Applied Mobile Labs: Valuation of a Startup (2016) - Ivey Publishing PDF

9B16N022 APPLIED MOBILE LABS: VALUATION OF A START-UP Jaslene Kaur Bawa, Vinay Goyal, and S. K. Mitra wrote this case solely to provide material for class discussion. The authors do...

9B16N022 APPLIED MOBILE LABS: VALUATION OF A START-UP Jaslene Kaur Bawa, Vinay Goyal, and S. K. Mitra wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-08-23 Umesh Baveja, an India-based angel investor,1 was sitting in his Delhi office on April 20, 2015, reviewing the performance report for Applied Mobile Labs Private Limited (Applied Mobile Labs). 2 Baveja was looking at the revenue growth figures reported for 2014. The company’s top-line figures had grown a meagre 12 per cent in 2014, less than half of the estimated industry revenue growth for mobile value-added services (MVAS) (see Exhibit 1).3 Baveja called Neel Kothari, chief executive officer of Applied Mobile Labs. After the initial conversation, Baveja suggested that they should hold a meeting to discuss the company performance. After the call, Baveja continued to review the 2014 performance report, updating his valuation sheet with new numbers. He wondered if the valuation method used captured the full view of the company’s business, whether the company was achieving its projected performance targets, what the company’s exit value should be, and if he should maintain his 2009 investment of seed capital4 worth ₹11 million.5 THE COMPANY Applied Mobile Labs was launched in 2009 with three co-founders—Mrigank Tripathi, Devanshu Pandey, and Vivek Khandelwal—and Baveja’s initial capital investment of ₹200,000. The company aggregated and sold value-added services for mobile telecommunications. The company aggregated educational content, then sold it on a subscription basis through telecom service providers to mobile users. The Venture Since 2005, telecom service providers had been offering non-voice services in addition to standard voice services to gain a competitive edge. Initially, the non-voice services included short messaging service (SMS), mobile Internet usage, and content-based services such as ringtones, hold music, wallpaper Page 2 9B16N022 downloads, games, and music. Gradually, the MVAS industry increased the type of content-based services in line with the introduction of second- and third-generation (2G and 3G) wireless technology across India. The Telecom services company could set up their captive units to offer MVAS content aggregation services or identify MVAS providers to provide content aggregation services. Setting up captive units involved high costs, hence telecom service providers opted for MVAS provider services. MVAS involved using non-voice based services that could be accessed through smart phones. The person using the non-voice services needed to be able to operate a smartphone and read the content of the MVAS in case of the infotainment and education. Additionally, subscribers mostly used voice-calls and messaging services. This formed a major portion of the average revenue per user (ARPU), so a major portion of the ARPU was directed to voice calls and SMS, whereas a minor portion was generated through MVAS services. Added services created a major opportunity for telecom service providers. They were in the process of either setting up MVAS centres or identifying MVAS providers. However, this opportunity also brought challenges. Low literacy levels, low smartphone penetration, and low ARPU per month were a few challenges. Typical content services such as hold music, news updates, and entertainment services were voice- and text-based. Though MVAS adoption was limited to a select set of services, mobile Internet-based services were expanding rapidly, with mobile-based (m-) infotainment,6 education, entertainment, health, enterprise, and commerce expected to dominate MVAS growth in India. Although m-entertainment formed a major portion of the MVAS industry revenue, demand for other content-based services was increasing. Setting up owned centres would be costly; therefore telecom service providers were looking for revenue-sharing agreements with third-party content generators and aggregators (see Exhibit 2). Applied Mobile Labs was one such initiative addressing the demand. The company provided a content aggregation platform that connected content providers with the end mobile user. Applied Mobile Labs’ focus was on m-education. The company’s mobile platform would help students assess themselves and access educational content and counseling services through interactive voice response (IVR), the Web, browsers using the wireless application protocol (WAP), and SMS. The mobile service was well-supported with a website that helped content providers become familiar with the service (i.e., onboarding) and evaluate content performance. In early 2010, Applied Mobile Labs brought its proprietary mobile learning product, Tutor on Mobile (TOM),7 online to aggregate and deliver educational content through the various mobile communication channels.8 The provided content was in the form of videos, text, images, live interactions, voice broadcasts, and knowledge conferences (where one could join an expert session through voice and video virtual classrooms). Customers could subscribe to the service three different ways, 1) sending an SMS to “TOM” at a specified number (533-3300); 2) accessing a free SMS link; or 3) visiting the website tom.tatadocomo.com (for previews and uploading user videos). Applied Mobile Labs’ second product was an English learning solution called “English on Mobile.”9 It allowed users to learn English with the help of an IVR that could be accessed through any mobile subscriber. The third product was Getafixx, a Google talk-based platform where mobile users could search and connect to experts on different topics. That product was discontinued in 2011. There were other successful products on the market, such as English Seekho, MGurujee Mobile Collaborative Learning Platforms, and Indira Gandhi National Open University (IGNOU) distance learning modules (see Exhibit 3). However, Applied Mobile Labs intended to be different from its competitors by allowing users to explore different options for accessing educational content. Page 3 9B16N022 TOM was charged at ₹15 per month for all content-related services. Applied Mobile Labs had already signed up with 60 expert partners to provide subject expertise. The content aggregator platform services were available to Tata Docomo’s mobile subscribers. Applied Mobile Labs had already hosted a series of knowledge conference sessions for Delhi University Admissions, engineering college admissions, and career counselling sessions. The plan was to achieve 2.5 to 3 million uses per day through the various options available to mobile users. Applied Mobile Labs was aware that the educational content platform had to be reviewed and updated constantly to cope with the evolving needs of users and content generators. In late 2012, the company offered Airtel mBazaar, which allowed mobile users to search and connect with local businesses to access service offers. Lastly, Applied Mobile Labs offered LeadGen, which helped small and medium businesses generate business leads. LeadGen carried advertising from some prominent clients in mobile advertising: Airtel, Frankfinn Institute of Air Hostess Training, Getit Infoservices, and SMG Convonix. GROWTH STORY: MOBILE VALUE-ADDED SERVICES IN INDIA The MVAS business in general had seen a surge in growth across India. The Associated Chambers of Commerce of India (ASSOCHAM) predicted MVAS industry revenues would reach ₹482 billion by 2015, an increase from revenues of ₹976 million in 2009. The revenues were expected to increase at a compound annual growth rate (CAGR) of 30.5 per cent yearly. 10 Another study, by PricewaterhouseCoopers, estimated MVAS revenues would reach ₹550 billion by 2015.11 By 2015, under information services, mobile news updates would amount to ₹33 billion and m-commerce would contribute ₹26 billion. Mobile education was part of the information services segment that was expected to form around 25 per cent (₹5.2 billion) 12 of the total MVAS industry revenues. 13 Mobile advertising was expected to reach ₹4.3 billion in 2014.14 The mobile phone industry in India had become a major market with 930 million subscribers by December 2014 (see Exhibit 4).15 India had reported a 74 per cent increase in mobile data usage from December 2013 to the end of December 2014. 16 Telecom service providers relied on non-voice services to build their margin. The revenue per subscriber from VAS services provided with Global System for Mobile (GSM) communications standards 17 was about 25 per cent 18 of the total GSM ARPU, and the revenue per subscriber from VAS provided using Code Division Multiple Access (CDMA) protocols was 30 per cent of the total CDMA ARPU. India had both CDMA and GSM subscribers with GSM representing the major portion of subscribers. The CDMA subscribers generated approximately half the VAS ARPU generated by GSM subscribers. The reason for this was that CDMA services were provided by limited service providers and in limited cities during the period between 2005 and 2010. GSM provided users with removable subscriber identification module (SIM) cards to store the subscriber data. CDMA phones did not use SIM cards; rather, CDMAs verified all of their phones against a list of network sites. An additional difference between CDMA and GSM was that CDMA phones did not allow data and voice to occur together, unlike GSM. This limitation presented challenges for CDMA phones in accessing MVAS services.19 Non-voice MVAS revenues had grown 9 per cent during financial year (FY) 2012/13. The overall Indian telecom mobile subscriber base grew at 7 per cent in 2014. 20 Page 4 9B16N022 VALUATION OF APPLIED MOBILE LABS Baveja had a good relationship with Applied Mobile Labs. The company had achieved the targets set during the first round of investment. This led Baveja to invest in the company in 2011, in a second round of investments. Until 2012, Applied Mobile Labs’ business focus was m-education. Revenues grew to ₹660,000 in FY2010/11, up 134 per cent year from the previous year. In FY2011/12, revenue was ₹4.5 million, up 580 per cent year from the previous year (see Exhibit 5). M-education was becoming a crowded segment with a number of participants entering the market; thus, revenues and profit margins were decreasing. After deliberation, Applied Mobile Labs’ founders and business development team decided that mobile advertising should be explored as a new revenue segment. In late 2012, the company shifted its focus to mobile advertising, with this segment forming a major portion of Applied Mobile Labs’ revenue. With this shift in focus, the company’s revenue growth increased by 1,400 per cent year on year in FY2012/13. Baveja calculated the company’s cash flow forecast using the top down, free cash flow to firm method as a part of reviewing the company financials. He intended to compare the results with the company’s actual performance in 2015. Baveja had considered various assumptions when calculating the estimated cash flows. He and Applied Mobile Labs had discussed these assumptions during business performance meetings; there seemed to be consensus on most of the assumptions. Unlike most of Applied Mobile Labs’ clients, a few were offering the company a higher share of the total MVAS-generated revenue. Tata Docomo, for example, offered 60 per cent of the MVAS revenue. Applied Mobile Labs was moving toward closing down the m-education segment by 2015, causing a temporary dip in the revenue figures. However, the company had signed a number of mobile advertising clients, and the company’s top line was expected to grow at a CAGR of 24 per cent per annum from 2014 (based on revenue calculations).21 The pre-tax operating income would grow at a CAGR of 79 per cent per annum until 2020. The company had achieved a positive operating profit margin of 4 per cent in 2014, and expected to achieve an operating profit margin of 39 per cent by 2020 (see Exhibit 6). They expected to achieve a positive after-tax operating income in 2018, assuming the corporate tax rate remained stable at 30 per cent. This would be in keeping with publicly listed companies such as Geodesic Limited, Tanla Solutions, and Nettlinx Limited, which were in the red, and OnMobile Global Limited, which was showing a profit. Private companies were still seeing a positive profit after tax (see Exhibit 7). The company would remain debt free, maintain revenue to capital ratio of 80 per cent (see Exhibit 8) and the company’s return on capital (operating income/capital at the start of the year) would grow steadily from 3 per cent in 2014 to 22 per cent by 2020. THE CONCERN AHEAD The main concern for Baveja was that, despite his best estimates, he could expect negative cash flows from 2014 forward for five years. Positive cash flow was expected to happen only in 2020, when the total revenues would reach ₹275.5 million. Incidentally, the fifth year would be the terminal year for the investors in the company. Baveja had a timeline of five years to exit. In addition, a typical discounted cash flow (DCF) valuation was not making sense to him. He was using a variation of the DCF model that considered a top-down approach. The discount rate used was around 12 per cent (see Exhibit 9 and 10).22 This was a low figure compared to an early stage start-up that had a 20 per cent chance of survival. Baveja wondered whether he would be able to achieve a suitable exit value, and an average return of more than 100 per cent. As he continued to ponder the road ahead, Baveja realized there was still a long way to go. Page 5 9B16N022 EXHIBIT 1: CALCULATED MVAS INDUSTRY REVENUES (₹ BILLION) 2007–2015 ASSOCHAM COAI GSM revenues CDMA revenues MVAS revenues Year revenues (non-voice) (₹ billion) (₹ billion) (₹ billion) (₹ billion) (₹ billion) Col (1) Col (2) = Col (1) + Col (2) FY2007/08 70.95 13.79 84.74 NA NA FY2008/09 85.28 13.33 98.61 97.6 NA FY2009/10 102.45 16.19 118.64 122.0* 140.0* FY2010/11 142.99 15.29 158.29 158.6* 152.0* FY2011/12 179.69 19.02 198.71 214.1* 175.0* FY2012/13 193.17 28.04 221.21 278.3* 191.0* FY2013/14 249.54 32.47 282.01 366.2* NA FY2014/15 NA NA NA 482.0* NA Note: * ASSOCHAM and COAI have reported revenue forecasts for the period 2010 to 2014. Source: “National Telecom Statistics,” Cellular Operators Association of India (COAI), accessed May 10, 2015, www.coai.com/statistics/telecom-statistics/national; Sachin Sondhi, Sandip Biswas, Gaurav Gupta, and Prakash Bharwani, Mobile Value-Added Services (MVAS): A Vehicle to Usher in Inclusive Growth and Bridge the Digital Divide (New Delhi: Deloitte Touche Tohmatsu Limited and Associated Chambers of Commerce and Industry of India [ASSOCHAM], January 2011), 16; “VAS (Non-Voice) Revenues)” in National Telecom Statistics [database], Cellular Operators Association of India (COAI), accessed May 10, 2015, www.coai.com/statistics/telecom-statistics/national. Page 6 9B16N022 EXHIBIT 2: MOBILE VALUE-ADDED SERVICES VALUE CHAIN Technology Telecom Content Content Enabler Service Consumer Provider Aggregator (VASP)* Provider 5% to 10% 25% to 30% 60% to 70% Handset Manufacturer Technology Telecom Content Content Enabler Service Consumer Provider Aggregator (VASP)* Provider 5% to 10% 25% to 30% 60% to 70% MVAS fees Handset Manufacturer Note:* VASP = Value-Added Service Provider The mobile value-added services (MVAS) value chain consisted of content provider(s), content aggregator, technology enabler, telecom service provider, and handset manufacturer. The end consumer was the mobile user. A typical telecom service provider received MVAS revenues from the mobile user. Of this, around 60 to 70 per cent was retained by the telecom service provider, 25 to 30 per cent was transferred to the content aggregator, and 5 to 10 per cent was transferred to the content provider(s). As shown in the diagram:  The content provider(s) provided the core content that drove the VAS, which the provider(s) may own or source from individual content generators.  The content aggregator assembled the content obtained from the content provider(s) and converted it into a digital or any other suitable format, then made that format available to a technology enabler or telecom service provider.  The technology enabler was also called the “value-added service provider” (VASP) and provided a technology layer for the telecom network provider. Technology enablers also worked as content aggregators.  Mobile handset manufacturers had direct agreements with content providers or technology enablers (VASPs) for content that could be embedded in the handset or terminal device.  The telecom service provider owned the access network, provided services to the end-user, and also billed the end-user and collected payment for the provision of VAS. Source: Adapted from Telecom Regulatory Authority of India, Consultation Paper on Mobile Value-Added Services (Consultation Paper No. 5/2011), 16, July 21, 2011, accessed May 10, 2015, www.trai.gov.in/WriteReaddata/ConsultationPaper/Document/1-main.pdf. Page 7 9B16N022 EXHIBIT 3: MOBILE VALUE-ADDED SERVICES INDUSTRY, SEGMENT CLASSIFICATION, AND SELECT COMPANIES Segment Description Select Companies M-Infotainment Content focused on entertainment and current OnMobile, Spice, (Entertainment trends in media, Bollywood, etc. Ringtones, Hungama Mobile, Mauj, and Information) quiz, wallpapers, religious chants, mobile Onyx Mobile, Rediff games, music, mobile radio, mobile TV, Vaastu, Mobile India, UTV New astrology, cricket updates, banking information, Media, InMobi alerts, travel alerts, stock alerts, movie alerts, etc. M-Enterprise Business-related applications for mail, One97 Communications, enterprise resource planning (ERP) solutions, EarlySail, Spice, corporate utilities, group messaging, self-help Blackberry, Nokia (mail centres, push for advertising, wireless email, for exchange), IMI voice portals, enterprise instant messaging Mobile (IM), location-based information, etc. M-Commerce Retail banking and commercial transactions Spice, Oxicash, mChek, over the mobile phone, payment confirmations, NGPay, ICICI’s iMobile, travel and holiday bookings, etc. Paytm, One97 Communications M-Health Use of the mobile phone in accessing health AIIMS, Apollo, Dr. solutions such as booking doctors’ Batras, Maestros appointments, patient monitoring systems, Mediline Systems, updates and alerts, etc. Practo, Qikwell, Meditag M-Education Accessing training, learning, and knowledge Spice, EnableM, Deltics, content for organizations, educational G Cube Solutions, institutions, and individuals through mobile IGNOU, mGurujee applications over multiple channels. (closed 2012) M-Connectivity Communication-related applications for audio, Nimbuzz, Facebook, (Social VAS) video, integration with social networks, LinkedIn, Spice, Tekriti advertising, voice SMS, dating, chatting, etc. Software, WhatsApp Source: Sachin Sondhi, Sandip Biswas, Gaurav Gupta, and Prakash Bharwani, Mobile Value-Added Services (MVAS): A Vehicle to Usher in Inclusive Growth and Bridge the Digital Divide (New Delhi: Deloitte Touche Tohmatsu Limited and Associated Chambers of Commerce and Industry of India [ASSOCHAM], January 2011), 15–16, accessed May 10, 2015, http://trai.gov.in/Content/StudyPaperDescription/ShowPDF.aspx?LNK_PATH=WriteReaddata/StudyPaper/Document/ASSO CHAMMVAS_STUDY_%20paperfinal.pdf. Page 8 9B16N022 EXHIBIT 4: QUARTERLY MOBILE SUBSCRIBER BASE AND AVERAGE REVENUE PER USER (GSM AND CDMA) IN MARCH 2007 TO SEPTEMBER 2014 GSM CDMA GSM CDMA GSM CDMA Month Year subscribers subscribers VAS VAS ARPU ARPU (millions) (millions) ARPU ARPU March 2007 120.47 44.64 298.00 202.00 41.72 24.24 June 2007 135.79 49.13 297.00 206.00 39.80 23.69 September 2007 153.99 55.08 275.00 173.00 38.50 23.36 December 2007 172.23 61.39 261.00 176.00 33.41 16.54 March 2008 192.70 68.37 264.00 159.00 34.06 16.54 June 2008 212.51 74.36 239.00 139.00 29.64 14.18 September 2008 233.68 81.63 221.00 122.00 28.95 11.71 December 2008 258.23 88.66 220.00 111.00 28.82 12.65 March 2009 297.26 94.50 205.00 99.00 26.65 13.86 June 2009 328.83 98.46 185.00 92.00 23.13 14.26 September 2009 370.59 101.13 164.00 89.00 21.32 13.80 December 2009 421.58 103.51 144.00 82.00 21.02 12.05 March 2010 478.68 105.64 131.00 76.00 20.44 12.77 June 2010 527.62 107.88 122.00 74.00 19.40 12.80 September 2010 578.49 109.22 110.00 73.00 20.24 10.29 December 2010 641.73 110.46 105.00 68.00 19.39 11.76 March 2011 698.37 113.22 100.00 66.00 19.01 11.42 June 2011 737.33 114.36 98.00 64.00 19.18 10.88 September 2011 761.20 112.42 93.00 71.00 19.27 22.86 December 2011 785.97 107.88 95.77 73.46 19.38 22.77 March 2012 814.06 105.11 97.37 75.29 19.47 24.77 June 2012 831.86 102.24 95.47 74.91 18.84 24.12 September 2012 808.80 97.82 95.05 77.76 19.93 26.05 December 2012 786.98 77.74 98.00 79.95 19.72 26.70 March 2013 794.03 73.78 105.00 95.25 21.51 30.58 June 2013 802.12 71.24 123.76 147.64 23.41 42.66 September 2013 807.68 62.91 121.26 146.13 24.60 40.25 December 2013 824.06 62.24 123.91 153.07 26.06 42.51 March 2014 847.41 57.10 125.83 158.66 27.21 45.67 June 2014 859.36 55.56 130.54 170.23 29.43 50.13 September 2014 876.15 54.05 127.09 172.43 31.24 52.57 Note: GSM = Global System for Mobile (GSM) communications standards; CDMA = Code Division Multiple Access (CDMA) protocols; ARPU (Average Revenue per User) = per subscriber per month; VAS ARPU (Value-Added Services, Average Revenue per User) = revenue from SMS + revenue from data + revenue from other VAS + other revenue that included VAS. Source: Compiled by author from Indian Telecom Services Performance Indicator Report[s] for Quarter[s] Ending March 2007 to September 2014 (New Delhi: Telecom Regulatory Authority India, various dates) accessed October 10, 2015, www.trai.gov.in/Content/PerformanceIndicatorsReports/1_1_PerformanceIndicatorsReports.aspx. Page 9 9B16N022 EXHIBIT 5: APPLIED MOBILE LABS AND TOP MVAS COMPANIES, REVENUES AS OF MARCH 31, 2009–2014 (₹ MILLION) Companies 2009 2010 2011 2012 2013 2014 MVAS Market revenues 98,610.00 118,640.00 158,290.00 198,710.00 221,210.00 282,010.00 Applied Mobile Labs NA 0.28 0.66 4.54 68.62 76.68 Applied Mobile Labs, NA 0.0002 0.0004 0.0023 0.0310 0.0272 market share* (%) Publicly traded companies OnMobile Global Limited 3,271.1 3,639.1 4,550.3 4,998.3 5,098.2 4,733.4 Geodesic Limited 4,937.9 4,872.7 6714.3 8,694.1 1,727.7 NA Tanla Solutions 1,723.8 510.6 287.1 368.3 272.2 257.0 Nettlinx Limited 45.0 49.4 49.3 44.2 46.6 50.0 Private companies One97 Communications 799.0 1,154.1 1,660.3 2,225.4 2,126.0 1,866.1 Comviva (now Mahindra NA 2,715.7 3,131.0 3,697.7 4,927.5 5,653.0 Comviva) Spice Digital (subsidiary 2,418.4 1,779.2 2,079.1 2,518.7 1,647.6 1,315.8 of Spice Mobility) Note: * Applied Mobile Labs’ market share = Applied Mobile Labs’ revenues ÷ MVAS market revenues – [Row (2) + Row (1)] Source: Compiled by the author based on OnMobile Global Limited (“ONMOBILE”), Nettlinx Limited, Tanla Solutions (“TANLA”), Geodesic Limited, One97 Communications Limited, Comviva (before acquisition by Tech Mahindra), and Spice Digital (when known as Cellebrum Technologies Limited), CapitaLine Databases, accessed April 21, 2015; Spice Digital, Annual Report 2013–14, 118, accessed April 21, 2015, www.si2imobility.com/spicemobiles/sites/default/files/SML%20- %20Annual%20Report%202013-14.pdf; and Tech Mahindra Limited, Annual Report 2013–14, page 118 accessed April 21, 2015, www.techmahindra.com/sites/resourceCenter/Financial%20Reports/Annual%20Report%20FY13-14.pdf. EXHIBIT 6: OPERATING MARGIN FOR APPLIED MOBILE LABS AND PUBLICLY TRADED COMPANIES IN THE MVAS INDUSTRY (%) Companies 2009 2010 2011 2012 2013 2014 Applied Mobile Labs NA −1,334 −844 −369 0 4 Publicly traded companies OnMobile Global Limited 36 27 26 21 22 12 Geodesic Limited 48 48 44 34 −296 NA Tanla Solutions 58 21 19 −2 0 −16 Nettlinx Limited 14 2 −35 −7 −5 −23 Source: Compiled by the author based on OnMobile Global Limited (“ONMOBILE”), Nettlinx Limited, Tanla Solutions (“TANLA”), and Geodesic Limited, CapitaLine Databases, accessed April 21, 2015. Page 10 9B16N022 EXHIBIT 7 : FINANCIALS OF SELECT MARKET LEADERS AS OF MARCH 31, 2014 (₹ MILLION) Company Sales Debt O/S Net Worth PAT Mahindra Comviva* 5,653.0 134.2 2,455.7 594 One97 Communications 1,866.1 0 3,000.1 20.4 IMI Mobile 1,223.9 0 1,863.6 37 Spice Digital** 1,315.8 0 2,490.0 160.2 Note: PAT = Profit After Tax; * Mahindra Comviva was a subsidiary of Tech Mahindra. Tech Mahindra acquired a 51 per cent stake in 2012; ** Spice Digital was a subsidiary of Spice Mobility. Source: Compiled by the author based on OnMobile Global Limited (“ONMOBILE”), Nettlinx Limited, Tanla Solutions (“TANLA”), and Geodesic Limited, CapitaLine Databases, accessed April 21, 2015; Spice Digital, Annual Report 2013–14, 118, accessed April 21, 2015, www.si2imobility.com/spicemobiles/sites/default/files/SML%20-%20Annual%20Report%202013-14.pdf; and Tech Mahindra Limited, Annual Report 2013–14, 118, accessed April 21, 2015, www.techmahindra.com/sites/resourceCenter/Financial%20Reports/Annual%20Report%20FY13-14.pdf. EXHIBIT 8: REVENUE/CAPITAL RATIO FOR PUBLICLY TRADED COMPANIES IN THE MVAS INDUSTRY (%) Publicly Traded 2009 2010 2011 2012 2013 2014 Company OnMobile Global Limited 49 50 56 60 61 61 Geodesic Limited 80 63 69 70 20 NA Tanla Solutions 27 8 5 6 4 4 Nettlinx Limited 23 26 29 27 29 31 Average 45 37 40 41 28 32 Source: Compiled by the author based on OnMobile Global Limited (“ONMOBILE”), Nettlinx Limited, Tanla Solutions (“TANLA”), and Geodesic Limited, CapitaLine Databases, accessed May 10, 2015. EXHIBIT 9 UNLEVERED BETA FIGURES OF PUBLICY TRADED MVAS FIRMS, 2009–2014 Company Name 2009 2010 2011 2012 2013 2014 OnMobile Global Limited 0.69 0.82 1.10 1.47 1.00 1.20 Geodesic Limited 1.39 1.68 1.88 1.54 2.18 NA Tanla Solutions 0.96 1.05 0.93 1.11 1.04 0.48 Nettlinx Limited 0.19 0.14 0.11 0.31 −0.09 −0.17 Average Unlevered β 0.81 0.92 1.00 1.11 1.03 0.50 Note: Unlevered Beta = 1 + (1 − Tax) × (Debt ÷ Equity). Source: Compiled by author based on OnMobile Global Limited (“ONMOBILE”), Geodesic Limited, Tanla Solutions (“TANLA”), and Nettlinx Limited, CapitaLine (database), accessed May 7, 2015. Page 11 9B16N022 EXHIBIT 10: RISK FREE RATE AND MARKET RETURNS FOR INDIA 2009 2010 2011 2012 2013 2014 Risk Free Rate 0.069 0.069 0.069 0.069 0.069 0.069 Average CNX Nifty 0.174 0.148 0.154 0.149 0.154 0.149 Return Source: Compiled by author based on Pablo Fernandez, Javier Aguirreamalloa, Luis Corres Avendaño, “Market Risk Premium Used in 56 Countries in 2011: A Survey with 6,014 Answers” (IESE Business School Working Paper No. 920, October 21, 2011), doi:10.2139/ssrn.1822182. Page 12 9B16N022 ENDNOTES 1 An angel investor was an individual who used his or her own cash to invest in early stage companies; Andrew Metrick and Ayako Yasuda, Venture Capital and the Finance of Innovation, 2nd ed. (Hoboken, NJ: John Wiley and Sons, 2010), 4. 2 Applied Mobile Labs was previously known as VoiceTap Technologies; Nandana Das, “Voicetap Technologies Rechristened Applied Mobile Labs,” The VC Circle, October 4, 2012, accessed May 10, 2015, http://techcircle.vccircle.com/2012/10/04/voicetap-technologies-rechristened-applied-mobile-labs. 3 Mobile value-added services (MVAS) included a range of services beyond standard voice calls provided to end-users. Under this definition, person-to-person (P2P) short messaging service (SMS) was also included as an MVAS. Non-SMS categories of service included ring tones, music and entertainment, gaming, and mobile browsing. 4 The seed stage involved the inventor or entrepreneur demonstrating a proof-of-concept for a product or service. Angel investors provided finance in two rounds: at the seed stage and at the angel round. Venture capitalists made investments in three rounds: Series A (first round), Series B (second round), and Series C (third round). Series A investments were provided when scaling the product and setting up the business model. Series B investments were provided when a company wanted to scale its business model or user base or make acquisitions; Andrew Metrick and Ayako Yasuda, Venture Capital and the Finance of Innovation, 2nd ed. (Hoboken, NJ: John Wiley and Sons, 2010), 14–15. 5 INR = ₹ = Indian rupees; All currency amounts are INR unless otherwise specified; ₹1 = US$0.02 as of April 20, 2015. 6 “Infotainment” was broadcast material intended both to entertain and inform. 7 Applied Mobile Labs provided a platform on which more than 60 experts offered a Tutor on Mobile service that allowed users to search for information on various topics. The first technology platform was fully functional and tested by early 2012 and could handle a load of 2.5 to 3 million actions per day. Actions included 20,000–30,000 calls per day, SMS, and application- based online forms. 8 Nilabh Jha, “Prepare for IIT [Engineering] with Tata Docomo Tutor on Mobile,” Mobile Indian, July 8, 2011, accessed May 10, 2015, www.themobileindian.com/new-launches/611_Prepare-for-IIT-with-Tata-Docomo-Tutor-on-Mobile. 9 English Seekho allowed users to learn conversational English through an interactive voice response (IVR) application; Tata Teleservices Limited, “Tata Indicom Launches ‘English Seekho’: Innovative and Interactive VAS Offering,” press release, June 30, 2009, accessed May 10, 2015, www.tatadocomo.com/Downloads/Personal/NewsRoom/English-Seekho-Press-Release- July-2009.pdf. 10 Sachin Sondhi, Sandip Biswas, Gaurav Gupta, and Prakash Bharwani, Mobile Value-Added Services (MVAS): A Vehicle to Usher in Inclusive Growth and Bridge the Digital Divide (New Delhi: Deloitte Touche Tohmatsu Limited and Associated Chambers of Commerce and Industry of India [ASSOCHAM], January 2011), 15, accessed May 10, 2015, http://trai.gov.in/Content/StudyPaperDescription/ShowPDF.aspx?LNK_PATH =WriteReaddata/StudyPaper/Document/ASSOCHAMMVAS_STUDY_%20paperfinal.pdf. 11 Connect with Consumers—Value-Added Services: The Next Wave (India: Pricewaterhouse Coopers Private Limited, March 2011), accessed February 10, 2015, www.pwc.in/assets/pdfs/publications-2011/vas_landscp.pdf. 12 PwC, “Connect with Consumers—Value Added Services: The Next Wave,” 9, PricewaterhouseCoopers, accessed August 15, 2016, www.pwc.in/assets/pdfs/publications-2011/vas_landscp.pdf; US$1.00 = ₹63.15 on April 20, 2015. 13 The Government of India set up the National Program on Technology-Enhanced Learning (NPTEL) to promote e-learning. The objective of NPTEL was to build curriculum-based video lectures and web courses to improve the quality of education among engineering institutions across India. The program became a success and in turn triggered the establishment of a number of programs across India through private providers such as mGurujee Mobile Collaborative Learning Platforms and Indira Gandhi National Open University. mGurujee was a mobile learning portal that delivered mobile phone- or tablet-based learning experiences with access to a variety of learning content. The university provided information alerts for exams, results, registration, question papers, and other issues. 14 PTI, “Mobile Advertising Market Expected to Touch Rs 430 Crore by 2014,” The Economic Times, accessed August 15, 2016, http://articles.economictimes.indiatimes.com/2013-09-05/news/41802732_1_mobile-advertising-300-crore-430-crore. 15 Indian Telecom Services Performance Indicators: July–September 2014, (New Delhi: Telecom Regulatory Authority India, January 29, 2015), accessed May 10, 2015, www.trai.gov.in/WriteReadData/PIRReport/Documents/Indicator- Reports29012015.pdf. 16 India Mobile Broadband Index 2015 (Gurgaon: Nokia Corporation, 2015), accessed May 10, 2015, http://images.indianexpress.com/2015/02/mbit-2015-1.pdf. 17 VAS per user = revenue from SMS + revenue from other VAS + revenue from data + other revenue. 18 Indian Telecom Services Performance Indicators: July–September 2014, op. cit. 19 Sascha Segan, “CDMA vs. GSM: What’s the Difference?” PCMag India, accessed August 15, 2016, http://in.pcmag.com/cell- phone-service-providers/42987/news/cdma-vs-gsm-whats-the-difference; Dun & Bradstreet, “Indian Telecom Industry: Operational Performance,” accessed August 15, 2016, www.dnb.co.in/IndianTelecomIndustry/OperationalPerformance.asp. 20 “VAS (Non-Voice) Revenues)” in National Telecom Statistics [database], Cellular Operators Association of India (COAI), accessed May 10, 2015, www.coai.com/statistics/telecom-statistics/national. 21 MVAS revenues = telecom mobile subscriber base x VAS revenue per user per year; industry growth = change in MVAS revenues compared to previous year 22 The risk free rate and market risk premium for the calculation of the cost of equity are adapted from Pablo Fernández, “Market Risk Premium Used in 2008 by Professors: A Survey with 1,400 Answers” (IESE Business School Working Paper, April 18, 2009), doi:10.2139/ssrn.1344209; Pablo Fernández and Javier del Campo, “Market Risk Premium Used in 2010 by Page 13 9B16N022 Professors: A Survey with 1,500 Answers” (IESE Business School Working Paper No. WP-911, May 13, 2010), doi:10.2139/ssrn.1606563; Pablo Fernández, Javier Aguirreamalloa, Luis Corres Avendaño, “Market Risk Premium Used in 56 Countries in 2011: A Survey with 6,014 Answers” (IESE Business School Working Paper No. 920, October 21, 2011), doi:10.2139/ssrn.1822182; Pablo Fernández, Javier Aguirreamalloa, and Luis Corres Avendaño, “Market Risk Premium Used in 82 Countries in 2012: A Survey with 7,192 Answers” (IESE Business School Working Paper No. WP-1059-E, November 18, 2015), doi:10.2139/ssrn.2084213; Pablo Fernández, Javier Aguirreamalloa, and Pablo Linares, “Market Risk Premium and Risk Free Rate Used for 51 Countries in 2013: A Survey with 6,237 Answers” (IESE Business School Working Paper, June 26, 2013), doi:10.2139/ssrn.914160; Pablo Fernández, Pablo Linares, and Isabel Fernández Acín, “Market Risk Premium Used in 88 Countries in 2014: A Survey with 8,228 Answers” (IESE Business School Working Paper, June 20, 2014), doi:10.2139/ssrn.2450452; Pablo Fernández, Alberto Ortiz Pizarro, and Isabel Fernández Acín, “Discount Rate (Risk-Free Rate and Market Risk Premium) Used for 41 Countries in 2015: A Survey” (IESE Business School Working Paper, November 19, 2015), doi:10.2139/ssrn.2598104.