Intel Capital to exit Indian firms through IPOs

Intel Capital, the venture capital (VC) arm of technology giant Intel, feels that an initial public offering (IPO) is the best way for an exit in India, rather than the merger and acquisition (M&A) route.

Intel Cap’s Managing Director for India, Japan, Australia, New Zealand & South-East Asia, Sudheer Kuppam, says that the IPO route is what the firm has opted for since it started investing a decade ago.

“This is based purely on our database. If I look at my portfolio, a majority of exits have been through IPOs. We continue to insist on that. Besides, the M&A market was not too healthy even during the boom period,” he says.

But the scenario in the Western market is the exact opposite – where the VC player has chosen the M&A route. Kuppam explains that the exit mode is dependent on the capital market.

The appetite to invest in a new listing and the ability to take risk is very low in the West. Whereas, in places like India, it is a completely different picture. In fact, Kuppam expects that markets will be conducive for IPOs by the end of this year, or the first half of 2010.

Already two of Intel Cap’s invested firms, Tejas Networks and the Pune-based Persistent Systems, have lined up their IPO plans for this year. Tejas had filed for an IPO last year but, due to adverse market sentiments, the plan was shelved.

Intel Cap has invested in 60 firms since it started operations in India in 1998. The company has exited out of close to 20 firms, either through an IPO or an M&A. The maximum number of exits were last year.

Since 2005, it has been investing from a $250-million India fund. It has invested in over 20 firms, using 40 per cent of the fund. Last year, it invested $51 million in nine companies in India – six of these were new investments, while three were follow-on.

Commenting on the current slowdown, Kuppam says that this is a great market for investment as valuations are low. He says that India is one of the top internal rate of return-generating geographies for Intel Cap. As for portfolios, Kuppam’s advice is to stay the course and be innovative.

When asked if Intel Capital will surpass its 2008 investments, Kuppam said: “We are in talks with multiple firms. For the year 2009, my guidance to the team is to keep the pace as this is a good time to invest. Valuations have come down. Ideally, we would like to cross our 2008 number,” added Kuppam.

Even at the start of this year, Intel Cap announced investments of $23 million in three firms. While the company did not disclose the investment allotted to each company, Intel Cap has been investing at the $5-7 million level and generally takes a 20 per cent stake in the invested firm.

Kuppam feels that, since India has services or value-added service firms, the total capital required for businesses to become viable is much lower than capital-hungry product firms.

“I still do not see too many product firms in India. This is also one of the reasons that you do not see too many syndicated deals as well,” he further added.