The Venture Intelligence Blog

Mercury News has discovered that ASP software companies (aka "software as a service" or "on demand" applications) are doing well. The article points out that Oracle CEO Larry Ellison made significant personal investments in such companies: he had provided the now public Salesforce.com with $2 million in seed money and has invested about $60 million into NetSuite, which plans to go public by year-end. Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Fortune columnist David Kirkpatrick gushes about how "the Internet is connecting the two countries in ways not conceivable a few years ago". My gut feeling is that the Indian and American economies are going to become ever more intertwined, and that is probably a good thing. For instance, I found India so enthralling that I could imagine living there someday. Of course, it helps that one vestige of the British colonial system is that most everyone in the country's commercial world speaks English. That makes it easier for a guy like me to get around in India than in places like China or Mexico, to mention two of my other favorite developing countries. It’s possible to live an extremely comfortable life in India on relatively little money. Someone in India living on $12,000 a year can have a cook, a driver, a housekeeper, and the benefit of all those low prices. I could imagine retiring here. It’s a comforting thought, at least, when I’m worrying about whether I’ve saved e

Reuters has this interesting news item about how, thanks to booming stock markets, Indian companies are finding it easier - both from a valuation and control perspective - to go in for IPOs rather than seek private equity funding: Company owners who might typically have struck a private equity deal to raise cash for expansion are instead considering floating shares on a stock market that has risen 30 percent over the past six months. That is frustrating for private equity houses hoping to multiply record piles of cash by steering unlisted firms to prosperity. "It is tougher to close a deal now," said Darius Pandole, chief operating officer of IDFC Asset Management Co. Ltd... ...The IPO of Jet Airways (India) Ltd., which saw potential private equity suitors walk away due to differences over valuations, drew orders for 5.2 times the shares on offer at a price/earnings multiple of up to 21.5. Robust economic growth tipped to reach 6.9 percent in the year to March and rising inc

Tom Evslin, Co-Founder & CEO of ITXC (acquired by Teleglobe in 2004), blogs on the ten lessons he learned about dealing with VCs. Some of the lessons have been featured quite a bit on other blogs: Lesson #1: there are times when raising venture capital is a bad idea. Lesson # 2: there are times when it makes sense to raise venture capital. Lesson #3: raise your venture funding as late as possible. Lesson #4: pick your VCs well. Lesson #5: ask VCs about their firm’s “exit strategy”. Lesson #6: look for VCs who can and do distribute. When the time comes for a VC to liquidate some or all of its position in your company, it can usually either sell the stock outright or distribute it to its LPs. I believe that distribution is better for the company than an outside sale. For one thing, it doesn’t send the same signal to the market as a huge sale by an initial investor which may have to be reported publicly depending on how recent your last equity event and the size of the VCs stake. M

As a stock market investor, I used to pray every time I sold a company's share that it never again reached that price again. Unfortunately, the price at which I sold was most often the starting point "for a major bull run", as those analysts say. This was a strong motivator for me to move to mutual funds. (There is no way anyone can get me to name the companies whose shares I sold sickeningly early and definitely, no way will I let on at what price I sold.) Given this, I was fascinated when I chanced upon, at US-based venture fund Bessemer Venture Partners' web site, a detailed list of companies that the firm declined to invest in, and "each of which later blossomed into a tremendously successful company". "Our reasons for passing on these investments varied. In some cases, we were making a conscious act of generosity to another, younger venture firm, down on their luck, whom we felt could really use a billion dollars in gains. In other cases, our partn

Tom Evslin writes on the attractiveness of "flat-rate" or "all you can eat" pricing to both consumers and service providers: If you can find a way to price a service at a flat monthly rate, you can make a better profit per customer and attract more customers than if your pricing is based on reading a meter. You also save a fortune in detailed billing, dispute resolution, and issuing credits... ...When we started AT&T WorldNet Service, we borrowed that idea and popularized it with the still hugely powerful AT&T brand behind it. Some said we’d go broke; others that we would ruin the Internet. To hedge our bets, we also offered a metered access plan. We didn’t want to lose out on people who planned to spend less that $19.95 per month. To our surprise, people typically converted themselves from metered access to subscription when their monthly bill was around eleven or twelve dollars. And their usage didn’t spike after conversion. People were paying a pre

Badri Seshadri, a co-founder of the popular online cricket portal Cricinfo.com, will be leaving his position as Managing Director of Wisden CricInfo-India in April 2005, reports Mediaah! . Seshadri plans to focus on building his new start-up, New Horizon Media Pvt. Ltd., which is into regional language publishing. Extracts from Mediaah's interview with Seshadri: The plan is to create content in regional languages - with the content in the form of printed books, audio, CD, online (but subscription-based) etc. We are starting with Tamil (as I am familiar with this) and are looking at aggressively expanding to other languages... ...Where is the quality, knowledge driven , local language content on the web at this stage? Even amongst books that are published, there is a vast difference between books published in English and those that are published in local languages. Also an average English book is extremely expensive. The regional books are, on an average, priced one third of an Engl

Business Today profiles the outsourced animation services sector including companies like Color Chips, DQ Entertainment, Toonz Animation, etc. Some extracts: The animation production services sector in India is still small- about $200-300 million (Rs 880-1,320 crore), according to nasscom. That's less than 0.5 per cent of the $70-billion (Rs 3,08,000-crore) global market, but it's growing at a sprightly clip of over 20 per cent. Its USP: expertise in 3d, flash animation, and strong creative and marketing skills... ...It costs $250,000-400,000 (Rs 1.1-1.76 crore) to produce half an hour of animation programming in the US and Canada, and $90,000-100,000 (Rs 39.6-44 lakh) even in the Philippines. In India it costs only $60,000 (Rs 26.4 lakh). Put differently, producing a 26-episode 2d series of 22 minutes each in the US costs $4-7 million (Rs 17.6-30.8 crore), while a similar 3D series costs $6-10 million (Rs 26.4-44 crore). ...Despite the prospects, however, the path to this ne

Businessworld has a cover story featuring how Silicon Valley Bank is facilitating the entry of Bay Area VC firms and start-ups into India. Extracts: Founded in 1983 by a team of ex- managers from Bank of America, SVB's mandate was to bankroll young tech start-ups in Silicon Valley. Except that the mandate actually went well beyond opening a bank account and extending credit. Over the years, it has morphed into a networking machine that helps entrepreneurs hook up with lawyers, accountants and, most importantly, venture capitalists. A few years ago, the bank decided to diversify its business risks and expand into other tech hubs in the world. So in 1998, Lilani was sent to India to lay the ground for a US-India forum that would bring Silicon Valley VCs and Indian tech entrepreneurs together. The result was an SVB-led reconnaissance mission by 20 of the Valley's top VCs to India in November 2003. This was the first step in setting up a venture capital hub in Bangalore. Then, in

Finally, flying is following mobile phones as something that has become truly affordable for the Great-Indian-Middle-Class. Business Today (paid subscription required) has a feature on opportunities and challenges facing the new private players: Last calendar, some 15 million Indians travelled by air. This year that figure could jump to 17 million. But according to the consultancy Centre for Asia-Pacific Aviation (CAPA), domestic passenger traffic could grow at a much faster rate in the coming years. CAPA puts that at a whopping 27 per cent per annum for the next five years (although the actual growth could be half of that). That means by 2010, there could be 60 million Indians travelling by air, resulting in an industry that's Rs 30,000-crore or $7-billion big... ...Globally, aviation is a notoriously unprofitable business. Even in the best of times, airline bottom lines are never too far from the red. Why? Like in India, both fixed costs (in terms of leases and government fees)

Online privacy software firm Webroot Software's recent $108 million in venture capital from Technology Crossover Ventures (TCV), Accel Partners and Mayfield, raised many an eyebrow. Why does a software company need that kind of money, asked many bloggers. Explanation from Robert Cringley : Right now, there is in the U.S. venture capital community about $25 billion that remains uninvested from funds that will end their lifespans in the next 12-18 months. If the VCs return those funds to investors they'll also have to return $3 billion in already-spent management fees. Alternately, they can invest the money -- even if they invest it in bad deals -- and NOT have to cough-up that $3 billion. So the VCs have to find in the next few months places to throw that $25 billion. They waited this long in hopes that the economy would improve and that technical trends would become clear so they could do their typical lemming-like jump off the same investment cliff as all the other VCs. Well,

Interesting exchange between Jason Calacanis , who created and sold VentureReporter.net to Dow Jones and then created WebLogs Inc., and Flatiron Partners' Fred Wilson on the old debate of "VCs vs Entrepreneurs": Jason: VCs think their money is more important then you giving up your life. Fred: Jason's talking about the liquidation preference here. He is saying that VCs think that the equity they buy with cash is more important than the the "sweat equity" that entrepreneurs get. Jason says " I’m a fan of everyone have the same stock, and everyone getting out at the same time." But Jason knows from firsthand experience that an entrepreneur can make money with that deal when the investor loses money. Is that a fair deal Jason? I don't think so. Jason: What does that mean for the other 99 business in the life of a VC? It means they are just spending time with you until that special 200x investment comes—if it ever does. Fred: This is so wrong i

Mercury News reports that Aamer Latif, founder of Silicon Valley-based storage networking company Nishan Systems, has settled a lawsuit he filed against the company's venture capitalists, alleging they had cheated him and other shareholders when the VCs decided to sell Nishan to McData Corp. for about $90 million in September 2003. In the December 2003 suit, Latif had alleged that ComVentures (and its General partner Roland Van der Meer); Lightspeed Venture Partners (and its general partner Gill Cogan); Robert Russo (CEO of Nishan); John McGraw (Chairman of Nishan's board); McData Corp.; and investment bank Credit Suisse First Boston engaged in fraudulent vote-buying to garner common shareholder votes needed to approve the acquisition. Among other claims, the suit alleged that the venture capital firms stacked the Nishan board so as to promote their own financial interests at the expense of Latif and other common shareholders. Along with punitive damages for fraud, vote-buying

Businessworld has a cover story on the challenges facing the building (and financing) of India's physical infrastructure: "Year 2005 is the year of Indian infrastructure, and it is the private sector that will drive these efforts," says Sanjay Sinha, director, Crisil Infrastructure Advisory. "It is the government that needs to change its outlook and orientation, build capacity internally and create an environment conducive to private participation," he says. Let us take a quick look at what this could mean. We have assumed earlier in this survey that India needs to spend about 7 per cent of its GDP to build world-class infrastructure. About 55 per cent of this is likely to come from the government. Foreign capital - including loans from multilateral banks like the World Bank and Asian Development Bank - will take care of another 15 per cent. That still leaves us with 30 per cent, or about 2.3 per cent of GDP. Can the domestic banking system and capital market c

Businessworld profiles the new "offshore tuitions" opportunity which involves teachers in India helping US kids improve their test scores: The Karol Bagh centre of Educomp Datamatics could easily be one of them, another teaching shop promising to help students get into the IITs and IIMs. Step in and you realise the difference. There are teachers, but no stud-ents. There are computers, but no blackboards. Actually, the students are 16,000 miles away at the Franklin School, Santa Barbara, California. Educomp is running a pilot for taking tuitions online for students in the US. This is education outsourcing. Or, to use the cliché of linking everything sent from overseas as a process, it is being termed as education process outsourcing (EPO). Career Launcher, another Delhi-based teaching company, also has teachers on its rolls who are tutoring American students. Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies

Businessworld has published a cover story on the trends in the outsourcing of automobile design work to India: Several companies like Ford, General Motors (GM), DaimlerChrysler, Toyota, Honda, Nissan, BMW, Robert Bosch, Johnson Controls now have in-house engineering design centres in India or outsource work to third-party vendors here. Indian firms are working on at least $500-million worth of automotive engineering design services (AEDS) projects. That figure could double in two years, perhaps earlier. M.K. Padmanabhan learnt to design rockets and aircraft before he figured out that designing cars could be a profitable business. He turned entrepreneur after two decades in Indian Space Research Organisation and at NASA (on deputation) and a decade in the private sector. He and D.H. Bonde teamed up to float Plexion Technologies. Plexion is among the fifty-odd engineering design services firms that have sprung up in the last three years. Not all of them have been as fortunate as Plexion

Businessworld profiles Powai Labs, an IIT-Bombay incubated start-up that is close to launching a chip testing system: Powai Labs, after two years of existence, is ready to launch its first product, a hardware accelerator, in March. "The launch will be a major milestone in the company's life and, by our calculations, should reduce the cost of verifying chip designs by a factor of four," says (Reapen) Tikoo (the company's founder)... ... Powai Labs uses a combination of software and hardware to speed up the simulation. Powai Labs' algorithm directs the program to a bunch of field programmable gate arrays (FPGAs), which are cheap and reusable chips. The FPGAs execute the logic much more quickly. The algorithm is smart enough to take very large designs, split them, apportion it over just four FPGAs and then put it all back together. "We hope to launch a 64-FPGA accelerator over the next 18 months," says Tikoo. Some large semi-conductor companies in India ar

Fred Wilson writes at his blog: I have never seen patents make a business, but I have seen lack of patents hurt a business on many occasions. So this line, given to me by a patent lawyer about ten years ago now, strikes a chord in me. IP battles are like the cold war. Those who have patents can keep others honest because nobody wants to start a war that might end in everyone's destruction. But those who have no patents are sitting ducks and don't have the weapons to keep others honest. So my advice to entrepreneurs is always file a bunch of patents. But don't expect that they'll ever do more than keep others at bay. Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

As pointed out in a New York Times article linked here last week, three of the five founders of e-commerce firm Epinions - including Naval Ravikant and Ramanathan Guha - had sued the company's VCs, Benchmark Capital and August Capital, and their co-founder, Nirav Tolia. Now, Private Equity Week reports that Naval Ravikant, who had joined and quit August Capital inbetween, has been ejected from Dot Edu Ventures (founded by Stanford professor Rajeev Motwani and his wife Asha Jadeja): The suit is also a primary reason why Dot Edu Ventures has decided to part ways with him... ...But Jadeja concedes that, “We were at a point where we felt there were multiple factors, including the suit, which helped us all decide that this might be a good time to part ways."... ...The partners at Dot Edu likely could have been thinking about whether having Ravikant on their team would hurt their relationship with August and Benchmark. ...The Dot Edu team may also have been thin

Michael Simmons quoting a speech by Paul Orfalea, founder and chairman Emeritus of Kinkos: He made a great distinction between people managing their career (CEO) and managing their business (Owner). I never made this distinction, but these are two very different paths in many respects. A CEO must think a lot more about politics, pleasing people, and looking good to move up the ladder. The founder and owner, is more interested in the results of the businesses he or she is a part of. Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

From Fred Wilson's blog post: The bad deals reveal themselves to you early and you have to deal with the fact you made a bad investment and figure out how best to get it out of your portfolio, by either selling it, merging it into something else, or shutting it down. The good deals take years to develop. If you have the patience, you are almost always rewarded. Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

The Hindu also provided a roundup of the current status of foreign investment caps in other sectors: Civil Aviation: for airlines, the current foreign direct investment (FDI) cap is 49 per cent. For airports, it is up to 100 per cent, though Government approval is required for FDI beyond 74 per cent. Petroleum (other than refining): 100 per cent FDI allowed for exploration in small fields through competitive bidding, up to 60 per cent in unincorporated joint ventures and up to 51 per cent in incorporated joint ventures. Coal & Lignite; Tea plantation; Drugs and pharma; Roads and highways; Hotels and tourism: 100 per cent FDI. Print media: 26 per cent FDI in news and current affairs and 74 per cent FDI in other print media. Power: 100 per cent FDI in transmission, generation, etc. Banking: 49 per cent FDI. Insurance: 26 per cent FDI. Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide

From The Hindu : The Union Cabinet on Wednesday approved the long-deliberated proposal to hike the ceiling of composite foreign direct investment (FDI) in the telecom sector to 74 per cent from the existing 49 per cent. This is subject to certain conditions and clauses inserted by the Home Ministry to safeguard the nation's interest by way of ensuring the "Indianness" of the operating companies. Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

This time courtersy Business 2.0 : Google's outsize success fixed a giant halo above Shriram's 48-year-old head. And it helped gain him entrée into two of the most-hyped startups of the Web 2.0 generation: Friendster and Plaxo... ...As a result of his work at Google, Shriram emerged from the company's IPO with more shares than any other solo investor -- 5.1 million, to be precise, for which he paid pennies apiece. At the time of this writing, Google's stock was trading at $196. You do the math... ...In Silicon Valley, where people usually succeed because of who they know or what they know but rarely because of both, Shriram's combination of expertise and connections makes him a scarce commodity. But equally important, I think, is the narrowness of his focus. Unlike VCs, who tend to think they know something about everything and therefore can dabble in anything, Shriram works only with startups, he says, "in market spaces where I have fairly deep domain kn

From McKinsey Quarterly : A recent McKinsey study of China's software sector, however, shows that it will be many years before the country poses a threat to its continental rival in this arena. For starters, the Chinese must consolidate their highly fragmented industry to gain the size and expertise needed to capture large international projects. Currently, there is little movement in this direction.... ...To compete effectively in global outsourcing, China's software industry must consolidate. The top ten IT-services companies have only about a 20 percent share of the market, compared with the 45 percent commanded by India's top ten. Furthermore, China has about 8,000 software-services providers, and almost three-quarters of them have fewer than 50 employees. No company has emerged from this crowded pack; indeed, only 5 have more than 2,000 employees. India, on the other hand, has fewer than 3,000 software-services companies. Of these, at least 15 have more than 2,000 w

From a Reuters report: Private-equity firm GW Capital financed a Rs 45 crore deal last month to merge two south Indian department store chains, Trinethra and Fabmall, aiming to grow their combined annual revenues to Rs 1000 crore from 200 crore by 2008. Another private-equity firm, ICICI Venture, invested Rs 25 crore in Madras-based discount grocery chain Subhiksha, to help it enter new markets. The firm had already invested Rs 15 crore in Subhiksha four years ago. And department store Shopper's Stop plans an initial public offering to raise up to Rs 130 crore as it adds 11 stores to its existing 15 and launches hypermarkets... "Many retail players are beginning to reach critical mass, and this is a business of scale, so you need to be big," said George Thomas, a business manager at GW Capital... Organised retail, which has grown 8.5 percent annually in the past few years, makes up just 2 percent of total retail sales. "With just 2 percent penetration, gro