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November 24, 2005

VentureWoods becomes a group blog

VentureWoods a blog started by entrepreneur-turned-VC Alok Mittal has since turned into a platform with multiple contributors (including yours truly) from the Indian VC-Start-up eco-system.

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

November 19, 2005

TCS steps on the gas

Businessworld has a cover story on TCS' growth strategies post its IPO. Here is an extract relating to the acquisition strategy of India' top IT services firm:
Apart from HCL Technologies, TCS has been the most systematic player in the M&A game. In December 2001, the company put in place a specialist M&A team that would function as a think-tank on strategic acquisitions both in India and overseas. The team was led by Mahesh Bhandari and Debasis Pottdar, both former M&A specialists with Arthur D. Little and Arthur Anderson respectively.

Over the last four years, the M&A think-tank has guided TCS's spree of acquisitions, including the critical consolidation of its BPO holdings. It sold its stake in Intelenet, a joint venture with HDFC, and merged the Tata group's holdings in Airline Financial Services, WTI and Phoenix Global Solutions to create TCS BPO last year. In addition, it has also helped rationalise TCS's various joint ventures across the globe. And it has pushed through some critical deals like Computer Maintenance Corporation (CMC) in 2001 and Tata Infotech in April this year. Over the next few years, the M&A team will get busier with TCS actively going after overseas acquistions and, at the same time, consolidating the Tata group's IT holdings. Sources in the company say the Tata Infotech acquisition is the first step to integrating the Tata group's IT companies within TCS. When the process is complete, TCS's topline will get a fillip of an additional $1 billion, taking TCS past the $4-billion mark in revenues.

Acquisitions will also be used to strengthen domain presence, a process currently underway. The CMC acquisition gave TCS a foothold in the government sector. The company has earmarked 11 verticals and is reorganising its delivery centres and sales teams in India and globally. "This process will be complete by the year end," says Chandrasekaran. Infosys and Wipro have also aligned themselves along verticals in India, but they are yet to roll out globally.



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

"Sequoia-Indiatimes deal off"

Sequoia Capital has decided against partnering WestBridge Capital in their proposed investment into Times Internet which operates the Indiatimes.com portal and e-commerce service, reports Businessworld.
It was planned that a consortium of WestBridge Capital Partners and Sequoia Capital will take up 15 per cent of Indiatimes' equity. But the deal did not go through. Now only WestBridge has taken a 2.9 per cent stake.

...Earlier, Indiatimes was keen on the 15 per cent stake sale as it wanted to list directly on the Nasdaq in the US. It reckoned that the experience and network of Goldman Sachs-backed WestBridge and Silicon Valley-based venture fund Sequoia Capital would have been valuable for the company in getting a strong valuation.

However, a recent guideline by the finance ministry has undone its plans. The ministry tightened the guidelines for foreign currency convertible bond (FCCB) and global depository receipt (GDR) issues to align them with the Securities and Exchange Board of India guidelines on domestic capital issues. This means that unlisted companies going abroad will first have to list in the domestic market.


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

Will Glenmark's new drug propel it to the big league?

Businessworld profiles Glenmark's early success with its new experimental drug oglemilast meant to treat asthma and chronic obstructive pulmonary disease.

The deal with Forest Labs is worth $190 million (Rs 836 crore) in all, the largest by any Indian drug maker - including the biggies in the swanky campuses. (The largest before this was the $65-million partnership between Ranbaxy and Bayer for the former's extended release version of Bayer's antibiotic Cipro.) Even the deal with Teijin, worth $53 million (Rs 233 crore), is substantial for a company the size of Glenmark. And a third deal is being negotiated with a European partner.

...While the size of the deal is impressive by itself, the circumstances in which it was struck are more striking. Forest came in even before the drug was tested on humans. For Glenmark, it was the first molecule to be licensed. Yet, the deal dwarfs those struck by bigwigs more than twice Glenmark's size. "Forest must have seen something in that drug," says an analyst.

It's too early to write the oglemilast story - the drug still has some way to go. Forest and Teijin will first take the molecule through human trials on their own. If it clears them, the two firms will have exclusive marketing rights in the US and Japan. Glenmark will earn a royalty on sales and periodic milestone payments during the trials.

There is great risk on this path. One out of every five drugs that enter trials actually reach the market. Even Big Pharma, with billions invested in R&D, has been unable to change that skew. Pharma history is strewn with examples of drugs that failed in trials, or cleared them but were refused marketing rights by the US and Europe regulators. Some drugs from Dr Reddy's and Ranbaxy, too, have suffered that fate.

The article also has a box item on the history of new drug discovery and development efforts at Ranbaxy and Dr. Reddy's.

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

Opportunities and perils for Indian cos. hunting for global auto part makers

"Plenty of global auto part makers are up for sale. And the money is not hard to find. But there are big risks, and Indian companies need to choose their targets well," says a recent Businessworld cover story.



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

November 18, 2005

Forbes on the new boom in India's textile industry

Forbes has an article on the new boom in India's textile industry.

Some extracts:
The industry accounts for 30% of India's exports. China does a much larger dollar volume in textiles, but still the sector accounts for only 18% of China's exports.

India, like China, chafed for decades under quotas that limited how much it could send to the U.S. and Europe. In January those quotas were lifted and exports from both countries shot up. In the first five months of this year China's exports of cloth and apparel to the U.S. jumped 54% to $9.9 billion. India's volume was up 29% to $2.3 billion, according to the International Labour Organization, a UN adjunct.

...Last year the Indian government finally cut duties on imported textile machinery. In a further effort to boost the industry's competitiveness, the government this summer announced plans to spend $150 million creating (with private partners) 25 textile parks by 2008--enough for 500,000 new jobs. Each park will cluster small producers in one industrial unit, with some shared buildings like testing labs, raw materials depots and warehouses.

Investment has been pouring in. Companies have contributed more than $17 billion in recent years to the Indian cloth and clothing industry, according to Texprocil, the export-promotion body of the Indian cotton textile industry...

India and China compete fiercely for orders from the U.S. and Europe, but Indian companies are finding they often get the nod for handwoven, embroidered or otherwise embellished fabrics, clothing and housewares, while China is chosen for larger orders of mass-produced items. As China wins the bulk orders, its market share is likely to increase faster than India's.


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

November 10, 2005

Refreshing "Web Two Point Oh!"

In case you track the Web 2.0 scene/debate (aka by some as "Bubble 2.0"), check this site out.

Just refreshing the page will get you new "VC friendly" Web 2.0 company name and business model.

Here are a couple of examples it generated for me:

Your company name: Seconoorb
Your company product: tag-based blogs on the desktop

Your company name: Seckoroll
Your company product: geotag-based blogs via flash

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

Paul Graham weighs in in favor of founder sales

In August 2005, I made a post saying why I thought it might be a good idea for VCs to actually insist on "limited founder sales" when they invest in a company - i.e., a *part* of the investment amount goes towards buying the shares owned by founders, rather than into the company.

I had said:
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.

Now, in a new essay titled "The Venture Capital squeeze", Paul Graham - a co-founder of ViaWeb (acquired by Yahoo for $50 million) - warns VCs that "if (they) are frightened at the idea of letting founders partially cash out, let me tell them something still more frightening: you are now competing directly with Google." Click Here to read Graham's very interesting article that is attracting a lot of attention.

Back in the Indian context, M&As have remained the main source of exits for VCs here for a long time. While Google and Yahoo! may not be acquiring too many companies in India, we are witnessing global tech majors - from Flextronics and to IBM - becoming more active acquirers here. So, would we start witnessing more founder sales in Indian VC deals as well? While I'm convinced it would be a good trend, the question is whether the demand for early-stage investments too high (compared to supply), for local VCs to "allow" this?

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

November 07, 2005

US recruitment firm specializes in "angel employees"

With Internet-based services companies back in favor among US VC investors (a phenomenon aka "Web 2.0" or "Bubble 2.0"), can service providers and wannabee start-up executives be far behind?

Scripps Howard News Service has an article on PeopleConnect, an exectuive search firm that actually has a branded program called "Employees Without Paychecks" that focuses on placing executives and tech professionals who are willing to work at start-ups without pay until the clients' VC funding comes through.

PeopleConnect is the first search firm to market a program of recruiting employees who will work for equity. "A friend of mine calls them 'angel employees,'" (PeopleConnect CEO) Max Shapiro, said, comparing them to angel investors, who fund early-stage companies.

... Shapiro markets the Employees Without Paychecks program to early-stage companies that, like Commendo Software, are just a few months away from seeking venture funding. He selects client companies carefully to avoid placing candidates at ventures that have no chance of success.

Candidates are initially treated as independent contractors and paid with stock options, with an understanding that they will become salaried employees when the company gets VC funding.

PeopleConnect charges a contingency fee of 25 percent of the candidate's first-year earnings. It takes a small portion of that fee in a combination of cash and stock options right after the candidate starts. But most of the fee is due when the candidate goes on salary. If the client company never obtains the resources to hire the person, PeopleConnect doesn't get paid.

"In a way, we're investing in the companies as well and hoping they get funding," Shapiro said.


UPDATE: Jeff Cornwall cautions entrepreneurs on the potential dangers of recruiting "angel employees"

While this is a great way to save cash and lower the breakeven point, it does have the potential to make things complicated. All of these managers are now shareholders and have legal rights. The more partners in the deal, the more complex things can become. I would only recommend this strategy for businesses with a clear and relatively quick exit plan. I would not recommend this for entrepreneurs who plan to build and hold their business. It is a recipe for too many headaches with so many added equity holders.

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

November 06, 2005

Debate on the investment "sweet spot"

Anand Sridharan of Bessemer Venture Partners-India and Roshan D'Silva, Managing Partner of Middle East technology incubator One Nine Three (and co-founder of IIT-Bombay incubatee MyZus Infotech), have an interesting debate going on Anand's blog on whether late-stage, non-tech investments will score over early stage tech focused investments.

Some Extracts:

Roshan:
India needs early stage capital today. The market is large and is ideal for an investor who can cherry pick the companies who he can back. I see no reason to sacrifice returns and join the crowd....I just feel there is more money to be made in the long run by building a very traditional Silicon Valley-ish Venture Capital firm investing in india.


Anand:
Where is the actual investment opportunity, specific to the Indian market? Non-tech, growth capital opportunities outnumber tech, venture capital opportunities by an order of magnitude. Possibly even higher, if you apply a quality filter. Indian IP/tech startup scene is fast improving, but is still a few years away from critical mass.

So, what am I saying. There is a 'sweet spot' in not-so-large companies requiring expansion capital to scale up a proven business model in non-tech sectors. As of now, this spot is sweeter than early-stage tech.

Arun Natarajan is the Founder of Venture Intelligence India, 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.

BlueRun Ventures' Vineet Buch launches blog

Vineet Buch, a Principal at BlueRun Ventures, has launched a blog titled Venture Explorer

Update: Buch recalls how he was hired away in March 2005 by BlueRun Ventures when the firm invested in Ojos (now Riya.com), the online photo search technology company that he co-founded.
John Malloy at BlueRun asked me to join his firm and work with Ojos as an investor...

...Munjal Shah (Ojas Co-founder and CEO) and I sketched out a strategy for Ojos over a year ago, in terms of product, markets, hiring, burn rate, etc., etc.

...Ojos set up India operations two months after the US, everybody hired in India showed up for work and is still there, and the India team was productive on their second day on the job. (Those who know the Bangalore hiring climate today will be shocked to hear this).



Arun Natarajan is the Founder of Venture Intelligence India, 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.

Entrepreneur-turned-VC launches blog

Alok Mittal, the co-founder of JobsAhead.com (acquired by Monster.com in 2004) and now a venture capitalist with Barings India Private Equity, has launched a blog titled VentureWoods.

In one of his early posts, Mittal talks about "Band of Angels India", a group of successful entrepreneurs and executives (of which he is a member) with a passion to invest in and mentor early stage businesses.

The application process to BoA involves sending in an executive summary to any of the members (yes, investors themselves take decisions here, there are no “investment managers”) and convince them that what you have is a potentially successful business. The member than “sponsors” the proposal to the whole group. Members in the group make individual decisions on whether to invest in any particular opportunity — for example, 4 members may decide to fund a given venture. The members continue to be involved in the mentoring process.

Typical deal size at BoA is less than Rs 2 crores. We expect higher investments to be supported by other venture capital players. BoA is diversified in its industry coverage — we will invest in any industry where we have members (and hence an understanding of that space). We look at deals from across the country. Some coverage on us. You may mail in your proposals to any of the members directly.

Arun Natarajan is the Founder of Venture Intelligence India, 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.