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June 25, 2003

Are VCs and software entrepreneurs incompatible?

According to Joel Spolsky, founder of Fog Creek Software, "there's something wrong with the VC model as it exists today". "There are certain fundamental assumptions about doing business in the VC world that make venture capital a bad fit with entrepreneurship. And since it's the entrepreneurs who create the businesses that the VCs fund, this is a major problem," he says in an article titled "Fixing Venture Capital" on his web site "Joel on Software".

The basic problem, according to Joel, is that founders would prefer "reasonable success with high probability", while VCs are looking for "fantastic hit-it-out-of-the-ballpark success with low probability".

Some extracts from the article that explain the "problem" further:

A VC fund will invest in a lot of startups. They expect about seven of them to fail, two of them to trudge along, and one of them to be The Next Netscape ("TNN"). It's OK if seven fail, because the terms of the deal will be structured so that TNN makes them enough money to make up for all the losers...

But founders are much more conservative than that. They are not going to start ten companies in their lifetime, they're going to start, maybe, two.....

The difference in goals means that VCs are always going to want their companies to do risky things...

(Extracts end)

Interesting, so far? Click Here to read the full article.

While "VCs vs. entrepreneurs" is an old topic (including the focus of several books by entrepreneurs trashing their VCs), what's interesting this time around is that Naval Ravikant of August Capital has chosen to respond to Joel's critique of the VC model.

Click Here to read Ravikant's response to Joel--and decide for yourself which side you are on!

Pune software firm puts itself for sale in unique fashion

A Pune-based software services firm with intellectual property in the networking area has put itself up for sale. Interestingly the company is using classified advertisements in publications such as the US-based deal newsletter, VentureReporter, to advertise its sale. It is also using a different name, Network Enginuity, and an associated web site for the purpose of the sale.

"Network Enginuity has been unsuccessful in its bid to secure a second institutional round of funding. We therefore seek to be acquired," the ad says. The company claims its management team has significant networking, network management and offshore development expertise. "A software development contract with a large US network software firm provides sufficient revenue to keep the company intact, but does not provide the margins to introduce our intellectual property to market. We are therefore seeking appropriate candidates to acquire us," the ad says. "If you are seeking to create or expand an offshore development capability in India, there may be an opportunity here to acquire a modern development facility, a very capable team and some compelling intellectual property, all at a very attractive price," it invites.

Click Here to see the full ad in VentureReporter

Click Here to visit the Network Enginuity web site

June 21, 2003

Raman Roy on the evolution of India's BPO industry--and his baby, Spectramind

In this 2-part interview to Knowledge@Wharton, Ramon Roy, Founder & CEO of pioneering third-party BPO firm Spectramind, talks about the evolution of India's BPO industry. Especially interesting are his thoughts on why third-party BPO firms can succeed in the face of the trend among MNCs to set up captive centers.

Here's just one extract from this fascinating interview:

K@W: What was the principal objective with which you started Spectramind, and to what extent has this been satisfied?

Roy: We had very clear objectives in setting up Spectramind. We wanted to demonstrate what could be done out of India. We were all big believers in the capability of the Indian workforce. I wanted to be able to tell my grandchildren, “Your grandfather played a role in creating this company.” I’m not trying to say we weren’t trying to make money—that was a driver as well. But that was not the main driver. It was the idea of creating something new in India, and the ability to say that we contributed to its creation. That is why partnering with Wipro was a movement in the right direction. There were some things we could do as a start-up – but this business requires deep pockets. It requires something more than business acumen, and Wipro has played a big role in bringing that to the table.

Click Here to read Part I of the interview.

Click Here to read Part II of the interview.