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December 24, 2004

Gung ho about going global

Software and BPO services aren't the only areas where Indian companies are competitive on a global scale. Private equity investors have realized this early and voted with their cheque books in favor of pharmaceuticals, textiles and even steel companies in 2004.

How come?

"Indian manufacturers in these industries are getting coupled into global supply chains. It can only mean more global trade in the coming years," writes Businessworld's economics editor, Niranjan Rajadhyaksha.

More factoids from the article:

India's total foreign trade this year will be about 32 per cent of its total GDP. It means that about a third of our national economy is now linked to the rest of the world...

..Exports today account for about 15 per cent of India's GDP. So a 25 per cent rise in exports adds about 4 per cent to India's GDP growth rate. Or to put it another way, over half of economic growth this year will be accounted for by foreign demand.

The rise of the "product development services" company

Software services are an old story. Product companies - except for a few exceptions - have not taken off (for the usual set of reasons: marketing costs are prohibitive, etc. etc.).

So what's new to write about the Indian software industry? "Product development services", according to a Businessworld article.

What is a product development services company?

Typically, when any company starts to develop a software product, it would have a unique differentiator or core of the product. That core generally accounts for 15 per cent of the development work of the product. This would invariably be developed in-house. But the product would also have a lot of other modules. These are essential, but they are not big differentiators. This is where product development services companies step in - they develop these non-core modules.

Who are the players in this space?
Bangalore-based Symphony Services was among the early players. Then there are Aditi Technologies and Aztec Software (Bangalore), BrickRed (Noida), and Aspire Systems (Chennai).

The article also talks about the 3-year old iSoftTech, a Chennai based company co-founded by Ray Stata (who earlier founded US-based Analog Devices) and IIT-Madras professor Dr. Ashok Jhunjhunwala.

Why would a product company outsource development?

There are several reasons why companies developing products are willing, even keen, to outsource. It helps developers cut the time to market. It also frees up the product development company's management resources to concentrate on the most critical core of the product...

...Software products fail more often than they succeed. Good, and even exceptional products, have failed for lack of financial or marketing muscle. In many cases, new, disruptive technology can make a product obsolete in no time. Even large product companies face huge risks. Start-ups have limited chances of success in full-fledged product development.


What are the various types of engagement models in this space?



So why is this business better than pure vanilla services?

First, margins in the business are much better than in IT services. "Billing rates per engineer per month can be as high as $7,500, compared to the $2,000-$4,500 that services firms make," says (Vijay) Babu (COO of iSoftTech). Sources say billing rates are at least 30 per cent higher than the IT services industry. "The client is ready to pay higher bill rates for predictable high-end product delivery."

More importantly, these companies have the opportunity to do bleeding-edge product development. "It is as if a small company is actually working on a group of products, but without the associated risks," says Babu. There can be no greater turn-on for many hi-tech start-ups. Finally, even one successful product can bring global recognition and a consistent stream of revenues. Product upgrades, new versions, etc., keep product development services companies busy even after the initial launch.

Any success stories to talk about?

US-based Stata Labs, founded by Raymie Stata (Ray Stata's son) had outsourced the entire development of its email software product "Bloomba" to iSoftTech.

Yahoo! recently acquired Stata Labs along with the 20 iSoftTech engineers working for Stata Labs. Yahoo! now plans to use Bloomba to take on Microsoft's Outlook and Google's Gmail.

So why aren't TCS/Wipro/Infosys tapping this opportunity?

This model may not appeal much to the biggies because it is not as scalable as IT services. But for smaller companies, outsourced product development is a terrific learning opportunity.

December 15, 2004

TSJ Media featured in Business Standard article on Silicon Valley VCs investing in India

In 2004, up to November, venture capital and private equity funds invested over $820 million in India-based companies, according to data from TSJ Media, the Chennai-based firm that tracks venture capital investments and mergers. But less than 10 per cent of this money found its way to start-ups.

The pendulum is starting to swing the other way again because new investors are coming forward to invest in the several start-ups that have sprung up in the last two years or so. Explains Arun Natrajan, editor at TSJ Media : “The founders and early employees of IT services companies who have made it big are beginning to make serious investments in local companies.”

He cites the example of Infosys co-founder N.S. Raghavan’s Nadathur Holdings which invested $7 million in the apparel design subsidiary of the Bangalore-based Reach Technologies in March 2004, adding that successful non-resident Indians like Vinod Dham and Tushar Dave of NewPath Ventures, their venture capital company, have incubated companies like Nevis Networks and InSilica and in 2004 helped them raise significant second round investments from global investors like Nokia Ventures and Flextronics.

Click Here to read the full article.

The rush to manufacture mobile phones in India

Businessworld magazine has published an article on why there has been a flurry of activity, interest and announcements in the recent times for manufacturing mobile telephone handsets in India.

So, whose's making (going to make) handsets in India?



Why India?

The sheer size of the Indian market, its frenetic growth rates, and above all, the fact that it conforms to global standards...The Indian mobile market is expected to add around 20 million new subscribers in 2004. At an average price of Rs 5,000 a handset, the Indian mobile market is worth Rs 10,000 crore ($2.22 billion) already...And it is still growing very fast.

In fact, the handset market is expected to grow at 35 per cent year-on-year on an average till 2010. In 2005, nearly 37 million handsets worth $4.2 billion are likely to be sold in the country. That will make India the third largest mobile handset market, after China and the US. By 2008, handset sales are estimated to touch 50 million, catapulting India as the second largest market.

It is this growth that global majors are hoping to cash in on. But they could still have continued to get their handsets manufactured outside India as they currently do. Except that a hitherto ignored variable, a policy decision by the Chinese government, has now altered the equation wholly in India's favour. China has been working on its own 3G standard, the TD-SCDMA. The Chinese government, by pushing this standard, hopes to save the country up to $10 billion in import costs and expensive 3G loyalties. But this would also mean that the handsets sold in China will not work on the standards followed by the rest of the world.

If handsets that cater to global standards cannot be sold in China, it also does not make sense to manufacture them there. Which explains why the global handset majors are setting up shop in the next big mobile handset market. A huge domestic demand also means economies of scale, which can be leveraged for exports.


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.

December 12, 2004

"Determination to succeed is what counts”: 24/7 Customer CEO

What could be new or interesting about "yet another VC-backed BPO Firm" launching yet another call center facility? Luckily for me, I did not let this question dissuade me from attending the launch of the 24/7 Customer's latest facility in Chennai last week.

A freewheeling conversation with P.V. Kannan, Co-Founder & CEO of 24/7 Customer, after the launch event, left me with a feeling that it would be wrong to slot his company with the rest of the pack.

Here are a few factors that contributed to this feeling:

One is Kannan's impatient attitude - including, refreshingly for me (but not necessarily for good for the company's PR firm), in the presence of journalists. Bangalore has enough PR savvy CEOs - including some who had journalists eating out their hands - but who are not so good when it comes to fetching returns for investors in their companies.

Two, his strong bias for action (versus intellectual debates). Kannan believes the formula for success - for start-ups and other companies - is sheer determination on the part of the founders (or the top management). "Dell Computer and Wal Mart were written off several times. But they ignored the naysayers and kept going and look where they are today," he says. Kannan says the same factor has led to the success of TCS, Wipro and Infosys.

Three, his track record: Kannan earlier founded Business Evolutions Inc, a provider of customer interaction technology, which was acquired by CRM software firm Kana Communications in December 1999. Post BEI's acquisition, Kannan worked as VP with Kana before founding 24/7 Customer. So, he knows something more than the average BPO company founder about the customer interaction space.

Four, the caliber of his investors: 24/7 Customer started out with funding from its co-founders and Ram Shriram of Sherpalo Ventures. 24/7 raised its next round of funding ($22 million) from Sequoia Capital. Ram Shriram and Mike Moritz of Sequoia Capital sit on 24/7 Customer's board. Now, where have I heard of Ram Shriram and Mike Moritz together before? Ah, yes. At a certain company called Google, Inc.

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.

December 06, 2004

Rajiv Gupta 's new "web telephony company" Cirxit bags CitySearch order

Rajiv Gupta, an former HP executive who co-founded and sold Confluent Software (a Sunnyvale, CA-based provider of software for managing Web services) to Oblix in February 2004, has created a new "web telephony company" called Cirxit, reports SiliconBeat. Cirxit is powering local portal CitySearch's pay-per-call service under which advertisers pay CitySearch whenever a visitor to the latter's site make an telephone-based enquiry.

Gupta wouldn't tell us much about CIRXIT, which is just now coming out of stealth mode — how many employees, how it's funded or much about its technology. The company doesn't even have a public web site yet.

Gupta described CIRXIT as a "web telephony company." Its technology allows Citysearch to offer its customers a unique customer phone number that CitySearch can monitor. When a call comes in to an advertiser, Citysearch can charge the merchant for the call.

"In some sense, what we're doing here is web services,'' Gupta said. "If you take a step back, we've had two separate islands: telephony and the web. What we're doing is integrating the web and telephony in a new platform. This is our first (partnership). You'll be hearing more from us.'

Gupta said the technology has a wide variety of possible applications, such as on online dating sites. There, it could allow potential daters to make that first phone call through the dating site without having to reveal their phone numbers to each other.
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.

December 02, 2004

New India VC Guide

Mumbai-based Dickenson Intellinetics has launched "VC Guide for India 2004-05" providing profiles of national and international Venture Capital/Private Equity that have a keen interest in India. Using a standard template for each VC/PE firm, the Guide sets out crucial information - industry preferences, preferred investment stages, financing role, type of funding, main source of capital, as well as contact information. The Guide also includes an overview of the venture capital industry in India based on Dickenson's survey of 80 VC/PE firms.

One of the highlights of the Guide is an index of VC/PE firms by industry preferences and minimum investment size. Located at the very beginning of the Guide, the index provides an easy and quick way to specific VC/PE firms listed within.

The VC Guide is priced at Rs 6,900 for India and US$295 for other markets. Visit http://www.vcindia.com for more information about the Guide.

November 28, 2004

Differences between investing in China and India

China has a very strong government and a weak corporate sector. India has a weak government and a strong corporate sector.


Some extracts from an interesting interview in Businessworld with James J.C. Birch, managing director, Institutional Client Services (equities division), Goldman Sachs International, who recently escorted a group of twenty large institutional investors to India:
On the surface, as you step out of the airport, China appears to be light years ahead. It looks like Chicago. It's simplified by the fact that they have a one-party government. If they want to do something, it happens. But trying to find good companies to invest in is very difficult. China has an economy that has been fairly closed until recently. They don't have much history in competing on a worldwide basis. You (India) have companies who are leaders in their own field and have competed against the world's best companies in a reasonably open way. And in fact, they are doing better than ever at the moment on a global scale. China has companies that are protected by state subsidies.

If you are very blunt, China has a very strong government and a weak corporate sector. India has a weak government and a strong corporate sector. What's important then is a clear impression of the government. When we came in, people were nervous about elections, coalitions, how many politicians are being investigated for corruption and things like that. But the politicians we met understood the issues. The government itself said that whether it's the Congress party or BJP, don't worry too much.

We were reassured, but the concern really is more on the implementation and execution. So, even if you want to review the Mumbai and Delhi airports, is it going to take 3 years or 10 years? And it's not just a matter of time. Because all the time that this doesn't happen, other people are overtaking you. Your IT sector's English-speaking advantage will not last for very long, because all the Chinese are learning English very, very fast. That's why you need to get as far ahead as you can. There are no Chinese equivalents of Wipro or Infosys. TCS has an office in China with over 200 people. That's what should be happening. But since you delay infrastructure changes, it [still] takes an hour and a half to get from the Leela to Infosys's office. The traffic and the airport aren't the only important things; power and water are equally important...
...There is a concern that Indian infrastructure just doesn't support them and puts them at a great disadvantage to other countries. [However,] I don't think you want to go crazy and do what the Japanese have done - build roads for the sake of building roads. Even the Chinese have probably built too many highways and too many airports. And they've built them because constructing things creates employment opportunities. I'm not suggesting you do that.


Getting VC funding without a MBA

# Unless your best friend in the world -- whom you happen to have embarrassing pictures of -- is a VC partner, please do not contact any VC. It makes no sense.

# Passion, experience, real-world results are not qualifiers for introduction to VCs. An MBA from some elite school with 20 board members who know Jack Welch personally, with an extremely complicated idea that has never been built, are preferred.

-- E-mail from a Dallas-based CEO to Jerry Colonna, a former VC with JPMorgan Chase, Flatiron Partners and CMG@Ventures.

Here's an extract from Colona's response to the e-mail in his column for Inc.com:

Yes, I'll admit, having compromising pictures of a VC may help get a meeting or even a term sheet, but the larger point speaks to the network effect. Implicit in his frustration is a question I often got when I was on the speaking circuit while an active investor: What's the best way to get the attention of a VC?

Unfortunately he's right about the business school mafia that exists out there. Perhaps the single most important reason for getting an MBA is the network of alumni that comes along with it. I detest that fact. As a graduate of a public college in New York City, as someone without an MBA, I sympathize greatly with his frustration.

But he's missing the larger point; the point is that you MUST get connected. You know that business relies on people connecting with other people and that few great ideas are truly great enough to break through and emerge as successful companies without the founder/entrepreneur/CEO going out and pressing the flesh. So you don't have an MBA. So what? Go out and find a network you can join. If there's none in your area, start a chapter of the Young Presidents' Organization (YPO) or Young Entrepreneurs' Organization (YEO). Go to you nearest university and meet with the professors there.

Larger domestic IT market makes China more attractive to VCs

What is the size of the domestic market for IT products? This is one of the first questions that a General Partner at Boston and Silicon Valley based Battery Ventures posed to me, when I introduced myself to him as someone who tracks VC activity in India (at a Silicon Valley Bank event in Bangalore). The question was interesting since the popular assumption is that US VCs are primarily interested in India as a place for their portfolio companies to outsource R&D or other backend work.

Now, there's a new report saying Battery is set to invest $8-12 million in Bangalore-based optical networking technology company, Tejas Networks, most of whose customers are Indian telecom companies. Not surprising. Since telecom is indeed one sector where the Indian domestic market is large, fast growing and cutting-edge in terms of technology adoption to be very attractive to international product companies. And VCs.

Larry Cheng, an investment professonal with Battery, explains why "Huge Domestic IT Markets" is the "Reason #1" why US VCs are making a beeline for China, in a recent article for Pacific Epoch:
To appreciate China, you can’t compare it to other international investment hot spots like Israel or even India, just yet. The reason is simply that the vast size and breadth of China’s domestic market stands well above these other markets. China is one of the few countries that can support multiple billion dollar companies across several different segments of technology on the basis of its domestic market alone. The big win for many Chinese IT companies never has to entail it expanding beyond its borders. Let’s take a simple example like the semiconductor component market. Chinese companies in 2003 spent anywhere from $15B-$18B in semiconductor components. This is built ground up with local companies like Huawei and others spending $500M+ on components each. This overall number is expected to grow to $50B in the next several years. But, that isn’t even the most compelling fact which is that in 2003, ~90% of the spending was on imported components. It is anticipated that a bulk of the market spend will migrate to domestic manufacturers as capacity comes online through companies like SMIC and others. That means the import replacement market alone could grow to be tens of billions in a few short years in China. That’s a huge market. Same goes for the 350M fixed line subscribers, 350M wireless subscribers, 200M online gamers and the list goes on. Already, half of the top 25 most visited websites in the world are Chinese websites. These are all rational market numbers and form a valid reason to be enthusiastic.

Later in the article, Cheng explains how Chinese companies proceed from (doing import replacements) to becoming global IT names:
They first defeat import vendors to win the import replacement market. Then they fight and win among brutal domestic competition to maintain their leadership in China. And, once they beat domestic competition in a price sensitive market like China, they have a very strong position and cost structure to win globally. As one proud Chinese woman said at a conference, “If you can sell to smart, but poor Chinese, you can sell to the rich, dumb Americans.” This dynamic will play out in other IT markets.


Fenwick & West Venture Capital Survey 3Q 2004

Mountain View, CA-based law firm Fenwick & West has released the 3Q04 edition of its Silicon Valley and Israel Venture Capital surveys.

Click Here for the Silicon Valley survey.

Click Here for the Israel survey.

November 22, 2004

Should Warren Buffet worry about Ram Shriram?

Ram Shriram of Sherpalo Ventures, an early investor in Google, is free to become a billionaire anytime - ie, anytime GOOG trades above $190. As of last Tuesday (November 16, 2004) the lock-in period on his shares - and that of other early investors in Google - expired.

Here is an extract from SiliconBeat (a blog created by two writers at San Jose Mercury News and seemingly, huge fans of Shriram), which "calculates" that Shriram's Google investment was "the best, if not the best, investment in a company ever":

Shriram is keeping the exact amount he invested into Google a secret. However, the angel round in 1998 of slightly less than $1 million consisted of four main investors, of which Shriram was one. When you factor in that a few other individuals, family and friends may have invested some money, we'll assume Shriram invested between $100,000 and $200,000 give or take.

Given that his return is near $1 billion (see math below), he's made between 5,000 and 10,000 times his money back. That's got to be a record, right? True, much of Shriram's investment profits from Google are still on paper. But Google insiders, including Shriram will be allowed to sell some more of their shares tomorrow, after a three-month lock-up period expires.

Here's the math. Shriram owned 2.2 percent of Google's shares, and first sold a portion at the IPO, raking in $22.6 million. He still holds an additional 5,058,427 shares, which at today's price of $185 (at least at the time of this writing) translates into an additional $935.8 million. That's a total of $958.4 million.

Ok. Enough talk about numbers. Who exactly is this guy, Shriram?

Here is an extract about his background from the profile (finally!) revamped Sherpalo web site:

Immediately prior to founding Sherpalo, Ram served as an officer of Amazon.com working for Jeff Bezos, founder & CEO. Ram came to Amazon.com in August, 1998, when Amazon acquired Junglee, an online comparison shopping firm of which Ram was president. While at Amazon, Ram helped grow the customer base during its early high growth phase in 1998/1999. Before Junglee and Amazon, Ram was a member of the Netscape executive team, joining them in 1994, before they shipped products or posted revenue. He drove the many partnerships and channels that Netscape employed to get massive distribution for its browser and server products during those now legendary early days of the Internet.


To me, the most notable - and fascinating - feature about Shriram's investments is the way he has kept his faith in consumer Internet companies right through the "Internet bust".

Check out his list of investments here. Will his other investments fare any where as well as Google? I don't think so. But, who cares. Even if Sabeer Bhatia (of Hotmail fame) never ever creates another successful start-up in his life, he will continue to remain a great entrepreneur. Similarly, Sherapalo - the only company that Shriram has actually *founded* - is already a great model angel fund.

PS: Talking about Sherpalo's founding, I had to Google (!) to locate the fund's co-founder, Randy Korba. He's now working with Buyer Leverage, an e-commerce technology company. Kind of sad that the Sherpalo web site does not mention Korba at all these days. Wonder why. Maybe it's good meat for yet another Shriram-related story for SiliconBeat?

November 14, 2004

Heralding "global-from-day-one" start-ups

As I was going through the program agenda of Ernst & Young's Israel-India-China Global Hotbed Cross-Border Company Showcase event (at the San Mateo Marriott on November 4, 2004), I was intrigued to see a "Sandeep Kumar" listed as the presenter for an Israeli multimedia semiconductor company called Adimos. Must be a misprint, I thought. And marked Adimos as an "Indian company" whose presentation I needed to attend.

As I learnt later from Kumar's confident presentation to the gathering of VCs, investment bankers and fellow entrepreneurs (most of whom had traveled from the three "hotbed" countries to pitch for their companies' next round of funding) and a visit to the Adimos web site, the company is located in Los Altos, CA (USA) "with research and development facilities in Israel and a growing presence in Japan". Adimos' chips help electronic devices transmit multimedia content wirelessly within the home (like video from a DVD Player to a TV located in another room).

Here, according to an article in Forbes magazine titled "The Global Startup" (issue dated Nov. 29, 2004), is how Adimos was born, landed Kumar as its CEO, and is leveraging Keiretsu (in Japan!) for its business development:

During a partner meeting early last year Hiroshi Ikegaya, JVP's partner in Japan, alerted his colleagues to a hankering by Asian consumer electronics firms for a chip that could transmit video wirelessly within the home. One of Ikegaya's partners knew some engineers in the Israeli military who were using such a technology. (JVP founder Erel Margalit) recruited an Indian executive from Texas Instruments to run the operation out of Los Altos, Calif. Along with Benchmark Capital, Gemini Israeli Venture Funds and Genesis Campus, JVP invested $12 million in the new company, dubbed Adimos, in July 2003.

Since then Ikegaya introduced Adimos' chief executive, Sandeep Kumar, to Mitsui & Co., a giant Japanese distributor that also invests in JVP's funds. Kumar also called a contact at Toshiba Corp. Now Adimos is working with Toshiba and Mitsui to develop a wireless videochip that will suit their needs. The chip will be embedded in TVs to receive music, pictures and movies from PCs, set-top boxes and the Internet.

Kumar, an IIT-Delhi (1984) and University of Cincinnati alumnus, worked for 16 years with Texas Instruments during which he established TI's operations in Israel.

Going by the indications at the E&Y event - organized in conjunction with Silicon Valley Bank (which itself opened an office in Bangalore recently) - and the Forbes article, we are set to witness the springing up of more and more "global-from-day-one" start-ups like Adimos. And venture capital investors that continue to sing the "we do not invest in companies that are more than half-an-hour drive away" tune, will begin losing out to their competitors who do not think twice about flying to meet companies located half-a-world away.

Indian gaming industry to grow 5-fold by 2006-07: KPMG survey

Fuelled by booming demand for mobile games and local content, the Indian gaming content industry is set to grow five fold to touch $100 million by 2006-07, according to a KPMG study. The current size of the industry is about $20 million, Economic Times reports quoting the KPMG study. Most of the 15-odd game developement companies - which together employ about 600 people - are focused on providing development services to overseas gaming firms.

Businessworld magazine recently profiled three of the largest players - Paradox Studios (a subsidiary of telecom services firm Reliance Infocomm), Dhruva Interactive and Indiagames - which are busy creating their own branded games.

"VCs are a hindrance for experienced entrepreneurs": Kintera CEO

While venture capital serves a valuable role in providing capital and partnership to young entrepreneurs, "if you have a seasoned management team and a track record, VCs are more of a hindrance than a help". This according to Harry Gruber, co-founder and CEO of Nasdaq-listed Kintera Inc., which provides software and services to help for non-profit organizations raise funding through the Internet.

Gruber, a trained medical doctor, has raised funds from leading VC firms like Kleiner Perkins Caufield & Byers and 3i Group for his earlier companies including two publicly traded biotech firms and InterVu (a provider of Internet video and audio delivery that was acquired by Akamai Technologies in 2000). For Kintera, Guber avoided VCs and had raised about $30 million from high net-worth individuals, before taking the company public in December 2003.

"VCs have a need to gain control of their investments because founders are typically inexperienced. So, certain decisions are made by the VCs that are not always in the best interest of the founders," Gruber says in an interview to Venture Capital Journal. "VCs use entrepreneurs to educate them on the industry. It's free labor for them. But it's not a healthy relationship long-term for entrepreneurs."

Entrepreneurs preferring to be stealth: KPCB partners

It is tough to do venture capital research in the US these days. Start-ups that receive VC funding are no longer keen to publicize their fund raising. So much so that the "dip" in VC investments during the latest quarter - indicated by data from VentureOne and VentureEconomics, may in fact be "artificial", according to a report in San Jose Mercury News.

The newspaper's assertion that "start-ups are trying to stay under the radar longer and not announcing their VC funding", is validated by no less than John Doerr, Brook Byers and Ray Lane (all partners at leading Silicon Valley VC firm Kleiner Perkins Caufield & Byers).

"Entrepreneurs want it that way. Ten years ago, as soon as a venture was funded by a reputable venture capitalist, within six months, two or three clone ventures would be launched like heat-seeking missiles right up their tailpipe. People got wise to that. Why should we say anything about what we're doing until we have happy customers, and we're ready to try to expand and grow our market? You see many more entrepreneurs wanting to remain in stealth mode for a long, long time. The smart ones, anyway," Doerr says in the interview.

"By talking too early, they produce weak competitors. The worst thing you can have is weak competitors. A strong competitor is actually good for you in an early market, because it helps build the market. A weak competitor, it turns off a client. The client says, ""I don't get it," because they're not able to put it across. It's not good for that original idea," adds Lane.

According to the KPCB partners, start-ups today are willing to forego the ability to attract positive buzz and good employees by announcing that leading VC firms have funded them in favor of the advantages of remaining stealth!

October 31, 2004

Ram Shriram’s "Book of Mistakes"

Ram Shriram, founder of Sherpalo Ventures, and one of the first investors in Google, helped Google's co-founders "in the Menlo Park garage by consulting his 'Ram’s Book of Mistakes', reports SiliconBeat, a new blog by reporters at The San Jose Mercury News. One of the tenets in Shriram's book, which "he started eight or nine years ago to help remind him of all the bad decisions he’d made", is that "bad hiring decisions are the most fatal".

Other extracts from the posting, which was based on an interview given by Shriram to the President of TiE Silicon Valley Sridar Iyengar about the “Google story":

--..there are huge opportunities afforded by the new Internet economy -- in China and India, especially.

--Launching a company is easy. The great thing about the Internet is you can launch and test an idea easily, and cheaply. If it doesn’t work, you can go back to the drawing board. “If you build your field of dreams, and no one comes, you can shut it down,” he said.

--The trick is small engineering teams. “Bite-sized engineering projects,” as Shriram calls them, where you can “know and measure each person’s output on a project.” That allows you to remain innovative and to launch and scrap projects quickly.

Profile of Open-Silicon's founder

siliconindia magazine has published a profile of Dr. Naveed Sherwani, Co-Founder, President & CEO of ASIC design and development firm Open-Silicon.

"Indian founders in Silicon Valley do not last long as CEOs post VC funding": report

According to a report in siliconindia magazine, "Indians who have founded technology companies - in hardware, software, or innovative biotech - are in serious trouble, once they land some venture capital".

Based on a study of over 62 Indian-founded companies that raised venture capital funding during the one year period spanning June 2003 to June 2004, the magazine discovered that more than 80% no longer list the founder as the CEO. "The founder or founders have either gone on to become board members, playing no active role or simply awaiting the vesting period to expire; or have become Chief Technology Officers and vice presidents of engineering, product development or technologies. In some devastating incidents, the founders have left the company in an acrimonious ending," the report adds.

The main question that popped up in my mind when reading this is whether the percentage of founders of Indian origin being replaced as the CEO unusually higher compared to other companies that receive VC financing?

The siliconindia report insisits that it indeed the case.

It provides the following as "comparison facts" to make its case:

· Israeli founders tend to retain their CEO titles, coming in at a whopping 54% of Israeli-founded companies still being led by the founders.

· Chinese founded companies do not list highly in seeking venture funds, and almost 90% of the companies are still headed by the founders.

· American founders remain CEO or play a very active role in the company even if an American CEO replaces them.


Hmm...

October 23, 2004

Bad VC vs Good VC

Extracts from a great post by William Luciw, Managing Director, Viewpoint West Partners LLC, in the AlwaysOn-Network blogzinw:

(-) BAD VC: Refers to "Winning DNA" and uses this nebulous criteria as an excuse to fund friends and family.
(+) GOOD VC: Never, ever(!), makes eugenics references.

(-) BAD VC: Refuses to drive more than 30 minutes to see entrepreneurs, but is concerned about their "China Plan".
(+) GOOD VC: Understands that you must go to the market to actually transact commerce, and does not sit on an Ivory Hill refusing to roam.

October 17, 2004

India emerges as new drug trial hot spot

Extracts from an Always-On Network posting:
India’s small but fast growing clinical trials industry has the potential to significantly lower drug development costs for U.S. and global companies. Drug trials in India may also mean the difference between life and death for startup companies in the biotech and medical device fields...

...Multinational drug companies like Pfizer, Eli Lilly, Novo Nordisk, Aventis, Novartis and GlaxoSmithKline have been running Phase II and III clinical drug trials in India. Eli Lilly alone is conducting tests on 20 new drugs in India, and will include India in global testing next year with its important new inhaler insulin drug, Oralin. Pfizer has been conducting limited clinical trials in India for seven years, and is testing drugs for the treatment of schizophrenia, menopause and breast cancer. A variety of both India-based and global CRO firms that specialize in outsourced clinical trials management are working to expand India’s clinical trials business. Until this year’s important regulatory changes, they had not been able to expand beyond one percent of the global market...

...But cost saving is not India’s only advantage. Genetically and culturally, India is perhaps the most diverse country on the face of the earth, argues biologist Madhav Gadgil, who teaches at Bangalore’s Indian Institute of Science. Genetic diversity is an important asset in testing new drugs because people with different genetic make-ups may respond to drugs in different ways, he notes.


October 16, 2004

MphasiS hiring doctors and other interesting job trends

Job Trends

Bangalore-based IT and BPO services firm MphasiS is hiring "MBBS Doctors" to help their "global clients" (persumably, insurance companie) "analyze and understand medical risks" of their customers (read "insurance seekers"). "Besides an ambient work culture and a sound process, you could also command a handsome package. There is after all, an alternative to the clinical side of medicine," says the company's ad in The Times of India, Bangalore (Appointments supplement; Oct. 13, 2004).

The International Jobs section same appointment supplement also carries an ad from New Jersey, USA-based generics drugs maker Able Laboratories, Inc. seeking a "Patent Research Specialist". "Responsibilities include assisting Patent Counsel to deliver quality search results and analysis relating to patent and prior art".

Wonder what the company plans to do about the candidate's H1-B visa. They might be better off offshoring the work to companies like Evalueserve which specialize in patents-related work.

IISc spin-off Esqube takes on Skype

Start-up Watch

At a time when US-based Voice-over-IP start-up Skype has drawn millions of users and also millions in venture capital from top Silicon Valley VCs, does a spin off from an Indian academic institution offering a similar service (with $200,000 in funding) stand any chance?

Businessworld magazine has carried a profile of the Indian Institute of Science (IISc), Bangalore spin-off
Esqube Communication Solutions Private Limited and its VoIP service VQube.

Esqube was founded in 2003 by IISc faculty members include Dr. H. S. Jamadagni, Dr.
K.V.S. Hari, Dr. T.V. Sreenivas and Dr. Chandrasekar. The Esqube web site descrribes the company's "current focus" as developing "novel products based on VoIP, speech and Wireless technologies". In January 2004, Esqube received about $200,000 (Rs.1 crore) in seed capital from Cranes Software International Limited, a Bangalore-based vendor of scientific and engineering software.


October 14, 2004

FEER profiles Temasek's invesments in India

It is now the turn of the Far Eastern Economic Review to publish a profile of Temasek Capital's recent large investments in India. Some extracts:

Temasek's drive into India is part of an aggressive diversification plan, sparked by executive director Ho Ching, who is also the wife of Singapore's Prime Minister Lee Hsien Loong. The company plans to reduce its exposure to Singapore from around 75% today to 33% over the next six years. It plans to have another third of its money in developed markets such as Japan and the United States and a third in developing Asian markets such as Indonesia, Malaysia and India.

The stakes for the city-state are high. Singapore wants to create a cadre of global companies in order to diversify its economy, which is still reliant on electronics manufacturing and has seen some of that core business shift to China. Corporate Singapore can wring little more from its own economy, so its cash-rich companies and Temasek have to invest abroad to grow....

For a state-owned colossus Temasek has been surprisingly nimble in India, investors say. "They are fairly savvy investment professionals, but their biggest advantage is being able to move quickly," says Puneet Bhatia, managing director of Newbridge Capital, a private-equity fund that has invested in some of the same companies as Temasek....

Indian companies have welcomed Temasek as an investor because it has a history of sticking with its investments for more than five years, where other private-equity investors might look to cash out as early as three years into an investment. "We were very interested in finding a strategic investor who would not just give us money, but would also help us develop business," says Rahul Basu, chief financial officer of outsourcing company ICICI OneSource in Mumbai. Temasek reportedly invested around $30 million in the company in August.

Temasek can also provide instant access to Singapore's top companies. The top executives of ICICI OneSource, for example, took a tour of other Temasek-linked companies in September in the hope of generating more business.

Click Here to read the full article.

October 09, 2004

Biocon founder Kiran Mazumdar shaw profiled in Forbes magazine

Click Here to read the article.

China bubble will burst soon: Sequoia Capital's Valentine

"You're about to see (the China) bubble burst in the next five years, or sooner, that will make our bubble look meaningless," Sequoia Capital partner Don Valentine said at a panel discussion in Palo Alto sponsored by Silicon Valley Bank.

According to SJ Mercury News report (in two versions here and here), Valentine's recent trip to China (as part of a SV Bank led delegation) had "only confirmed his view that Sequoia should stay away from direct investments there".

"China has no laws, no accounting system, bankrupt banks, and according to Fortune, a stock market that is made up of a den of thieves -- different from the ones on Wall Street."

October 01, 2004

Flextronics' CEO on the cos' plans for India

Singapore-based contract electronics manufacturer Flextronics has made several aggressive strategic investments in India in recent months as part of its move to make India its global center for software product design and infrastructure.

In May, Flextronics had led a $10 million investment in Silicon Valley and Bangalore, India based chip design firm inSilica. In June, Flextronics had acquired a 55% stake in publicly listed telecom software firm Hughes Software Systems for $226 million in an all cash deal. It late August, it acquired Chennai-based communications software firm FutureSoft (formerly Future Software) for 440 million.

Here are some extracts from Business Today magazine's interview with Flextronics' CEO Michael Marks:

On the Hughes acquisition:

We have really big plans for Hughes. We have a big infrastructure business and we believe we can grow the company (Hughes) faster and derive greater value for our entire company than what Hughes would on its own. So that's the judgement we made, and, in all seriousness, we won't be able to tell whether we got a fair value for a while yet. Winning by bidding is not winning. We have valued the company based on the overall value it adds, and Hughes is an outstanding opportunity for us.

On the prospects for more acquistions:
Certainly nothing major. We did Hughes because of their telecom domain expertise, we did FutureSoft because of their data communication domain expertise. If we can find other companies that have expertise that we need, we'll look at them. But we've got our hands full right now.

September 26, 2004

More on VC Blogging

A couple of weeks after my article about VCs' blogging appeared on the Venture Intelligence India blog and the Always-On Network, the San Jose Mercury News' Matt Marshall has published a similar article titled "VC partners open up with industry blogs".

Good to confirm that VI India can spot trends in Silicon Valley's VC industry before the "locals"!

September 25, 2004

ICICI Venture plans to get even bigger

A $22 million plus investment to buy out the Tatas from their Yellow Pages publishing company (now called Infomedia India Limited); a $16 million investment in terry towel maker Welspun India; $11.4 million in TV picture tube maker Samtel; a 54% stake in clothing retailer Arvind Brands; a $4.3 million mezzanine investment - the first of its kind in India - in pharma firm ArchCommerz, etc., etc. Add to this talk of serious investments in the real estate sector and even co-investing with the big daddies of buyouts like KKR.

ICICI Venture’s investments in 2004 are certainly complex. And BIG. Business Standard attempts to profile I-Venture in its new avatar

September 23, 2004

The Vinod Khosla difference

Extracts from Joe Kraus, co-founder of search engine company Excite, recent 2-part blog post - here and here - (on the importance of persistence) provide a good idea why Vinod Khosla of Kleiner Perkins' is considered "an entrepreneur's dream VC":

While we were still in the garage (literally), we met with at least 15 different venture capital firms. The meetings we're all the same. We showed them our search technology, showed them "concept-based" search, and showed them targeted advertising. To a firm, the first question they asked was a very reasonable one: 'great stuff guys, but what's your business plan? how are you going to make money?' Of course, being 22 years old and fresh out of college we replied, 'we thought you could help us out with that.' Apparently, that's the wrong answer. Who knew?

Rinse, lather, repeat.

Then we met Vinod...

By then, our deal had developed a certain "smell" -- smart guys with interesting technology but an uncertain business plan. The demo to Vinod started off like they all did, but about 10 minutes into the meeting things got very different. He interrupted

"Can the technology scale? can you search a large database?"

Big Pause. It's not the money question. No one has ever asked us this before. Ummm.

"We don't know, we can't afford a hard drive big enough to test."

Then, an amazing thing happened. Ten minutes into this meeting, his first introduction to the company and us, he pulls out his his cell phone, dials his assistant and buys us a $10,000, 10Gb hard drive.


Another instance (post funding):

Back in those days, the Netscape browser had two buttons in the chrome that don't exist today. They were called NetSearch and NetDirectory (NetSearch, of course, became Search but NetDirectory disappeared into the ether). That summer, Netscape let it be known that they were going to put the destinations of those buttons up for bid. Previously they had given, for free, the NetDirectory button to Yahoo and the NetSearch button to Infoseek.

This was the premier beachfront real estate on the web up for bid. We were terrified. We needed to get it...

...We were screwed because we didn't have enough money to compete. How were we going to outbid MCI? A freaking phone company? Infoseek had more money and more users.

We gathered the troops and I distinctly remember sitting on the floor of my office with a big chunk of our small company and Vinod (Arun's emphasis and note: He was there when Excite needed him). And suddenly the right answer appeared.

We were going to bid $3,000,000.

It was Vinod who suggested it. Forced us into really. (Arun's emphasis). We had $1M in the bank and we were bidding $3M. How was that going to fly?

Vinod made a critical point. If we don't get this deal we're nowhere. If we do get the deal, we can probably raise the money on this victory alone.

Strangely enough it felt right. A bit irresponsible perhaps, but in reflection it was truly a bet-the-company moment and we bet big. It was appropriate.


Brazil targets $2-B in IT exports by 2007

Extracts from an interview given by Luiz Fernando Furlan, Brazil's Minister of Development, Industry & Foreign Trade, to BusinessWeek magazine:


We have a target to improve our IT exports to $2 billion in 2007 -- software and services. Now it's $100 million. It's very ambitious. But the private sector tells us it's possible....

We have all the conditions to be a player in the world software market. We have a good infrastructure of telecommunications and energy. We have the domestic market. We have more than 6,000 PhDs in technology coming out every year. The cost of production in Brazil is much lower than U.S., Europe, and Japan. We can deal with Europe and Japan in the daylight.

We're the sixth- or seventh-largest market for software worldwide. We have an $8 million market for software...

We're building up our own model. We have seen Ireland, India. We look at other countries. We can't buy a canned model. We have a base already.

September 22, 2004

How Vinod Khosla created Sun Microsystems

While I knew the one line description "Vinod Khosla was the founding CEO of Sun Microsystems and was earlier part of the founding team at Daisy Systems", I hadn't come across a more detailed version of Khosla's pre-KPCB exploits before Joe Kraus talked about it on his blog.

Here are some extracts from the Harvard Business School case study (by Dr. Amir Bhide) that I found interesting:

How a Stanford secretary "linked up" SUN's co-founders:

I'm probably more of a conceptual engineer, and I can draw block diagrams for almost anything I can think of, but I can almost never implement them. So I started looking for someone who had done this kind of stuff before. I heard of a project at Stanford called the Stanford University Network, or Sun.workstation project. I called the computer science department, and some secretary who did not want to bother a professor gave me the uame of a graduate student from Germany, Andy Bechtolsheim.

Apparently, Andy, who was also at Carnegie at the same time I was, but I did not know him there, had come to Stanford to do his Ph.D. in CAD tools. I think he realized there was no appropriate machine to develop CAD tools, following the same discovery process I had gone through, so he decided to build one himself. His specs fit mine almost to a T.

Andy had developed the workstation concept in a fair amount of detail and had a prototype implementation of lt. Stanford had assigned the technology to him because, in their great wisdom, and after calling DEC and Prime, they had decided it had no value.

So, for over a year he had been licensing the technology to six or seven companies. He had invested $25,000 of his own money into building prototypes, and as a grad student licensing it at $10,000 a pop, he thought that was just wonderful.

Bechtolsheim offered Khosla his usual $10,000 license. Instead, Khosla tried to persuade Bechtolsheim to join forces to start a company to build workstations based on his designs.

I said to him, "I want the goose that laid the golden egg, and I don't want the golden egg." I thought that kind of resource is very rare to get. So I would rather have him than any one design he would come up with. I had nothing very concrete to offer. I told him we could build a big company, that we could raise a few million dollars. He would be a founder of the company.


As an entrepreneur, VCs were good to VK.

Andy Bechtolsheim agreed to participate by late January 1982. The two started working out of Andy's office at Stanford and in a couple of weeks had produced a brief plan.

It was a real concise statement of the reasons for making an investment: how the economics had changed, what the product would be, when it would be out, and how big it could be and why the market made sense.

The next day, February 12, we met with two venture capitalists, one of whom, Bob Sackman, had helped me write the Daisy business plan. Within three or four days, they agreed to give us $300,000 in equity. They gave us a $100,000 check right away and said, "You can get going and let's work on the paperwork." On February 22, we formally incorporated the company and received the remaining $200,000. The price of the stock was $2.75 a share. We also gave them an option to put an additional $2.2 million for a total of $2.5 million at $5.60 a share, that option to expire on June 30, 1982. By that date we were supposed to hire a marketing person, write a business plan, and demonstrate a prototype.

Bob Sackman led the thing, and he trusted me. It was really on trust. There was very little due diligence on their part- - they just believed in the concept and said, "Yes, we think you can do it.


Importance of containing burn:

We were unlike most start- ups. Most start- ups have everything- - marketing, sales, support, advertising, and PR- - in place even before they have a product to sell. They get up to $600,000 to $800,000 a month of expenses before they've really started selling anything. In that range, given you're starting out with low gross margins because your product costs are high, you've got to start selling $1.5 million worth just to break even in 8 month.

Click Here to read the full case study.

September 20, 2004

An argument for sweat equity friendly laws

In an article appearing in the Financial Express, Dr. Y.R.K.Reddy, Chairman, Yaga Consulting Pvt. Ltd., provides strong arguments on why the Indian government's department of company affairs and SEBI must simplify the rules relating to the issue of sweat equity. "The current rules and guidelines are so elaborate that they may meet the ideals of corporate governance and yet are revoltingly cumbersome. They are indeed an over-kill," he says

Click Here to read the full article.

September 13, 2004

Is Bangalore shooting itself in the foot?

Bangalore's increasingly intolerable infrastructure problems and the sky-rocketing salary expectations of its residents seem to be achieving what economic recession and the "outsourcing backlash" in the US, failed to achieve: spell the decline of IT industry in the city.

Yup. Hyderabad's emergence as a serious competitor has not really dented Bangalore's ability to attract MNCs and Silicon Valley start-ups. Bangalore's original advantages - weather, cosmopolitan culture, "critical mass" and "network effect", etc., etc. - continue to work in its favor.

However, the knowledge that these companies have of Bangalore is often second hand. Wipro and Infosys - the city's original "crown jewels" - are better "lead indicators". Whether they say it explicitly or not, it is clear these companies are expanding faster in other cities than in their "home town".

Venture capitalists based in Bangalore too have been murmuring about Bangalore's growing problems - especially the rising cost of talent - for at least the last two years. They have also been actively pointing their investee companies to try out other cities.

While they are acting on their concerns about Bangalore, the home grown IT companies and local VCs are loath to talk about it publicly - probably due to political correctness. Thankfully, such considerations don't seem to matter to Silicon Valley VCs of Indian origin. Promod Haque, managing partner at Norwest Venture Partners and considered among the top VCs in the world, is quite blunt about his views on Bangalore's problems in an interview to Financial Express.

Here are some extracts:
Mr Haque, who has invested in over 50 companies, told reporters that he was “trying to encourage entrepreneurs to go to Hyderabad,” instead of Bangalore. He was speaking on the sidelines of ‘India Inc 2004’, a seminar on marketing and selling to the US.

With the hybrid model fast finding favour, most US companies are looking toward Bangalore for a possible development centre, mainly because of the available talent.

But, Bangalore had become less attractive due to its traffic, people and real estate problems, Mr Haque said.

The city’s traffic problems which have to been seen to be believed are worsening. Bangalore has managed to attract the best brains in the country and huge competition for talent has driven salary levels to the highest in the country. Real estate prices too have zoomed, ironically pushed up in the first place by the IT companies themselves.

The next best alternative destinations in India were Hyderabad, Pune and Delhi (Noida and Gurgaon), he said. Mr Haque advises some of his investee companies to set up operations simultaneously in Bangalore and Pune.

According to him, other possible destinations could be Mysore, Chennai and Kolkata.


Haque does not seem to have heard about the Karanataka government's recent move to ban new non-Kannada films from being screened in the city. Wonder whether he would laugh or cry when he does.

Click Here to read the FE interview with Haque.

PS: The spell-check feature on my blogging tool (Blogger) suggests "Bunglers" as the correct spelling for Bangalore.

September 12, 2004

Incubation programs at IIIM-Bangalore and IIT-Delhi

Financial Express has published a short profile of incubation programs at IIM-Bangalore and IIT-Delhi.

Extract:

IIM-Bangalore

IIM-Bangalore, which started its incubation facility in 2000, has so far seen three IT companies being incubated.

“Nine Cloud Entertainments, SeNate Communications and Voice Tech Solutions are working at our centre,” said Dr Mathew Manimala, professor of organisational behaviour and chairperson for Jamuna Raghavan Entrepreneural Academy.

Nine Cloud Entertainments is working on animation and other entertainment projects. SeNate Communications is developing firewall security solutions while Voice Tech Solutions provides IT solutions to the telecom companies. Usually, we give one-year term for incubations. Sometimes, depending upon projects, we might extend it to one-and-half years,” said Dr Manimala.

So far, two companies Meta-I Systems and EmbedX Systems Pvt Ltd have exited and started out their own operations after being incubated at IIM-Bangalore. “Meta-I was a BPO outfit, whereas EmbedX was working on embedded systems on vehicle tracking. It was also working on an IT solution, which will provide tyre pressure details on the dash board of any vehicle,” he said.

IIM-B has a tie-up with NS Raghavan, former Infosys director, who started entrepreneural academy.



IIT-Delhi

Some of the startup companies at IIT-Delhi include INRM Consultants, which is using geographic information system (GIS) technology for natural resources planning and management; VirtualWire Technologies, a wireless and communications firm; KritiKal Solutions, which is into embedded systems, computer vision and networking technologies; SofBlue India, involved in developing Bluetooth enabled energy meters. SofBlue India and INRM Consultants have exited and are on their own now.


The article also adds that the Indian Institute of Science (IISc), Bangalore, is also set to soon start its own incubation facility.

Wipro Vice-Chairman Vivek Paul profiled in San Jose Mercury News

Some extracts:

The 45-year-old Paul, a graduate of India's Birla Institute of Technology who earned a master's degree in business administration from the University of Massachusetts, is an unapologetic believer in the virtues of making U.S. companies more efficient through offshoring -- an activity that at the same time helps raise living standards in his impoverished homeland. But he also expresses compassion for the American workers who lose out in the bargain...

...Paul lives with his wife and three young children in Los Altos, working out of the company's U.S. sales office in San Carlos about a third of the time. He splits the rest of his time on the road managing Wipro's global operations and running the company out of its headquarters in Bangalore. Tall and trim, he is an inveterate jogger and swimmer who says he avoids playing golf with business associates...

...Paul concedes there are legitimate concerns fueling the backlash against offshoring. He bemoans the reports of U.S. technology workers who are forced to train their Indian contractor replacements before losing their jobs.``There were a couple of companies that did this `train your successor or we won't pay your termination benefits,' and I think they did a great disservice to the entire industry,'' he said, adding that to his knowledge, Wipro was never involved in such a case.


Click Here to read the full article.

Remote IT infrastructure management is the next big opportunity

The latest issue of Economist carries a detailed article saying that remote IT infrastructure management is the next big opportunity for Indian IT outsourcing companies like HCL and Wipro.


September 09, 2004

Zee TV to telecast business plan competition

Beginning January 2005, Zee Telefilms will air an 36-episode show in which entrepreneurs will get an opportunity to pitch their business plans on TV. This contest -type show will see the best plans getting funded, Business Standard reports quoting Zee Telefilms VP Abhijit Saxena.

Click Here to read the full article.

September 08, 2004

Sand Hill Road gets blogging

By Arun Natarajan

"Man has Venture Blogging come a long way since we started VentureBlog a year and a half ago. At that time, the only way that there would be robust discussion and debate about venture capital related topics in the blogsphere would be if Andrew and I took different sides of an issue and duked it out on VentureBlog. Now folks like Brad Feld from Mobius Venture Capital and Fred Wilson from Flatiron Partners are discussing and debating VC issues of real interest and import. While Venture Capital still remains quite individualistic and, at times, enigmatic, VC bloggers have gone a long way to help demystify what has for years been a bit of a black art"

- David Hornik of August Capital in VentureBlog (August 27, 2004)


Venture Capitalists in the US are taking a strong liking for blogging. As Hornik has pointed out, from just a couple of active VC bloggers two year ago, there are now well over a dozen VCs who blog regularly. Not stopping there, VCs have also started to invest in blogging-related companies.

More accurately, VC money is flowing into companies focusing on "Really Simple Syndication" or RSS technology, which while closely related to blogging, is set to impact the entire world of online publishing. (RSS allows any web user with a "reader" software/tool to receive headlines and summaries from blogs - and other web sites that put out a XML feed - as and when they are published.)

The list of blogging/RSS related companies that have attracted VC funding recently include Newsgator (Mobius Venture Capita), Technorati (Draper Fisher Jurvetson and Mobius Venture Capital), FeedBurner (Portage Ventures) and Pheedo (Fastlane Ventures).

"In many of the market segments that I invest in (such as IT infrastructure software products) I can't actually use the software in a sustained way. Sure - I can look at demos - but I'm not the target customer or user - so any real use case is contrived. In the RSS / blog universe I could set up a blog, read blogs, use RSS syndication, explore the tools, look at and think about my stats, and play with new search and advertising technologies as they appeared," says Brad Feld, a Managing Director at Mobius Venture Capital, in a blog posting (what else?) on why his firm invested in Newsgator. "We hope NewsGator is the first of several investments we make in the RSS / blog world," he added.

In fact, Feld is one of the best bloggers from the VC sphere. His erudite, interesting and simple explanations for VC industry terms - like "Participating Preferences", "Liquidation Preferences", etc. - have earned his blog a large following. (Thankfully, unlike some of his industry colleagues, Feld does not go overboard in describing how he spent his holiday, his kids' birthday parties, and other such personal matters.)

The blogging VCs are generating some excellent online PR/branding for their firms. I had never heard about August Capital until they launched VentureBlog. Ditto, Dawntreader Ventures until Ed Sim, Pacifica Fund until Tim Oren, Vulcan Capital until Steve Hall.

(Before blogging arrived, Bill Gurley of Benchmark Capital was the coolest VC on the planet in my books. Why? Since Gurley used to write a great column in Fortune magazine. The column was later delivered as an email newsletter via CNET News.com. Unfortunately, Gurley has not taken the next "logical step" in publishing his thoughts - i.e., start a blog/RSS feed. Yet.)

Want even more evidence that VCs are serious about blogging? How about a VC who decided not to be a VC any longer and joined a blogging-related company instead? Andrew Anker, former General Partner at August Capital, did exactly that when he joined SixApart (the company which provides the Movable Type and Typepad blogging tools) as its as EVP of Corporate Development!

Sample List of VC Blogs

Brad Feld
Mobius Venture Capital
http://www.feld.com/blog/

Ed Sim
Dawntreader Ventures
http://beyondvc.typepad.com

Tim Oren
Pacifica Fund
http://www.pacificavc.com/blog/

Fred Wilson
Flatiron Partners
http://avc.blogs.com

Steve Hall
Vulcan Capital
http://nwvc.blogs.com

Steve Jurvetson
Draper Fisher Jurvetson
http://jurvetson.blogspot.com

Jeff Nolan
SAP Ventures
http://sapventures.typepad.com

Ignition Partners (Group blog)
http://geekfishing.net

August Capital (Group blog)
http://www.ventureblog.com

September 05, 2004

Remaining awake: the secret to a VC's success

Here's what Michael Moritz had to say on the "secret" of Sequoia Capital's success during the Silicon Valley 4.0 conference (via Always-On):

On the whole we've had the incredible benefit of having been investors in a whole slew of companies over the years. And if you're an investor and you remain awake and alert to the possibilities of tomorrow, those companies inevitably wind up as lamplighters that illuminate the future.

...if you're an investor in Apple Computer, to knowing what the shortcomings were to using cassette tape as a storage mechanism for personal computers in the late 1970s, to understanding the implications of what disk drives could do for personal computers.

So Sequoia went ahead and invested in a couple of disk drive companies. And if you invest in a disk drive company, why, you're alert to the importance of the magnetic heads inside a drive company, so you invest in those. And if you're an investor in a PC company and disk drive company, you knew you had to have software running on top of it, so you went off and invested in a software company like Electronic Arts. And once you had your PC software enabled all over the place, you kind of understood that you needed to connect the computers, so you invested in an Ethernet company like 3Com. 3Com in turn led to Cisco.

So all we're trying to do, in a way, is stay awake. Staying awake is probably the secret in the venture capital business. That's all you need to do, to be fortunate enough to be an investor in a company like Google—stay awake and inevitably it will illuminate the new market horizons and segments that are opening up. I think that's all we've done for 25 or 30 years, we just stayed awake.


Sequoia's investment in Yahoo was the "lamptlighter" to the Google investment:

Well, we had a big advantage, that Larry Page and Sergey Brin, the cofounders of Google, had originally been introduced to us by a guy called David Filo, who is one of the cofounders of Yahoo. David had liked Larry and Sergey, knew them from Stanford, was trying to help them. And maybe in 1996 or so, both of them were still working on some thesis project at Stanford and had come by and visited. We had a nice sort of inconclusive meeting and they disappeared and we didn't hear anything more for a couple of years. Then word got around that they were thinking about starting a company.

The Yahoo guys were very encouraging, thinking that it would be beneficial to everybody if we were to become investors in Google, because search, and having a healthy panoply of different search vendors, was a very important thing for Yahoo. Yahoo had used AltaVista, Yahoo had used OpenText, they'd used Inktomi. They were interested in having a really fertile field of healthy suppliers from which to pick. And it was pretty obvious, too, even a few years ago, that along with mail, finding stuff on the Internet—which was part of the original policy of the Yahoo investment that we made—was going to be an ever more important part of the business.

So the Yahoo investment acted as a lamplighter. David and Jerry were extremely helpful and supportive and encouraging us to become partners with Larry and Sergey, and one thing led to another.


Click Here to read the full interview with Moritz.


September 04, 2004

Can WebEx avoid Netscape's fate?

As Microsoft takes time to digest web-conferencing company PlaceWare, the market leader - Subrah Iyer-founded WebEx Communications - has been picking up more momentum and market share. But can WebEx sustain the lead?

"WebEx hasn't been steamrolled--yet--but Microsoft's plans for an upcoming version of Web conferencing software makes clear the extent to which it uses more established products to gain a foothold in new markets," warns
an article in Forbes.

What VCs require from angels

"Writing a check is the first, and perhaps easiest, part. Yet angels-most of whom are themselves seasoned business executives, entrepreneurs, technologists and finance people-can do the venture community the greatest good by not just writing that check, but by stepping in and prepping the company for sustainable company growth," says Ravi Chiruvolu, a general partner with Charter Venture Capital, in an open letter to angel investors. Chiruvolu seeks to "cross (the) chasm of misalignment between what VCs really want and what angels often fail to provide" through his letter which appears in his column for Venture Capital Journal.

In April, VCJ had carried a Cover Story titled "Angels or Devils?" in which it has outlined the problems faced by VCs when it comes to funding companies which had received investments from angels.

An extract:

"VCs still have a bad taste in their mouths from five years ago, when everyone and his grandmother wanted to invest in private, pre-IPO technology companies - and almost everyone did....

... After all, these novice angels were driving valuations to ridiculously high levels. They were giving amateurish advice that often steered companies in the wrong direction. Term sheets, meanwhile, were littered with errors and egregious anti-dilution clauses that were at best laughable, and at worst a major headache to undo. Perhaps most galling to the VCs was that many of these nouveau angels didn't even economically qualify to invest in private companies. According to the U.S. Securities and Exchange Commission's standards, only people with a net worth of at least $1 million or an annual income of at least $200,000 can participate in private equity rounds. When the market turned south, the vast majority of the angels bolted, leaving the professional VCs to clean up the mess and pick up the pieces of a thousand broken companies."

August 21, 2004

Profile of IIT-B incubated EDA firm

Express Computers magazine has profiled Powai Labs, an EDA tools provider that is being incubated at IIT-Bombay's "KReSIT".

An extract:

Says Reapan Tikoo, chief executive officer, Powai Labs, “Today, there is no tool which can cater to the need for a desktop simulation accelerator. We see IMAGE 2.5 (2.5 million gates) and IMAGE 1.2 (1.2 million gates) fulfilling this need. We are selling IMAGE 2.5 at $75,000 and IMAGE 1.2 at $32,000. With our products, a chip design company can get its chips validated at one-tenth of the existing cost.” The price advantage arises because the company’s technology utilises off-the-shelf components. Tikoo also says that the product enhances the speed of simulation, thereby increasing the productivity of every engineer.

Significantly, unlike any other company, Powai Labs plans to support every client with a dedicated support engineer at each client site—at no extra cost. Not only does this increase customer satisfaction, it also provides Powai Labs with important feedback which it uses to enhance the features of its products. Since the start-up is currently working with top design houses, it hopes to incorporate what it learns into its products, which have been received very well in the industry. Three of the top five silicon design companies have already validated its products. A leading MNC expressed a desire to buy the company, but Tikoo politely refused as he believes that Powai Labs is on the verge of becoming a global player.

Click Here to read the full article.

"Next wave of VC will target IP-based cos"

With the rapid maturing of the IT Services and BPO sectors, VCs - especially early-stage investors - will soon feel the need to spread their nets wider. Sanjay Anandaram, Managing Director of Indo-US cross-border VC fund JumpStartUp, feels these funds will now gravitate towards "Innovative Technology / Intellectual Property based product and services companies"

In an interesting presentation, which reflect his personal views, Anandaram highlights various factors catalyzing the emergence of IP-based companies in India. These include the availability of high-quality management talent (thanks to returning NRIs and the shifting of R&D units of MNCs and VC-backed Silicon Valley firms to India), the rapid growth in India's telecom sector, increasing access to other rapidly growing Asian markets, and emergence of a start-up culture in Engineering Schools like the IITs.

Anandaram provides examples of several exciting "born in India" start-ups focusing on IP - including some companies being incubated at the IITs.

Click Here to download the presentation.

August 18, 2004

VC Trends in India: The exit routes have become much easier

By Arun Natarajan, Editor, TSJ Media

My article on the above topic was published recently in the AlwaysOn-Network "blogzine". Here is the article's introductory paragraph:

In the first six months of 2004, venture capital firms exited their investments in 13 India-based companies. Although business process outsourcing (BPO) firms constitute a major portion of the successful acquisition-based exits, the real bonus has been the spurt in the number of IPOs by venture-backed firms.

Click Here to read the full article.

VCs with operating experience not necessarily superior: Bill Burnhan

Conventional wisdom has it that operating experience contributes significantly to making a successful VC.

Bill Burnham, Managing Partner at Softbank Capital Partners, doesn't buy it. An extract from his recent blog post on the topic:

When you catch most VCs in a moment of honest reflection they will tell you that while they enjoy working with their investments and trying to “add value” by using their operating experience, the single most important action that they take is deciding whether or not to invest. This is because a start-up’s initial “genetics” in terms of market opportunity, technology and founding team are typically the biggest determinants of investment’s success. Put another way, it’s almost impossible to turn a start-up with bad genetics into a good investment, no matter how good an operator you are. Thus, if the initial investment decision is so critical, than it stands to reason that investment skills are potentially more important to VC success than operating skills.

August 13, 2004

Kashmir says hello to call centers

Some enterprising folks in the troubled state of Kashmir have decided that would like to join other Indian states which are riding the boom in IT and BPO services to prosperity.

Quite a few newspapers in India and abroad (including the New York Times) gleefully picked up and published a Reuters report profiling Srinagar-based Magnum Software Services, which, has recruited 315 young Kashmiri men and women in recent weeks to provide transcription services for a client in Singapore. "Officials at Magnum said they hope to be an outsourcing pioneer in the troubled region where barely two years ago Internet and mobile phone services were barred because of fears separatist militants could use them to foment violence," the report said.

More strength to Magnum's founders. They are the kind of guy that will render Kasmir's Osama Bin Ladens jobless. When the number of well-paying jobs in a region increases, the Osamas will have to look elsewhere to find youth willing to do their dirty work.

Now, offshoring gets good PR

The free publicity rain for Indian IT companies continues. After giving Indian IT companies several million dollars worth of column space in the form of anti-offshoring reports, the same US publications have now started to make a U-turn and are praising Indian companies for adding jobs to the US economy!

"(Wipro) could end up being the techie's hero. In the past 18 months, it has taken on 300 US-based consultants, and that's just the start, says Pratik Kumar, the company's corporate vice-president of human resources. The outfit is actively recruiting U.S-educated MBAs, most of them Americans.... Judging by various outfits' plans, this trickle of reverse offshoring may well turn into a flood," gushes a new report in Businessweek.

And replacing Forrester Research's famous (??) "3.3 million US jobs to be lost due to offshoring" report, is the "recent study by economic think tank McKinsey Global Institute (that) has found that every dollar a US company spends on outsourcing results in $1.12 to $1.14 in additional work here".

How nice.

August 08, 2004

Phaneesh Murthy's first year progress report at iGate

Business Today magazine reviews the changes at iGate Global Solutions since the former Infosys Technologies marketing head Phaneesh Murthy took over as the company's CEO one year ago.

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

Businessworld interview with Temasek's India head Manish Kejriwal

Businessworld magazine has published an article on Singapore-based Temasek Capital's investments in India as well as an interview with Manish Kejriwal, who took over as Managing Director of Temasek's company's Indian arm.

The article points out that, with $500 million invested or committed to the Indian market, Temasek is the second-largest private equity investor in India (after Warburg Pincus).

Apart from direct investments in Indian companies (like Matrix Labs), Temasek also invests indirectly through its investments in India-focused VC funds like Merlion India Fund (a JV with StanChart Private Equity) and WestBridge Capital Partners.

"The fact that we are not structured as a fund means we can afford to take a long view on investments, as we do not need to divest our holdings within a certain period of time," Kejriwal says in the interview.

July 25, 2004

New York Times profiles Indian returnees

The New York Times has published an interesting article featuring several professionals of Indian origin who quit successful careers abroad and returned to India. As the article indicates, several of the returnees are venturing beyond their lives in "gated colonies" and making a positive change to their wider social environment.

Here's one from the many examples in the article:

A radiologist, Dr. Kalyanpur had resigned himself to a significant pay drop upon his return. Then he proved to Yale that he could accurately read CT scans and other images transmitted via broadband to India. He began working for them from afar before starting his own business, Teleradiology Solutions Inc., in 2002.

He spends his days reading images for the emergency room nightshifts of about 40 American hospitals, compensating for the shortfall of nighttime radiologists in the United States, and being compensated at near-American salary levels. His partner, like him, is American-trained; at least two more Indian-born radiologists are moving back from the United States to work with them.

"India always suffered from the cream of its medical community migrating overseas," he said. "Now there is the possibility to go back."

India changed in the time Dr. Kalyanpur, 39, was away. Where it once took a year to get a phone connection, it may now take a day.

But he changed as well. He and his wife gravitated to Bangalore, where neither of them had ever lived, in part for the cosmopolitanism in its pubs and cultural life. Regent Place drew them because many European expatriates also live there.

"It makes the transition easier," he said.

On his return, India's poverty loomed up at him, and he and his wife grapple with how to deal with it. They raised money to put a playground in the government school in the village across from their housing complex, and are doing the same for another school nearby.

It is a small attempt to bridge India's great and growing gulf. On a Saturday, children with want visible in thin faces, in bare feet and tattered uniforms, scaled the swing set bought by the returnees, whose own children played across the street inside Regent Place.


Click Here to read the full article.

July 16, 2004

How Symphony bags offshore development orders from software product vendors

While doing development out of India has become a "no brainer" for all enterprise software product companies, the most "obvious" way to go about exploiting the India advantage has been to set up a captive development center. Like Microsoft, Oracle, Novell, Adobe, etc have done.

So, how does Symphony manage to convince software companies like Siebel Systems (the world's leading provider of CRM software), Autodesk (the leading CAD software vendor) and other clients to outsource development work to it? (As Economic Times reported recently, Symphony has been providing software testing and development services to Siebel for over a year now.)

What is Symphony's secret formula? Businessworld attempts to provide the answer.

"To address the issue of trust, Symphony works on a build-operate-transfer (BOT) model. The understanding is that at any time the client can acquire the operations - including the team working on the project - from the service provider by paying a transfer fee" the article says.

Now we know.

The BW article also provides interesting examples of Symphony's work in its
two other lines of business - Cost Management and Analytics services.
Symphony's cost management group, which looks at cost-cutting
opportunities for large enterprises, has a 40-person team that works
with companies like Schering-Plough and Viacom to control their telecom
costs - a typically large variable expense head for US companies. The
BW article explains that Symphony made two acquisitions last year -
Telco Research (from Peregrine Systems) and Teletron - to ramp up its
expertise in managing telecom costs.

As part of its analytics
group, which employs 300 people, Symphony analyses data "say, of sales
vouchers of a large retailer, understands buying patterns, and suggests
ways to boost revenues". This group - which is expected to have 500
people by year-end - is expected to account for a third of Symphony's
revenues by 2007.

July 11, 2004

Promod Haque plays traveling salesman for portfolio cos.

At a time when pretty much all VCs in Silicon Valley are pushing their portfolio companies to open R&D centers in India, Promod Haque, Managing Partner at Norwest Venture Partners (NVP), is adopting a different tack. He is encouraging his portfolio companies to view India as not just a low-cost development base, but also as a key market for their wares.

With the Indian telecom services market already the fifth largest in the world and Indian IT services and BPO vendors making a serious mark on the global outsourcing market, Haque wants his portfolio companies to get an early entry into on what promises to be a long-term growth market for technology products. Haque calculates that India's call-center industry alone would be spending $12 billion on telecom equipment over the next four years.

Haque is leveraging the PR value of his recent anointment - by Forbes magazine - as the world's top VC to help his portfolio firm kick-start their sales to Indian companies. After making a scouting trip to India in April, Haque returned in the last week of June with representatives from seven of his portfolio companies in tow, to host seminars - and give an untiring series of interviews to the media - in key Indian cities.

July 09, 2004

Red Herring profiles MIT biz plan winner Kailas Narendran

Red Herring magazine has published an offbeat interview with Kailas Narendran, a 25-year-old researcher at the Massachusetts Institute of Technology's Department of Mechanical Engineering, who co-created a device that provides mobility for patients with spinal cord injuries. Narendran and his co-inventor recently won a $30,000 prize for their business plan to commercialize the technology at MIT's Entrepreneurship Competition.

The RH article points out that former MIT contest finalists - including Akamai, Centrata, and Firefly - are now valued at over $4 billion.

Click Here to read the full profile.

June 24, 2004

Everything you wanted to know (and some things you didn't care to know) about ChrysCapital's Ashish Dhawan

New Delhi-based private equity fund ChrysCapital is vastly different from its former avatar, Chrysalis Capital. While Chrysalis began life (in Mumbai) as an venture capital firm focussed on start-up investments, today's ChrysCapital is best know for its late-stage investments (often in already public companies).

The fascinating part of this transformation is that one of the fund's original partners - Senior Managing Director Ashish Dhawan - has been firmly in the driver's seat throughout the process.

It's a story that needed to be told. As a cover story. Kudos to Business Today for telling it first.

Thankfully, unlike the glowing profiles that BT is famous for - including the one featuring infamous stock brocker Harshad Mehta with his Lexus on the cover - this one has a lot of facts. Some well known. And others less so.

That ChrysCapital's first fund would have been a disaster but for the pioneering investment in Raman Roy founded BPO firm Spectramind is well known. Quite expectedly, the BT article talks about this and takes the inevitable digs at the fund's investments in companies like Cheecoo Networks. (Of course, the article does not mention that at the time Chrysalis was making disastorous dotcom investments, Business Today itself used to dedicate a separate section of its magazine, titled "BT.com", to write - glowing, most of the time - about all things dotcom. The section, which actually started quite late in the boom period, has since been given a quiet burial.)

Among the things that are not well known about ChrysCapital is why exactly co-founder Raj Kondur quit. (It was generally assumed that Kondur took the fall for the fund's dotcom heavy portfolio.) To its credit, the BT article throws new light on this as well. Quoting an ex-ChrysCapital exectuive, BT says "much of ChrysCapital's dotcom fiasco happened because of Dhawan's infatuation with the phenomenon". And adds that it was Kondur, not Dhawan, who was primemover behind the fund's investment in Spectramind. "When ChrysCapital started talking to Raman Roy, he was already negotiating with at least six other venture funds and the man who spent the most time trying to woo Roy (once, an entire day on October 9, 1999) was Kondur, not Dhawan," the article says. Kondur actually quit, the article says, because he fell out with Dhawan and was eased out by the latter.

The article describes in detail how, in late 1998, Dhawan (then aged 29) and Kondur (27) quit their Wall Street jobs (at Goldman Sachs and Morgan Stanley respectively) and went about raising their first fund. They received a $500,000 seed investment from executives in the US private equity industry including George E. McCown, Co-founder and Managing Director, McCown De Leeuw & Co. (MDC), a Menlo Park (California)-based private equity fund. (McCown described Dhawan as the best undergraduate analyst the firm ever hired.)

"Over the next five months, Dhawan and Kondur criss-crossed the US, flying cheap airlines and living out of inexpensive hotels, and met dozens of potential investors. A few said a polite no, but most, interestingly, liked their sheer energy and enthusiasm. Among them were people like Henry M. Paulson Jr., Chairman and CEO of Goldman Sachs, Rajat Gupta of McKinsey, Victor Menezes of Citigroup, Gurcharan Das, formerly of P&G, besides companies like Microsoft". In the fall of 1999, ChrysCapital was ready to launch with $63.8 million signed up.

Now for the trivia. Want to know where Dhawan lives? (Since the article appears in BT, you can be sure of one thing: the neighborhood will be described as a "tony borough"). How much his new house cost? Who his neighbors are? What he likes to eat? And even how he chose his wife? The BT article serves it all.

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