Venture Capital for Media & Entertainment

Saurabh Srivastava

Chairman - Infinity Venture Fund

President Indian Venture Capital Association

What is Venture Capital

Equity Financing for new concepts & ideas - Risk Capital Available for sectors with high-growth potential

Ideal for knowledge / technology / creativity based industries

Vibrant Venture Capital ecosystem drives US leadership in technology, creativity Value add or SMART money

Media & Entertainment has all the ingredients to make it attractive for Venture Capital Financing

Who Invests in Venture Capital

High networth individuals with appetite for high risk / reward paradigm

Institutions diversifying investment portfolios Insurance companies, pension funds, banks, etc.
Funds of funds

Governments acting as catalysts

How does the Venture Capital model work

Investors invest money in a fund (usually a Trust) The fund has a fixed life (usually 5+2 years) Asset management company manages investments for the Trust The AMC charges the fund an annual operating cost of approx. 2.5% per annum The fund has invests in several companies which are IPOd/ acquired

The upside is shared between the AMC and investors approx 25:75 subject to a minimum invested return

The VC Model
75% upside to investors
25% of upside

Fund

AMC
Opn. costs Advice

(Trust)

25% Upside to Fund Managers

Co. 1

Co. 2

Co. 3

Co. 4

IPO

SOLD

How the Value Creation Model works

A typical Venture Capital Fund may invest in 20 companies Typically, 10 will fail, 4 will succeed and 6 may be okay

Venture Capital funds do not avoid risk but manage it

By balancing the portfolio Focusing on the people and the ideas

Mentoring, Coaching, adding value

All new ventures are high risk Reducing perceived risk does not reduce real risk Number of failures is hard to control To balance, the ones that win must win big Hence each investment must be structured for high returns

Fund Economics
Fund of Rs. 110 Crore (20 Investments @ Rs. 5 crores)
Operating Costs 10 Companies fail 03 Companies limp along 02 Companies chug along : ( - )Rs. 10 crores : ( - )Rs. 50 crores : ( - )Rs. 05 crores : ( + )Rs. 05 crores

02 Companies do great
02 Companies are stars TOTAL

: ( +) Rs, 150 crores

: ( + )Rs. 500 crores : Rs. 600 crores

This is an IRR of 40%

US Venture Capital Funding since 1985

(US$Bn)

100 90 80 70 60 50 40 30 20 10 0

1985

1987

1989

1991

1993

1995

1997

1999

2001

Source:

MSDW research and Venture Source

Asian Venture Capital Market Monitor

USD Billion

20 18 16 14 12 10 8 6 4 2 0 1998 $ Raised 1999 $ Invested

Source: AVCJ

16.6

17.2

9.1 7.4 4.9

9.1 6.8 4.9

2000

1H-2001

Private Equity/VC Investment in Asia - 2001

Country Amt. Invested ($min) Number of Deals

Japan
India South Korea

$1,858.38
$1,104.90 $1,054.18

39
91 19

Singapore
Australia China Hong Kong Taiwan Malaysia Sri Lanka New Zealand Philippines

$ 964.92
$ 547.83 $ 393.18 $ 262.81 $ 177.24 $ $ $ $ 35.54 22.00 16.69 8.16

26
81 11 23 4 13 1 12 2

Thailand
Source : AVCJ

7.20

Venture Capital Investments in India

1,600 1,400 1,200 1,000 800 600 400 200 0

1,500 1,200 1,100

500 20 80 150

19 97

19 98

19 99

20 00

20 01

20 02

Source: IVCA/AVCJ

20 03 *( es t)

Venture Capital in India - The Good News

Over 70 VC/Private Equity funds operating in India today . 90% are global funds rest Indian funds Profile of majority of VCs are Investment banking ..a few from industry Cumulative funds under management over the past 3 years : $ 5.6 billion ; over 50% is focussed on IT/Telecom

Cumulative investments in past 3 years : $ 3 billion..

Several New Funds Announced in year 2001 targeting India

Venture Capital in India..a qualitative look

Predominant sources of Capital are TIE members , Select Corporates , Singapore government entities like NSTB, GIC , Temasek, Vertex, etc
Amongst Private Equity players Warburg Pincus, Capital International, Citibank , ING etc active . Watching on the sidelines are Morgan Stanley, J P Morgan, 3i , ..

Large Fund of Funds like Harbour Vest, Pantheon ..still watching India
Other investors watching India include large pension funds , University endowments

Where is it happening?
Funding by Investment Stages
Late Stage 23% Seed 15%

Expansion 18%

Early Stage 44%

Source: Nasscom

Seed and Early Stage constitute 59% of current investment activity

Private Equity Investment - By Sector

Funding by Sector
Manufacturing 17% Others 8% Internet 19%

Healthcare 7%

Source: Merill Lynch

Information Technology 18%

Telecom 31%

IT & Telecom constitute 49% of current investment activity

VC Investments in Media & Entertainment

Ideal for Venture Capital investments Embodies Creativity, IP Potential for high Risk / Reward World Class Industry High Growth potential in all areas
Films Television Music Radio Live Entertainment Distribution Infrastructure Content / Technology

Huge Domestic market Globalisation has only just commenced

Media & Entertainment Global Market Drivers

Three principal market drivers are: Despite the recent slowdown in the US economic growth and concerns about its effects on other markets, the longterm picture for entertainment and media spending remains bright The ability of global media players to distribute their product/content throughout the world will make media companies stronger and better able to provide advertisers with effective platforms to reach consumers Digital technology and the expansion of broadband Internet access will transform virtually all entertainment and media segments by opening up new distribution outlets. The Internet will prove to be an effective companion to traditional media, rather than a feared competitor

Investments in US

Year
1999-2000 2000-2001 2001-2002

No of Investments
254 671 480

Value (USD)
1.9 bn 7.7 bn 5.2 bn.

Media & Entertainment - PE/VC Deals Done

Films Distribution
Shringar Films

Broadcasting & Software

NDTV TV 18 SAB TV Vijay TV Aaj Tak Technology Media Group Sony Entertainment Television UTV Interactive

Media & Entertainment - PE/VC Deals Done

Cable Television & Distribution

Indus Ind Media

Music

Easy Buy Music

Radio

Film Software & Animation

Pentamedia

In the US this sector has attracted US$ 320mn in Q4 2001

In Conclusion

Venture Capital can transform and globalise the Indian Entertainment industry
Bollywood, not Hollywood, could rule the roost Tremendous opportunity for Venture, Wealth & Employment Creation

THANK

YOU

saurabhsrtvastava@vsnl.com