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August 27, 2006

"PE firms on recruitment drive for CEOs"

Economic Times has article on the trend of PE firms aggressively recruiting CEOs or CEOs-in-waiting for their portfolio companies.
Recently, Actis placed ex-MD Nokia Sanjeev Sharma in Phoenix Lamps, while Softbank Asia Infrastructure Fund (SAIF Partners) placed Sundeep Malhotra , ex-EVP Pepsico Foods, in TV18's home-shopping division . Similarly, Carlyle placed ex-CFO and chief risk officer at Infosys' Progeon, Ramesh Kamath , as CFO of QuEST Global and Infrastructure Development Finance placed ex-CEO , NetKraft, Anand Sudarshan, in Manipal Health Systems along with Narayana Swamy as the CFO. And there's more where they're coming from. Most PE firms have a 'cadre' CEOs waiting in their ranks - Actis has Rajeev Kaul, who joined them from Microsoft and Baring PE has Ajit Singh Karan, who joined from the liquid mosquito repellent brand, All Out. In fact, some headhunters claim to be working in tandem with PE firms to place CEOs.


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

Brad Feld takes a dig at accounting firms

VC Brad Feld has a humourous post on his blog listing his complaints on accountants - especially the Big 4.

Accounting is the only profession where you can completely screw everything up (see Enron, WorldCom, Kmart, etc..) and your “punishment” (so long as you aren’t Arthur Andersen) is that the “powers that be” enact all sorts of legislation (SOX, Option Expensing, 409A, FASB 123, etc.), that create a full employment act for your profession, radically increase your fee structures, and make everyone in your profession better off than when everyone thought you were doing a good job and maintaining the public trust.

...We’ve had a hell of a time getting any of the Big Four to want to work with our portfolio companies and those that do are paying a very high price. It isn’t like the 1990's where they were all fighting over our companies hoping they’d go public. Right now they have so much work to do in the public sector that they can’t make enough money on the private companies. That being said, on their way out the door, they’ll try to recoup any discounts they gave you while you were a client while giving you a big smile in the hope that you’ll come back to them one day if you are successful enough to go public.

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

August 19, 2006

Marketing to Rural India

Business Today has an article on the dynamics of marketing to India rural and small town India.

According to the census of India, villages with clear surveyed boundaries not having a municipality, corporation or board, with density of population not more than 400 sq. km and with at least 75 per cent of the male working population engaged in agriculture and allied activities would quality as rural. According to this definition, there are 585,764 villages in the country. Of these, only 0.5 per cent have a population above 10,000, and 2 per cent have population between 5,000 and 10,000. Around 50 per cent of the villages have population between 200 and 1,000, and another 18 per cent has a population less than 200.

Interestingly, for FMCG and consumer durable companies, any territory that has more than 20,000 and 50,000 population, respectively, is rural market. So, for them, it is not rural India which is rural. According to them, it is the Class-II and III towns that are rural. According to the Census of India 2001, there are more than 4,000 towns in the country. It has classified them into six categories-around 400 Class-I towns with one lakh and above population (these are further classified into 35 metros and rest non-metros), 498 Class-II towns with 50,000-99,999 population, 1,368 Class-III towns with 20,000-50,000 population, 1,560 Class-IV towns with 10,000-19,999 population. It is mainly the Class-II and III towns that marketers term as rural and that partly explains their enthusiasm about the so-called "immense potential" of rural India.


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

Navis: A PE firm with a taste for restaurants

Business Today has a short profile of Malaysia-based PE firm Navis, which is a majority investor in three Indian Food & Beverage firms - Sky Gourmet, Mars Restaurants and Nirula's.
For Navis, food is one of the most "empirically analysable business." Simply put, not only is it possible for Navis to link the profitability of an outlet to its location and its socio-economics, it is also possible for the firm to assess future profitability. "The range of uncertainty in any retail concept is much narrower than in say technology."

Then, Navis is not foraging only for food in India. Bloy is ready to invest up to $300 million (Rs 1,410 crore) over the next five years in India. "Any business related to consumer spending or even the light industrial sectors would be interesting." Navis is in talks with a packaging company and another that supplies storage tanks and pipelines, and expects to close at least one deal by 2006-end.

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

The top 10 Indian cities

Business Today has a cover story ranking and profiling the top ten Indian cities, with a suitably humble tone.

This is not how best cities are supposed to be. Best cities aren't supposed to erupt in violence if an ageing movie star dies at the grand age of 77, like Bangalore did when Rajkumar died on April 12. Neither are best cities supposed to let walk-in bombers massacre home-bound rail commuters like Mumbai allowed on July 11, when more than 200 people died. Best cities are supposed to be places where all their inhabitants can find material and spiritual fulfilment. The fact that none of India's cities is so, drives home a grim fact about our fifth Best Cities for Business survey: These are best of the worst cities. Power cuts, water scarcity, congested roads, pollution, dirt and roadside squalor are par for the course at almost all Indian cities.

Yet, it is these overcrowded and crumbling cities that drive India and make it the second-fastest growing economy in the world. Cities and towns are where 30 per cent of our people live, with 38 per cent of the urban population confined to just the top 35 cities. Fifty-five per cent of the country's GDP emanates from urban India; 50 per cent of the foreign direct investment goes to the seven largest cities. Globally, cities are the engines of their economies. They are too in India.

THE TOP 10 CITIES
1 MUMBAI
2 BANGALORE
3 DELHI
4 CHENNAI
5 HYDERABAD
6 KOLKATA
7 PUNE
8 AHMEDABAD
9 MYSORE
10 VIZAG

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

Planes, planes and more planes

At the 2005 Paris air-show, low-cost airline start-up made a splash by announcing an order for 100 Airbus aircrafts. Businessworld has an interview with IndiGo co-founder and former US Airways CEO Rakesh Gangwal in which he talks about the mega order. (IndiGo has launched flights starting August 4).
It is a firm order for 100 aircraft, with no options. One, for a start-up airline to order 100 planes — it’s the first in aviation history. Two, for all aircraft to be firm orders is equally unheard of. We’ve to take delivery of all, else there are penalties. There are enormous flexibilities built into the deal because the marketplace changes. You may want to induct planes faster because the market has picked up, or defer them due to a slowdown. We have a 10-year contract. That’s too long a time. We hope to take all sooner.

Business Today has an update on this year's large airplane orders.
After last year's $13 billion splurge at the Paris air show and another couple of billion gone into further orders at the Dubai and Singapore exhibitions, the Indian aviation sector was expected to take it easy at the biggest air-show this year at Farnborough in the UK. But last fortnight, when Airbus sent out a press release, congratulating the Wadia group-promoted GoAir for buying 10 more A320 aircraft at an estimated list price of $600 million (Rs 2,820 crore), it became clear that the buying binge had in fact only just begun. Kingfisher Airlines' top honcho Vijay Mallya too was on a signing spree ensuring that Airbus put an A320 in Kingfisher colours on display at the show. For good measure, the UB group Chairman also ordered $400 million (Rs 1,880 crore) worth of engines from Pratt & Whitney and booked three full-flight simulators for $24 million (Rs 112.8 crore). Mallya reportedly is also keen to buy the all-business transatlantic carrier MAXjet. And then there was Flyington Freighters' audacious $1 billion (Rs 4,700 crore) order for four Boeing 777 Freighters.

Business Today also traces the folks behind Flyington Freighters:
The promoters of the freight carrier are the same as promoters of the Deccan Chronicle group. When Business Today tried to contact T. Venkatram Reddy, Chairman, Deccan Chronicle Holdings, it was informed that he was still at the air show. According to sources, the Boeing aircraft will arrive starting 2009, but the company hopes to begin operations this year with three leased Airbus A300 aircraft.

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

August 16, 2006

Action heats up in the Indo-US VC corridor


Mark Sherman of Battery Ventures has a launched a new blog titled ABCDVC.com focusing on India investments. The first couple of posts - here and here - provide a profile of various Silicon Valley VCs as well as local VC funds with SV connections entering the country.
First of all, by ABCD, I mean American Born Commuting (to) Desh. I firmly believe that India will become one of the core venture hubs of the world: Silicon Valley, Route 128, Israel, Bangalore, etc. I first visited India in 1992 for fun and have been visiting India 3 or 4 times per year for the last few years to better understand its markets.

One of the good fortunes of being based in Silicon Valley is that I see many more Indian-based management teams as they visit the Bay Area to visit customers, partners, family, etc. Having been part of the technology boom of the 1990s, I hope to re-live the good parts of this experience as India emerges into an exciting emerging market of venture capital activity.

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

August 13, 2006

Will India harvest the promise of bio-fuels?

Businessworld has an article on the opportunities and the policy bottlenecks facing bio-fuels companies in India, including an interview with Vinod Khosla.

The most encouraging signal so far has been the $9.4 million that BP is investing in the TERI project. This is a vast project covering 8,000 hectares in Andhra Pradesh to show the viability of producing bio-diesel from jatropha. This is a sign that big bucks might still be coming India’s way. D1 Oils of the UK has already invested Rs 6 crore in a small project in Tamil Nadu and is aiming for a 70,000-hectare spread over the next year. Sarju Singh, managing director, D1 Oils (India), says if India does not have a clear-cut pricing policy and some rebates, it will channel the entire production to exports, where prices are firming up.

Shirke, meanwhile, has tied up with Sejati Biotech of Malaysia and a Chinese firm to set up a 60,000-hectare plantation in Papua New Guinea and later on a massive 300,000-hectare project in Indonesia. Says Shah, Sejati’s chairman and CEO, who was in Pune recently to finalise the agreement: “Bio-diesel is the most attractive investment these days. It’s a pity that India does not see the gold in the green.”


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

Why incubators don't produce winners

In the last several years, we have witnessed several incubators being set up at leading Indian universities as well as a few in the private sector. However, so far, there has not been any tremendously successful company that has emerged out of these programs.

VC Matthew McCall has made some recent posts here and here on incubators that provide some clues.
The notion of co-locating start-ups together makes sense at a high level, but fails to work on the ground. Networking, mentoring, sharing, etc all work when the entities/companies involved are of similiar caliber, have similiar issues and are playing in the big leagues. However, often, you have a building full of inexperienced or small entrepreneurs attacking niche issues in a broad array of industries. There is not a lot that they can teach each other. If there is a breakout company, it is so focused on building its business, that it doesn't have the time or interest to pull up the other inhabitants with it. In fact, it will often move out for bigger space. It also experiences asymetrical benefits...it gives a lot of advice but gets limited value in return. Also, the companies in an incubator are often so diverse that they are each facing fairly unique issues.

Companies need to have global visibility in order to see what is going on in their industry...best practices, competitor challenges, etc. A local incubator can not give them this visibility or connectivity. By definition, the incubator is local and somewhat isolated.

Shared services and reduced rent are two potential benefits, but they don't make or break the success of a company. Many firms start up virtually or in low rent areas. They can provision internet, telephones, etc as needed.


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

August 12, 2006

PE firms solving (business) family problems

Economic Times has an article on how PE firms are investing into companies where there is discord amongst promoter family members.

Paras Pharmaceutical is the latest instance where one of the Patel brothers - Girish, Darshan, and Devendra - is reportedly selling his stake to Actis. Apparently, there is trouble brewing among the brothers. Similarly, it was differences within the family, which triggered the 51% equity sale of Nilgiri's Dairy to the same PE investor, according to sources close to the Bangalore-based company.

In June, a clutch of PE players, Clearwater Capital, Olympus, and Voyager, bought out one of the brothers, Anil Kumar Sanghvi, from Sanghvi Motors to pick up a 23% stake in the company. Earlier, in a similar deal, Reliance Capital bought out one of two brothers, Debashish Chakraborty's 44% equity in the courier and express firm, DTDC. Apparently, the brothers (Shubhashish and Debashish) had differences over issues, sources told ET.


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

August 07, 2006

So you want to raise a VC fund?

In recent months, I’ve had the benefit of listening and talking to several Limited Partners, General Partners and Placement Agents. And learn how difficult it is to raise a venture capital fund in the current environment. Especially, if it is a first-time fund. (Hat's off Helion!). Here are some of my notes from these interactions.

* The venture capital business requires LPs to put relatively small amounts of money to work - compared to investing large chunks in buyout and late-stage PE funds. To put a reasonable amount of their portfolios in the VC category, they need to deploy in several funds (including newer funds from existing portfolio firms). This is hard work - especially given that returns from the VC category (on an average) hasn't been too great in recent years.

* Unless your existing fund is top quartile in terms of returns, fund raising is very tough. Creating outsized returns in your current fund is the best way to raise a second fund.

* Proven teams can close a new fund in six weeks. First-time funds can take up between 1-2 years to close.

* A lot of LPs are busy re-investing in their existing portfolio of funds (i.e., "topping up") rather than searching for new managers. It is therefore important that your fund is differentiated from their existing portfolios.

* Best time to raise a fund is when you don't need it - ie, make sure to keep in active touch with LPs while you are investing your current fund. Just stop and say hello when you are in town. These kind of relationship building efforts pay off big time when you are actually in the market to fund raise.

* Stay close to existing LPs. Have an investor relations focus as early as possible. The new LPs you approach will want to know whether the current LPs are "re-upping" or not.

* According to one European GP, their firm did a survey of the investors and portfolio companies of their existing fund. Based on the results, the firm decided to add more partners before raising a new fund.

* He also recommended GPs view fund raising like any sales job. You have to qualify your prospects. There is no point in whining that "buyouts are sucking out the capital from the system," etc.

* Do your homework. If you are talking to a strategic investor, focus on the added value. Do not pitch to them the same way you would pitch to a purely financial investor. Also do homework on the geographical and cultural context of specific LPs.

* Several pension funds in the US invest directly. Europe however is full of gatekeepers and fund-of-funds.

* The key elements LPs evaluate are the team, fund size and performance.

* LPs evaluate whether the team members have the energy and passion to make a serious go for it.

* LPs like to see continuity of teams across cycles. Plus, they would like to know how the carry is being shared. (Is one partner going to take way most of the carry?)

* The first impression is very important. LPs want to be comfortable with the team members at a personal level versus just look at the PPMs and other quantitative stuff. Some placement agents therefore recommend the first meeting be a simple "get to know each other" chat rather than a detailed presentation.

* What should be your fund size? Do the math based on the number of GPs in the fund; how much each can deploy, etc.

* While it sometimes might be frustrating, GPs should respect the decision making processes involved at LP firms.

* Pick your placement agent carefully. Not every player in this space is high quality.

Sponsored Funds

* Fund sponsors would like to see the managers have their "skin in the game" by risking a significant part of their net worth in the fund.

* Sponsors might provide "walking around money" to fund managers (so that they can pay themselves a salary and cover expenses during the fund raising period).

First-time funds

* The universe of LPs who will back first-time managers is limited. Some of the larger LPs have a clear policy which says "No first-time funds, period".

* Do not use a placement agent. "It's a battle. Handle it yourself."

* Don't go institutional straightaway. Raise some friends and family money. Do a few deals to demonstrate traction and then go to institutions.

* University endowments and family offices are a better bet than the larger financial institutions.

* Make track records attributable. "Can't have multiple fingers pointing to the same deals."



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

August 06, 2006

K.V. Kamath interview in Knowledge@Wharton

Knowledge@Wharton has an interview with K. V. Kamath, CEO of ICICI Bank.

We believe that to break into the top league of global banks, ICICI will have to follow a course that few banks in the world have done -- and that is, leverage the rural economy. This is something that most banks don't do because it requires hard work. Market share is not easy to achieve because you need to widen your product tree. An even greater challenge is that you need to learn to do business at a fraction of the cost that you are used to.

So our challenge is to invent a new business model where we can create a distribution base effectively in 600,000 villages in India, and to learn to do that at one-tenth the cost of urban India. Just to put that on a scale that someone could understand, we believe that to succeed in urban India, we need to do be able to do business at one-tenth the cost of the West. The reason is that the ticket size of the banking product in India is one-tenth that in the West. If it is a deposit of $10,000 in the West, it will be $1,000 in urban India and $100 in rural India. Loans operate at a similar scale.

We need to be able to conceptualize how to deliver value to this market at an extremely low cost. That's where the challenge is, as well as the opportunity and the excitement. The challenge is to be able to work with partners because we believe that the branch-led model will not work in this context. The branch-led model would simply replicate our existing structure, and even though we might try to scale things down, the costs are unlikely to go down as much as we need to succeed in rural India.

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