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February 22, 2004

Best practices for cross-border companies

With Silicon Valley VCs pushing portfolio companies to India and Ishoni Networks already a case study on how not to handle an offshore operation, there is clearly a need for understanding the rules for managing cross-border companies successfully.

Businessworld magazine recently provided some "thumb rules" as provided by Bob Williams, general partner at Bay Partners:

The head of the offshore operation in India should, ideally be a returning NRI, and "go back a long way" with the top managers or founders of the US entity. The engineers from the Indian and US entities should regularly switch places--in order to facilitate strong linkages. (Incidentally, this is one rule that Unimobile/Graycell--one of the earliest venture backed US-India cross-border start-ups--followed religiously.) Apart from actually using the video-conferencing and other remote communication equipment, it is also very important for the CEO and top managers to "regularly get on the plane to India".

Click Here to read Willams's entire 8 step "formula".

Vinod Khosla to go part-time at KPCB, to be more active in India: reports

Ace entrepreneur-turned-VC Vinod Khosla is to go part time at Kleiner Perkins Caufield & Byers, the leading Silicon Valley VC firm where he has been a General Partner for the last several years, says a report in Mercury News. "Khosla will pursue philanthropic interests in his native India, and may do some investing in companies from there. He also wants to spend more time with his children," the report says quoting unnamed sources. Accordring to the report, Khosla's move comes to light since KPCB is in the process of raising a new fund (which is a typically a time when VC funds renegotiate their partnership arrangements).

Meanwhile, Khosla himself is currently touring South Asia, visiting a range of organizations--from R&D centers of KPCB portfolio companies (like Infinera in Bangalore), to colleges (like the Indian School of Business in Hyderabad), to micro-finance institutions (like Spandana in AP's Guntur district preceded by similar projects in Bangladesh).

Click Here to read the Mercury News report.

February 19, 2004

From fighting VCs to funding Hindi films

In a new column for BusinessWeek Online, Vivek Wadhwa, Founder, Chairman and former CEO of US-based enterprise software firm Relativity Technologies, talks about how he fought--and won--against his Venture Capital investors while recovering from a massive heart attack. And how he has now stepped back to do something "less stressful": produce Hindi films.

"While still in the Critical Care Unit, I received a phone call saying that my investors felt the need to renegotiate the terms of the current financing. Two days later and still bandaged, I left the hospital and walked, uninvited, into a closed-door meeting, where investors were trying to convince my executive team to accept more money for a revised agreement that would give them majority ownership. I flatly refused, and ended the meeting," he says. "My investors sent me a letter demanding that I step aside and allow the younger brother of a partner in one of their firms to take over the company I had founded, built with most of my life savings, and paid for with a cardiac arrest. For the next few months, I spent what little energy I had fighting people I formerly held in high regard," he adds.

Click Here to read the full column.

Capital intensive businesses not suited for VC investments: Michael Moritz

Capital intensive businesses are not suited for venture capital investing, says Michael Moritz of Sequoia Capital in an interview to Harvard Business Review. "We had an investment in a calamitous fiasco called Webvan which was an enormous, capital intensive undertaking. Those sorts of infrastructure investments are best left to others. The best venture returns are those that come from investing very small amounts of money," he says.

According to Moritz, many people make the mistake of thinking that if they are successful at making personal investments, they can also be successful at VC investing. The latter requires the ability "to marry the real determination and enthusiasm with a considerable amount of patience".

"This is not something where you can measure, at the end of the week or at the end of twelve weeks, if you have written all the lines of code you promised or achieved the sales target that your manager gave you. This is a very difficult business to measure your progress," he says..

According to him, a highly competitive nature is one of the key requirements for a successful VC firm. "We have always operated under the premise that our next investment is our most important investment," he says. "No matter how long you've been at it, investments you've participated in and how successful some of these investments have been, the very next investment that we make may end up losing 100% of our capital," he adds.

Moritz sings his praise for India in this interview as well. "We wouldn't dream of investing in a software company today without asking the people associated with it what their plans are for doing development in India. It may even be in the first thirty days of formation of the company, but capitalizing on this enormous talent that is deployed elsewhere I think its going to be increasingly important in the venture business," he says.

Click Here to read the full interview.

February 06, 2004

Lessons in retail

With the boom in consumer spending, VCs have begun to show keen interest in funding organized retailers in India. ICICI Ventures has been especially proactive in this sector with investments in companies lilke Shoppers' Stop, Pantaloon, Subhiksha and Trinethra.

But unlike IT and BPO sectors (the "traditional" destinations for VC money), retail requires significant investments before profitability can be achieved. For instance, according to media reports, Shoppers' Stop--which was started in 1991 and has also received investments from IL&FS VC--continues to make losses.

So, how attractive a business is retailing in India? Kishore Biyani, managing director of Pantaloon Retail India Ltd (which reported a profit of Rs.11.41 crore for 2002-03), provides some clues in an article in Business Standard.

Some extracts:

On Pantaloon Retails' multiple formats
"Under lifestyle retailing, we have two formats—Pantaloon (a department store) and Central (a showcase seamless mall). Under value retailing, we also have two formats— Big Bazaar and Food Bazaar (food and grocery retailing).

Big Bazaar is a hypermarket discount store — a self-access retail store, with a minimum floor space of 50,000 sq ft, a cold storage area and, sometimes, a pharmacy. It stocks everything from apparel to food to electronic goods and offers discounts on bulk purchases. Currently, we have 32 stores — 14 Pantaloons, one Central (coming up this month in Chennai), seven Big Bazaars and 10 Food Bazaars (of which three are independent and seven are part of Big Bazaar)."

"...Although the external addressable opportunity is large, it is still difficult to do retail in India. India, in my view, is probably the most heterogeneous market in the world, which is why it is so challenging."

On why Pantaloon aborted its franchisee model
"The franchisee model has not been able to consistently deliver the high level of customer service that we wanted. Secondly, there was no uniformity in the franchisee stores in terms of looks."

"..A franchisee is an opportunist and the model works as long as the going is good.... Sometimes, drastic changes need to be made and, once in a while, additional investments are required. Franchisees cannot be expected to be that proactive and willing to invest."

Click Here to read the full article.

Wi-Fi is actually under-hyped: Bill Gurley

While some of his peers in Silicon Valley are swearing to stay away from Wi-Fi saying that the sector is over-funded, J. William Gurley, General Partner at Benchmark Capital, claims the technology is actually under-hyped! "I believe that 802.11 is remarkably underhyped, relative to the massive impact this seemingly simple standard will eventually have on the entire wireless communications sector", he says in his latest column for "There will be numerous doubters and numerous challengers, but they will all succumb to the inescapable power of the first true open-standard radio. Resistance is futile," he adds.

Gurley uses the examples of the x86 computing architecture and the Ethernet networking standard to say that once an open standard gains critical mass, it is extremely hard to derail. "Simply put, 802.11 is to wireless communications what the x86 is to computing and what Ethernet is to networking," Gurley says. "This "open-standard radio" is today supported by more than 115 vendors with more than 900 certified products. The collective R&D of Intel, Broadcom, Cisco Systems and Motorola, as well the entire venture capital community, will move this technology further and further along the price performance curve," he adds.

Gurley warns companies building competitive offerings--and even technically superior offerings--to Wi-Fi to beware. "Cellular equipment providers will tell you that 802.11 cannot support mobility or voice. Ultrawideband, or UWB, chip manufacturers will tell you that 802.11 has "too much" range and not enough channels. 802.16, or WiMax, chip vendors will tell you that 802.11's range is too small. All these vendors are hazardously ignoring the potent impact on innovation of collective R&D investment," he says. "802.11 will not sit still. Before you know it, the performance gap--especially on a value per dollar basis--will quickly narrow....those that promote the weaknesses of the standard are merely writing the feature list for future innovation on top of the standard," he adds.

Click Here to read the full article.