The Venture Intelligence Blog

From the "Dear Lucy" career advise column in Financial Times. At a dinner party last Saturday I was asked by a fellow guest what I did and I said I was an investment banker. I might as well have said I was a paedophile. Suddenly the whole table – all friends of my wife from the art world – turned on me with such venom I was really taken aback. I tried to defend myself by saying that I had nothing to be ashamed of in the work that I do in M&A, but the more I argued the more hostile the other guests became. Next time this happens – and I fear there will be a next time – should I accept guilt for what isn’t my fault, or should I lie and say I’m a librarian? There is absolutely no point in trying to convince arty people that you are anything other than the devil; any attempt will make things worse. The complaint against investment bankers is that you have dragged the world into recession through your greed, stupidity and arrogance, and any attempt to say otherwise will enrag...

In an article for The Economic Times, Suhel Seth, an advisor to British Airways, points out the problem facing Indian airlines has more to do inaction on "vital but unpopular steps" on the policy front, including "day-light robbery" by PSU oil firms on the ATF pricing front. States in India are levying a state sales tax of 25% to 32% on ATF (aviation turbine fuel). But the catch is not just the obscenely high tax. The base rate of the ATF that is being offered by the oil companies is double the international price of fuel at current rates. So while Murli Deora has every right to berate the airlines for not paying the oil companies on time, the truth of the matter is, they are not selling ATF. They are instead indulging in day-light robbery and operating as a cartel , not the airlines. The Airports Authority of India charges the highest for any aircraft related activity. For instance, the landing charges in India are the highest in the world; add to that the infrast...

Moneycontrol.com has a video interview with Ashok Wadhwa, MD of Ambit and Sumanth Sinha, COO, Suzlon Energy, on the drying up of deal activity. Both panelists agreed that more transactions that are still on the table are likely to get renegotiated on account of falling valuations and the derailing of the financing plans for the deals. Wadhwa: Pure-cash buyout transactions will not happen for a period of time (in significant numbers or value) because the cash for making these transactions happen is just not available. But I do see this as an opportunity for people to consolidate. ...Those who have money will be able to get bargain deals without question and therefore our advice to all our clients at this point of time is: keep your cash tight for a three-six month period. You will really get outstanding value, probably even better than what you have today in but even in the interim, there will be consolidation through stock swaps. I do see that people have gone and incurred significa...

AltAssets reports on the Swiss-headquartered PE fund-of-funds manager's annual press conference in Frankfurt. The current global financial crisis will impact private equity in three waves: firstly, through a correction of EBITDA multiples in the short term; secondly, through a contraction in corporate earnings caused by a reduction in GDP growth rates; and thirdly, through some companies' need to seek refinancing in a more challenging credit environment, Adveq said at its annual press conference in Frankfurt. The Swiss-headquartered private equity fund of funds manager spoke in detail about its current market assessment and outlook for the private equity industry. ...Bruno Raschle, CEO of Adveq, said, "The world is currently experiencing financial markets turbulence that is unprecedented, at least for the past several decades, and this has a number of implications for the private equity market, both for existing and new commitments to the asset class. However, while it is...

In an article for The Economic Times, Janmejaya Sinha, MD at The Boston Consulting Group India, makes a passionate and stats-filled case for an urgent freeing up of the Education sector in order to prevent India's "demographic dividend" from turning into a curse. India's workforce today has 484 million people. Of these 273 million are working in rural areas primarily in agriculture (many of them clearly underemployed), there are another 61 million working in manufacturing and about 150 million in services. Shockingly, 40% of the current workforce is illiterate and another 40% is below 12 class pass. That means 200 million of our workers cannot even sign their name! Given that 60% of our workforce is in rural areas, which provides only about 18% of our GDP and the growth engine for our economy is the services sector, these simple statistics condemn our rural workforce to penury and destitution. What is worse, given their skill levels it is very difficult for them to e...

On the "Samvat 2065" show on CNBC-TV18, Samir Arora of Helios Capital Management pointed out something I've been thinking of frequently in recent months: why are there so few market experts (at least on TV) whose opinions are as bold and more importantly, as reasonably accurate, as that of First Global's Shankar Sharma. Arora: We cannot talk about Shankar because he has been right most of this year and I totally appreciate that. But look at other people who come on your channel and look at what they have been saying about oil, (they said) oil was in shortage and it was going out of supply that there was one last Saudi Arabian field [remaining] in the world. With great conviction, everybody would come in and say the same things. Three months later, they come now and say [prices of] commodities are going down. In fact, barring a few other exceptions, most "experts" I see on TV over the past several monthly have been saying that "there is likely to be a m...

Normally, Samir Arora of Helios Capital Management makes for good TV. Not on the "Samvat 2065" program on CNBC-TV18 though. The often volatile sparring between his co-panelists - well known stock market investor Rakesh Jhunjhunwala and Shankar Sharma of First Global Services - on Diwali day, made the normally outspoken Arora seem quite staid. Some of the issues the two disagreed strongly on included the rising US dollar (SS believes it will continue to appreciate; RJ the opposite), sectoral trends (SS insists the winners in the bull run will suffer the most since that's where investors can still "recover" some profits; RJ disagrees) and India's correlation with global market (SS feels India will continue to be highly correlated; RJ insists actual earnings matter more). Samplings from the colorful debate: SS: The reason why emerging markets did well was because the weak US dollar drove up commodity prices. That drove earnings in emerging markets in general, m...

In a column for The Mint, Govind Sankaranarayanan, CFO of Tata Capital, says the current tough environment for capital raising is likely to spur Private Equity investments in India. Somewhat disappointingly, although there have been some high visibility transactions in 2007, many prospective companies remain untapped. As one who has been on the buy side of a few private transactions, I can attest that owners, temperamentally imbued with an unrealistic perception of the value of their company, perhaps reinforced by the exuberance of 2007, turned off a large number of funds. In most cases, unless owners were confident that they had fully ripped off the investor of any remnant of value, no transaction seemed to get done. Funds did not do themselves any favours either, by queuing up for almost any investment idea. Moreover, even after transactions did take place, there has sometimes been resistance to even the most well-intentioned management interventions. A consequence of this is that, ...

From Warren Buffet's NY Times article. I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over. ...You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy. Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably ...

TheDeal.com has a couple of posts highlighting the huge demand thrown up by the various gun shot weddings in the US financial sector. The expanding financial crisis is not only completely remapping the world of finance, it's also forcing a rewrite of the traditional rules of integration. Most strategic consultants agree that post-merger integration issues covering IT systems, personnel, training, real estate, branding and others should be discussed and budgeted for long before a deal is signed. Now there are plenty of instances when this is simply not possible. But the speed with which deals are coming together in the financial services industry is unprecedented. As strategic consultancies line up to help financial giants merge complex systems and businesses and thousands of employees, they may encounter challenges on a scale unlike any they've faced before. The volume of work alone may have even serial acquirers like Bank of America Corp. relying more heavily on outside cons...

Fareed Zakaria has a thoughtful article in Newsweek on the silver linings in the dark cloud that hangs over the USA. Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount of money for any purpose. If we wanted a bigger house, a better TV or a faster car, and we didn't actually have the money to pay for it, no problem. We put it on a credit card, took out a massive mortgage and financed our fantasies. As the fantasies grew, so did household debt, from $680 billion in 1974 to $14 trillion today. The total has doubled in just the past seven years. The average household owns 13 credit cards, and 40 percent of them carry a balance, up from 6 percent in 1970. ...Wall Street will also need to change. Paul Volcker has long argued that the recent spate of financial innovation was nothing of the kind: it simply shuffled around existing resources while contributing few real benefits to the economy. Such activity will now be reduced si...

Businessworld profiles a few companies that have made a success of contract farming. Most retail firms — from Reliance Retail through More (the Birlas’ chain) to Food Bazaar — have not been very successful in either building the infrastructure or integrating the supply chains. But a clutch of other firms that has focused on one end — contract farming as a method of sourcing produce — has found ways around the problem of supply-chain management, and let others handle the front end of the retail business. Some export, others sell to established retail chains, while others sell to captive buyers, and a few reach out to the McDonald’s and Subways of the world. ...KS Oils, an edible oils manufacturer in Morena in Madhya Pradesh, sources, processes and sells its own brand of mustard oil in the Indian market. Working with over 2,000 farmers, the group has consolidated 5,000 acres of farm land in the Chambal area of Madhya Pradesh. “This initiative of working with farmers is very recent,” say...

Harvard Business School Professor Kenneth Rogoff has an interesting take on the US bailout package in a column appearing in Businessworld. After years of attracting many of the world’s best and brightest into ultra-high paying jobs, these collapsing banks are now throwing them out left and right. One such victim, a former student, called me the other day and asked, “What am I supposed to do now, get a real job?” This brings us back to the US Treasury’s plan to unclog the subprime mortgage market. The idea is that the US government would serve as buyer of last resort for the junk debt that the private sector has not been able to price. Who, exactly, would the Treasury employ to figure all this out? Why, unemployed investment bankers, of course. Let us ponder this. Investment bankers have been losing their cushy jobs because they could not figure out any convincing way to price distressed mortgage debt. Otherwise, their firms would have been able to tap the trillions of dollars now sitt...

In an article for the Economic Times, Samir Kumar Barua, Director of IIM Ahmedabad, has an interesting analysis on the impact of the unfolding global financial crisis on India. Ashani Sanket, a novel by Bibhutibhushan Banerjee, was the basis of a film by Satyajit Ray. The English version of the film is titled Distant Thunder. The story deals with the famine that caused death of millions in undivided Bengal in the early nineteen forties. The simple villagers are unable to fathom as to why despite plentiful rains and a good harvest, rice becomes scarce and its price rises rapidly to make it unaffordable. The Second World War being fought in the distant land has disrupted their cloistered life without their being able to fight back. What is happening to the financial world today in the emerging economies such as India is similar to the plot of the novel. The world of finance in the west has been hit by a tsunami, and the waves generated are not only drowning the financial sector but even...

Dealmaker has an interesting piece comparing the coming together of DreamWorks and Reliance Big Entertainment to a Bollywood movie. Forbidden Fruit In a society known for arranging marriages, it's not surprising that one of the most common threads in Bollywood films involves a woman who feels trapped and yearns for romance. Fitting, then, that DreamWorks, thrust into a loveless marriage with Viacom's Paramount two years ago, would begin to pine for something more satisfying than the creative vision of Sumner Redstone. Heartbreak Indian movies are famously melodramatic. Interestingly, the wheels of this deal began to turn after DreamWorks execs were the subject of scornful comments by Viacom CEO Philippe Dauman, who last year told investors that any DreamWorks defection would be "completely immaterial" to Viacom. (Cut to David Geffen, tears welling in his eyes.) Kabhi Khushi Kabhie Gham The title of one of Bollywood's most famous films translates as Sometimes Happ...

NEA-IndoUS Ventures has had a busy 2008 announcing investments in eight companies across sectors such as publishing outsourcing (PreMedia Global and Pressmart Media), software for educational institutions (Idenizen), online services (Seventymm), Communications Tech (Connectiva Systems and Bay Talkitec), Financial Services outsourcing (Basiz Fund Services) and waste recycling (Attero). Venture Intelligence’s N. Sriram spoke recently to NEA Indo-US Ventures Managing Director Vani Kola to learn more about the firm’s latest investments. The full version of this interview is to appear in the next issue of the India Venture Capital Report . Venture Intelligence: Tell us more about Attero Recycling. Has this kind of business been VC-funded elsewhere? Vani Kola: It’s the first of its kind in India for sure. This business is pretty much in existence in many countries in Europe but I cannot confirm whether they have been PE or VC funded. We are excited about this investment as India doesn’t h...

Symbiosis Institute of Business Management is running a business plan competition for working professionals and startups. This event seeks to provide an opportunity for working professionals/start ups to pitch to venture capiltalists for seed funding. Participants are given an opportunity to present their B-Plans to an eminent panel of venture capitalists for a period of 8 minutes. The winning teams would get : - Funding of Rs. 5 crores - 30 minutes to present before the core team of Seedfund in Mumbai. Participating Venture Capitalists : Seedfund | NEA-IndoUS Ventures | IndiaCo Ventures Ltd Indian Angel Networks | Canaan Partners For more information Click Here

Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, has come with an interesting article in the Economic Times on how the current US financial crisis is more like the one 100 years ago rather than the Great Depression. And, in the process, gives hope for a roaring 2009! The US does not currently suffer from widespread excesses in the real economy that typically mark a deflationary spiral. Capital spending is broadly in check and inventories levels are low. What’s forgotten is that the capex bubble was pricked in the 2001 recession following the tech boom-bust cycle and there has been little new investment outside the real estate sector since. Corporate balance sheets are in very good health with high cash flows. The 1907 recession too did not arise out of an over-production problem that has otherwise marked deflationary busts from the Great Depression to the Asian meltdown in 1997-98. The panic of 1907 is the most relevant template for the current crisis a...

Unlike even three years ago, VCs now have a clear preference for product companies. Business Today, in association with NASSCOM, has come out with a list of promising product companies. Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.