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August 30, 2005

VentureVoice audio interview with Brad Feld

In this podcast interview to VentureVoice, Brad Feld of Mobius VC talks Issue of products vs. consulting, VC-CEO relationship, relevance of business plans, working with other VCs, dealing with lawyers on deals, etc.

August 29, 2005

Audio interview with Bessemer Ventures' Rob Chandra

In this downloadable mp3 audio interview ("podcast") to PodTech.NET, Bessemer Ventures General Partner Rob Chandra talks about the industry segments that his firm is actively investing in these days, about BVP's investment in Skype and why BVP is so focussed on India and China.

August 25, 2005

Indiabulls on the rampage

Business Today has a fascinating profile of PE-backed stock broking and financial services firm Indiabulls

(A) striking feature of Indiabulls is its ability to raise money. In 2000, it had managed to raise venture capital from Infinity Ventures, Harish Fabiani of Transatlantic, and LN Mittal Internet Ventures, all of whom put in a total of Rs 43 crore. The next rounds happened in 2004 and 2005, when Farallon and Amaranth brought in a total of Rs 310 crore. Now Indiabulls is clearly among the top 100 capitalised companies, with Rs 700 crore in equity capital.

August 21, 2005

An U-turn at i2?

Sanjiv Sidhu founded supply chain software i2 Technologies seems to have emerged back from the brink, says this BusinessWeek article, providing a lot of credit Michael McGrath, who took over from Sidhu as CEO.

Sidhu moved up to chairman of the maker of supply-chain-management software, and McGrath went into Bob Vila mode. For starters, he stopped picking up the tab for cell phones for the entire staff. Then he cut all corporate travel unless it was billable to clients. And he laid off 13% of employees -- most of whom were in upper management. "In the past, layoffs were all done at the worker level. We had way too many VPs and higher-paid executives," says McGrath.

In a little more than a quarter, McGrath has managed to get i2's stock relisted on the Nasdaq, raise nearly $40 million to shore up its balance sheet, and dramatically cut costs -- by $20 million in the second quarter alone.

...Some of i2's recent tech improvements have been helping companies predict how different products will sell, in real time and even at the store level.

...But McGrath isn't just counting on big supply-chain-management packages to boost the top line. He has completely changed how i2 sells software. Under McGrath, salespeople are no longer swinging for the fences. Simply put, he has admitted something analysts have said of struggling business-software companies for years: They can no longer live on big multimillion deals. Because software purchases were so large, companies were dragging their feet.

...To get that price point down in the hundreds of thousands per deal, McGrath is selling software in chunks that address specific parts of the manufacturing or fulfillment process. The idea is the lower price point will lead to a shorter sales cycle, and it'll build more trust, bringing the customer back for more chunks of software.

It's a very gutsy move, and one similarly beleaguered software companies have been loath to make. You have to close more deals to make the same amount of money, and the software has to perform as advertised, or customers won't come back. Much of i2's salesforce, which relied on hefty commissions from these deals quit. Many more were fired.

McGrath didn't sweat it -- he'd rather sell through third-party consultants anyway. That lowers the cost of sales even further, he argues. "He's swapping the potential for huge, hockey-stick growth for less volatility," O'Marah says. "But it's probably the most important thing he has done."

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.

August 20, 2005

Profile of ChrysCapital's Ashish Dhawan

Business Today has published a detailed profile of ChrysCapital co-founder and Sr. Managing Director Ashish Dhawan, who has managed to successfully transform his firm from an early-stage, Internet services focused investor to a predominantly late-stage (mostly PIPE and non-tech) one within just a few years.
Says a Delhi-based VC who knows Dhawan closely: "If Dhawan hadn't survived the (dotcom) crash and had not managed to raise his second fund, he would have ended up as a middle-level manager in one of the investment banks."

Fact is, Dhawan did not just survive but went on to thrive. With his second fund, he built what could be described as his comeback portfolio. He's picked up stakes in hot new companies like IVRCL (an up-and-coming infrastructure player), Yes Bank and Suzlon Energy. For instance, he paid a measly $5 million (Rs 22 crore) for a 7.5 per cent stake in Yes Bank (it works out to Rs 14 a pop). That investment today is worth $15 million, or Rs 66 crore, thanks to the bank's recent IPO that priced the stock at Rs 45. (The stock is slated for listing on July 12). In the case of IVRCL, Dhawan grew his $9-million investment to four times in just one year when he exited it via public market.

Of Fund Three's $250 million (Rs 1,100 crore), Dhawan has already invested $90 million: $55 million has gone into construction company Gammon (the investment was made in December last year) and $35 million into Chennai-based truck finance firm, Shriram Transport Finance. Stocks of both the companies are trading at a significant premium over the deal price, but Dhawan says he's in no hurry to sell. "We now have the ability to be really long-term oriented. Early on, there was pressure to show returns. Now, I don't mind holding on to companies for more than five years."

Why founder sales are actually a good idea

Venture capitalists never like deals where their money is used to buy the shares owned by founders and other early investors. They like their money to go "into building the company" - ie, towards hiring people, building a product, etc. Unless, that is, they are desparate to get in on the deal.

Gary Rivlin of The New York Times reports that such "founder sales" deals are now becoming more common in the US. Companies like eHarmony, Webroot Software, Fastclick, etc., have witnessed the founders "using venture deals to cash out some of their equity without the bother of a public offering or an acquisition".

If the VCs are so hungry for the deal, why then do the founders want to cash out early? Are they not as confident as the VCs about the success of their businesses?

The reason, as Woodside Fund partner Thomas Shields explains in the NYT article, is because a founder is typically "stock rich but cash poor". Shields feels such a situation is actually bad for the company as a whole since such a founder "might be overly conservative in his or her business decisions for fear of losing everything."

"If you can give these guys a little bit of liquidity so they're comfortable taking more risk, but not so much that they're not hungry anymore, then it can be a very good thing."

What Shields says makes a lot of sense. So much so that I think it might be a good idea for VCs to actually insist on "limited founder sales" when they invest in a company. I think this will help reduce the all-too-famailiar clashes between founders and their VC backers post the initial honeymoon period. Letting the founders take "a little bit off the table" reduces their risk in doing what VCs what companies all their investee companies to do: grow faster.

The players in India's gaming software sector

Business Today has a good article on India's gaming software sector and its players.
Mobile telephony! That's what's driving mass gaming in India. Telecom operators say subscribers are downloading 500,000 games every month from their GPRs or WAP portals (Reliance through its R-World); this is likely to cross 1.5 million by the end of the year. "Mobile phones are making gaming a mass market phenomenon," says Pravin Pinto, GM (Marketing) at LG's CDMA Handset Division. Nasscom estimates that the Indian gaming industry will tot up revenues of $500 million (Rs 2,200 crore at current exchange rates) by 2010. In much the same vein, research agency In-Stat/MDR says the Indian mobile gaming market alone will touch $336 million (Rs 1,478.4 crore) by 2009...

...Says K. Rajesh Rao, CEO, Dhruva Interactive, who worked with Microsoft Gaming Studio for an Xbox game, Forza Motorsport: "Global biggies now seek us out and want to do business with us. It's a nice position to be in." Rao, a computer science engineer from Sweden's Royal Institute of Technology, started his company with a bank loan, and remained cash-strapped till 2001 when Atari (a global gaming company) founder Eric Moffet came in as an angel investor and ploughed in $500,000 (Rs 2.35 crore at the exchange rate prevailing then). Dhruva is cash-positive now, and is looking for venture capital to scale up operations.


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.

August 01, 2005

How VCs can use Social Networking Tools

LinkedIn, one of the more promising "online social networking" firms, has a nice primer on how venture capitalists can use the service to improve deal flow and get executives and board members for their portfolio companies.

A quick search on LinkedIn for WestBridge Capital shows that pretty much everyone on the Bangalore and Silicon Valley based firm's team are registered with the service. Clearly, Indian VCs are becoming more and more online savvy.

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.