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May 27, 2004

The Big Fight at Tracmail

There's nothing new about fights between Venture Capitalists and the founders of start-ups they've invested in. What's new about Businessworld magazine's detailed description of the battle between The View Group and Tracmail founder Adi Cooper is that such fights have now broken out in India's BPO sector. BW indicates that it is not just Tracmail. Similar battles are also being fought at other early-to-market call center firms like Epicenter and Infowavz as well.

According to the article, since Tracmail started out in 1999 - well before the BPO sector became a VC-darling - Cooper did not have too much of a choice about which VC to go with. So, he took "latched on to what was available" by selling "a hefty 50% stake" to The View Group for a "mere $7-8 million".

"Over the past two years, every time Cooper tried to replace his current VCs with investors who had a longer time horizon and bigger resources, The View Group would simply not agree on the price," the article says. The last straw was a three-way merger between Tracmail and two of its North America-based alliance partners (Webhelp and Spheronomics). "Spheronomics came in with north American management to boost the sales pipeline. That did not happen. So, in effect, with a North American cost structure and no incremental sales, the company has bled further," an unnamed Tracmail executive says in the article.

What's the latest position at Tracmail? According to the BW article, several members of Tracmail's senior management team (including the COO, CFO and CTO) have quit the company - with Chairman Cooper himself preferring to spend "most of his time at home" - the company's prospects don't seem too bright.

BW and its correspondent Snigdha Sengupta deserve kudos for coming up with such a rare and in-depth article on issues facing venture-backed BPO companies. The main negative in the article was that it did not contain any comments from either Cooper or The View Group. The reader is left to assume that the warring parties refused to speak to BW. It would have been better if the article told readers as much in the article itself.

Click Here to read the full article.

What is Rajeev Madhavan up to?

In April, when Magma Design Automation Inc., led by Co-founder, Chairman & CEO Rajeev Madhavan, announced the acquisition of Vivek Raghavan co-founded Mojave Inc. for about $140 million, many commentators termed the deal "pricey" pointing out that Mojave had no products, zero revenues and just 10 employees.

While it doesn't exactly justify the valuation of the Mojave acquisition, has published a detailed article explaining why Madhavan is in a hurry to grow Magma through acquisitions. (Magma had also acquired Guruprasad Rao co-founded Silicon Metrics Corp., an Austin, TX based provider of chip design solutions, in November 2003).

According to the article, EDA companies need to have $300-400 million worth of sales to be able to porovide local support to chip OEMs in various parts of the world. "If you have $100 million in revenue, you might be able to afford an office in San Jose and Paris and Tokyo, but Helsinki and Osaka would be too expensive," Mentor Graphics Chairman & CEO Walden Rhines says in the article.

That's why, the article explains, the EDA industry is traditionally cut into two camps: "the big three" (right now, occupied by Cadence Design Systems, Synopsys and Mentor Graphics) and the large group of start-ups focusing on novel and niche design automation software products. "You can be small and very focused, or one of big three, but it is very hard to be in between," Rhines adds.

Click Here to read the full article.

May 26, 2004

"Private Equity investment in India yield 25-40% IRR": PwC

Private equity investments in India have fetched foreign investors an "Internal Rate of Return" of 25-40% in recent years, Business Standard reports quoting PricewaterhouseCoopers (PwC) Associate Director Sanjeev Krishan.

ChrysCapital generated an IRR of more than 135% on the sale of its stake in Spectramind to Wipro. The successful IPOs of TV Today Network and NDTV also fetched handsome returns for their PE investors (GE Capital and ICICI Venture in the case of TV Today and Fleming and JP Morgan in NDTV), Krishnan said in the report.

Click Here to read the full article.

May 25, 2004

Indian VCs look beyond outsourcing

By Arun Natarajan

My article on the above topic was published recently in the AlwaysOn "blogzine".

Here is the article's intro:

While India's software and business process outsourcing (BPO) services companies hog the headlines, venture capitalists in the country have begun to cast their nets wider. Recent quarters have seen private equity firms investing significant amounts of money into sectors such as pharmaceuticals, high-tech manufacturing, retailing, banking, media, cinema theaters, and even restaurant chains. So what's cooking?

Over the last two years, VCs in India have been behaving pretty much like their U.S. counterparts: making fewer but larger investments and focusing on late-stage companies. (The few early-stage bets have been reserved for the booming BPO sector.) However, in recent quarters, two India-specific trends have started to play out quite strongly: (1) Indian VCs are looking beyond software and BPO services, and (2) they aren't shy about investing in companies focused on the domestic market.

Click Here to read the full article.

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

May 19, 2004

Are you ready to get lucky?

Posting by Arun Natarajan in The Startup Journey web log.

I recently watched an interview with MphasiS-BFL's Chairman & CEO Jerry Rao television ( Udaya TV on February 20, 2004), when he said - quite firmly - that luck plays a huge role in any entrepreneur's success. He said a large part of his success was owed to the fact that he was "at the right place at the right time".

Rao gave examples to prove his point about luck being so important. For instance, his highly successful career with Citibank had begun "willy nilly" - via a campus placement at IIM-A. And even his founding of Mphasis Corporation, a California-based software company that subsequently merged with BFL Software to form Mphasis-BFL, was sparked off by a chance meeting with MphasiS' future co-founder during a flight trip.

Rao's remarkably candid and humble admission made me think about the role of luck in my own entrepreneurial endeavors as well as that of my friends. And sure enough, I could think of quite a few instances where sheer luck - good or bad - made all the difference.

Obviously we all know about the definition of luck as something that happens when "preparation meets opportunity". But is this always true? How about an entrepreneur whose idea was simply too early to market? What if the market that he was going after, blooms - to the benefit of his followers - two years after his start-up folds up?

As I was thinking more on these lines, as luck would have it (!), I ran across articles and interviews with other leading entrepreneurs which backed Rao's views on the Luck Factor.

Guy Kawasaki (the former Apple executive who founded investment bank says in his column that if he were to allocate weights to factors that contribute to entrepreneurial success, he would give 20% to experience, 10 % to classroom learning, 30% to hard work and 40% to luck. 40 per cent!

Seth Godin (who founded online entertainment and marketing company Yoyodyne and sold it to Yahoo!) actully wrote an article titled "The L Factor" in Fast Company magazine. "Friendster, the online social networking service, is the latest viral rage. It recently turned down a chance to be acquired by Google for $30 million. Just a few years ago, though, was offering almost precisely the same service, and it's no longer on the radar," he points out.

"Every time you launch a product or service .... you're either going to hit or not. If you get lucky, you're entitled to deny that luck had anything to do with it. But if you fail - and you probably will - understanding the role of the L factor will keep you sane. And if you've planned for it, it will keep you solvent as well. Solvent enough to try again and again, until you make it (and take all the credit)," Godin says.

Other entrepreneurs like Vani Kola, founder of software firms RightWorks (sold to ICG) and Nth Orbit, do not believe luck has any magical quality to it. It isn't something that will happen to you if you just sit back and relax. Or just another employee.

"Luck is the ability to recognize and take advantage of an opportunity.... It's being able to take the risk, and if you're wrong, you have to be able to change it," she said during a panel discussion at Silicon Valley's Churchill Club.

So, can entrepreneurs "plan" to get lucky?

Godin feels that the answer is to spread your bets. "Do that with lots of products, not just one or two. Cut your overhead so you have plenty of chips, ready for another spin of the roulette wheel," he advises.

Sergio Magistri of InVision Technologies (a company which makes explosive detection systems for airport security), another member of the Churchill Club panel, thinks having the "smartest possible team working together" is a good insurance against bad luck. When he was asked in an interview whether, after the September 11 attacks, his company felt like they had "won the lottery", Magistri replied saying "Yes, but you wouldn't believe how many tickets we bought." Yes, InVision was in exactly the right business post 9/11. But in preparation for it, the team had to make "investment in time, in people, in energy, in human work, in getting your people to work together the right way".

Amnon Landan, Chairman & CEO of enterprise software company Mercury Interactive and another member of the Churchill Club panel, provides a military analogy. "When they shoot at you, you can stay behind a rock and you'll be safe, or you can try and get to whomever is shooting at you. So you jump from one rock, to the other one, to the other one. You get exposed in the process, but in the end, you can actually point at who is shooting at you and take care of business. When you take this approach, you increase the risk but you increase the likelihood that you'll win," he said. "I think that's what entrepreneurs do - they take more risks so when they fail, they fail big. But they increase their likelihood that they'll be lucky".

So, the bottom line on the "L Factor" seems to be that if you have the other qualities required of a good enterpreneur (i.e. education, experience and hard work), there is a high probability that you will get lucky as well.

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

May 15, 2004

Indian election results dominates TiECon talk: Mercury News

The election results in India, which had surprised most people (including so-called expert pollsters), dominated the chatter among the 3,000 attendees at TiECon, the annual global Indian entrepreneurs event held in Santa Clara, reports San Jose Mercury News.

While Houston-based entrepreneur Ashok Rao said he was "shocked, disappointed and nervous'' about the results, Vinod Dham of NewPath Ventures was more positive about the new left-of-center Congress Party-led coalition that is set to take power (replacing the BJP-led coalition).

Dham hopes the new government would focus on improving infrastructure and putting up manufacturing facilities in rural areas. "They (India's rural folk) don't have water, power, electricity or roads connecting to rural areas. They didn't see any benefit trickling down from the growth in IT,'' he said. "The existing government was all drunk with its success,'' Dham added for good measure.

Harish Mehta, founder of Indian IT services company Onward Technologies, said he did not foresee the new government doing any "major tinkering'' with respect to taxation of tech companies. With half of India's 1 billion population aged 25 or lower, the country needs to generate 10 million new jobs a year. "Those jobs have to come from innovation-driven entrepreneurs,'' Mehta said.

Click Here to read the full Mercury News report.

May 14, 2004

ICICI Venture profiled in Business Today

Business Today magazine has published a profile of ICICI Venture Funds and its CEO Renuka Ramnath.

Click Here to read the full article.
(Paid subscription required for access)

May 13, 2004

Lights, camera, inaction: the story of VC investments in Indian films

At a time when Vivek Wadhwa, Founder & Chairman of US-based enterprise software firm Relativity Technologies, is generating a lot of publicity for the Hindi film he's producing via his
BusinessWeek column, India's answer to BusinessWeek - Businessworld - has published an indepth article exploring the roadblocks facing private equity investments in the Indian film industry.

The article points out that the spurt of private equity investments that happened when the sector received industry status in 1998, has now fizzled out. The prominent investments so far include the $5 million raised by Shringar Films from GW Capital, the $8.5 million (Rs.38 crore) that PVR Cinema raised from ICICI Venture, and the angel investment raised by Bobby Bedi's Kaleidoscope Entertainment from Silicon Valley veteran Kanwal Rekhi and Infinity Venture co-founders Saurabh Srivastava, and Pravin Gandhi.

One of the main roadblocks is the lack of transparency in film distribution. "Bank usually loan money or VCs invest it against agreements signed with film distributors. However India has thousands of distributors who do not have a corporate structure or a balance sheet, which makes lending impossible. To top it, they routinely under-declare revenues, especially in the interior (areas of the country)," the article says.

According to the BW article, the fact that a typical Indian film requires only Rs.25-30 crore to make is a deterrent to foreign investors who "would typically want to come in with a $100-million fund (Rs 450 crore) at least". The Indian securities regulator SEBI currently bars VCs and films funds from invest in one-off projects directly. And setting up a special purpose vehicle to finance one-off projects creates tax-related complications.

A government-appointed committee headed by N.K. Singh is looking into the various roadblocks facing institutional film financing. Meanwhile, the article says, Indian filmmakers have come up with an ingenious tool called "co-productions" -- in which each film is treated as a separate venture - that is serving as an effective stop-gap solution.

US VC concerned about escalating costs of SW development in India

"In the long run, given the competitiveness and cost increase of doing business in India, I am sure that many companies will increasingly look to other locales with strong talent and less competition like Belarus, Romania, Argentina, Russia, and China. I am already seeing that happen," says Ed Sim, Managing Director of Dawntreader Ventures (previously SoundView Ventures), in his recent web log posting. "The problem is that offshore development has become so popular that the cost of doing business has increased since wages have been bid up and since employees have many job options," Sim adds.

With $290 million under management, Dawntreader Ventures primarly invests in early stage information technology companies. Sim says he and his partners have also decided that it is best for their portfolio companies to set up their own or "captive" development centers rather than deal with third-party vendors. "While a couple of our companies chose to use consulting partners to begin with due to lower upfront costs and better time to market, we found that over time (the last 2 years) that employee churn is becoming a huge problem in these consulting companies and making us less productive in the long run," he writes.

Click Here to read Ed Sim's full posting.

May 09, 2004

Ram Shriram could make $600-M from Google IPO: Mercury News

Ram Shriram the former Netscape and executive who runs Sherpalo Ventures will make the maximum returns (in percentage terms) when Google goes public, according to a column by Matt Marshall in San Jose Mercury News.

Shriram was an angel investor in Google and is a part of the company's 6 member board.

"We don't know exactly how much he invested, but we do know he invested in part of a $1 million seed round pledged by four principal investors in 1998. Let's assume Shriram's investment was $300,000, give or take. Now his approximate 2 percent share of the company will be worth up to $600 million," the column says.

Marshall also points out that unlike venture funds KPCB and Sequoia Capital (which together own a 20% stake in Google for their $25 million investment), who need to share their bonanza with their investors, in Shriram's case "it's all his money".