With most of the first generation BPO start-ups on the verge of closing down, the issue of whether or a not a BPO company should have a VC is a hot topic for debate. BPO start-ups like Infowavz, Tracmail, and Epicentre are in dire need of funds for growth, however their VC’s are not interested in investing the amount. The only options left for these companies is to bring in a strategic investor who either has the scale or the financial muscle to pull them out of crisis, or to close down.
On the other hand the second-generation organizations such as WNS global services and 24/7 Customer are fast ascending the growth ladder. WNS, currently, backed by Warbug Pincus, will double its head count to 8000 by the end of June 2004. It closed the fiscal 2003-04 with $85 million revenues and expects a 60-70% growth rate this year. 24/7 Customer founded by U.S based entrepreneurs P.V.Kannan and S.Nagarajan is also sailing smoothly and recently brought in a $22 million from Sequoia Capital.
This raises a million-dollar question,”Why is there so great a disparity between this companies?” The answer seems obvious, the second generation BPOs are riding high because they entered the market a little later and hence could choose the right kind of VCs and carefully avoid the mistakes their predecessors made.
The current scenario is that, most of the first generation BPOs have hit the trough-they need growth capital to achieve critical mass and stay in business. But time’s running out since most of the VCs want to exit. But statistics say that in year 2003 venture capitalists invested around 100 million dollars in the BPO sector. So where is all the money going? The companies that have a steady growth rate do not face much of a problem in gaining funds. The industry experts say that firms who are able to reach a critical mass of $35-40 million in revenues and a 4000-people strong operation will be prime targets for fresh capital infusion. But those like Tracmail and Infowavz are way behind the magical numbers and some like Transworks and FirstRing have already closed down.
This implies that the specialized BPO firms find it relatively easier to get VCs. But what’s most important is managing the VCs expectations. This is a tip that the GenX companies will keep in mind and for the older generation BPOs ; they’d perhaps be ruing the day they mindlessly invited their VCs to invest in their firms.
Valuations have dipped from 2.5 times the forward revenue in 2002 (Wipro-Spectramind acquisition benchmark) to a mere one time the forward revenue in 2004 (IBM-Daksh acquisition benchmark).
- Acer Technology Ventures – Bangalore, Singapore, California
- Actis – Bangalore, Delhi, Mumbai etc.
- Avendus Advisors – Bangalore, Mumbai
- Band Of Angels – Delhi
- Baring Private Equity Partners ( India ) Ltd. – New Delhi
- Battery Ventures
- Enam Financial Consultants Pvt. Limited – Mumbai
- Edelweiss Capital – Mumbai
- Financial Technology Ventures
- Francisco Partners
- Norwest Venture Partners (NVP)
- Oak Investment Partners
- Nadathur Holdings & Investments (P) Ltd.
- TH Lee Putnam Ventures – NY, Boston, London
- Trident Capital
- Trinity Ventures
- Sequoia Capital Partners – Bangalore, Mauritius, California
- Mergers & Acquisitions
- The Indian Venture Capital Association(IVCA)
- Venture Capital Guide for India
- VC Funding July-Sept 2004 news.
- VC Funding April-June 2004 news.
- VC Funding Jan-March 2004 news.
- VC Funding Oct-Dec 2003 news.