January 30, 2006

TiE Bangalore launches Entrepreneur Accelerator Program

TiE Bangalore has put together the Entrepreneur Accelerator Program (TiE-EAP or “tie-up”). TiE-EAP is designed to help companies get through the seed-stage of evolution and graduate to first round of funding from venture capital firms.

The program brings together an ecosystem of early stage investors and mentors, as well as an array of support service providers such as incubation centers, legal and accounting services and recruitment services – and connects them with pre-screened and motivated entrepreneurs.

To begin with, TiE – EAP intends to select between three and five entrepreneurs to actively assist through this program and is inviting 2-3 page business plan summaries from interested entrepreneurs and startups. For more information, visit http://tiebangalore.org/eap_home.html or contact Nishant Malhotra at eap-coordinator@tiebangalore.org

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

When will the Indian Internet market really take off?

Anand Sridharan of Bessemer Venture Partners has triggered off an interesting debate on his blog on when the Indian Internet market will really take off.

At $25-30 million ad revenues and $150-200 million e-commerce revenues (gross), the India internet market is clearly a small market today. There is also no doubt on the direction and that this would eventually become significant. The main question is ‘how soon’? I don’t have the answer, but here are my views on some of the relevant factors and on what needs to change for us to get there.

Let me start with my definition for ‘significant scale’. My medium-term target would be 30 million households having high quality (over 256 kbps), affordable ( under Rs. 500/month for PC-EMI + net access without download limitations), reliable internet access at home. I deliberately pick 30 million, as that is the number of households who’ll earn over Rs. 0.2 million/year in the 2010 timeframe.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Special report on Indian auto industry

Business Today has a detailed series of articles on the Indian automobile industry, including its various segments like cars, two-wheelers, trucks, auto components and auto engineering.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Brad Feld heaps praise on Stratify

Brad Feld of Mobius VC heaps praise on the performance of Stratify, Inc. on his blog.
It’s always really exciting when a portfolio company hits its inflection point and has a year of extreme growth. All venture backed companies always predict their growth will follow a “hockey stick curve”. This of course is the exception, not the norm, for the vast majority of startups.

Stratify had its hockey stick in 2005 – by the end of the year we’d had over 400% growth off of a multi-million dollar base revenue from 2004. While it’s easy to sit back and be delighted (or even a little stunned), there is no end in sight, which is a tribute to Ramana Venkata and his awesome team.

Stratify was founded in 1999 - as Purple Yogi - by former Intel Corp. scientists, Ramana Venkata and Ramesh Subramonian, along with Rakesh Mathur (former co-founder of web database firm Junglee). In 2001, the company changed its business model (from selling to consumers) to selling its software as a service to enterprises.

The company, which positions itself as "Oracle of the unstructured information space" , is currently focused on helping law firms in electronic discovery applications. For instance, Stratify's Visual Email Analytics enables attorneys to quickly investigate email patterns and hidden relationships to locate key documents.

Stratify has received funding from Mobius, Intel Capital, H&Q Asia Pacific/At India, In-Q-Tel (the CIA's VC arm) and Skyblaze Ventures (Rakesh Mathur's venture investment firm). Its clients include the CIA, Inlumen and Infosys Technologies. Stratify is headquartered in Mountain View, CA and has a development center in Bangalore, India.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 29, 2006

Ram Shriram is No. 3 on Forbes' Midas List

Angel investor Ram Shriram of Sherpalo Ventures has been named No. 3 on Forbes magazine's annual Midas List of technology industry investors.



Here is what the magazine had to say in its profile of the 49-year-old Shriram:
Joined the Google board at its creation. At last count had 2.8 million shares, worth quite a bit . Made his bones in mid-1990s at Netscape. "It died an early death but spawned other great companies." Ran shopbot Junglee, sold it to Amazon for $200 million. Stayed a year, later advised or invested in several firms run by Netscapees (Tellme, Elance). New deals include Zazzle, which prints custom graphics, and PodShow, which broadcasts music.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 24, 2006

Real Estate PE Firms willing to wink at black money?

While both foreign and domestic Private Equity firms are rushing to launch Real Estate funds, observers have predicted that PE investors will face serious challenges in dealing with corporate governance related issues in this industry. A recent Businessworld column suggests that PE firms are willing to make compromises and live with workarounds.
Builders may be nonchalant about walking around with suitcases bulging with unaccounted-for cash, but it might not be easy for say, an American private equity investor, unfamiliar with the Indian black economy, to do this. If a recent meeting between a foreign private equity player and a builder in Mumbai recently was any indication, the investors are planning to look the other way.

The way it will work is this: the builder is the one who does the dirty work of buying the land and handing over bags of cash. He will set up a company which will actually own the land. Shares in the company will be sold to the foreign investor at a premium. This premium, as the builder put it delicately, 'will... er..., reflect the costs of doing business'. Problem solved it would seem. Except that the investor was left wondering (in a whispered aside to his tax adviser also present at the meeting) whether the premium actually reflected the cost of the property. The adviser's response was completely honest: "How on earth should I know?" he whispered back.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 23, 2006

“The Grass Is Always Greener”

Jeff Bussgang has a great post on how entrepreneurs envy VCs, how VCs envy their Private Equity cousins who, in turn, envy hedge fund managers.

Is there anyone that the hedge fund folks envy? Yes, says Bussgang: Entrepreneurs!

I often hear them (hedge fund executives) discuss with envy the life of the entrepreneur – cycling through exciting new start-ups every 5-6 years and then taking long sabbaticals in-between gigs. Meanwhile, the hedge fund executive is chained to every international market every minute of the day for fear they miss spotting the latest currency or interest rate fluctuation. Entrepreneurs actually create things of value and leave a mark on society, rather than simply financial engineering.

And that nonsense about money flowing in so fast being such a great thing? Remember, it can flow out just as fast. And, besides, the hedge fund business as a whole has little barriers to entry and struggle to find true proprietary elements of the busines, resulting in too much money chasing too few good investment opportunities. Those entrepreneurs who can come up with original ideas, build proprietary technology and products, and then sell them out get all the glory, reap all the rewards and then unplug.
Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Managing CEO Transition in Venture-Backed Technology Companies

More than two-thirds of technology companies replace their CEOs sometime during their company's lifecycle. How should founders, investors and board members work together to minimize the pain and maximize the long-term benefits to the company and its shareholders during the process? Pascal Levensohn, Founder and Managing Director of Levensohn Venture Partners has released a White Paper on this topic titled "Rites of Passage: Managing CEO Transition in Venture-Backed Technology Companies".

Brad Feld of Mobius VC (and one of the best VC bloggers), recommends the White Paper as "an excellent addition to every entrepreneur and VC's bookshelf".

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 22, 2006

Taking mobile phones into small town India

Businessworld has an article on how mobile operators are expaning their services into small towns and rural areas.
It is these markets that are now spurring much of telecom growth. Over a period of nine months, from January to September 2005, the subscriber base in B and C circles grew by 44.7 per cent and 46.7 per cent respectively - more than double the 22.2 per cent growth in metros. Of the 60 per cent volume growth expected in the Rs 80,000-crore telecom industry in 2006, more than half is expected to come from small towns.

Look at it another way. Of the 180 million mobile phone subscribers that India expects by the end of 2007, at least 85 million will be from B and C class towns. Currently, only 28 million of the 71 million mobile phone subscribers in India are from these areas.



Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

The rise of drug discovery services

Businessworld has a cover story on how a clutch of entrepreneurial companies are making a mark on the global drug discovery value chain. The article includes an interview with former Ranbaxy Labs CEO D. S. Brar, who along with GVK Group's G.V. Sanjay Reddy, has entered the discovery services space.
Others include people like A.V. Rama Rao (Avra Labs, Hyderabad), Ranga Raju (Sai Life Sciences, Hyderabad), T.R. Bhoopathy (Magene Life Sciences, Hyderabad) and V. Ravindranath (Bharavi Labs, Bangalore). It is also attracting the attention of global financiers like Purnendu Chatterjee, who has already financed four projects under the TCG Lifesciences umbrella in India.


Click image for more detailed table.

...What is the business opportunity for India in terms of numbers?
Brar:
Currently, the value of work being done by discovery services companies is about $300 million, including the clinical trials business. And it is growing at 30-40 per cent annually. In three years, I think we should aim for 3 per cent (of the global pie), but 1.5 per cent should definitely come. It should be about Rs 10,000 crore in the next three years.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 16, 2006

What’s holding back the Indian Venture Capital Market?

In this guest post, Abrar Hussain, points out that India’s venture capital ecosystem has “some ripening to do” before it can be equated to the original Silicon Valley.

"Opportunity is missed by most people because it is dressed in overalls and looks like work."

- Thomas Edison

They heyday for Silicon Valley’s monopoly over the technology industry is long gone. Nowadays, Bangalore is often included in the same breath when there is a reference to Silicon Valley. But, is this really a realistic comparison? Although everyone seems to equate the two, if we poke around this comparison it’s easy to see that there are some big differences. I won’t pretend to have a monopoly on the items listed--I think lots of people are thinking the same thing. India is still maturing and, although there seems to be some recent evidence that the Indian VC industry is beginning to "fill in the gaps" within its offerings, there are still some significant parts of Indian venture capital ecosystem that have some ripening to do.

1) Innovation
– Early in Japan's development a common criticism they faced was that they could copy and make lots of things better but they couldn't create something new. It's much the same for Indian companies. While the offerings by many service companies seems to get better, cheaper and faster, none of these companies seem to be the next Google, or Genentech or eBay--companies which actually created new markets and fundamentally change the way that people look at an industry. This might be changing. There are some early startups that truly look innovative. But, why is it that Indians in the Valley can innovate and create something new and when you put them back in India they can’t seem to do the same thing?

2) Visibility – It takes a lot of trust to give someone money. Venture capital is all about trust; trust in the entrepreneur, trust in his team and trust in the idea. This goes hand in hand with visibility. An investor must be able to see what's going on inside a company even if he isn't there every day. Yet, in India, companies are often an extension of the founder. (This seems true of startups as well as large companies.) Until there is a clear separation of the person from the company and a more visibility into the operations to an outsider, early round investment will take a lot more work in India than it does in Silicon Valley. That may be fine for the likes of you and me (although I can't say that I have a few million lying around to invest in a company), but it does mean that the opportunities are not available to the broader investing market.

3) Pervasive Understanding of Venture Investment
– Any serious investor (and many not so serious investors) in Silicon Valley can tell you about the basics of an early round investment in Silicon Valley. How does a debt financing round work? How does a preferred round work? What sort of rights should an early round investor ask for as opposed to a later round investor? Because there is this implicit understanding of the basics, it easier for deals to get done quickly and efficiently. When I was COO at a startup (I still have flashbacks about the crazy time. What the heck was that startup thinking putting a 28 year old as COO?), there was one instance where we were able to get the details of a debt financing with an investor completed in one evening and get the legal documents done the next day.

4) Exit Strategy – Most Indian technology companies are focused on services. The problem is that it's hard to create a big exit for a services company. This is a mature space. As I look at some of the investments being made, it's not clear what the exit strategy is. It almost reminds me of the Internet boom in Silicon Valley when investors were investing because they didn't want to be "left behind". Some trends are meant to be left behind.

India's Big Advantages

While there are lots of things that the Indian investing community can learn from other dynamic ecosystems (like Silicon Valley, Boston, and Israel), the mistake is to conclude that there is only one way to create this vibrant ecosystem. Not all of the things that worked in Silicon Valley will work in India. But, there is one deep, fundamental advantage that sets India apart.

Ever since I was a kid, I've been going back and forth to visit my family in India. But, in the past five or six years, something changed. My relatives, instead of asking me about all the things going on in America, started talking about all the things that were going on in India. There was a shine in their eyes talking about the progress that has already happened and that will come. It’s this hope and confidence that fundamentally changes the equation. People are now willing to take risks and entrepreneurship is starting from a grass-roots level. Indian companies are becoming confident enough to go shopping on a global scale and many are not afraid to grow aggressively. As the IPO and M&A markets become broader, it will provide more opportunities for small companies and, most crucially, the investors that put money into them.

This confidence also allows the freedom to do something that is crucial to an entrepreneurial ecosystem--the ability to fail. Silicon Valley’s most fundamental advantage is that it allows companies to fail. An entrepreneur can fail and still get a job at another company. Failure is a wonderful teacher. Fail enough times, and learn from it, and you’re bound to succeed. Indian companies are starting to operate in this Darwinian ecosystem. Out of the hundreds of startups that emerge, only a handful will succeed. And that's the way it should be. The companies with better technology, better teams, better execution or some mix of these elements succeed and the others fail. In the startups that I've personally participated in, I've learned more from the failures than from the successes. This, at its most fundamental, is what makes Silicon Valley work. It's also what's emerging in India--a dynamic ecosystem where companies can fail and people can start over again to get it right.

Abrar Hussain is a specialist in cross-border transactions at leading US-based law firm Greenberg Traurig LLP. He can be reached at abrarh@gmail.com

Who will survive the low cost airline war?

Businessworld has a detailed cover story on the state of the low-cost airline industry in India, including a comparison of the strenghts and weakness of the current leaders - Air Deccan and SpiceJet - and an interview with former CEO of easyJet, Ray Webster.


Ray Webster, the former CEO of easyJet, who established the efficacy of the low-cost model in Europe, is bullish: "In Europe, the number (of passengers) is far lower, journeys are short, and travelling by train is a nice experience. Yet, the low-cost airline model has worked very well. I can't begin to imagine the size of the market in India."



The two airlines have done well so far. Loads have been high and increasing (Air Deccan claims 75 per cent average load in April-September 2005; SpiceJet claims around 84 per cent). Both airlines have been cash positive for several months. Deccan had projected revenues of Rs 275 crore in its third year but made Rs 318 crore in 2004-05 (the second year) itself. In 2005-06, the first six months have brought in Rs 359 crore, and Gopinath expects to close the year at around Rs 1,000 crore. SpiceJet's revenue moved to Rs 82 crore in Q2 (2.98 lakh passengers) from Rs 57 crore in Q1 (2.21 lakh passengers).



Says Kapil Kaul, CEO (Indian Subcontinent & Middle East), Centre for Asia Pacific Aviation (CAPA): "There is a mad rush of money chasing India's aviation sector." Sample this: Both Air Deccan and SpiceJet, two of the three budget carriers already in the air (Go Air is the third) have raised substantial sums. In March 2005, Deccan raised $40 million through a convertible debenture from ICICI Venture and US-based Capital International, and is planning to go public in March 2006. In December 2005, SpiceJet raised $80 million by issuing foreign currency convertible bonds (FCCBs) in the international market to part-finance its order for 20 Boeing 737-800 aircraft (it has five now). SpiceJet is valued at close to $350 million, and Deccan is likely to be valued at a little over double that. Says Ajay Singh, director, SpiceJet: "Many airlines with perhaps not the best plans can also get funded." That's quite a change from when Air Deccan launched (September 2003) when people were ready to give them a hearing, but no money.



Operating conditions, however, present severe challenges. Airport charges are 62 per cent higher than international levels and fuel prices are also higher. Distribution costs are high, as Internet penetration, the main ticketing medium for budget carriers, is poor. Aircraft utilisation and turnaround times are lower due to poor infrastructure (few runways and hangars, among other things) at Indian airports. Also, many carriers are buying or leasing new-generation aircraft at high prices. Then, there are regulations like all airlines have to fly to some unprofitable routes (the North-east, for example). All these add up to throw their budgets out of gear.

Still, many believe that low-cost is the future. Says CAPA's Kaul: "By 2010, the (low-cost) market share will be 50 per cent, up from 16 per cent today." He contends that on parameters like fuel prices and airport charges, India will be at par with international levels then. Coupled with labour cost advantage and high quality IT infrastructure (at low prices), India will be one of the lowest-cost aviation markets by 2010. "We see unbelievable valuations for Indian aviation companies then," he says.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Can the Indian film industry scale?

Businessworld has a detailed cover story on the Indian film business, the major players and the challenges facing them.


PVR Cinemas, Yash Raj Films, UTV Software Communications, Adlabs, Sahara, Pritish Nandy Communications (PNC) and Percept Picture Company are among over a dozen companies finally emerging out of the wilderness. Most are putting their bets on becoming conglomerates with a hand in everything - production, distribution, retail, the overseas market, home video and so on. Over the last 24 months, investors have put in between Rs 1,500 crore and Rs 2,000 crore into the expansion plans of these companies. There is an entire ecosystem - investors, Internet, technology, marketing and advertising firms - that is building up around the film business. Companies like Spice, Epigram, Group M and Madison Mates (marketing); Interactive Television (a theatre activation company); Prime Focus, Pixion and Autodesk (post-production and special effects); and Hungama, Indiatimes and MSN (digital promotion) get a juicy chunk of their revenues from films.



Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 11, 2006

Indian cos. go on overseas shopping spree

Silicon Valley/San Jose Business Journal has an article on how India's growing economy and booming stock market is encouraging Indian companies to make ambitious acquisitions overseas - including in Silicon Valley.

India-based corporations are scouring Silicon Valley for small and medium-sized companies in the $20 million to $200 million range, with a particular interest in management and networking skills.

"They need the contacts," says Vish Mishra, a venture capitalist with Menlo Park-based Clearstone Venture Partners. "They are active not only in Silicon Valley, but in Europe, Asia and elsewhere."

The stock value of such large concerns as the Tata Group, with more than $17 billion in capital, the $3 billion Nicholas Piramal India, a pharmaceutical company, and the $7 billion Aditya Birla Group has skyrocketed in New York and Bombay stock markets over the past few years.

Some of the more recent deals include Fremont-based IT-system concern, Cymbal Corp., which was purchased by Patni Computer Systems Ltd. for $68 million and Santa Clara-based iCelerate, which was purchased for an undisclosed sum by e4E Group, an India-based outsourcing company.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 09, 2006

A well timed play on India

The Evolvence India Fund (EIF), the first independent private equity "Fund of Funds" set up exclusively for investments in India, has been very active in the six months since its launch in June 2005. EIF has already invested into five India-focused funds: GW Capital’s India Value Fund II, Barings (India) Private Equity Fund II, IL&FS India Leverage Fund, IDFC Private Equity (Mauritius) Fund II and UTI Venture Capital's Ascent India Fund.

EIF is sponsored by the Dubai-based Evolvence Capital which started out as a vehicle to manage the personal wealth of nine high net-worth families in the Middle East. EIF received commitments of $73 million at its first closing in September and expects to have its final closing by Q4, 2006, Jay V. Jegannathan, Managing Director of EIF told Venture Intelligence India. The final fund size is expected to be $300 million.



EIF will focus on investments in private equity across all sectors, including real estate and infrastructure development. About 48% of EIF's corpus will go towards PE investments, 30% into real estate and the balance 22% into infrastructure projects. Evolvence also expects to launch a separate real estate focused fund on India during the current year.

While 60% of its investments will go towards India-focused funds, EIF also has the option to co-invest along with these funds. EIF’s Limited Partners (LPs) will also have an opportunity to selectively participate in such co-investments. EIF’s ability to co-invest gives its portfolio funds the confidence to go after investment opportunities that they might not otherwise take up due to the limitation imposed by their fund size.

EIF is headed by Jegannathan (a qualified Chartered Accountant with wide experience in the Middle East) along with co-Managing Director Paresh Thakker (who also has an accounting background and had worked earlier with Infinity Ventures).

Because of its good timing, EIF has been able to invest into the new funds from PE firms with a good track record - like GW Capital and Barings - before they closed. "At about the same time we started out, there were two or three other announcements of fund of funds for India. But EIF is the only one to have moved ahead and capitalize on the opportunity in a timely manner," says Jegannathan.

There's one more angle to EIF's timing advantage: now that it is already invested into some of these top-performing Indian funds which have already closed, foreign investors - who were not able to invest into them directly - now have an opportunity to get exposure to these funds in an indirect manner via EIF.

Given its expertise in accessing money from the Middle East and its opportune timing, EIF has swiftly emerged as a major player in the Indian private equity landscape and one that will be closely watched as a barometer of the industry’s performance.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Nasscom names first "Innovation Shortlist"

At a time when US enterprise software firms are facing challenging times thanks to a "Perfect Storm" created by the rise of Open Source software and the Software as a Service (SaaS) model, Indian software product firms have a window of opportunity to make a significant mark on the global landscape.

In this context, the Indian software industry association Nasscom's recent efforts to encourage Indian software product companies is well timed. Nasscom has just published its first "Innovation Shortlist" of companies featuring profiles of IT companies that "have distinguished themselves as imaginative thinkers, product developers and service providers". The list includes Subex Systems Limited, Bangalore Softsell Ltd., CG-Smith Software Private Limited, Skelta Software and Encore Software Limited. Click Here to view their profiles.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 03, 2006

The Private Equity opportunity in Real Estate

While the other trends we are looking forward to in 2006 - a steady pick up in buyout activity and the re-emergence of early-stage technology investing - might or might not pan out, the rise of Real Esstate as a destination for Private Equity funds is something that is much more certain. Both domestic firms like HDFC, ICICI Ventures, IL&FS Investment Managers (IIML) and Kotak, as well as a host of overseas firms have lined up significant funds for this sector. While there have been some early nibbling investments in 2005, the funding tap for real estate can be expected to open up fully in 2006.

Recently, I had the opportunity to attend a presentation by Dr. Archana Hingorani, COO of IIML, (at an event organized by AVCJ in early December) on why the real estate sector presents an interesting opportunity for PE firms.

During her presentation, Dr. Hingorani pointed out that a key attraction was the fact that real estate investors can expect yields of 11-13% in prime properties (commercial) in India versus the global average of 5-5.5%. Real estate investments in Bangalore, Mumbai and Delhi provide among the highest yields in the world, she said.

The main drivers will be office space requirements of the IT & ITES industry, Retail (Shopping Malls, Multiplexes, etc.), Housing, Re-development of underutilized land (like the mills lands in the heart of Mumbai), growth of Tier II cities, integrated townships and infrastructure plays. Let alone Tier II cities, there is enough steam left in the commercial real estate in the major cities. "Even in Bangalore, only 30% of the commercial property is Grade A," Dr. Hingorani pointed out.

Another feature of the Indian market is the fact that builders here are significantly under-capitalized. The going will however not be all smooth and easy. Dr. Hingorani said the main challenges would be in educating players in the real estate industry on the expectations of PE investors - especially in terms of corporate governance. It will require significant effort in educating developers and changing their mindsets, Dr. Hingorani added.

Related article: I had earlier linked to a streaming video presentation on "Real Estate Investment Opportunities in India" by top executives from Kotak Realty Fund - S Sriniwasan, Executive Director and V. Hari Krishna, Chief Investment Officer - at the TiE Silicon Valley office in July 2005.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 02, 2006

Who is the VC's customer?

Fred Wilson has a great take on this topic:
Many of the people I know in the venture capital business think their customers are their investors, called LPs in the industry vernacular. I've always thought that was dead wrong.

The entrepreneur is the customer and the LP is the shareholder. That's the only way to think about the venture capital business that makes sense to me.

...I start with the value chain. The entrepreneur creates the value, they are the "raw material" in the venture capital business. If there were no entrepreneurs, there would be no venture capital business. So the VCs who treat the entrepreneur like the customer and invest heavily in customer service will be rewarded with the loyalty of the most important component in the value chain.

Money on the other hand is a commodity, whether its in the hands of the LPs or the VCs. Money flows to the best returns and always will.

So if the VC does a good job of serving his customers well and generates superior returns as a result, the money will always be there as long as the price of his fund is reasonable. That's why I am convinced that the LPs are the shareholders. That is exactly the same dynamic that exists in company/shareholder relationships.

...Entrepreneurs are really difficult customers to serve well. It takes a significant investment of time, energy, money, and intellect to satisfy them. But if you do it well, you will develop a reputation for great customer service that will keep the best ones lined up at your door.

And that is the best way to deliver exceptional returns that I know of.

At a time when so many new funds are setting up shop in India, I can't think of a better new year message than this. Happy new year!

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

What 's hot in India? A US-India VC's perspective

Vineet Buch of BlueRun has a nice post on "What's looking promising in India in 2006?" from an investor's perspective. Some extracts:

* Consumer Internet:
I predict that the interesting Indian internet businesses will be hybrid businesses, combining a variety of communication assets, not just the Internet; and these businesses will address needs unique to the Indian market rather than being mere copycats of Western models.

* Mobile Value Added Services:
Value-added services (VAS), such as ringtones and ringback tones, are big sources of revenue to Indian wireless carriers. Practically everywhere else, including the US, Korea and Europe, startups have managed to grow big by getting a significant chunk of this revenue. In India, however, the VAS provider market is fragmented and the carriers reluctant to share the pie and hence encourage innovation. It's time that some brave souls in India banded together to replicate the success of global players in the VAS ecosystem like WiderThan (a BlueRun portfolio company).

* Component Manufacturers for ODMs/OEMs

* Fabless Semiconductor Companies: (aka Chip Design)
Big companies like TI and Intel have nurtured a technical talent pool in India in their 15+ years of local operation. We are likely to see startups that partner world-class chip architects who depart these companies with business managers who understand the likely markets in North America and Europe. Often, at least some of the team members will have spent part of their careers in Silicon Valley.

* Clean Technology:
India's growing hunger for energy, its problems with pollution and waste management, and the domestic research base in electrochemistry, photovoltaics and efficient power generation provide fertile soil for clean technology startups.

* Software:
My bet is that as the large number of relatively undifferentiated offshore development companies consolidate, among the survivors will be companies that translate market knowledge gained by working with their customers into software products or services that can form the foundation of a scalable business.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.