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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).

June 16, 2004

Guy on Google's Gamble

In an interview to Red Herring, Guy Kawasaki, founder of investment banking firm Garage.com, had this to say about Google's plan to make its IPO via a "dutch auction" model:

"There are many ways to look at the Dutch auction. One way is, “Let’s make sure that no one over pays and gets spiked.” That’s one theory. Another theory is that doing it this way, the company leaves as little money on the table as possible. That’s a completely different outcome. That is what Google cares about. Maybe it cares about both, but you can understand how Google would care about the idea that “we sold our stock for $12 and it closed at $120, so we left maybe $100 on the table.”

So, there are many reasons behind its decision. But the interesting question will be: Will large institutions buy blocks of stock? Nobody knows the answer to this. We’re not going to know until it happens. So if the large institutions don’t go in and all the moms and pops go in and buy 100 shares, is that a stable equity base? That’s the question. I don’t know. It is going to be interesting."

June 12, 2004

Quiet Period T-Shirts for CEOs on IPO track

Google CEO Eric Schmidt reportedly attended Wall Street Journal's "All Things Digital" conference wearing a T-Shirt that read "quiet period" on the front and "can't answer questions" on the back. This follows the controversy surrounding the interview given by Marc Benioff, CEO of Salesforce.com (another company that has filed for an IPO), to the New York Times. "Perhaps Marc Benioff should have had a similar t-shirt made up . . . and then stuffed in his mouth," says David Hornik, a venture capitalist with August Capital.


Vinod Khosla warns against nanotech bubble

Vinod Khosla, one of Silicon Valley most successful VCs, has warned against nanotechnology companies going public too early. According to a report in Private Equity Week, Khosla has severely criticized the move by Nanosys (a 3-year-old VC-backed nanotech firm which reported losses of $9.2 million on revenues of $3 million in 2003) to go public.

According to the PE Week report, Nanosys' has "locked up" 200 patents from major nanotech research centers, inked development agreements with Intel and Matsushita, obtained a grant from the US Government's National Institutes of Health to develop nanotech-based biosensors, and is steered by a CEO with a "remarkable track record".

Khosla obviously does not consider these factors good enough to make Nanosys an IPO candidate.

He warns against investing in a technology as opposed to investing in applications based on the technology. "Too many people get lost in investing or joining a startup in a [particular] technology. That's the wrong way to look at it. When you invest you should invest in an application that makes an economic impact," Khosla says in the PE Week report.

How offshoring is changing Silicon Valley

It is quite well known that today, most Silicon Valleys VCs demand that their portfolio companies have an "India-China" strategy. But what impact will this increasing drive towards offshoring have on the San Francisco Bay Area and Sand Hill Road?

"Silicon Valley will be impacted in a serious way over the rest of this decade and beyond," says Sanjay Anandaram, managing director at leading Indo-US cross-border VC fund JumpStartUp, in a recent article for the AlwaysOn-Network blogzine. Apart from predicting how life is set to change for Silicon Valley VCs and start-ups, the article also points out new opportunities thrown up by globalization.

According to Anandaram, Silicon Valley VCs will need to pack their travel bags more often. "No longer can the VC only make investments in companies that are a short driving distance away. As startups become micro-multinationals with offices, employees, customers, and partners around the globe (in many cases, the bulk of the employees and customers are outside the United States and the Valley), it is hard if not impossible for the VC to remain local," he says.

The management team of start-up firms will have to gear up to function as micro-MNCs. "(They will) have to focus on creating a management culture that's process oriented, global in worldview, and experienced in managing different people, offices, and customers," Anandaram says. "This learning curve will be painful for many people used to the traditional self-obsessed Silicon Valley culture," he adds.

While some of its denizens might find globalization painful, Silicon Valley itself is in no danger. Anandaram is confident the SF Bay Area will continue to retain its position as the "epicenter of global innovation". "But it will increasingly be connected to China and India via an intricate mesh of capital, talent, and markets".

Business Today profiles MphasiS

Business Today magazine recently featured Barings Private Equity and ChrysCapital funded IT and BPO services company, MphasiS Group, on its Cover Story.


June 05, 2004

How IBM relates to VC-backed startt-ups

IBM has 18 business development executives dedicated to working with venture capitalists and their portfolio companies, says a report in CNET News.com . Under a program, started about three years ago, IBM actively courts VCs and the companies they invest in. "IBM is more dependent than ever on ensuring that we look outside of IBM for innovation," says Matt Doretti, managing venture development executive for IBM (Americas) in the report.