What are the various financing options available to Internet companies?
We should take note of few things before talking about finance for Internet companies. Most Internet companies do not have revenue or asset backing for obtaining finance. Many of these companies are not sure of their future cash flows. This is a universal phenomenon. In this scenario, it is not possible for them to think of taking debt in their balance sheets.

There is no other financing option available to them except raising finance by selling equity. When it comes to equity, only venture capitalists are inclined to invest in these Internet ventures. However, equity can be issued for cash or against services too.

How popular are share swaps in India?
Share swaps have become very popular in India. Shares are issued to service providers, advertising space sellers, public relation agencies and consultants. Most of the times, Internet companies approach strategic persons who invest in their equity and help them in all the above services.

Can you give some examples of share swaps received by Internet companies?
Pugmarks, an Internet designing and site-hosting service provider has struck a deal with Business Standard. As per the deal, Pugmark is appointed by Business Standard for hosting its site and maintenance. In return, Business Standard provides Pugmarks free advertising space along with some cash payment for this service.

Many Internet companies approach us for buying a whole lot of services and they are ready to issue shares.

Are consultancy companies prepared to receive shares for services they provide?
Yes. We have done some dealings. We have provided consultancy services for Easybuy.com, an aggressive music seller. We received some stake in the company. However, we do not allow individual consultants to accept shares of our clients.

This type of barter system will be everywhere in the Internet market. Even some public relation agencies in India provide their expertise and services for shares in lieu of cash payments.

What do you feel about current Internet company valuations?
Personally, I do not believe in page views and eyeballs. At the end of the day, valuations depend on the business model. Most of the valuations are done considering strategic factors. Moreover, we do not give valuation reports. However, we promise the best value for our clients.

A few years ago, the Zee Telefilms' issue was priced at just Rs 30 per share. Today, after the stock split, it is quoting at around Rs 800. Critics will be there to point out that the company had underpriced its shares when it went public.

But, I would say this: if the company did not offer its shares at that value and at that point of time, it might not have grown to its current level. There were many other companies like Zee then but now there is only Zee in the market.

What do you think about IndiaWorld's valuation?
Valuation is in the eyes of the beholder. If Satyam had not bought Indiaworld.com, it would not have got the current valuation in Nasdaq. Earlier, Rediff.com was number one in the market and now Satyam has taken over in terms of positioning and marketing. Just one step of acquiring IndiaWorld has changed everything. I personally feel it is more of a strategic investment.

Let me explain this concept. Adventure of Columbus offers the best valuation example. Columbus wanted to reach India through a different route. That is just like doing business through the new economy route. He went to the King of Spain to ask for help like any entrepreneur approaching a venture capitalist. But the King refused to finance his adventure. Columbus started of on his own with two or three ships and failed miserably. He did not give up.

After eight to ten years, he approached Ferdinand, the then King of Spain, for help. He got it at last. This time he took 14 ships and discovered America.

King Ferdinand could not have calculated the return on his investments in this business. The risk was very high. If he had started to calculate ratios, probably he would not have financed the venture.

All that Columbus had was a business plan. He stood by the plan even after initial hiccups. In the end, he could make bigger money, here discovering America.

His was the most successful business model. This is how the valuations are. Here in this business, you cannot start calculating return on investments from day one. If the investor believes in the business and finds it strategically important, then he has to go ahead with the investment.

After the IndiaWorld deal, Satyam has acquired many other companies at a better price. May be Satyam would have missed all these deals if it had not taken over IndiaWorld.

There are many players such as Indiainfoline.com who are content-providers with strong business models but weak revenue models. When do you think these companies can come out with their initial public offerings?
These companies are basically eyeing Nasdaq and not the Indian market. In this Indian market, there is space only for three or four majors. It could be anybody. Only the winners can attain that position. And Indiainfoline is well positioned to be one of the winners.

What are the criteria for success in the Net business?
The sites should be leaders in their segment and they should have good management.

Which investors should go for investments in these Net companies?
Investors should allocate just a small portion in their portfolio for investments in Internet stocks. The amount of investment should not make or break your future. For example, if your portfolio is worth Rs 5 crore, then allocate Rs 25 lakh for the Internet segment.

Even if this investment were to go bad, it would not affect the overall returns of your portfolio.

How many Internet companies can survive finally?
In each sector, there may be four or five players. Not more than that. There will be large scale consolidation happening in this industry. This will reduce the number of players in the market.