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April 30, 2004

Wanna invest in Google? Trust The Founders and Think Looo0ooong Term

By Arun Natarajan

Fairy tales of the Silicon Valley kind continue to come true.

Good guys (especially, if they are smart as well) do seem to finish ahead.

Are these guys for real?

These are some of the thoughts that ran through my mind when I was reading through the letter that Google's founders - Larry Page and Sergey Brin - reportedly included along with the company's filing for a $2.7 billion IPO.

Also, it made me draw parallels to the founders of India's Infosys Technologies--who have managed to defy convention (at least, in the Indian context) and pull it off magnificently.

The main focus of the letter--never mind the amusing promises of not "being evil" and "making the world a better place"--was to communicate that Google, even after it becomes public, would retain its focus on the long term. And the best way to ensure that, the founders believe, is to leave them in control.

The public Google would continue support "high-risk, high-reward projects" and not be distracted by the need to "produce smooth earnings for each quarter". "Do not be surprised if we place smaller bets in areas that seem very speculative or even strange". The founders point out that Google AdSense (the content-targeted advertising program) and Google News were prototyped during the "20 percent time" that the company allows its employees to work on pet projects.

"Many companies are under pressure to keep their earnings in line with analysts' forecasts. Therefore, they often accept smaller, but predictable, earnings rather than larger and more unpredictable returns. Sergey and I feel this is harmful, and we intend to steer in the opposite direction." The company will therefore not be providing quarterly earnings guidance. "If asked we will respectfully decline. A management team distracted by a series of short-term targets is as pointless as a dieter stepping on a scale every half hour".

In order to help the founders retain control over the direction of the company, Google will have a dual-class shareholding structure. (Under this structure, the "second class" shareholders - presumably public investors - won't have voting rights). Why? Because the founders feel "the standard structure of public ownership may jeopardize (the company's) independence and focused objectivity".

Claiming that Google bridges the media and technology industries, the founders say they "have set up a corporate structure that will make it harder for outside parties to take over or influence Google (for instance, via a hostile takeover)". They point out that such a ownership structure is common among media companies (including the publishers of The New York Times, The Washington Post and The Wall Street Journal) that "allows them to concentrate on their core, long-term interest in serious news coverage, despite fluctuations in quarterly results".

What about the many "unusual benefits"--including free meals, doctors and washing machines--that Google provides to its employees? The founders believe those have "long-term advantages" too. "Expect us to add benefits rather than pare them down over time. We believe it is easy to be penny wise and pound foolish with respect to benefits that can save employees considerable time and improve their health and productivity".

As part of the founders' goal of "making the world a better place", they are setting up The Google Foundation, which is to receive 1% of Google's equity and profits. "We hope someday this institution may eclipse Google itself in terms of overall world impact by ambitiously applying innovation and significant resources to the largest of the world's problems".

Essentially, Google's founders want to have their cake (i.e., go public to provide liquidity to investors, employees and themselves) and eat it too ("retain many of the positive aspects of being private").

Will they be able to get away with it? Given the way in which their dreams have come true in the past, I wouldn't bet against it. Nor want to.
Arun Natarajan is Editor of TSJ Media. He can be reached at arun(at)

Will India's wireless telecom revolution sustain?

With 1.5 million new subscribers signing up each month, India is the world's fastest growing market for mobile telecom services.

India notched up 28.2 million subscribers in nine years since the sector was opened up. (China had only reached 6.8 million at the same stage.)

Come September, and the number of mobile subscribers will overtake the 42.5 million fixed line connections.

By 2007, India is expected to have 207 million mobile subscribers--over 10% of the global figure.

What are the factors driving this tremendous growth? Who are the main players? What are the challenges? What is the future for fixed line operators?

Businessworld magazines examines these questions in its latest Cover Story.

Click Here to read the introduction to the cover story package. (Make sure to look up the other articles in package using the links on the top right corner of introduction page.)

MIT Indian Business Club invites nominations for entrepreneurship awards

The Indian Business Club at the Massachusetts Institute of Technology (MIT) is inviting nominations for the 2004 Global Indus Technovators Awards. The awards have been instituted to recognize and encourage the South Asian innovative and entrepreneurial spirit.

Nominees must be of Indian/Pakistani/Sri Lankan/Nepali/Bangladeshi origin and must have made significant contribution, either research or entrepreneurial, to the advancement of technology in areas including, but not limited to, IT, biotech, materials and devices, healthcare and medicine, developmental work, and energy. Nominees must be born no earlier than 1st January 1964.

The last date for nominations for this year's awards is May 31, according to a message from one of the organizers.

The 2003 awards judging panel included Gururaj Deshpande (Sycamore Networks), N.R. Narayana Murthy (Infosys Technologies) and Prof.Sandy Pentland (Media Lab Asia).

For more details about the 2004 awards, Click Here to visit the awards website.

Red Herring profiles email attachment software firm Accellion

S. Mohan and Nikhil Jhingan co-founded Accellion, a Palo Alto, CA and Singapore-based provider of email attachment caching technology, has been profiled in Red Herring's "VC in Asia" column.

The article titled "Singapore garage to Silicon Valley startup" describes how Accellion, which started out in Singapore (under the name Space Disk) as a provider of distributed file storage software, re-positioned itself to focus on the problem posed by large email attachments.

The spark was provided by one of Accellion's existing clients: global advertising agency Ogilvy & Mather. O&M was spending a lot of money on courier companies like FedEx to send creative work and other material between its offices and to clients around the world. The company could not use email to send these documents since the typical file size is 500 MB or more.

The Accellion team realized that "sending big files is just like syncing them" and hence, their existing technology could be modified and made to work with email. Accellion's solution for O&M (and now, other clients): an appliance which strips out the attachments, lightens the load and speeds up the enterprise email system.

Accellion, which moved headqaurters to the US in 2001, has raised over $22 million in funding. In its latest round of funding, in October 2001, the company raised $9.3 million from Baring Private Equity Partners Asia (the lead investor) with participation from TiNSHED (an Asia-Pacific-focused Angel fund).

According to the Red Herring article, Accellion is currently executing pilot projects for several Fortune 500 companies. It has less than 100 employees and has not yet crossed $20 million in revenues.

S. Mohan, Accellion's Chief Strategist and Vice-Chairman, served as CEO until February 2001. Before founding Accellion, Mohan consulted with Datapro as head of the Asia-Pacific custom consulting division.

Nikhil Jhingan, Accellion's CTO, was earlier a Senior Developer and Director at NyeQ Technologies in New Delhi, India. Before that Jhingan co-founded TouchBeam Systems and led the embedded systems software engineering team there. He is a graduate of IIT-Delhi.

For more information:

Click Here to read the full Red Herring article.

Click Here to visit the Accellion web site.

The Economist speaks on Venture Capital

Now that VC firms have started to attract and raise new funds--after a 3-year drought--The Economist magazine has felt a need to advice VCs not to get overly excited this time around (as well).

The article quotes Thomson Venture Economics' data to say that over the past 20 years, even including the recent downturn, VC investments have yielded an average 15.7% per year--higher than the returns from most other investments. "It also looks particularly attractive today, when valuations of both shares and bonds are stretched and when other so-called alternative investments are looking dodgy," the article says. "If only venture capital can avoid the excesses of the late 1990s, it could be one of the last few sources of above-average returns," it adds.

The Economist says the rebound is for real even in Europe citing the case of Cambridge Silicon Radio, a VC-backed maker of semiconductor chips for wireless communication that recently raised $165 million via an IPO in London.

After scolding Silicon Valley VCs for investing in 'social networking' start-ups ("a troubling echo of the boom years"), the magazine notes that they have been sensible in making sure their portfolio companies move software development work to India.

The article also notes that the typical VC investment in biotech have become bigger in recent years--unlike in the case of IT investments. "The new-product pipelines of the world's biggest drug firms have recently been running dry. They are increasingly relying on much smaller start-up and VC-backed firms to provide them with a flow of new drugs," it says.

Click Here to read the full article.

Vani Kola featured in Always On

A panel discussion featuring Vani Kola, Founder & CEO of enterprise risk management software firm Nth Orbit, has been published in the AlwaysOn Network (AO) "blogzine". The site features excerpts from a panel discussion held at the Churchill Club earlier this year, when Newsweek magazine's Silicon Valley correspondent Brad Stone talked to Kola, Amnon Landan of Mercury Interactive, and Sergio Magistri of InVision Technologies.

The panelists spoke about entrepreneurship, management styles, the role of luck in a start-up's success, and the (inevitable) Sarbanes-Oxley Act.

Click Here to read Part 1.

Click Here to read Part 2.

Click Here to read Part 3.

Click Here to read Part 4.

Related links:

TSJ Media's recent profile of Nth Orbit and Vani Kola

Nth Orbit's Web Site

April 27, 2004

"US programmers can't get work even at lower salaries": BusinessWeek column

Cost is cited as the primary reason why US companies send programming work to India. So, if American programmers were willing to work for less, companies should be more than willing to hire them rather than deal with the time and distance challenges of offshoring. Right?

Wrong, says BusinessWeek columnist David E. Gumpert based on his study of Aliso Viejo, CA-based Synergroup Systems, an info-tech placement firm that offers the services of American programmers at rates competitive with those in India.

Synergroup rents out it "local" programmers for $38 an hour or less--a rate, the article, that's half the going price for contracted US programmers and only slightly more than rates available from India. And factor in the savings in travel, oversight costs, and management expenses, and US companies are actually getting a great deal.

Gumpert--whose column has an anti-offshoring fixation--spoke to Synergroup's prospects and customers . "In the view of some corporate types, the financial savings from going to India are enhanced because they include a total package," he says. One executive, from a human-resources services company, told Gumpert that he would prefer to continue to send the major portion of his company's outsourced work to Indian firms since they "can offer total outsourcing" covering all major functions including management, programming, communication. The executive also pointed out that Indian firms also have high ratings on the internationally recognized "Capability Maturity Model" (CMM) for software programming--something that Synergroup.

"One of the messages that comes through loud and that a huge amount of momentum has built up in favor of foreign outsourcing," Gumpert deciphers. He feels the best case for Synergroup is to hope that US companies view it as a backup in the event of the US government enacting laws that disincentivize offshoring and "if states enact privacy-related regulations requiring that sensitive information, like medical records, not be sent offshore".

Click Here to read the full article.

April 17, 2004

Some useful ideas

Business Today magazine recently brought out a special issue titled "An Ideas Superpower". The issue featured some interesting profiles of people like Avesthagen founder Villoo Morawala Patell, IIT-Madras' Prof. Ashok Jhunjhunwala and Aravind Eye Hospital founder Dr. G. Venkataswamy. It also featured some thought-provoking columns by people like management guru C.K. Prahalad, CSIR Director General R.A. Mashelkar, and ICICI Bank Chairman N. Vaghul.

The issue also provided some interesting data and information on patent trends in India. All in all, Ideas was an issue worth reading through at leisure.

Click Here to access the issue. (Paid subscription required).

April 16, 2004

The coming drought for BPO IPOs

By Arun Natarajan

At a time when the center of gravity of the global Business Process Outsourcing (BPO) industry is moving inexorably towards India, it is ironical that public investors in the country are getting left out of the action.

Up to 2002, Spectramind and Daksh--which were very early movers in the third-party BPO space--seemed the mostly likely candidates for making IPOs. The fact that both were venture capital backed added to the likelihood. Then, Wipro stepped in to gobble up Spectramind for about $102 million. Daksh CEO Sanjeev Aggarwal was telling the media right until March that "we plan to go public in 2004-05". Then, IBM stepped with $150 million plus in cash. And it was good bye public.

As if this wasn't enough, Citigroup has announced that it intends to buy out public shareholders and delist e-Serve International. e-Serve, in which Citi already owns a 44% stake, provides BPO services to Citigroup entities in more than 25 countries.

If there is a strong public appetite for BPO companies, supply will follow, right? With the exception of IL&FS Venture Capital-funded Datamatics Technologies (ranked No.15 in Nasscom's ranking of third-party BPO companies), the IPO pipeline--for top ranked BPO firms at least--seems quite parched.

MphasiS-BFL' decision to integrate its BPO arm MSourcE with itself (since BPO contributes substantially to overall revenues of the group), is an indication that IT services companies will be in no hurry to list their BPO arms.

There are a very few significant sized third-party BPO firms (read "Top 10") that remain independent. The short list includes Warburg Pincus-backed WNS Global, Sequoia Capital-funded 24X7 Customer, Oak Investment Partners funded Sutherland Global, and Oak Hill Capital Partners and Financial Technology Ventures backed ExlService. However, all these companies--with the exception of WNS--are headquartered in the US and have received their investments in that country. Hence, even if they do go IPO, they'll most likely list in the US. In an interview to Knowledge@Wharton, Wolfe Strouse, managing director at Warburg Pincus, said her firm would look at an exit from WNS (which was earlier a subsidiary of British Airways) via an acquisition or "an IPO in India, the UK or the US". So, not much hope here either for Indian investors.

How about second-rung players? In the face of competition from MNC BPO firms (like Convergys) and the local IT giants (like Wipro and HCL), these companies seem to be busy selling themselves off to larger players. Examples include ChrysCapital-backed TransWorks which was sold off to Aditya Birla Group company Indian Rayon, WestBridge Capital-funded FirstRing that was acquired by ICICI OneSource, and e4e Inc-funded iSeva, which is being acquired by US-based ECE Holdings.

In fact, with the phenomenal reception for Biocon's IPO, even the attention of the fly-by-night guys--the financial services-turned software-turned dotcom companies--is focused on biotech. (After all, at $750 million, Biocon's IPO valued the company at five times what IBM paid for Daksh.)

Unless WNS decides to do an IPO and list in India, it looks like Indian investors wanting to buy into the "BPO boom", will have to make do with "proxies" like IT companies with significant BPO arms, ICICI Bank (which owns ICICI OneSource) or even Indian Rayon!

Arun Natarajan is Editor of TSJ Media. He can be reached at arun(at)

April 04, 2004

Fake "Kleiner Perkins VC" arrested

Shamoon "Sam" Rafiq, who illegally "sold" $3 million in Google stock posing as a partner at famed Silicon Valley venture capital firm Kleiner, Perkins, Caufield & Byers (KPCB), was arrested on March 5 by federal agents, reports New York Post.

It seems Rafiq, a 30-year old Dutch national of Indian origin, told his victims that he was helping Google (a KPCB portfolio company) in its IPO efforts. And that he would let them in on the action at $12 per share. Rafiq's list of victims, according to NYT, allegedly included the Chairman of a global communications company, a corporate attorney, an investment banker and a stockbroker.

If only he had used his creativity to better purpose, it sounds as if Rafiq who could come up with a great idea for a start-up. Like Google. One that might have even got KPCB interested. Alas!

Click Here to read the full NYP report.

What exactly does July Systems do?

The July Meta-Service System (JMSS) is a 3G compliant service delivery platform that allows operators to rapidly deploy and deliver premium mobile data services, by tying together various entities in the operator ecosystem and making them extensible to third parties. JMSS is architected to flexibly manage multiple third parties, business models and relationships that are involved in the delivery of premium services

-- Introduction to "July's solution" at the July Systems' web site.

For a lay person, understanding the business model of Ashok Narasimhan and Rajesh Reddy co-founded July Systems, the Bangalore and Silicon Valley based wireless software start-up, can be quite a challenge.

Not any longer. A recent article in Businessworld magazine explains July's gameplan and challenges--with some nice examples thrown in--very well. And weaves the facts into a nice story that is easy to read. And understand.

Some extracts:

Unlike voice technology, which is now into the third generation, data services is still in its infancy..... For example, downloading Java games is a big business...But today only simple retailing of games is possible. The user downloads the game and pays a fixed amount for every download. Reddy and Narasimhan feel that the gaming market will explode if more sophisticated ways of selling the games are found. For example, what if the user was able to rent the game for a day, instead of buying it? What if he was allowed to gift it to two of his friends? Today's technology does not allow this flexibility...

..Every time carriers wanted to introduce a new service, say email or text messaging or image downloading, they had to buy a new piece of software. This was time-consuming and slow. Plus integrating all these pieces is expensive. July has built the fabric that stitches together these diverse pieces. So July has developed a software product - a service delivery platform - which will enable wireless carriers to create, run and manage data services - in ways they have not yet considered.

Click Here to read the full article.

Orbiting towards profitability on Sarbanes-Oxley booster

A meeting with Vani Kola, Founder & CEO, Nth Orbit

By Arun Natarajan

"Study finds women lagging in venture capital race" reads the headline of a March 26 Mercury News report. The study, sponsored by the Kauffman Foundation, aims to find out why women-led businesses (which constituted 28% percent of US businesses in 2002) received only 4-9% of the available venture capital.

No one seems to have told Vani Kola, Founder, President & CEO of San Jose, CA-based Nth Orbit, about the huge disadvantages women entrepreneurs face in raising VC funding. At a select press meet (on March 29) held at Nth Orbit's new R&D center in Chennai, India, she disclosed that her company had completed raising a $11 million second round of VC funding earlier in the month. Nth Orbit, Kola's second start-up, categorizes itself a provider of "enterprise risk management" software. Its "Certus" software enables publicly listed companies in the US--especially, large ones with global operations--to comply with corporate governance rules and reporting requirements under the Sarbanes-Oxley Act. Nth Orbit counts PepsiCo, Great-West Life & Annuity, Polaroid and Conexant among its customers.

The latest round of funding, led by Ignition Partners with participation from existing investors Sequoia Capital and JumpStartUp and new investor Evercore, takes the total investment raised by Nth Orbit since its founding in 2001 to $25 million. Kola was earlier the Founder, President & CEO of e-procurement software firm RightWorks, which was acquired by ICG for $1.2 billion in 2000. RightWorks had raised funds from Sequoia Capital, Lehman Brothers, i2 Technologies, and angel investors.

Prashanth Viswanath Boccasam founded Approva Corp., another provider of compliance management software, has also just raised a second round (of $8.05 million) taking the company's total funding to about $15 million. It certainly doesn't seem as if Kola is disadvantaged in anyway even when compared to male peers within Nth Orbit's industry niche.

Kola does not expect Nth Orbit to need another round of funding any time soon. She says she has commited to her VC investors that she would take the company to profitability by 2005 (at which point Nth Orbit's revenues would be in the $15-20 million range).

Kola agrees that the success of her first start-up has made raising capital easier for Nth Orbit. She says Sequoia, which had also invested in RightWorks, was an automatic first choice as investor. One of the partners at Ignition Partners, which is founded by a group of ex-Microsoft executives, sought her out. And she was introduced to Kiran Nadkarni of Jumpstartup, an specialist India-US cross-border fund, by Stanford University professor Rajeev Motwani. The latest investor, Evercore, which runs a large private equity fund, brings to the table its wide contacts among CFOs.

"The social and professional networks critical for opening the doors to venture funding are all but absent for female entrepreneurs," according to Nancy Carter, one of the authors of the Kauffman Foundation study. "Women tend to know more women, so they are more likely to know each other in a first-degree relationship," Myra Hart, a Harvard University professor and a co-author of the study, told Mercury News. At Nth Orbit, Kola is the only woman on the company's board. (The other members being Doug Leone of Sequoia, Jon Anderson of Ignition and Sangam Pant of Evercore) Even the company's nine-strong advisory board has just one woman representative.

What about the "compliance management" software space itself? Sarbanes-Oxley does provide a huge headache to companies and something that they have to spend money on (like it or not). But aren't too many companies going after the same pie? In fact, some of them drastically morphing their business plans to do so--in a way that is reminiscent of the Y2K and "Home Security" related technology rush?

For instance, Zaplet, which was founded in 1999 as an email-based collaboration software company and raised about $100 million from a host of blue-chip investors including Kleiner Perkins Caufield & Byers, Accenture Technology Ventures, Cisco, Novell and Oracle, decided to target this space. On March 31, Zaplet merged with Ramana Mulpury co-founded MetricStream, a Redwood Shores, CA-based provider of software for--you guessed it--compliance management. Incidentally, Nth Orbit itself was originally focused on providing software for managing manufacturing supply chains.

Kola agrees that a shakeout is bound to happen. One that would leave behind a handful of players each focused on a different segment of the market. She believes Nth Orbit's focus on the specific needs of large, global enterprises will enable it to emerge among the winners. Kola sees an opportunity, down the line, in catering to suppliers and other partners of MNCs--for instance, manufacturing companies based in China--who would need to make their systems "Sarbanes-Oxley ready" in order to do business with US-listed companies. She believes the market is big enough--$5 billion according to AMR Research (including for both products and services). Nth Orbit itself is committed to being a pure products company and would have a small professional services team to work with external services companies--including Indian vendors--to implement its software.

What does Kola see as the most likely exit route for Nth Orbit's investors? Would the large ERP companies (like SAP) find it attractive to gobble up the compliance management start-ups that emerge from the pack? Prefixing it with the "venture capitally" correct disclaimer about exit being "only an event that happens along the way for a certain class of investors", Kola says that vendors of Business Intelligence and Business Process of enterprise would also be interested in adding such a capability to their software.

In the long term, Kola sees Nth Orbit's software helping customers address other compliance management requirements as well. Interestingly, that's also the thinking of Vinod Khosla, General Partner at Kleiner Perkins and a Zaplet board member. "I find the opportunity to create a single application that addresses all compliance issues within an enterprise to be very compelling", he says about the recent MetricStream-Zaplet merger.

The game--the so-called disadvantages facing women entrepreneurs notwithstanding--has just gotten very, very interesting.

Arun Natarajan is Editor of TSJ Media. He can be reached at arun(at)