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February 26, 2005

Ellison's bets on ASP companies paying off

Mercury News has discovered that ASP software companies (aka "software as a service" or "on demand" applications) are doing well. The article points out that Oracle CEO Larry Ellison made significant personal investments in such companies: he had provided the now public Salesforce.com with $2 million in seed money and has invested about $60 million into NetSuite, which plans to go public by year-end.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

February 25, 2005

"India, US virtually bhai-bhai"

Fortune columnist David Kirkpatrick gushes about how "the Internet is connecting the two countries in ways not conceivable a few years ago".
My gut feeling is that the Indian and American economies are going to become ever more intertwined, and that is probably a good thing. For instance, I found India so enthralling that I could imagine living there someday. Of course, it helps that one vestige of the British colonial system is that most everyone in the country's commercial world speaks English. That makes it easier for a guy like me to get around in India than in places like China or Mexico, to mention two of my other favorite developing countries.

It’s possible to live an extremely comfortable life in India on relatively little money. Someone in India living on $12,000 a year can have a cook, a driver, a housekeeper, and the benefit of all those low prices. I could imagine retiring here. It’s a comforting thought, at least, when I’m worrying about whether I’ve saved enough for retirement...

...As the Internet continues to knit the entire world closer together, especially India and the U.S., we could be headed toward an entirely new kind of transnational lifestyle.

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.

February 24, 2005

Indian cos. opting for IPOs over Private Equity

Reuters has this interesting news item about how, thanks to booming stock markets, Indian companies are finding it easier - both from a valuation and control perspective - to go in for IPOs rather than seek private equity funding:
Company owners who might typically have struck a private equity deal to raise cash for expansion are instead considering floating shares on a stock market that has risen 30 percent over the past six months.

That is frustrating for private equity houses hoping to multiply record piles of cash by steering unlisted firms to prosperity. "It is tougher to close a deal now," said Darius Pandole, chief operating officer of IDFC Asset Management Co. Ltd...

...The IPO of Jet Airways (India) Ltd., which saw potential private equity suitors walk away due to differences over valuations, drew orders for 5.2 times the shares on offer at a price/earnings multiple of up to 21.5.

Robust economic growth tipped to reach 6.9 percent in the year to March and rising incomes among a 300 million-strong middle class are behind the surge in the stock market, which hit record highs last week.

Fund managers have poured more than $1.5 billion into Indian shares this year after ploughing in a record $8.47 billion in 2004. "Private equity investors would have to stretch to match the higher valuations being offered by the public markets today," said Ravi Sardana, vice-president of ICICI Securities Ltd. "Add to this the absence of any dilution of rights in the public issue route, which provides comfort to the family-run businesses," Sardana said.

With a growing pool of private equity money chasing fewer deals, investors risk overpaying. "We may see irrational competition which would result in deal prices being bid up to an unrealistic levels," IDFC's (Darius) Pandole said.


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.

An "Been There, Done That" Entrepreneur's view of Venture Capitalists

Tom Evslin, Co-Founder & CEO of ITXC (acquired by Teleglobe in 2004), blogs on the ten lessons he learned about dealing with VCs. Some of the lessons have been featured quite a bit on other blogs:

Lesson #1: there are times when raising venture capital is a bad idea.

Lesson # 2: there are times when it makes sense to raise venture capital.

Lesson #3: raise your venture funding as late as possible.

Lesson #4: pick your VCs well.

Lesson #5: ask VCs about their firm’s “exit strategy”.

Lesson #6: look for VCs who can and do distribute.

When the time comes for a VC to liquidate some or all of its position in your company, it can usually either sell the stock outright or distribute it to its LPs. I believe that distribution is better for the company than an outside sale. For one thing, it doesn’t send the same signal to the market as a huge sale by an initial investor which may have to be reported publicly depending on how recent your last equity event and the size of the VCs stake.

More important, all of the stock doesn’t hit the market at once in a distribution. Some of the LPs will not sell immediately. This is not a panacea. Many LPs do have a policy of selling every distribution automatically and immediately; it is just a cushion.

Some venture funds can’t distribute either because of something in their charter or because they don’t have limited partners. Intel Ventures, for example, is a subsidiary of Intel. When they decide to move out of a position, they don’t have LPs to distribute to. They can only sell. They are good investors to have in other ways so this doesn’t mean to avoid them but it is something that we didn’t know to take into account.

Lesson #7: check VC references.

Lesson #8: Choose VCs you’d trust with your own money

Lesson #9: use your VCs relentlessly.

..There are many vendors you deal with who will care much more about the good will of your VCs then they care about your company.

For example, if you go public (it’s not “when” any more), the bankers look for continued deal flows from the VC firms. They’re only going to take you public once, maybe do a secondary or occasional other financing. A call from one of your VCs not only helps you get initial attention from investment banks, it can also be very useful in making sure the bank continues to give you the attention you need during the IPO process. Ditto your financial printer – the specialist you need to print your prospectus! Executive search firms are best approached through VCs. You won’t look for that many CFOs or COOs (or CEOs to replace yourself) over the course of a career. The VC firms will be part of hundreds of searches.

Lesson #10: push to speak to the Limited Partners.

Every VC firm I know has an annual meeting of the LPs and usually invites some of the portfolio companies to present or at least mingle. These LPs may become (or may already be) direct investors in your company. Most important: if the VC distributes your stock to the LPs, you want to have convinced them that yours is a stock worth holding in their own portfolios. You won’t convince them all but, if you do a good job, there won’t be quite the same rush to sell on distribution as there would be otherwise.

The "Anti-Portfolio"

As a stock market investor, I used to pray every time I sold a company's share that it never again reached that price again. Unfortunately, the price at which I sold was most often the starting point "for a major bull run", as those analysts say. This was a strong motivator for me to move to mutual funds. (There is no way anyone can get me to name the companies whose shares I sold sickeningly early and definitely, no way will I let on at what price I sold.)

Given this, I was fascinated when I chanced upon, at US-based venture fund Bessemer Venture Partners' web site, a detailed list of companies that the firm declined to invest in, and "each of which later blossomed into a tremendously successful company".

"Our reasons for passing on these investments varied. In some cases, we were making a conscious act of generosity to another, younger venture firm, down on their luck, whom we felt could really use a billion dollars in gains. In other cases, our partners had already run out of spaces on the year's Schedule D and feared that another entry would require them to attach a separate sheet. Whatever the reason, we would like to honor these companies -- our "anti-portfolio" -- whose phenomenal success inspires us in our ongoing endeavors to build growing businesses. Or, to put it another way: if we had invested in any of these companies, we might not still be working."

The "anti-portfolio" list includes Apple, eBay, Check Point Software, FedEx,..... well, you get the idea.

Some extracts:
Apple Computer
BVP had the opportunity to invest in pre-IPO secondary stock in Apple at a $60M valuation. BVP's Neill Brownstein called it "outrageously expensive."

Check Point
In 1994, Gil Schwed pitched his idea to BVP's David Cowan, who said that Gil would never get distribution in the US. The next year, Check Point got a huge Sun OEM deal and sold $25M of firewall software.

Federal Express
Incredibly, BVP passed on Federal Express seven times.

Google
Cowan’s college friend rented her garage to Sergey and Larry for their first year. In 1999 and 2000 she tried to introduce Cowan to “these two really smart Stanford students writing a search engine”. Students? A new search engine? In the most important moment ever for Bessemer’s anti-portfolio, Cowan asked her, “How can I get out of this house without going anywhere near your garage?”

Click Here for the full anti-portfolio.

As is to be expected of a firm that is as disarmingly candid about its "non-investments", BVP's actual portfolio is way impressive too. And given that BVP is one of US' longest-standing venture capital funds (since 1911!), the list a pretty long one too.

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.

Advantages of Flat Rate pricing

Tom Evslin writes on the attractiveness of "flat-rate" or "all you can eat" pricing to both consumers and service providers:

If you can find a way to price a service at a flat monthly rate, you can make a better profit per customer and attract more customers than if your pricing is based on reading a meter. You also save a fortune in detailed billing, dispute resolution, and issuing credits...

...When we started AT&T WorldNet Service, we borrowed that idea and popularized it with the still hugely powerful AT&T brand behind it. Some said we’d go broke; others that we would ruin the Internet.

To hedge our bets, we also offered a metered access plan. We didn’t want to lose out on people who planned to spend less that $19.95 per month. To our surprise, people typically converted themselves from metered access to subscription when their monthly bill was around eleven or twelve dollars. And their usage didn’t spike after conversion. People were paying a premium for predictability and simplicity. With a subscription plan, they didn’t feel they had to keep track of minutes to make sure they weren’t being overcharged and they weren’t worried about surprises...

...There are two good arguments against subscription pricing:

1. If the subscription rate is high enough to return a profit for customers with typical use, it will be too high for customers with low usage so you will lose them.

2. Some customers will “abuse” the fixed price and overuse the service; perhaps even resell it.


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.

February 21, 2005

CricInfo co-founder to quit; to focus on regional language publishing venture

Badri Seshadri, a co-founder of the popular online cricket portal Cricinfo.com, will be leaving his position as Managing Director of Wisden CricInfo-India in April 2005, reports Mediaah!. Seshadri plans to focus on building his new start-up, New Horizon Media Pvt. Ltd., which is into regional language publishing.

Extracts from Mediaah's interview with Seshadri:
The plan is to create content in regional languages - with the content in the form of printed books, audio, CD, online (but subscription-based) etc. We are starting with Tamil (as I am familiar with this) and are looking at aggressively expanding to other languages...

...Where is the quality, knowledge driven , local language content on the web at this stage? Even amongst books that are published, there is a vast difference between books published in English and those that are published in local languages. Also an average English book is extremely expensive. The regional books are, on an average, priced one third of an English book (which is itself a reprint for India - in lower quality paper etc.). We studied the Tamil market and decided that we will enter in a big way and over a period of one year have created a very strong brand in Tamil Nadu...

...We validated our claim that narrative non-fiction content created in a very attractive package - good paper, good printing, good design and good narrative style, almost in a story-telling way - sells well...We started the company New Horizon media Private Limited in February 2004 and over a one year period came up with 51 titles. Most of them are top sellers.

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.

February 19, 2005

Outsourced animation services



Business Today profiles the outsourced animation services sector including companies like Color Chips, DQ Entertainment, Toonz Animation, etc. Some extracts:
The animation production services sector in India is still small- about $200-300 million (Rs 880-1,320 crore), according to nasscom. That's less than 0.5 per cent of the $70-billion (Rs 3,08,000-crore) global market, but it's growing at a sprightly clip of over 20 per cent. Its USP: expertise in 3d, flash animation, and strong creative and marketing skills...

...It costs $250,000-400,000 (Rs 1.1-1.76 crore) to produce half an hour of animation programming in the US and Canada, and $90,000-100,000 (Rs 39.6-44 lakh) even in the Philippines. In India it costs only $60,000 (Rs 26.4 lakh). Put differently, producing a 26-episode 2d series of 22 minutes each in the US costs $4-7 million (Rs 17.6-30.8 crore), while a similar 3D series costs $6-10 million (Rs 26.4-44 crore).

...Despite the prospects, however, the path to this new technological El Dorado is strewn with booby traps. Says Jayakumar of Toonz: "Animation is a highly capital-intensive industry. A mid-sized studio costs $3-5 million (Rs 13.2-22 crore)." This amount of funding is enough for studios to get started with an initial run of pilot projects, but not sufficient to carry out high-decibel marketing. Crest Communications CEO A.K. Madhavan says several entrepreneurs tried their luck in the animation industry, but few have anything to show for their labour.

The main issue is an acute shortage of manpower. Against an estimated requirement of 30,000, there are just 12,000 animators in India. The paucity has spun off a whole new market for animation training academies in India. Crest Communications' Madhavan, though, is not too impressed with the quality of animators that many of these academies churn out. "They need about 12 months of additional training before they can be put on live projects," he says.



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.

February 16, 2005

Silicon Valley Bank's plans for India

Businessworld has a cover story featuring how Silicon Valley Bank is facilitating the entry of Bay Area VC firms and start-ups into India.

Extracts:
Founded in 1983 by a team of ex- managers from Bank of America, SVB's mandate was to bankroll young tech start-ups in Silicon Valley. Except that the mandate actually went well beyond opening a bank account and extending credit. Over the years, it has morphed into a networking machine that helps entrepreneurs hook up with lawyers, accountants and, most importantly, venture capitalists.

A few years ago, the bank decided to diversify its business risks and expand into other tech hubs in the world. So in 1998, Lilani was sent to India to lay the ground for a US-India forum that would bring Silicon Valley VCs and Indian tech entrepreneurs together. The result was an SVB-led reconnaissance mission by 20 of the Valley's top VCs to India in November 2003. This was the first step in setting up a venture capital hub in Bangalore. Then, in October 2004, the bank invited its West Coast clients to take up residence at "Sandhill East". Lilani expects two more VCs to join the 10 who have already signed up for India.

"This is a three-year commitment. It's not rent or sub-lease. It is more of a service consulting contract," says Lilani. This commitment implies two things. One, the VCs will use the SVB facility to help their portfolio companies, both old and new, move operations to India. Some of these will be relatively mature companies that will relocate a part of their existing R&D operations, mainly to Bangalore. Here, SVB's primary role will be to facilitate tie-ups with local vendors, help finalise office space and hire engineers. But its role as a catalyst will be magnified with respect to new start-ups like Veveo, which are looking to start R&D operations from day one in India...

...SVB expects 10 more fresh start-ups to be incubated at its facility by the end of the year. Since mid-December, more than 75 US technology companies have used the facilities to move operations to India.


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.

February 15, 2005

Low cost airlines are (finally) taking off in India

Finally, flying is following mobile phones as something that has become truly affordable for the Great-Indian-Middle-Class.

Business Today (paid subscription required) has a feature on opportunities and challenges facing the new private players:
Last calendar, some 15 million Indians travelled by air. This year that figure could jump to 17 million. But according to the consultancy Centre for Asia-Pacific Aviation (CAPA), domestic passenger traffic could grow at a much faster rate in the coming years. CAPA puts that at a whopping 27 per cent per annum for the next five years (although the actual growth could be half of that). That means by 2010, there could be 60 million Indians travelling by air, resulting in an industry that's Rs 30,000-crore or $7-billion big...

...Globally, aviation is a notoriously unprofitable business. Even in the best of times, airline bottom lines are never too far from the red. Why? Like in India, both fixed costs (in terms of leases and government fees) and variable costs (fuel and landing costs) are high, which means even a slight drop in traffic can bleed an airline. So why are so many entrepreneurs rushing into the business in India? Opportunity. Just like mobile telephony took off in India after prices dropped, air travel could boom with higher incomes and falling fares. Consider Air Deccan: rivals were sceptical when the airline announced plans of flying people cheap. But today, it boasts of a passenger load factor (a measure of seat capacity utilisation) of a stunning 90 per cent. Most airlines consider themselves lucky if they manage 65 per cent.

The Times of India features short profiles of the low-cost players (including those which have already taken flight and some wannabe players) like Air Deccan, SpiceJet, Kingfisher Airlines, Indus Airways, Go Airways, Air One, Yamuna Airways and easyJet.

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.

February 13, 2005

Why Webroot raised an eye-popping $108-M

Online privacy software firm Webroot Software's recent $108 million in venture capital from Technology Crossover Ventures (TCV), Accel Partners and Mayfield, raised many an eyebrow. Why does a software company need that kind of money, asked many bloggers.

Explanation from Robert Cringley:
Right now, there is in the U.S. venture capital community about $25 billion that remains uninvested from funds that will end their lifespans in the next 12-18 months. If the VCs return those funds to investors they'll also have to return $3 billion in already-spent management fees. Alternately, they can invest the money -- even if they invest it in bad deals -- and NOT have to cough-up that $3 billion. So the VCs have to find in the next few months places to throw that $25 billion. They waited this long in hopes that the economy would improve and that technical trends would become clear so they could do their typical lemming-like jump off the same investment cliff as all the other VCs. Well, we're at the edge of the cliff, so get ready for the most furious venture investing cycle in history.

Explanation from Fred Wilson:
It is true that there is a huge "overhang" of venture money left over from the 1999/2000 fundraising binge. But that money can't go into early stage deals because those deals take 5-6 years to turn into realizations.


So this "overhang" is going into later stage deals. Look at $75 million going into Fastclick or $108 million going into Webroot. That's where the overhang money is going to go.

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.

"Real startup entrepreneurs don’t raise VC"

Interesting exchange between Jason Calacanis, who created and sold VentureReporter.net to Dow Jones and then created WebLogs Inc., and Flatiron Partners' Fred Wilson on the old debate of "VCs vs Entrepreneurs":

Jason: VCs think their money is more important then you giving up your life.

Fred: Jason's talking about the liquidation preference here. He is saying that VCs think that the equity they buy with cash is more important than the the "sweat equity" that entrepreneurs get. Jason says " I’m a fan of everyone have the same stock, and everyone getting out at the same time." But Jason knows from firsthand experience that an entrepreneur can make money with that deal when the investor loses money. Is that a fair deal Jason? I don't think so.

Jason: What does that mean for the other 99 business in the life of a VC? It means they are just spending time with you until that special 200x investment comes—if it ever does.

Fred: This is so wrong its laughable. The 200x investment requires no time from the VC. The deals that I spend the most time and energy on are the ones that don't work or don't work immediately. The ones that take off like a rocket are the ones the VC pays the least attention to.


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.

February 12, 2005

Nishan Systems founder settles suit against VCs

Mercury News reports that Aamer Latif, founder of Silicon Valley-based storage networking company Nishan Systems, has settled a lawsuit he filed against the company's venture capitalists, alleging they had cheated him and other shareholders when the VCs decided to sell Nishan to McData Corp. for about $90 million in September 2003.

In the December 2003 suit, Latif had alleged that ComVentures (and its General partner Roland Van der Meer); Lightspeed Venture Partners (and its general partner Gill Cogan); Robert Russo (CEO of Nishan); John McGraw (Chairman of Nishan's board); McData Corp.; and investment bank Credit Suisse First Boston engaged in fraudulent vote-buying to garner common shareholder votes needed to approve the acquisition. Among other claims, the suit alleged that the venture capital firms stacked the Nishan board so as to promote their own financial interests at the expense of Latif and other common shareholders. Along with punitive damages for fraud, vote-buying, and other infractions, the suit had sought a redistribution of the merger proceeds.

The details of the latest settlement, which was reached last month, were not revealed.

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.

February 11, 2005

Finding the money to build India's infrastructure

Businessworld has a cover story on the challenges facing the building (and financing) of India's physical infrastructure:

"Year 2005 is the year of Indian infrastructure, and it is the private sector that will drive these efforts," says Sanjay Sinha, director, Crisil Infrastructure Advisory. "It is the government that needs to change its outlook and orientation, build capacity internally and create an environment conducive to private participation," he says.

Let us take a quick look at what this could mean. We have assumed earlier in this survey that India needs to spend about 7 per cent of its GDP to build world-class infrastructure. About 55 per cent of this is likely to come from the government. Foreign capital - including loans from multilateral banks like the World Bank and Asian Development Bank - will take care of another 15 per cent. That still leaves us with 30 per cent, or about 2.3 per cent of GDP.

Can the domestic banking system and capital market come up with this extra money without sending interest rates shooting skywards? That is the critical question...



... While debt is available, though in a limited way, seed capital or equity is practically non-existent. The IDFC-promoted Rs 1,000-crore India Development Fund (IDF) is minuscule compared to the needs of the sector. In fact, according to people in the know, the fund would be significantly committed to projects by March 2005. "The fund will be exhausted in barely 20 months because there is simply no competition in the area, and the needs of the sector far outstrip the supply of equity funding," says a source. There is talk of ICICI Bank and IL&FS launching an infrastructure fund in the near future.

Earlier in the year, the Asian Development Bank launched a private equity fund to promote infrastructure - the Infrastructure Fund of India, which plans to invest in non-listed securities of companies that develop, own or operate infrastructure projects in the country. In 1999, AMP Capital had launched a similar fund and invested in telecom, gas and port sectors. "When we invested in the telecom sector in 1999, there was no telecom regulation in place. We took a risk and took the plunge," says Krishan Sehgal, director, AMP Capital. The latest $125-million AMP fund launched last year will be looking at ports, logistics industry and gas and oil pipelines.

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.

Teaching US students from India

Businessworld profiles the new "offshore tuitions" opportunity which involves teachers in India helping US kids improve their test scores:
The Karol Bagh centre of Educomp Datamatics could easily be one of them, another teaching shop promising to help students get into the IITs and IIMs.

Step in and you realise the difference. There are teachers, but no stud-ents. There are computers, but no blackboards. Actually, the students are 16,000 miles away at the Franklin School, Santa Barbara, California. Educomp is running a pilot for taking tuitions online for students in the US.

This is education outsourcing. Or, to use the cliché of linking everything sent from overseas as a process, it is being termed as education process outsourcing (EPO). Career Launcher, another Delhi-based teaching company, also has teachers on its rolls who are tutoring American students.


Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

The opportunity and challenges in automobile design outsourcing

Businessworld has published a cover story on the trends in the outsourcing of automobile design work to India:
Several companies like Ford, General Motors (GM), DaimlerChrysler, Toyota, Honda, Nissan, BMW, Robert Bosch, Johnson Controls now have in-house engineering design centres in India or outsource work to third-party vendors here. Indian firms are working on at least $500-million worth of automotive engineering design services (AEDS) projects. That figure could double in two years, perhaps earlier.

M.K. Padmanabhan learnt to design rockets and aircraft before he figured out that designing cars could be a profitable business. He turned entrepreneur after two decades in Indian Space Research Organisation and at NASA (on deputation) and a decade in the private sector. He and D.H. Bonde teamed up to float Plexion Technologies.

Plexion is among the fifty-odd engineering design services firms that have sprung up in the last three years. Not all of them have been as fortunate as Plexion. It managed to raise $5 million as seed capital from JP Morgan. Months later, it bagged its first order from DaimlerChrysler - to develop the detailed drawings for a car accessory.



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.

IIT-B start-up Powai Labs to launch chip testing system

Businessworld profiles Powai Labs, an IIT-Bombay incubated start-up that is close to launching a chip testing system:

Powai Labs, after two years of existence, is ready to launch its first product, a hardware accelerator, in March. "The launch will be a major milestone in the company's life and, by our calculations, should reduce the cost of verifying chip designs by a factor of four," says (Reapen) Tikoo (the company's founder)...

... Powai Labs uses a combination of software and hardware to speed up the simulation. Powai Labs' algorithm directs the program to a bunch of field programmable gate arrays (FPGAs), which are cheap and reusable chips. The FPGAs execute the logic much more quickly. The algorithm is smart enough to take very large designs, split them, apportion it over just four FPGAs and then put it all back together. "We hope to launch a 64-FPGA accelerator over the next 18 months," says Tikoo. Some large semi-conductor companies in India are testing the beta version of the product. Powai Labs could soon become the first chip verification tool company from India.

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.

February 10, 2005

Patents are like nuclear bombs, you just got to have some

Fred Wilson writes at his blog:

I have never seen patents make a business, but I have seen lack of patents hurt a business on many occasions.

So this line, given to me by a patent lawyer about ten years ago now, strikes a chord in me.

IP battles are like the cold war. Those who have patents can keep others honest because nobody wants to start a war that might end in everyone's destruction. But those who have no patents are sitting ducks and don't have the weapons to keep others honest.

So my advice to entrepreneurs is always file a bunch of patents. But don't expect that they'll ever do more than keep others at bay.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

February 05, 2005

Dot Edu ventures parts ways with Naval Ravikant

As pointed out in a New York Times article linked here last week, three of the five founders of e-commerce firm Epinions - including Naval Ravikant and Ramanathan Guha - had sued the company's VCs, Benchmark Capital and August Capital, and their co-founder, Nirav Tolia.

Now, Private Equity Week reports that Naval Ravikant, who had joined and quit August Capital inbetween, has been ejected from Dot Edu Ventures (founded by Stanford professor Rajeev Motwani and his wife Asha Jadeja):

The suit is also a primary reason why Dot Edu Ventures has decided to part ways with him...

...But Jadeja concedes that, “We were at a point where we felt there were multiple factors, including the suit, which helped us all decide that this might be a good time to part ways."...

...The partners at Dot Edu likely could have been thinking about whether having Ravikant on their team would hurt their relationship with August and Benchmark.

...The Dot Edu team may also have been thinking about thorny questions that could come from limited partners about the suit. The Palo Alto, Calif-based firm's first fund (a $20 million vehicle raised in 2000) is close to being fully committed, and the firm is believed to be out fund-raising. Surely, making a presentation to a potential LP who is already an investor in August or Benchmark would be more challenging provided Ravikant's role with the firm.

Here is Google's cache of the Dot Edu Ventures web site listing Ravikant as a Partner.

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.

Difference between a founder and a CEO

Michael Simmons quoting a speech by Paul Orfalea, founder and chairman Emeritus of Kinkos:

He made a great distinction between people managing their career (CEO) and managing their business (Owner). I never made this distinction, but these are two very different paths in many respects. A CEO must think a lot more about politics, pleasing people, and looking good to move up the ladder. The founder and owner, is more interested in the results of the businesses he or she is a part of.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

"Lemons ripen early, pearls take longer"

From Fred Wilson's blog post:

The bad deals reveal themselves to you early and you have to deal with the fact you made a bad investment and figure out how best to get it out of your portfolio, by either selling it, merging it into something else, or shutting it down.

The good deals take years to develop. If you have the patience, you are almost always rewarded.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

February 04, 2005

Foreign Investment caps in other sectors

The Hindu also provided a roundup of the current status of foreign investment caps in other sectors:

Civil Aviation: for airlines, the current foreign direct investment (FDI) cap is 49 per cent. For airports, it is up to 100 per cent, though Government approval is required for FDI beyond 74 per cent.

Petroleum (other than refining): 100 per cent FDI allowed for exploration in small fields through competitive bidding, up to 60 per cent in unincorporated joint ventures and up to 51 per cent in incorporated joint ventures.

Coal & Lignite; Tea plantation; Drugs and pharma; Roads and highways; Hotels and tourism: 100 per cent FDI.

Print media: 26 per cent FDI in news and current affairs and 74 per cent FDI in other print media.

Power: 100 per cent FDI in transmission, generation, etc.

Banking: 49 per cent FDI.

Insurance: 26 per cent FDI.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Foreign investment limit in telecom services hiked

From The Hindu:

The Union Cabinet on Wednesday approved the long-deliberated proposal to hike the ceiling of composite foreign direct investment (FDI) in the telecom sector to 74 per cent from the existing 49 per cent. This is subject to certain conditions and clauses inserted by the Home Ministry to safeguard the nation's interest by way of ensuring the "Indianness" of the operating companies.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

More "Ram Shriramayanam"

This time courtersy Business 2.0:
Google's outsize success fixed a giant halo above Shriram's 48-year-old head. And it helped gain him entrée into two of the most-hyped startups of the Web 2.0 generation: Friendster and Plaxo...

...As a result of his work at Google, Shriram emerged from the company's IPO with more shares than any other solo investor -- 5.1 million, to be precise, for which he paid pennies apiece. At the time of this writing, Google's stock was trading at $196. You do the math...

...In Silicon Valley, where people usually succeed because of who they know or what they know but rarely because of both, Shriram's combination of expertise and connections makes him a scarce commodity. But equally important, I think, is the narrowness of his focus. Unlike VCs, who tend to think they know something about everything and therefore can dabble in anything, Shriram works only with startups, he says, "in market spaces where I have fairly deep domain knowledge -- consumer Internet services and software." Also unlike VCs, who are compelled by the scale of their funds to spread themselves thin across many investments, Shriram is never active in more than three or four startups at once, all based in the Valley...

...The final element of Shriram's formula is relentless independence. "My only loyalty is to what's best for business, not to any set of constituents," he tells me. "Sometimes that means going against the founders, sometimes against the VCs. So my judgments may be wrong, but they won't be biased judgments."


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.

February 01, 2005

"China will take several years to catch up with India in IT Services"

From McKinsey Quarterly:
A recent McKinsey study of China's software sector, however, shows that it will be many years before the country poses a threat to its continental rival in this arena. For starters, the Chinese must consolidate their highly fragmented industry to gain the size and expertise needed to capture large international projects. Currently, there is little movement in this direction....

...To compete effectively in global outsourcing, China's software industry must consolidate. The top ten IT-services companies have only about a 20 percent share of the market, compared with the 45 percent commanded by India's top ten. Furthermore, China has about 8,000 software-services providers, and almost three-quarters of them have fewer than 50 employees. No company has emerged from this crowded pack; indeed, only 5 have more than 2,000 employees. India, on the other hand, has fewer than 3,000 software-services companies. Of these, at least 15 have more than 2,000 workers, and some—including Infosys Technologies, Tata Consultancy Services, and Wipro Technologies—have garnered international recognition and a global clientele...

...Fragmentation exacerbates the Chinese industry's other problems, including weak process controls and product management. Only 6 of China's 30 largest software companies are certified at levels five or four of the capability-maturity model (CMM);3 by contrast, all of the top 30 Indian software companies have achieved these rankings.




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.

Why retail is hot

From a Reuters report:
Private-equity firm GW Capital financed a Rs 45 crore deal last month to merge two south Indian department store chains, Trinethra and Fabmall, aiming to grow their combined annual revenues to Rs 1000 crore from 200 crore by 2008.

Another private-equity firm, ICICI Venture, invested Rs 25 crore in Madras-based discount grocery chain Subhiksha, to help it enter new markets. The firm had already invested Rs 15 crore in Subhiksha four years ago. And department store Shopper's Stop plans an initial public offering to raise up to Rs 130 crore as it adds 11 stores to its existing 15 and launches hypermarkets...

"Many retail players are beginning to reach critical mass, and this is a business of scale, so you need to be big," said George Thomas, a business manager at GW Capital...

Organised retail, which has grown 8.5 percent annually in the past few years, makes up just 2 percent of total retail sales. "With just 2 percent penetration, growth is going to be breathtaking. Doubling and even quadrupling of revenues is feasible, so there's a lot of interest from investors," said (V.S.) Sudhakar, managing director of Fabmall).

Organised retail is expected to handle a fifth of all sales by the end of the decade. This year alone, the $4.2 billion industry is tripling space to 25 million square feet.


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.