redBus deal revs up interest in start-up market again

N. Ramakrishnan | Updated on March 12, 2018

Parag Dhol, Director, Inventus Capital

“As VC firms look to show returns to investors, there will be more such exits in the current year.” Parag Dhol, Director, Inventus Capital“It is truly heart-wrenching (to sell a venture). I still get up in the middle of the night thinking why I sold it.” K. Ganesh, Founder, TutorVista

The buzz is back in the country’s start-up ecosystem.

Its trigger is the promoters of, an online bus ticketing company, who sold their their venture to the South African firm Naspers. This is the second of the big events in the last two months that has got entrepreneurs and venture capitalists excited.

The previous one was the public listing of JustDial, a search engine, through an offer-for-sale. The promoters and the existing investors – venture capital firms Sequoia, SAP Ventures, Tiger Global and SAIF Partners – sold their stake proportionately to raise about Rs 900 crore.

The transaction value for the redBus deal has not been revealed, but the fact that the promoters – all first-generation entrepreneurs who were batchmates at BITS, Pilani – had started the company, raised funds from venture capital firms, made the venture profitable and sold it all within seven years of starting has given rise to hopes that more such deals will follow.

Parag Dhol, Director, Inventus Capital, one of the investors in redBus, points out that the venture capital industry in India really took root only around 2005. Before that, it was more of a cottage industry. Now, those early investments are at a stage of maturity and VC firms will be looking to exit and show returns to their investors. In that context, Parag says the current financial year (2013-14) should see more such exits.

Unique solutions

redBus, according to him, is not about concept or idea arbitrage. It was about finding a solution for an India-specific problem. It validates the India opportunity, both for entrepreneurs and investors.

One of the challenges in the early-stage ecosystem in India is to get an exit, says K. Ganesh, a serial entrepreneur, who sold his last venture TutorVista to UK-based media conglomerate Pearson in 2011. The traditional early exits of the US – where companies buy smaller ones for the number of employees they have or to prevent competition, or tech companies buy new firms for their patents – do not happen often in India. Here, says Ganesh, you have to make much larger profits to exit. “Any exit which is a good exit is a great boost to the food chain,” he adds. “We need more such exits. That is what motivates a VC. They have raised money and they have to show stellar returns. We need role models of first generation entrepreneurs creating value and wealth,” says Ganesh. J. Murugavel, Founder and CEO of Consim Info Pvt Ltd, which owns, says the redBus deal has shown that if you build a good company, you can have a good exit also, in a short time. India is a place where you can create value and redBus proved that, he says. “There are enough and more problems to be solved in India. Exits like this will fuel the ecosystem. VCs will fund start-ups because they will see exit opportunities,” says Murugavel, a first-generation entrepreneur himself, emphasising the importance of the redBus-Naspers deal.

Parting ways

However, the promoters of redBus were not looking for an exit. They had, as Phanindra Sama, its CEO and a first generation entrepreneur, says, started discussing with a few investors who were interested in investing in redBus, when Naspers came up with its offer. The offer had caught them all by surprise.

The promoters and the three VC investors – Seedfund, Inventus and Helion Ventures – discussed the offer and decided to go for it for two main reasons. One, the offer appeared to benefit all those involved – the company, promoters, investors and employees. And two, an exit so early in the life of a start-up is rare. And the promoters were not sure if and when the next good offer would come about.

Was it a difficult decision to sell out? Not really, says PhaniHowever, Ganesh, who along with his wife Meena has now started GrowthStory, a family office that will help start-ups, says from his experience that each exit is heart-wrenching. Entrepreneurs start a venture with a lot of passion and belief in their idea and the venture is almost like their baby. “I have done it four times. It is truly heart-wrenching. I still get up in the middle of the night thinking why I sold it,” he says.

But, says Ganesh, selling is part of a venture’s life-cycle. What is needed to nurture and grow the business changes over the years. And an entrepreneur needs to be able to differentiate between ownership and management.

“It is almost like getting your daughter married,” says Ganesh. You have seen your daughter as an infant, a baby, a toddler, an adolescent, a teenager, a young adult and a grown up. Her needs change in each stage and you have been around all the time. When she is an adult, she needs to get married and start life on her own. Can you say you will not get her married at all, he asks. Even after she gets married, she is still your daughter. Starting a venture, growing it and selling it is almost the same. Even after you have sold it, it is still the seed you sowed, the sapling that you nurtured that has now matured into a tree and is bearing fruits.

Published on June 30, 2013

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