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Tripat Preet Singh LBS REF: CS-09-009

John Mullins Date: February 2009

Indo US Ventures

Abstract
Vani Kola, a successful serial entrepreneur once named as one of the ten top
entrepreneurs in Silicon Valley, had built and successfully exited two venture capital
backed companies there during the technology boom of the 1990s and early 2000s.
Subsequently, Kola returned to her native India to start a venture capital business and
spent more than a year successfully raising US$200 million in capital to invest in the
burgeoning growth that modern India promised.

Along the way, she identified several promising deals that might make attractive
investments for her first fund. Now, in front of her on her desk in Bangalore, were the
business plans of four potential investments that the new venture capital firm she had
founded, Indo US Ventures, could back.

Kola knew that, if she wanted to be in venture capital for the long term, and thereby
continue to contribute her entrepreneurial skills to India’s growth and prosperity, her initial
investments would have to be good ones. The only way she would get to raise a second
fund sometime in the future was if her initial investments panned out.

The four businesses whose plans sat solemnly on her desk – ContentSense, Cellsol,
Gleduport, and Travel-King – operated in different industries and were at different stages
of their product and business development. Kola was not deterred by the always daunting
challenges entailed in building new businesses. But deciding which firms to invest in was
an altogether new challenge. By the end of the afternoon, she had told her partners, she
would decide which of the companies merited further due diligence, and which, if any,
should be dropped from further consideration.

Tripat Preet Singh, Senior Associate, Indo US Ventures, and John Mullins, David and Elaine Potter Foundation Term
Associate Professor of Management Practice, London Business School, prepared this case as a basis for class discussion
rather than to illustrate either effective or ineffective handling of an administrative situation. Some names and places have
been disguised. The authors thank the Goldman Sachs 10,000 Women Initiative for its support of this project.

Copyright © 2009 London Business School. All rights reserved. No part of this case study may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means electronic, photocopying, recording or otherwise without written
permission of London Business school.
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ContentSense
ContentSense is an early-stage company trying to build the most relevant search engine
for news and commerce recommendations. Its value proposition is centered on
aggregation of user-published information and other related information for every kind of
news media, including newspapers, magazines, blogs, podcasts, videos, etc. and
presenting them in a highly-relevant, context-sensitive fashion.

Most content and community portals have in the past been limited to revenue models
based on serving contextual and banner advertisements. ContentSense believes that a
mix of relevant content, commerce and behavioural advertising served in a personalised
fashion can improve the revenue potential for these portals. The right engine would
provide a significant advance in terms of content indexed (including user-generated
content, ads and commerce items), level of understanding of the user profile and intuitive
and easy categorisation of the content, based on personalised ranking. Revenues for such
an engine could come from content subscriptions and revenue sharing on advertisements
and commerce transactions.

Unlike current search engines such as Google and others, which are either directory-
based or ranking-based, ContentSense bases its search on a proprietary algorithm that its
founder, Sanjay Narayan, developed at the Indian Institute of Technology. Its dynamic
directory is optimised to work with non-structured data and provides user-specific context-
based clusters. The founder believes that this approach will generate more click-throughs
for content owners, greater revenue per click for each page, and greater advertising
revenues through higher page views. This would enhance revenues and user stickiness for
publishers, especially print publishers struggling with their transitions to the digital world,
the key target market. The business model is based on a revenue share with the publisher
receiving ten per cent of the incremental revenues.

Online news is growing at 11% CAGR and is the third most popular internet application
after email and search. User-published content is growing rapidly with web pages, blogs
and RSS feeds. The problem of finding relevant, personalised news- and commerce-
related information is real and growing. There are over 10,000 news sources in India with
an average of more than 50 articles per source each day. The attention span of consumers
is shrinking as they try to cope with the information being bombarded across different
channels, leading to attention scarcity. How does the user find the right content?

There are few existing solutions in this arena, though major search providers like Google
and Yahoo have directed some attention to this problem. The company needs initial capital
to set up an office in India and to market its solution globally.

Cellsol
Cellsol intends to build the mobile telephone industry’s first personal content platform
which would act as a secondary storage infrastructure for mobile devices. Accordingly, the
company expects to have first mover advantage. The investment proposal is to incubate a
company, working closely with an Indo US Ventures partner as sole external investor.

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In the Asia–Pacific region, the number of users of mobile services is projected to grow
rapidly, from the current 1.2 billion to 2 billion users within three years. Of the current
number, 100 million are in India. Mobile phones have become multifunctional devices, with
consumers embracing personal mobile content, including ring tones and more. Mobile
phones are lost or upgraded every 12 to 24 months on average, at which time storage
management becomes a key requirement for all mobile users, according to Cellsol. Target
markets are both Asia and the USA.

The business model is direct to consumer and packaged as ’Software as a Service’. The
basic features on one single device would be free until a change of device. The go-to-
market strategy is planned to include viral marketing and word of mouth, where each
consumer becomes a channel partner for the product. Cellsol expects over three million
users within 18 months of launch and a couple of million dollars in revenue. It has very
aggressive plans to grow to over US$50 million in revenue in four years’ time.

The two founders, N K Srinivas and Arun Murthy, have demonstrated success in prior
ventures and have created value for investors. They and one of Vani Kola’s partners have
worked together earlier and have very good chemistry. The founders have taken one
company public and sold another over the last ten years, making a ten times return for
investors in their last venture. Although the founders are based in California, they plan to
establish an Indian development centre; until then they will continue to work from the USA.

Gleduport
Gleduport is an online tutoring company offering scheduled and on-demand voice-based
tutoring for K-12 students in the United States and the United Kingdom and, eventually,
other Western markets. There is high demand for supplementary education in the West
and India has an abundant, perhaps excess, supply of high quality content and teachers.
The company plans to bring cost-effective online tutoring in mathematics and sciences to
replace or supplant prohibitively expensive and scarce offline tutoring. The company
provides value by bringing together tutors, content and methodology.

Gleduport’s software connects student and tutor using Voice over Internet Protocol (VoIP)
technology and provides an online virtual ’whiteboard’ on the screen where they work on
problems, do activities, demonstrate solutions and conduct assessments. It charges
customers a monthly flat fee, currently $100, for unlimited access to all subjects and topics.

It has launched Version 1 of its portal including a tutoring platform, testing and reporting,
account management, billing and payment and subject matter content. There are separate
US and UK sites with structured packages for each country. Initial response from both
markets has been encouraging, with more than 50% of customers renewing their
subscription after the initial six-month trial period. Discussions with various educational
organisations are in progress.

Suppliers of educational materials grossed US$80 billion worldwide last year and Forrester
forecasts US$12-16 billion of online tutoring across the US, UK and India within two years.

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There are more than 50 million students in the US alone of which more than 1.6 million
have studied online.

The company competes with many private tutors and traditional education companies like
Sylvan, Princeton Review, Kaplan, Huntington, and Kumon. There are half a dozen very
aggressive online players in the US, all in the early stages of development. Apart from
widespread competition, the company will have to work hard to deliver high quality content
and service. Recruitment of quality tutors, training them, and managing operations are
seen as key challenges for the company.

The CEO, Rajiv Suri, has created world-class companies from greenfield ideas and is
currently involved in five new ventures. He brings to this company experience in online
services businesses, building and scaling a large BPO business from India, and Internet
product and technology development. The next tier of management is in place.

Travel-King
Travel-King, though currently a small company, aims to be a full service travel company
and wants to define new paradigms in the travel industry. It plans to empower existing
brick-and-mortar travel agents all over India with instant ticketing solutions for domestic
and international travel. Its goal is to establish the widest travel agent network in India.
Travel-King also aims to introduce mobile telephone-based search for instant fare details
and ticketing on all airlines, as well as airport and central-city kiosks and CRM software to
ensure the highest level of service. It plans to offers tickets for flights, rail, buses as well as
travel packages as a single-stop shop for customers serviced through its agent network.

India is the third fastest growing domestic aviation market in the world. Industry watchers
predict that total air traffic in India will rise by five million passengers each year over the
next ten years. The advent of low cost carriers and increased connectivity is spurring this
growth. The online Indian domestic travel industry is currently estimated at US$600 million
and is expected to reach US$2 billion within three years, aided by a thriving consumer
economy and increasing consumer spending. Discretionary spending in the form of holiday
travel is beginning to happen.

The travel agent industry is fragmented and suffers from service constraints. There are
thousands of both IATA agents and non-IATA agents, with each group roughly comprising
half the market. Non-IATA agents are not able to deliver timely issuance of tickets due to
technology issues and are paid commissions in the three to four per cent range.

The company’s primary revenue source is commission from airlines, a part of which it
shares with its agents. Currently, Travel-King, through agent volume consolidation and
technology integration with Abacus, a Global Distribution System (GDS) for airline tickets,
is able to provide its agents five per cent commission on each ticket sold and gives its
travel agents the ability to instantly issue tickets by virtue of its technology integration with
Abacus.

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Though current revenues are modest, the company plans to reach a net revenue of INR 20
crores * (INR 200 million, US$5 million) and a profit of INR 8 crores (INR 80 million, US$1.6
million) in two years.

The company was started by Sanjeev Gupta and Praveen Kumar, both of whom have
technology expertise and run a traditional family-owned travel agency. The online travel
industry is already crowded, with half a dozen players which have recently started online
travel portals, all backed by well known and deep pocketed venture capital investors. In
addition, all Indian airlines promote their own websites.

*
One crore equals 10 million.

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