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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."