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Shekhar Kapur's VC firm sells out

Paran Balakrishnan in London

Softtechnet, the venture capital firm backed by movie director Shekhar Kapur, has been sold for 33 million pounds only two months after it pulled off a highly successful IPO.

The firm, which aimed to invest heavily in the Indian software sector, has been bought by NewMedia Spark, one of Britain's best-known venture capital firms.

NewMedia Spark is paying 33 million pounds to take control of Softtechnet in an all-stock deal that took city analysts by surprise.

Softtechnet CEO Tony Sarin, however, believes such deals will become commonplace in the coming months. "We decided to be ahead of anyone else," he says.

Softtechnet raised 23 million pounds in March, but its shares fell sharply after hi-tech stocks fell out of favour in the last few weeks. Its shares fell to a low of 14 pence, rising to 18 after news about the deal reached the financial markets.

The all-paper offer equal to around 24 pence for each Softtechnet share offered investors a 65 per cent premium for their shares.

With the deal, the combined group will have more than 145 million pounds in its investment portfolio and a cash hoard of more than 45 million pounds.

Kapur is one of many prominent investors on the Softtechnet board. Other investors include food magnate Ghulam Noon and leading players in the British hi-tech sector.

Softtechnet, which was founded only in January, has made two of its four investments in India. The company invested undisclosed sums of money in Hyderabad-based IMI Computers and CyberInitiatives, a start-up headquartered in Bangalore.

Sarin will become a member of NewMedia Spark's board and chairman of NewMedia Spark India.

The stockmarket turbulence in the last few weeks has drastically reduced the appetite for Internet incubators -- firms that put money into Internet launches and offer expertise in the early stages. NewMedia Spark chief executive Michael Whitaker said that, combined, the two companies would have greater scale to pursue investments.

Softtechnet said it had strong synergies with NewMedia Spark. "The specialist Internet and technology strategy complements our strategy of pre-IPO investments resulting in a combined ability to nurture companies from inception to IPO," Sarin said.

The turn in fortunes came with dramatic swiftness for Softtechnet. It launched in March and opened at 20 pence, climbing steeply on its first day and briefly touching 40 pence. It closed the first day at 30 pence. Institutional investors saw the company as an indirect play on the Indian software industry.

NewMedia Spark said it would decide in the next few months whether to set up a permanent office in India.

Business