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Indian Internet Startups Fail to Meet VCs Expectations
si Team
Thursday, July 2, 2009
The Indian Internet startup businesses call for more time to bridge the gap of inefficiency. “With broadband penetration and PC affordability still remaining an issue, Internet companies have not met the expectations we had set two years back,” says Sachin Maheshwari, Principal at Draper Fisher Jurvetson (DFJ) India. DFJ has funded many Internet startups like naseeb.com and seventymm.com.

Although the Internet services companies in India are among the largest venture capital (VC) funded companies, these Internet businesses have not stood up to the expectations set by the venture firms. Earlier, the venture capitalists were of a view that the count of the Internet users in the country would increase to 80 million by 2012. But, belying the expectations, it has just reached 40 million and therefore, the traffic is too low to spawn healthy revenue.

Most of the Internet businesses rely on online advertisements to generate revenues. They think that it becomes difficult to survive due to the low increase in the number of Internet users. The Internet advertisement revenue in the country is $200 million, but the majority of it is generated by Google.

Some VCs perceive that Internet companies have not set up proper business models. “The business models that work abroad do not necessarily work in India,” says Ritesh Banglani, Senior Investment Advisor, IDG Ventures India.

However, despite the failure to reach the expected results, Internet business houses are still amongst the most favored by the VCs. According to Alok Mittal, General Partner, Canaan Partners, the most successful Internet companies in India are subscription based or lead generating ones, like Naukri.com. “We expect these companies to do better when the Internet penetration picks up again and monetization models become clearer,” says DFJ’s Maheshwari.

According to Venture Intelligence, 21 percent of the VC deals struck between July 2008 and June 2009 were in Internet services. The value of these deals was around $120 million.

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