Eka Software Solutions Nexus India Capital Advisors Pvt. Ltd., Silver Lake Kraftwerk L.P. Zomato Media Sequoia Capital India Advisors Pvt. Ltd., Info Edge India Ltd. Komli Media India Draper Fisher Jurvetson India, Helion Venture Fund I, Nexus India Capital I, Norwest Venture Partners, Peepul Capital III LLC Druva Software Sequoia Capital India III, Nexus India Capital II, Tenaya Capital Some of the big deals have really been both exits and new investments – Incumbent PE investors sold their positions to incoming PE players IT Services deals (Hexaware, GlobalLogic and CSS) contributed $1.1 billion in deal value in 2013
  12. 12. 420 384 270 175 135 82 52 17 0 50 100 150 200 250 300 350 400 450 GlobalLogic Inc. Bharti Telecom Ltd. CSS Corp. WNS Global Services Ltd. Just Dial Ltd. Hexaware Technologies Ltd. Hexaware Technologies Ltd. iRunway India Pvt. Ltd. Deal value ($mn) Target Seller Buyer Transaction GlobalLogic Inc. New Atlantic Ventures, New Enterprise Associates (India) Pvt. Ltd., Goldman Sachs (Principal Investments), WestBridge Ventures II Apax Partners M&A Bharti Telecom Temasek Holdings Advisors India Pvt. Ltd. SingTel Ltd. M&A CSS Corp. SAIF Advisors Pvt. Ltd., Sierra Ventures, Goldman Sachs (Principal Investments) Partners Group AG Secondary Sale WNS Global Services Warburg Pincus India Pvt. Ltd. - Sale of ADRs Just Dial Tiger Global Management, Sequoia Capital India III, SAP Ventures, SAIF Advisors Pvt. Ltd. - IPO Hexaware Technologies General Atlantic Pvt. Ltd., Nuvo Chryscapital Advisors Pvt. Ltd. Baring Private Equity Asia Open market, Secondary Sale Redbus Seedfund, Inventus, Helion, Seedfund ibibo Web M&A iRunway India Lumis Partners UnitedLex BPO M&A Top exits during the year Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING 2013 had some noteworthy exits which provided good returns for VC/PEs - Just Dial (IPO) and Redbus & GlobalLogic (M&A) Many funds have been working on exits, and Merisis expects that there will be many more VC exits in 2014 compared to 2013
  13. 13. Summary : What to look out for in 2014 Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING  Most of the investment in eCommerce had come in the form of Series B and higher rounds of funding. We believe though that niche eCommerce players will selectively get funded in 2014  The bar for Series A funding moved up in 2013 and companies will scale to meet the investor expectations of demonstrable scalable and sustainable business models this year. We expect Series A deals to go up in 2014  Buzz words “Mobile”, “Analytics”, “Cloud“ and “Big data” appear to be promising but some others have lagged  Investments in these sectors are expected to only increase as there are many innovative Companies that are providing in-depth consumer & business insights or coming up with new ways on how we can do business or interact with people. B2B will move up and become a larger percentage of the deal flow in 2014  Areas like social, gamification, mobile payments, gaming, semi-conductors & electronics (apart from mobility) have witnessed little interest  Many of the Classified & Leads businesses apart from Info Edge and Cardekho are yet to demonstrate the ability to generate sustainable cash flows  However, investors have kept their faith on growth companies (Zomato, Policy Bazaar, India Property Online, Common Floor) and have also invested in new Companies (Housing.Co.in)  Those companies that deliver on the plans on which they raised the earlier rounds, will see more investments in 2014
  14. 14. Key trends – Merisis Observations Mergers & Acquisitions I Syndication I Advisory INVESTMENT BANKING  IT Consulting Products & Services, which includes IT architecture services, Offshore technical services, Outsourced product development services, engineering designs etc., have received a lot of PE investment with total investment of more than $700 mn, reinforcing the confidence of PEs in Indian outsourcing story.  With the resurgence of the IT services outsourcing story, we are predicting a return of investor interest in IT services companies with superior business models.  Increasing trend of Bring Your Own Device (BYOD) and accessing databases and mails over mobiles, have increased the need for foolproof IT Security solutions and this sector is expected to remain a favorable sector for investors  Companies in this sector attracted both Series A , Series B and higher rounds of investment  Cloud technologies, Local Offers, video streaming, energy solutions, healthcare technologies are the other sectors that have received Angel / Series A investments and are the sectors to lookout for in 2014  Expect VCs to balance their portfolio in 2014 by doing deals across stages – seed to late stage as evidenced by the latest Newgen deal (by IDG Ventures)  We expect 2014 to be a favourable year for exits. VCs have been working on their portfolios and many of them are in discussions which will close this year. M&A in Technology is a key area of focus for Merisis in 2013 and will continue in 2014. Overall we predict a better year for Technology investments in 2014
  15. 15. Contact Us Sumir Verma Managing Director Email: sumir@merisis.in Mobile: +91 99672 55500 Fazal Ahad Director Email: fazal@merisis.in Mobile: +91 98201 49574 3A Valmiki Apts, Sunder Nagar, Kalina Mumbai 400098 www.merisis.in DISCLAIMER This note is distributed by Merisis on a strictly confidential basis. It has been prepared exclusively for the benefit and internal use of the recipient and does not carry any right of reproduction or disclosure. The information contained herein can not be disclosed, reproduced or used in whole or in part without express prior written permission of Merisis. The information contained in this note has not been independently verified by Merisis. No representation or warranty is given by Merisis or as to the achievement or reasonableness or completeness of any idea and/or assumptions presented here. Neither of the companies nor their respective affiliates shall have any liability (including liability to any person by reason of negligence or negligent misstatement) for any loss arising from use of this note and its contents (express or implied). This note does not claim to contain all information that recipient may require. Recipient should not construe any information contained herein as advice relating to business, financial, legal, taxation or investment matters. Recipients are advised to consult their own business, financial, legal, taxation and other advisors concerning the company. Diwakar Yasarapu Associate Vice President Email: diwakar@merisis.in Mobile: +91 98201 16419 Santosh Kathira Associate Email: santosh@merisis.in Mobile: +91 98677 36328 INVESTMENT BANKING

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