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March 31, 2005

Want to re-write your company's past? Don't forget the Wayback Machine and Google's cache

Venky Ganesan has taken exception to a MarketWatch
article profiling Certus (formerly nth Orbit) and its co-founder Vani Kola.

Ganesan's problem is that "this article makes it out to be (that) Vani left Rightworks and had this insight around corporate governance and decided to start Certus". "Great story but alas not the complete truth," he says and goes on to use the Wayback Machine's archive of the evolution of Nth Orbit's web site to desmonstrate that the company was originally focused on the supply chain software space and hence "not exactly" focused on corporate governance related problems. "Every company goes through ups and downs and if anything, we should congratulate Vani on how she has successfully evolved Nth Orbit into Certus. However its misleading to distort history. Its particularly ironic since she is trying to improve corporate governance," Ganesan says.

In his post, Ganesan provides that the blame for why the MarketWatch article gets its "facts wrong" could "partially" belong to the reporter who interviewed Vani Kola. He also discloses that his firm (Globespan Capital) is an investor in Certus competitor OpenPages.

Regardless on the rights and wrongs of this "case", what's certain is that, with the Wayback Machine and Google's cache around, it is way too difficult for companies to try and re-write their past.

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.

Sunil Bharti Mittal planning to incubate start-ups

Business Standard has an article on Bharti Group founder and Chairman Sunil Bharti Mittal's future plans, which includes an equity fund to invest in new ventures outside the group. According to the article, Mittal plans to step down as executive chairman of Bharti Televentures, the group's telecom business, when he turns 50 in three years time. He is, in parallel, working on growing the group's non-telecom initiatives (including especially, agriculture), which will be his focus area after he retires.

An Extract:
Already, Mittal is charting a new course. Not content with being telecom's tycoon, he is giving shape to a new thrust in non-telecom businesses. A decade from now, he reckons, telecom may no longer be the largest slice in the Bharti pie.

Over the next three months Mittal hopes to float an equity fund with a large corpus (the extent of which is still being decided, though Mittal says money is not a problem), that will be used to fund new businesses in emerging areas, to be run by others.

This last is important because it points to the direction -- and role -- Mittal is carving for himself.

As the group has limited management time and can't get into too many new businesses on its own, it will fund others instead. "We can invest anything up to 74 per cent, or only 26 per cent, function as an incubator for entrepreneurs with new ideas. . . the scope is endless."


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.

A "Private Investment for Royalties from a Public Enterprise's Future Revenues" deal

While it has moved away (like most other VCs in India) from investing in early-stage companies, ICICI Venture Funds continues to innovate when it comes to creating novel deal structures for financing late-stage companies.

The latest example of this is the fund's $56 million investment commitment to Hyderabad based, publicly listed pharmaceuticals firm Dr Reddy's Laboratories to finance the latter's new drug R&D. Dr. Reddy's would use the money from I-Venture to fund the development, registration and legal costs related to the commercialisation of Abbreviated New Drug Applications (ANDAs) for two years. In return, ICICI Venture will be paid a royalty by Dr. Reddy's pegged to the latter's net sales for a period of 5 years.

Given that new drug R&D is a high-investment, high-risk, but high-reward business, the partnership between a private equity firm which has access to a lot of capital and an established pharmaceuticals firm which has pioneered original R&D in India, seems to be an ideal one. It would be interesting to see if the deal kicks off a trend.

UPDATE: Here is what Ms. Bala Deshpande told TSJ Media, when we suggested to her that the deal resembled debt-financing in some ways:

"The DRL deal has been an innovative structure crafted to suit the growth needs of the company. We would not however deem as debt-financing in fact it is probably more true-blue private equity deal than some of the recent deals. The bet is on the R&D capability of the company and the US generic market opportunity. We will be as any VC sharing the risk-reward with the company."

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.

"Patient investors can win big in India"

"India is an acquired taste. India is about long-term perspectives. India is about patience. But India is a place where you can make a lot of money". So says Rajiv Lall, newly appointed CEO of Infrastructure Development Finance Co. (and formerly with private-equity firm Warburg Pincus in New York) in a Reuters article comparing India (of the "potholed roads and decrepit airports") and China (of the "first-world superhighways and magnetic levitation rail lines").

More extracts from this interesting article:
JM Morgan Stanley estimates that China spent $325 billion on infrastructure in 2003, while India spent just $35 billion. Only in a few nations does the private sector play a big role in infrastructure development, JM Morgan Stanley economist Chetan Ahya says. He urges the government to spend an extra $20-$25 billion a year at least, to be financed by privatisation.

The China comparison makes Indian officials grumpy. They say India can be proud of its recent growth of 6-7 per cent a year given that its gross investment is only about 26 per cent of GDP. China, by contrast, invested some 44 per cent of GDP last year for 9.5 per cent growth. What's more, they add, many of China's infrastructure loans will turn sour, burdening its banks.

"We're going about improving infrastructure with a fairly conservative fiscal model. We're not breaking any banking rules. We're not suggesting anyone take undue risks," said Pradeep Deb, joint secretary at the Finance Ministry in New Delhi. "I think we are looking at a more sustainable long-term model of development by letting the institutions and the markets grow in a natural way," he said.

Tony Nash (former head of VC Research at Red Herring and The Industry Standard) and Paul Waide (Editor of Shanghai, China-based research firm Pacific Epoch) and I are having a discussion on foreign investments in India vis-a-vis China at the Pacific Epoch blog here. Feel free to weigh in with your takes.

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.

Nirma Labs: An incubator that advertises and charges fees

While the incubation programs at several of the country's business schools are figuring out their model, NirmaLabs, located in the Ahmedabad, Gujarat based Nirma University campus, has come up with an unique model that actively seeks out and markets itself aggressively to entrepreneurs. NirmaLabs is taking out prominent advertisements campaign in leading business magazines as part of its efforts to seek out "individuals (and) groom them to be a global player in select high tech fields, and incubate them to create viable high tech ventures by providing a nurturing environment and needed support."

More from the NirmaLabs web site:
NirmaLabs is a not-for-profit Section 25 Company set up by Nirma Education and Research Foundation (NERF). NirmaLabs has been established with an objective to nurture talented individuals in their pursuit of high-tech, knowledge-based wealth generation. NirmaLabs has a corpus of over Rs. 5 crores earmarked to incubate promising individuals and projects. The Department of Science and Technology, Government of India, has decided to support NirmaLabs as one of their Technology Business Incubators...

Selection ProcedureEntrepreneurially inclined bright engineering / science graduates or MBA with 2-3 years of experience, aspiring to make a mark in the high-tech arena are eligible. M.Tech/M.E. without experience are also eligible. Individuals with a remarkable academic record, sound technical knowledge, good business sense, conviction and strong perseverance are identified through a specially devised selection procedure. Freshers with outstanding achievements may also be considered.

Financial Structuring
..Each project funding will be treated as a loan to the project from NirmaLabs. Repayment of the loans by the incubated ventures will sustain NirmaLabs’ activities and reduce the need for recurring funds.

As the concept of NirmaLabs is based on grooming individuals and not specific ideas, direct candidates are expected to pay for the grooming exercise (Rs. 50,000), and also for use of facilities, lodging and boarding (Approximately Rs. 46,000).

The rights to intellectual property, for NirmaLabs funded projects belong to NirmaLabs and will be assigned to the start-up company when it is venture financed. When a NirmaLabs funded project is ready to be spun-off as a “start-up” company, the equity structure will be as shown below:

The other unique feature of NirmaLabs is the concept of a “Pool Company” to create a mechanism to share success. The Pool Company has a 5% equity in every start-up company incubated/funded by NirmaLabs. Every start-up company is given equity in the Pool Company. As the number of incubated enterprises grows, this pool will become larger. Thus, any enterprise which makes it big will yield more gains for the rest of NirmaLabs incubated start-ups.

* The NirmaLabs' "Grooming Program" curriculum:
1. Entrepreneurship: Madhu Mehta
2. High-tech Entrepreneurship: B H Jajoo
3. Creating Entrepreneurial Organizations: K Thyagrajan
4. Challenges of Entrepreneurship: Madhu Mehta
5. Designing Break-through Products: Madhu Mehta
6. High-tech Marketing: B H Jajoo
7. Entrepreneurial Finance: Vishnu Varshney & Bharat Kanani
8. Emerging technology trends in ICT: Saumil Shah & B H Jajoo
9. Legal aspects of global business: M C Gupta
10. High-growth strategies: B H Jajoo & Madhu Mehta
11. Intrapreneurship:. B H Jajoo
12. Business Ethics: K Thyagrajan
13. Managing with a global mindset: K Thyagrajan

“What brought me to NirmaLabs was my desire to start something on my own. After my studies I was struggling to freeze on the right idea and then to take the initial steps to make a business out of it. I would honestly recommend NirmaLabs to anyone, who passionately wants to become an entrepreneur. I feel the grooming here will allow a person to select the right idea, plan well for the idea and take it to commercialization in the best possible way. My grooming here will help me avoid many of the early mistakes that kill early entrepreneurial ventures,” the web site quotes Madhukar Pai, a graduate from the first batch of NirmaLab's "Grooming Program".

NirmaLabs is currrently conducting roadshows across major cities in India to enroll entrepreneurs for its second batch.

UPDATE: Business Standard has an article about the NirmaLabs program.

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.

March 29, 2005

How VCs should say "No", and how entrepreneurs should take them

Bill Burnham,Managing Director at Celsius Capital, has a nice 3-part blog post on the choices and dangers VCs face while saying "No" to funding pitches from entreprenreurs. "Saying “no” to any entrepreneur is not fun and creates enemies. It’s like telling someone their baby is ugly or their child is stupid. At best they will walk away puzzled at your inability to “get it”, at worst they will berate for your stupidly and declare a permanent pox on your house."

His parting advice to VCs:
1. Being honest. It’s tempting to use a convenient excuse, but you and the entrepreneur are both better off if you are upfront and honest. Yeah, you risk alienating some entrepreneurs but if they don’t respect you’re attempt to be honest then they you probably wouldn’t have worked well together anyway.

2. Being specific. To the extent that you can be specific, you owe entrepreneurs the real reasons for why you are saying “no”. Not only is this the right, professional thing to do, but it will also help force you to make sure you are making the right decision.

3. Being quick. A fast “no” is much better than a long draw out “no”, both for the entrepreneur and for you.
And, for entrepreneurs:

Thanks, this has been helpful. Let’s talk if we raise another round.
If properly done, my experience is that the majority of entrepreneurs will react this way to a “no”. For starters, entrepreneurs are generally good salespeople and they realize that if one customer has an objection, similar customers are likely to have the same objection. Thus the more feedback they can get on their funding pitch, even if it’s negative, the better off they are. In addition, if the entrepreneur feels that the feedback they get is thoughtful they usually appreciate that someone took the time to seriously think about their business. Finally, most entrepreneurs, like VCs, never want to preclude the possibility of a future investment so they do what they can to leave the door open in the future.



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.

March 27, 2005

Why VCs are jerks, according to Paul Graham

Paul Graham, co-founder of ViaWeb (acquired by Yahoo for $50 million), has figured out why (most) VCs are jerks.
The problem with VC funds is that they're funds. Like the managers of mutual funds or hedge funds, VCs get paid a percentage of the money they manage. Usually about 2% a year. So they want the fund to be huge: hundreds of millions of dollars, if possible. But that means each partner ends up being responsible for investing a lot of money. And since one person can only manage so many deals, each deal has to be for multiple millions of dollars.

This turns out to explain nearly all the characteristics of VCs that founders hate.

It explains why VCs take so agonizingly long to make up their minds, and why their due diligence feels like a body cavity search. With so much at stake, they have to be paranoid.

It explains why they steal your ideas. Every founder knows that VCs will tell your secrets to your competitors if they end up investing in them. It's not unheard of for VCs to meet you when they have no intention of funding you, just to pick your brain for a competitor. This prospect makes naive founders clumsily secretive. Experienced founders treat it as a cost of doing business. Either way it sucks. But again, the only reason VCs are so sneaky is the giant deals they do. With so much at stake, they have to be devious.

It explains why VCs tend to interfere in the companies they invest in. They want to be on your board not just so that they can advise you, but so that they can watch you. Often they even install a new CEO. Yes, he may have extensive business experience. But he's also their man: these newly installed CEOs always play something of the role of a political commissar in a Red Army unit. With so much at stake, VCs can't resist micromanaging you...

I realize now that they're not intrinsically jerks. VCs are like car salesmen or petty bureaucrats: the nature of their work turns them into jerks.
Graham also has an "explanation" why a few VCs - like Mike Moritz of Sequoia Capital and John Doerr of Kleiner Perkins - are "good guys" despite being VCs:
They work for the very best VC funds. And my theory explains why they'd tend to be different: just as the very most popular kids don't have to persecute nerds, the very best VCs don't have to act like VCs. They get the pick of all the best deals. So they don't have to be so paranoid and sneaky, and they can choose those rare companies, like Google, that will actually benefit from the giant sums they're compelled to invest.

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.

March 22, 2005

John Doerr's presentation at Stanford University

A must see presentation from the famous KPCB partner behind Amazon.com and Google.

Just one extract:
Entrepreneurs do more than anyone thought possible with less than anyone thought possible

UPDATE: The fact that Doerr celebrates entrepreneurs as the real heroes (and does not behave like a celebrity himself), earns him respect from even those folks who hate the VC breed in general. "I've met a few VCs I like. Mike Moritz seems a good guy. He even has a sense of humor, which is almost unheard of among VCs. From what I've read about John Doerr, he sounds like a good guy too, almost a hacker," allows Paul Graham, co-founder of ViaWeb (sold to Yahoo for $50 million), in his recent article attacking VCs titled "A Unified Theory of VC Suckage".


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.

March 19, 2005

McKinsey's mantra for MNCs in India

McKinsey Quarterly has article on how multinational companies entering India should avoid replicating products and processes that have worked in other markets. "Clearly, any entry into a new market requires a certain degree of tailoring to its specific needs and conditions. But for some companies, the entry into India has forced a fundamental rethinking of product offers, cost structures, distribution systems, and management teams. Companies that successfully tap into the promising Indian market often ignore conventional wisdom, including the need for joint ventures."

Multinationals in deregulating industries often need to be flexible and patient during the natural process of regulatory evolution. Regulations governing the mobile-telephony sector, for example, have been amended several times since 1994 as it has grown; it had two licensed operators per region back then and now has as many as six. Although most multinationals left the sector when the regulations governing it changed, Hutchison Whampoa continued to invest in India. Ten years later, Hutchison Essar is one of the top three telcos in the country (as reckoned by market share), and interviews with industry experts suggest that the company enjoys strong profitability.

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.

March 18, 2005

Business school incubators change tack

Business Today has an article on incubation programs at various business schools in India. I found the changing face of incubator programs like IIM-B's NSRCEL (sponsored by Infosys co-founder Nadathur S. Raghavan) to be most interesting part of the article:
Initially, NSRCEL started by offering cash awards to the best business plans of IIM students, who would partake in an annual competition meant for the purpose. However, within two years, the centre realised that while the plans sounded great on paper, few of the winning students wanted to pursue them. Instead, "they were looking for the glory of winning the competition," says (Mathew) Manimala (Professor of Entrepreneurship). So instead of giving the winning students cash, the centre decided to fund their business plans. When that didn't yield the desired results either, the centre broadbased its scope to fund anybody with a good business plan.

NSRCEL, though, isn't the only one doing so. At ICFAI's entrepreneurship centre, the funding is not just open to all, there's no upper or lower limits to it as well.

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.

March 17, 2005

Raise Private Equity, boost valuation, go IPO

Economic Times points out how companies are finding it attractive from a valuation perspective to raise money from private equity funds just before going in for an IPO.

Suzlon Energy’s IPO plan is a classic case. Last November, Suzlon raised Rs 100 crore through issue of equity and convertible preference shares to ChrysCapital.

The non-conventional energy major had also raised Rs 100 crore from Citigroup Venture Capital International, a Citigroup global investment unit, a few months ago.

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.

March 14, 2005

Bill Gurley (finally) launches a blog

In my opinion, Bill Gurley, a partner at Benchmark Capital and one of the best known VC columnists (in Fortune and News.com), was a "blogger" even before blogging was invented. It has therefore been a source of constant surprise why he had let other VCs like Brad Feld steal the limelight.

Whatever the reasons for the delay, Gurley has - finally - turned blogger now with a "Sorry it took so long to "get with" this new wave" note. Check out his blog at http://www.abovethecrowd.com.

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.

Profile of Pantaloon Founder & CEO

Business Today (paid access required) has a profile of Kishore Biyani, Founder & CEO of publicly listed retail firm Pantaloon.
A little over seven years ago (August 1997, to be precise), when Biyani opened his first Pantaloon family store in Kolkata's Gariahat, few retailers could have dreamt that the commerce graduate, who started off with an investment of Rs 7 lakh and capacity of 200 trousers a day, would rise so rapidly. When Biyani talked about his "pan-Indian retailing model", reactions ranged from good-humored incredulity to downright derision. That is, till Biyani proved them wrong. Take the test case of Kolkata. He invested Rs 5 crore in the first Pantaloon store, including a Rs 40-lakh promotional campaign-unheard of for a retailer with just one store. Surprisingly enough, the response was overwhelming. With daily footfalls of over 1,200, it notched up Rs 10 crore in sales in the first year...In quick succession, Biyani opened two other Pantaloon stores, followed by the first Food Bazaar. His transformation from a manufacturer-he'd started off in the family textile trading business-to a retailer had begun.


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.

March 12, 2005

"Early stage investments still make sense"

Ravi Chiruvolu, a general partner at Charter Ventures, provides a reminder of why early stage companies, while currently out of fashion, are an attractive investment opportunity in his column for Venture Capital Journal:
Not only are valuations more attractive, not only is deal flow more robust, not only is there less competition for entrepreneurs to accept term sheets, but investing earlier cuts to the very notion of why most VCs do what they do. To create and add value within organizations where bandwidth and talent is sorely needed. To take risk in the hope of creating sustainable businesses where quality output, increased hiring, and contributing to the overall health of the economy all go hand in hand. To prime and polish even more companies in order to create an ever better and more efficient channel of mid-to-late-stage startups for further follow-on investing by larger funds.

Thus, to add talent, resources and capital at the earliest stages of company formation essentially adds all of that, and more, to the entire food chain of startups within our industry. For these reasons we should start filling the gaps at the earliest stages of venture capital, helping seed-stage companies keep pace with the money being raised by mid-stage and late-stage companies, allowing startups of all sizes to participate in the much awaited and well-deserved rebound in our industry.

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.

March 09, 2005

The Hedge Fund alternative

The Economic Times has a news item on how hedge funds are now competing for deals in India with VC and PE firms. While the ET article doesn't mention it, the deal which comes to mind readily is US-based Farralon Capital's investment in stock broking and financial services firm, Indiabulls, which pulled off a successful IPO recently.
Recently, hedge funds have been doing the rounds of investment bankers and private companies looking to invest in unlisted companies. Hedge funds have realised that with just a handful of private equity investors in India, there are a lot of investment opportunities to be tapped among private companies. Moreover, they feel that the potential or returns could be much larger in the private markets, compared to public ones.

Private equity investors admit that hedge funds are sniffing around. Raj Dugar of Carlyle Private Equity Fund says, “Some of the hedge funds have also started doing the rounds, searching for a toe-hold among unlisted companies, a preserve of private equity funds.”

Some industry observers say that with secondary markets at a historic high, hedge funds are looking at new investment options in the country.

Pramod Bhasin, president & CEO, GECIS, which raised funds from private equity investors when GE reduced its holding in the company, says, “We also received some offers from hedge funds when we were doing our evaluation. We could not find any clear value in the capital they were bringing to the table. This does not mean that all private equity funds brought value, but the hedge funds were less capable.”


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.

March 07, 2005

Report alleges Naveen Jain led InfoSpace fudged revenues and misled investors

The Seattle Times has published a 3-part investigative report alleging InfoSpace executives misled public investors about the company's performance. "InfoSpace's success was an illusion, built on accounting tricks and the hype of charismatic founder Jain," the report says. "The investigation — built on internal company e-mails, confidential documents filed in court and scores of interviews — found that Jain and others created the illusion of revenues with accounting tricks and dubious deals," it adds.

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.

Are PE firms good at running media companies?

The Economist has an interesting article on the huge investments being made by Private Equity firms in taking over and turning around media firms.

Some extracts:

Some private-equity firms have long put money in media assets, but mostly reliable, relatively obscure businesses with stable cashflows. Now, some of them are placing big strategic bets on the more volatile bits, such as music and movies. And they are currently far more confident than the media old guard that the advertising cycle is about to turn sharply upwards...

..Private equity's buying spree reveals a lot about the media business in particular. Media conglomerates lack the confidence to make big acquisitions, after the last wave of deals went wrong. Executives at Time Warner, for instance, which disastrously merged with AOL in 2000, wanted to buy MGM, a movie studio, but the board (it is said) were too nervous. Instead, private-equity firms combined with Sony, a consumer-electronics giant, to buy MGM late last year...

...What private-equity men now bring to the media business, they like to think, is financial discipline plus an enthusiastic attitude towards new technology. Old-style media managers, claim the newcomers, are still in denial about how technology is transforming their industry...

...Traditional media managers grudgingly agree that, so far, private-equity investors are doing very nicely indeed from their entertainment deals. The buyers of Warner Music have already got back most of their $2.6 billion from the firm by cutting costs, issuing debt and making special payouts to shareholders. This year, its investors are expected to launch an initial public offering, which could bring them hundreds of millions more.

“Instead of treating private equity like a sub-species, well-managed media companies have figured out that under the right circumstances, we're both better off as partners,” he (Jonathan Nelson, founder of Providence Equity Partners, a media-focused private-equity firm) says. So far, however philistine and ruthless their motivations seem to the industry's old guard, private-equity firms are making media work better


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.

March 05, 2005

Profile of GVFL's Vishnu Varshney

Financial Express has a profile of Vishnu Varshney, managing director and CEO of Gujarat Venture Finance Ltd (GVFL).
He wanted to be an entrepreneur initially.. He was so serious about starting his own venture that he even applied for a plot of land in Kanpur...When he sought the help of UPSIDC (Uttar Pradesh State Industrial Development Corporation) for land, he got a job offer from Jagdish Khattar (the present Maruti CMD) who was heading the organisation. He joined UPSIDC and then went to Gujarat Industrial Investment Corporation (GIIC) after a brief stint in L&T.

An opportunity to add meaning to his career arose in the form of GVFL which was being formed with World Bank assistance in 1990. Mr Varshney’s name was recommended by GIIC for the chief executive post. “That was the turning point,” says Mr Varshney. “I underwent a 18-week training with Hambro International Equity Partners, USA in venture capital after which I set up GVFL, a venture capitalist firm.”

In the past 15 years, Mr Varshney has provided managerial and financial support to 56 companies. The highest success stories are in IT ventures: einfochips, Parsec Technologies, Radiant Technologies, Neilsoft, and Icenet. “We’ve raised four funds worth Rs 120 crore and are in the process of raising a fifth fund worth Rs 50 crore for biotechnology,” he says. After which, he proposes to raise funds for tourism and cottage industry worth Rs 100 crore.

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.

March 04, 2005

Lemming mentality in the airline sector?

At a time when it looks like every Ram, Shyam and Hari has plans for launching an airline in India, InterGlobe Enterprises, one of the first companies to get clearance from the government to start an airline, has decided to ground its plans. InterGlobe's Managing Director Rahul Bhatia, in an interview to Business Standard, cited "excess capacity generated in the market" as the reason.
In the last few months India has seen a sudden upsurge in the number of airlines planning to start services. Various prediction by airline industry point out that about 13 airlines would start operations over the next 12 to 18 months. And most of them will follow a low-cost no-frill model.

The airlines that are expected to start services are Air One, Indus Air, Royal Air, East West, Wadia, Kingfisher, Visa, Yamuna, Air India Express and the low cost service by Alliance Air. Airlines like Royal Air and Kingfisher are currently in the process of acquiring aircraft and are expected to start operations soon.

It is also worth noting that some of the existing players have been pressing the government to raise the entry barrier in the airline sector so that non-serious players do not make an entry into the sector.

As per the present norms, an airline required five aircraft and a minimum paid up equity of Rs 30 crore (Rs 300 million) to get a license to operate.

Airlines like Jet Airways and Air Sahara has been petitioning the government for raising the entry level barriers by raising the minimum paid up equity to Rs 250 crore (Rs 2.5 billion).


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.

March 02, 2005

Profile of Jet Airways founder Naresh Goyal

Times of India has a profile of Naresh Goyal, Founder of privte airline Jet Airways, which recently pulled off a successful IPO.

This is undoubtedly a great achievement for a man who first stepped into the aviation industry when he joined the Delhi-based Continental Travel — an agency floated by his mother's uncle. After a short stint there, Goyal established his own airline agency, Jetair.

Nursing greater ambitions, Goyal then went on to set up a domestic airline in India when the government opened up the skies to private players. Having staved tough competition from the state-owned behemoth Indian Airlines and rival private carriers such as East West Airlines, Jet today has established itself as one of the most profitable and successful airlines in India.

"Goyal never ran his airline," says Kapil Kaul, senior V-P, Centre for Asia Pacific Aviation. "I see him as a man who possessed a vision. Back in 1993, when other start-ups were inducting Boeing 737-200 aircroreaft, Goyal bought new generation Boeing 737-400s. He understood the value of quality and made sure that he hired the best professional talent in the international market."

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.

Indiagames and its investors

Business Standard has an interesting article which touches upon the relationship between Vishal Gondal, the founder of Indiagames (now 80% owned by China's Tom Online), and the company's VC backers, Infinity Ventures and IL&FS.

Some extracts:

How Gondal met with the VCs:
Hollywood is a long way from Chembur and might have remained so had Gondal not “bumped into some suits” from PricewaterhouseCoopers, the management consultancy, in 2000. The consultants offered to introduce him to new investors, and the result was seed funding of $750,000 from IL&FS Investment Managers and Infinity Ventures, both Mumbai-based private equity funds.


How the investment changed Gondal:
“For me, the arrival of investors was the most valuable MBA education anyone could have,” he said.


The clashes:
The investors were keen to develop Indiagames as a source of “advertorial” games, a business model that relied on online games designed around consumer brands. But that model did not survive the dotcom crash.

Gondal says the backers subsequently pushed the company towards designing and servicing online games for foreign customers. That made Indiagames an outsourcing arm and, in effect, hostage to overseas clients’ unrelenting demand for lower costs.

“Servicing gets you stuck at the bottom of the value chain and I didn’t want my customer capturing the rewards of my value additions,” Gondal says. He took his sceptical investors to gaming industry events to persuade them that the greatest opportunity lay in designing proprietary games, not servicing clients’ games.

“I wanted my investors to be part of a solution, not the problem,” he says. Fortunately, he won their allegiance to the new business model at a time when wireless services were growing fast, particularly in the mobile gaming market.


The bitter taste:
He recalls an unhappy period when his seed investors, who sold their equity to Tom Online, appointed an executive from a multi-national to manage Indiagames. It was not a successful relationship, he says.


The new challenge:
Now Gondal faces his biggest confrontation. Armed with a rich and well-connected Chinese partner, he is targeting gaming giants such as California’s Jamdat and France’s Gameloft.

“This is the real battle,” he says. Indiagames’s Chinese connection brings one immediate benefit: an investment of about $4 million for expansion. The company, which earned 86 per cent of its $1.2 million sales last year from Europe, will open offices in Los Angeles and London this year.



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.

TSJ Media featured in Business Today article on VC exits in India

Business Today (subscription required) has an article on VC exit trends quoting data from TSJ Media:
By all accounts, 2004 has been a golden year for venture firms in India. For one, there were record exits, 30, according to Chennai-based industry tracker TSJ Media, not counting some smaller ones that fly under the radar. That's a clear sign of exit routes improving, with options like IPOs and M&As becoming available to the firms.

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.