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August 31, 2008

LIBA, TiE Chennai launch Business Plan Competition

Loyola Institute of Business Administration (LIBA) and
The Indus Entrepreneurs, Chennai (TiE-Chennai) are organizing a Pan-India Business Plan Competition. IDG Ventures India is sponsoring the event.

Apart from prizes worth Rs. 8 lakhs worth, the event offers funding and mentorship opportunities.

Significant dates:
Closure of Registration: Sep 23, '08
Last date of submission of Executive Summary: Sep 26, '08
Last date of submission of detailed Business Plan: Oct 24, '08
Last Date for submission of Final Presentation: Nov 19, '08
Final Presentation: Nov 21, '08

For more information, visit the competition page on the LIBA web site at http://www.liba.edu/bpc/index.php or email queries.bpc@liba.edu

Recent Amendments in Foreign Investment Reporting Norms

By Rajesh Begur, Partner, A.R.A. Law




In comparison to most emerging economies, India has one of the most transparent foreign investment policies. The Indian regulatory authorities constantly make an effort to modify the regulations keeping in mind both the domestic and global markets. The change in the outlook of the Indian Government with respect to foreign investment in the past few years has been rather significant and its impact cannot be ignored.

Foreign investment in India is freely permitted in most sectors and its scope has been increased further with the recent amendments made by the Reserve Bank of India (RBI) vide Master Circular dated July, 2008. In addition to the existing list of sectors in which foreign investments is permitted, foreign investors can now invest in small scale industrial units, Asset Reconstruction Companies (ARCs) (registered with RBI), infrastructure companies and commodity exchanges. The flow of foreign investment in sensitive sectors such as airports and ports may be taken off from the automatic route once the proposed umbrella law for scrutinizing the Foreign Direct Investment (FDI) from the national security angle is put in place. At present 100% FDI is allowed with respect to ports and 74% with respect to airports.

But recently certain measures have been taken to monitor the inflow of funds into India. This is evident from the changes that have been incorporated in both the Master Circular and the FC-GPR Form. An Indian company issuing shares and convertible debentures to non-residents under both the routes (i.e. automatic and approval) is required to submit the details of the investment in a two-stage reporting procedure. In the first stage, the receipt of funds has to be reported to RBI within 30 days. In the second stage, the company has to file form FC-GPR with RBI within 30 days from the date of issue of shares/convertible debentures.

AMENDMENTS TO FORM FC-GPR
In order to clarify and capture the details of FDI in a more comprehensive manner, the form was revised and the following changes were incorporated:

I. Part A

• With respect to reporting of shares and convertible debentures, additional categories such as conversion against import of capital goods by units in SEZ and Share Swap have been included to specify the nature of the issue. The list already included IPO, FPO, and Preferential Allotment.

• Previously the Investor categories was limited to Foreign Nationals and Companies, FII’s, FVCI’s, NRI’s, PIO’s but now it is interesting to note that the classification has been broadened to include Foreign Trusts, Private Equity Funds, Pension & Provident Funds, Sovereign Wealth Funds, Partnership/Proprietorship Firms.

• Besides a certificate from the Company Secretary, a certificate from the Chartered Accountant/Statutory Auditor is also required indicating the manner of arriving at the price of the shares issued to the person resident outside India.

• A Unique Identification Number has been issued for all remittances received as consideration for issue of shares/convertible debentures by RBI.

II. Part B

• Part B has to be filed directly with the RBI on an annual basis, and the date of filing of Part B of the form has been extended from June 30 of every year to July 31.

• The company depending on whether it is listed or unlisted would now also have to specify the market value per share and the net asset value as per the latest balance sheet.

• Shareholding as at the end of March would also have to be disclosed according to the classification as specified in Part A of the form.

• At the time of reporting, a KYC report on the non-resident investor from the overseas bank remitting the amount and a copy of the FIRC/s evidencing the receipt of the amount of consideration is also to be submitted.

With respect to venture capital funds, additional disclosures regarding the details of investment received in units of such funds from FVCIs have been proposed to be included. SEBI may also establish a new screening mechanism for all pending and future FVCI proposals, on the recommendation of RBI. The setting up of the Venture Capital Association of India (VCAI) would also be beneficial in obtaining more information about this sector.

REASONS FOR AMENDMENTS
RBI’s objective behind changing the reporting and disclosure norms is:
• With regard to the restrictions that may be imposed on FVCIs, that it will help to prevent low capital base, circumvention of takeover guidelines and round tripping of investments.
• Essentially to observe the type of investors investing and the amount of investment being invested by them.
• At a later stage based on the analysis of the information gathered, new norms and regulations could be introduced.
• This may lead to the imposing of a greater number of restrictions on foreign investments (this may soon be the case with FVCI’s).
• In such a case, inflow of foreign funds into India could take a beating and have a negative impact on foreign investments.

CONCLUSION
In India investments made through private equity and venture capital funds are not strictly regulated. The introduction of these amendments to the existing law could change that and it could lead to a greater degree of monitoring and interference from the regulatory authorities. This may not necessarily be beneficial and could cause more delays and road blocks for such investments. But the impact can be ascertained only after a certain period of time because they can be imposed only after the authorities succeed in profiling the classes of investors and identifying the share of each investor in the inflow of funds. Till such a time, an attempt to predict the impact of these changes would be a futile exercise.

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Interview with Bharat Banka of Birla Private Equity

Venture Intelligence recently spoke to Bharat Banka, CEO - Private Equity, Aditya Birla Group. He has been with the Aditya Birla Group for more than 13 years.



Venture Intelligence: Tell us more about the PE effort at the Aditya Birla Group…
Bharat Banka:
We started out around December last year investing proprietary capital and commitments received from domestic associates. In coming months, we would have formalized a fund and initial commitments would become the Limited Partners. We also plan to launch a Real Estate fund sometime down the line.


VI: What would be the corpus of the PE fund?
BB:
In addition to the initial commitments, we would target raising $100-150 million from domestic investors and a similar or higher amount from international investors.

VI: Don’t you think that you are late to the PE party?
BB:
No, I don’t think so. The PE industry in India has just reached the inflection point. From $2 billion in 2005 the investments have grown to over US$14 billion in 2007. We expect the level of activity to grow to $20-25 billion in the next 3-5 years. Hence, it’s a good time to be launching Aditya Birla Private Equity business as the hockey stick curve is yet to rise significantly.

VI: What are the differentiating advantages your firm enjoys over others in this space?
BB:
Primarily our relationship with the Aditya Birla Group and the ability to tap into the best practices followed by more than a dozen group businesses. Our portfolio companies could also access customers through various businesses that the group operates in, especially customer facing businesses like cellular, retail, financial services, branded apparels, IT enabled services. Our Group Corporate Centre works very much like a PE firm to our group companies in terms of setting performance benchmarks, monitoring performance, aiding in capital raising, divestitures, investor relations and evaluating M&A targets.

VI: What would be your sweet spot in terms of deal size and stage?
BB:
At present, we prefer to invest between $10-50 million primarily in growth stage companies. In the current form, we would avoid angel / early stage funding and would focus on investing in companies with market-cap not above $800-1000 million. We are not averse to doing exceptional PIPEs but would prefer unlisted companies.

VI: What would be your key criteria for investing?
BB:
Some ground rules we stick to are:

- Companies that are or could be potential leaders in their space.
- Businesses which can grow their topline at 30% or more for 4-5 years from the time we invest.
- The business should have reasonable pricing power resulting from a differentiated offering or price inelasticity of the product or service.
- Openness to good corporate governance and financial discipline.

VI: What are the sectors that attract you?
BB:
We are extremely excited about Education, Healthcare, Logistics, Financial Services, New Media and unique plays that are part of the eco-system of Manufacturing. What that means is rather than invest in commodities, we would be more interested in customer facing businesses say a steel retailer as opposed to a hardcore manufacturer.

We are also excited about retail and telecom and the domestic vehicle facilitates participation in these sectors with investment limits/ restrictions for foreign ownership in these sectors.

VI: How are you approaching the telecom opportunity?
BB:
Over the next few years the telecom industry could transform from voice delivery to a powerful tool that would deliver multiple applications. Say for instance M-Banking and M-Commerce or even delivery of medical solutions. As indicated earlier, we would avoid investing in startups but application providers that exploit the mobile as a delivery tool could be interesting space where we could look at bright ideas.

VI: How do you see the opportunities in other infrastructure segments?
BB:
We are very excited about logistics. We would avoid investing into core infrastructure like Ports, Roads etc but we are very bullish on ancillary opportunities in infrastructure space like Engineering & Construction.

VI: What are the opportunities in education?
BB:
Though the sector is regulated, we are looking at both front-end and back-end opportunities in education. It is interesting to note that after food which tops the spend list for an average Indian family, the next highest amount of spend is on education. We have already invested into Core Projects & Technologies, a services provider to the state governments in the education sector.

VI: How do you see the IT outsourcing space now?
BB:
India could be loosing its edge when it comes to pure undifferentiated IT sweatshops as the cost of real estate and human resources has gone up, reducing the cost arbitrage. However, we are open to KPOs doing high-end work.

VI: What sectors would you stay away from?
BB:
Real Estate, funding research initiatives and industries which do not enjoy a pricing power like say, textiles.

VI: How do you see buyouts evolving in India?
BB:
Currently, the market for buyouts in India is shallow. It could take another 4-5 years for buyouts to become a substantial part of the private equity investing activity. Leverage financing, which is quintessential for buyouts is still a few years away in India and poses limitation.

Murdoch on Star India 2.0

Businessworld has an interview with Rupert Murdoch on his latest plans for India.

You have a DTH success story in BSkyB. What has been the experience in India like?
Tata Sky has become a great brand, but it is going to be very competitive. There are Reliance and Bharti coming in; there are many who would like to provide these services. In three or four years, we will see some consolidation. Some will lose money, others will say they are investing money because they are expanding. And then we will see who will tire first. It has been a two-player market in the US, but otherwise you rarely see more than one player in most markets.

...China and India have both been great growth stories, but for News Corp. and Star, India’s performance has been way ahead of China. What happened?
China does not like foreign media. Period. We tried and tried; and we tried to get joint ventures going; ... then there was a change of regime and we closed down. We are standing by now to see what happens. India has a huge advantage. It is a working democracy, there is rule of law, and you know where you stand. India has been a great experience. Yes, 60-70 per cent of Star’s cake is out of India, and... it will be maintained...

You own a huge chunk of media worldwide spanning television, publishing, and now digital platforms. While these companies do good business, they also give you a lot of power to shape public opinion. How do you exercise this power?
With the power comes great responsibility. It is not uniform. Take Star Plus. The channel can hardly be said to shape opinion. Globally, we try very, very hard to be absolutely objective in news coverage. We don’t stop having opinions on the pages that are meant for that, and strong opinions at that. We fight very hard for open and free markets within countries, and globally.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

August 26, 2008

MEETINGS! - By Sanjay Anandaram

Many years ago when I was young, not-yet-senior-enough-to-attend meetings and gainfully employed, meetings were, in my then innocent mind, attended by senior company executives who discussed serious and grave matters that could dramatically impact everything from my salary to perhaps even world peace. I was overjoyed one day when I was asked to attend a meeting the following morning. Nothing else was told to me except “there’s a strategy meeting tomorrow and please be present.” Two important words – strategy and meetings- in the same sentence that included an invitation to me! I was breathless with excitement and couldn’t wait to attend my first strategy meeting with senior management.

The day long meeting concluded with the Chairman sagely announcing “Lets form a task force that will create an approach paper on our customer support strategy that we’ll discuss in the next meeting.” I was perhaps not the only one who thought we’d achieved an unusual amount that day which was neatly captured by the Chairman’s terse summarisation. The lunch and coffee were great too. I was totally enamoured of meetings thereafter. A lot of presentations, discussions, arguments, snacks, coffee and tea, meals, and then some more. Going to or being in a meeting was prestigious and was a sign of having arrived. Words such as “brainstorm”, “agenda”, “strategy” acquire an ominous halo when coupled with “meeting.”

Many years later, I noticed the following poster on a meeting room of a well known company. The poster was headlined: Meeting Rules and then asked the following questions:
1) Do you know why you are here?
2) Do you know why the others are here?
3) Do you know what the objective of the meeting is?
4) If the answer to any one of the above is “NO”, get out!

I was shocked at the impudence! How dare someone ask anyone to get out especially when they were in a meeting?!

Of course since those days with a lot more experience in many parts of the world, I’ve learnt a lot more about meetings. Being involved with several young entrepreneurs for many years too has taught me a lot about meetings. Given the pressures on time and resources, entrepreneurs need to marshall the organization via, unfortunately, meetings! But the following points are critical to keep in mind:

a) Does the meeting have a specific agenda that everyone’s aware of?
b) Are the timings mentioned and adhered to?
c) Who’s responsible for ensuring that the meeting discusses the specific matters on hand and does not meander away to meaninglessness? Don’t confuse activities with outcomes!
d) Who’s responsible for taking notes?
e) What happens when the meeting ends? Who’s responsible for ensuring follow up action?

Many years ago, well known historian and satirist Prof Northcote Parkinson who’s writings on bureaucracy are legendary had this to say about meetings

"The time spent in a meeting an item is inversely proportional to its value (up to a limit)."

A Rs 1 crore capital expenditure plan for the sake of developing arcane technology that will give the company a “strategic” edge or a sustainable competitive advantage is discussed and approved in 1 hour. Primarily because hardly anyone understands it! However, a Rs 10L marketing budget will be discussed for half a day! For example, what colour should the brochure be? What should the company’s tag line be? Should we be advertising on TV also? And so on….All these is usually discussed in excruciating detail because everyone can understand this!


How many such meetings have you been a part of? What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

August 25, 2008

Backgrounder on Emami-Zandu takeover battle

Businessworld has a backgrounder on the ongoing Emami-Zandu takeover battle.
The events surrounding this takeover are the stuff of intrigue and drama: family quarrels, accusations of abysmally poor management and sheer incompetence fly thick and fast between the two families - Parikhs and Vaidyas - that comprise the promoter group. Not surprising then, that when opportunity presented itself, the Vaidyas -members of the founding family - sold their almost 24 per cent stake to Emami.

Emami, led by the Agarwal and Goenka (not related to the Goenkas of RPG) families, whose open offer for another 20 per cent more is yet to receive the approval of the Securities and Exchange Board of India (Sebi), hopes that the Parikhs - the other promoter group that holds about 20 per cent at June end, and is entrenched in management - will see reason. But Girish Parikh says that he controls about 40 per cent of the stock - including through proxies - enough to fight Emami's bid. But that will require fairly deep pockets and while Emami is a cash-rich company, the Parikhs are not.

The Parikhs have been trying legal avenues to block the Emami bid that has gone to the Company Law Board (CLB), saying they had the first right of refusal on the Vaidyas' stake sale. Another suit in which they challenge Emami's voting rights is being heard by the Bombay High Court. A 5 per cent preferential offer to promoters was withdrawn due to opposition from independent members on the Zandu Board, Chairman Y.P. Trivedi, P.P. Vora and A.V. Shah.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

August 24, 2008

Another great sub-prime video

An anonymous Private Equity Professional has done an amazing job of re-doing the subtitles of a TV mini-series on the final days of Adolf Hitler. In the videos (the latest on YouTube being Part V), Hitler is Chairman & CEO of a investment banking firm (the Nazi Party, of course) which is falling apart due its bad bets on CDOs. Enjoy the series!

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

August 21, 2008

Impact of Proposed Amendments to Venture Capital Regulations

By Rajesh Begur, Partner, A.R.A. Law



The contribution of private equity and venture capital funds to the Indian economy in the last few years has been phenomenal. In the last three months ending June 2008, Venture Capital firms have invested $158 million over 26 deals in India. In the last six months, PE firms have invested about $5.9 billion, or Rs 25,565 crore, across 141 deals, compared with $5.03 billion invested across 126 deals during the corresponding period in 2007^. In order to keep a check on the investments being made and to ensure a level playing field between the domestic and foreign funds, the Indian regulatory authorities have proposed certain changes to the venture capital regulations.

PROPOSED AMENDMENTS
The India regulatory authorities are revisiting the laws governing private equity and venture capital funds. Stated below are the proposed amendments that are currently under consideration and likely to be introduced soon.

I. THE RETAIL SECTOR

The Government has proposed that private equity funds should not be allowed to invest in Indian retail companies which are franchisees of foreign brands. They may not be allowed to invest in retail companies where foreign investment is allowed. Currently, the Indian government allows global brands to invest up to 51% in Indian retail companies provided they sell all products in their outlets under a single brand. However, private equity funds may not get to invest even in this category because only the owner of the global brand is permitted to invest in the Indian company. The one exception to this may be food and beverage retail where 100% investment is allowed.

II. INVESTMENT RESTRICTIONS
The Reserve Bank of India (RBI) has recommended that Foreign Venture Capital Investments (FVCIs) be restricted to the nine sectors i.e. Biotech, IT, Nanotechnology, seed research, R&D to create new chemical entities in pharma, dairying, poultry, biofuels and hotel cum convention centers with more than 3,000 seats.

Secondly FVCIs may now be restricted to investments only in startups and regulations such as the minimum capital requirements, the tax benefits, exemptions from the take over code and the one year lock-in period for sale after the initial public offering, which the foreign venture capital funds take advantage of are all under review and in all probability will be changed.

These proposed guidelines are an attempt to provide a level playing field for domestic and foreign funds.

DISCLOSURES AND TRANSPERANCY OF PROCEEDINGS
In addition to the above, new laws may be introduced in order to make the workings of the funds more transparent. The new regulations are an effort to ensure that such investments do not accumulate only in a few sectors so that there is equitable distribution of funds.

Further the regulations with respect to acceptance of the application forms have been reviewed by the Government in response to the concerns raised by RBI and all pending FVCI applications are in the process of being cleared. It is proposed that SEBI sets up a screening mechanism for all pending and future FVCI proposals. Out of the 50 pending applications the 21 concerning realty may be stalled because the High-Level Co-ordination Committee on Financial Markets is more inclined towards the other sectors. This review was undertaken after RBI took a more vigilant stand on FVCI investments flowing into real estate. But the final decision on this issue is yet to be taken.

Additional disclosures regarding the details of investment received in units of such funds from FVCIs may also have to be provided.

CHANGES IN REPORTING NORMS
It is absolutely certain that RBI wishes to keep a check on and confirm the details of the investors and the kind of investments that are being made especially with respect to private equity and venture capital funds. This is evident from the recent changes that have been incorporated in both the Master Circular and the FC-GPR Form. The increase in the specifications with respect to the classification of investors and shares, the allocation of the ‘Unique Identification Number’ for all remittances received and other investment details that now have to be disclosed, is a clear indication of RBI’s intention.

CHANGES IN THE CHARTER DOCUMENTS
By early this year, the RBI had cleared applications from six foreign VC funds. Though many funds are still waiting in the wings, the industry perceives it as a positive development. Advisors to some of the funds say that among other reasons, this could have been achieved only after they changed their charters to insert a specific clause that there will be no investment in the real estate sector.

Till now, the funds were only giving an undertaking, which is just a letter to RBI, stating that they will stay away from real estate - a simple declaration which the regulator thought was inadequate. There are other changes that foreign VCs are making to push their case. Significantly, they are refraining from making any mention of sectors which have certain sensitivity in terms of foreign direct investment. For instance, as funds spell out the segments they would be interested to invest in, there is no reference to industries like retail, non-banking finance companies and banking.

POSSIBLE CONSEQUENCES OF THE AMENDMENT
Following are some of the possible reasons and consequences that flow from the recent amendments:

• The regulatory authorities are unable to provide a breakdown of the data and cannot identify the exact share of these funds despite the percentage of inflow being significant. In order to segregate and to get a clear perspective on the share of investments and the type of investors; the reporting pattern and other regulations have been modified accordingly.

• Changes in the regulations have been made to ensure a certain amount of clarity while dealing with the funds and their investments.

• With the guarantee of the same legal norms for both foreign and domestic funds, there will be an equitable distribution of funds.

These changes may not even have any immediate effect or consequence. But the possibility of certain restrictions being imposed by the authorities based on the information acquired cannot be denied.

CONCLUSION
At present although 97 out of 111 funds have already voluntarily registered with SEBI, it still does not have any definite source about the exact investments in India. Therefore in view of the volume of investment that is expected this year, the proposed changes in the regulations and the reporting norms would definitely help in maintaining a record of the inflow of funds. Ultimately though these decisions have to be made by the regulatory authorities, they could either make the regulations more stringent or more relaxed. But at this point in time, the impact of the new regulations if introduced cannot be predicted accurately. All we can hope for is a positive outcome and better prospects for the ever volatile Indian economy.

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^ Source: Venture Intelligence

August 19, 2008

European PE fund seeks to invest in Renewable Energy Sector

ADVERTISEMENT

A European PE fund doing global deals wishes to invest in Indian unlisted Hydro, Wind, Solar and Bio-mass Companies. Companies / IPPs having running projects or projects under execution with good management are preferred. The fund is looking at funding 100% or partial management buyouts.

Company / investment bankers with firm mandates of such proposals may urgently forward a one page brief on the Company on a no name basis to arthur.pallmall@yahoo.co.uk

August 18, 2008

The Booming Business of Education

Business Today has a detailed article on the rising interest of entrepreneurs and investors in the education sector.
The next wave of great entrepreneurial activity in India is going to be centered around education. India’s 75,000 private schools account for just 7 per cent of total institutions and enrol 90 million students. Of course, there’s a slightly larger universe of children, about 129 million, who go to public schools. Still, that leaves 142 million students who are not in the system yet, says a CLSA report on education.

Game for more numbercrunching? The country has nearly 370 universities and 18,000 colleges, 500,000 teachers and the third-largest system in terms of enrolment with more than 10 million students. Whereas, Japan with its nearly 128 million people, has 684 universities, USA with 300 million people has 2,364 universities, and Germany with 82 million people has 330 universities.

...India’s education and training sector market is valued at $40 billion with a potential 16 per cent fiveyear CAGR as per the CLSA report. “Bulk of the core education space is around K-12 and there now appears to be a glut in engineering colleges and B-Schools,” says Ashish Rajpal, co-founder, iDiscoveri, a company that, among other things, seeks to provide learning aids and training to educators and also business leaders.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

"Managing the Board Meeting"

Matt McCall, Managing Director of Draper Fisher Jurvetson Portage Venture Partners, has a funny post on how entrepreneurs can manage their company’s board of directors.

1. Meet by phone whenever possible. Most of them will be doing their email or goosing their admin or something and not paying any attention at all. They’ll just vote when you ask’em to.

2. Never distribute anything in advance; they might read it and get themselves all confused. Just present it all: gets you through most of the meeting.

...8. Have a nine person board with three insiders, four VCs and two people who don’t have a clue. Just four VCs alone should guarantee gridlock.

9. Every meeting should run way over schedule. You control the agenda: presentations up front; substance in the third overtime period.

10. If they’ve gotta discuss something, get’em down in the weeds. Color of the office; words for the new ad campaign; what bank to deposit tax payments in. That keeps everybody out of trouble.

11. If you’re public and their questions are going where you don’t want to go, tell them you’d be glad to answer but that’ll make them insiders for the next two years. You can also tell by who squirms who was planning to sell.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

August 10, 2008

IDG Ventures' Sudhir Sethi on the Indian VC Space

Ernst & Young’s Global Venture Capital Insights and Trends Report 2008 has an interview with Sudhir Sethi, Founder, Chairman & Managing Director of IDG Ventures India. An extract:

Ernst & Young: What were your surprises in the last 12-18 months?

Sudhir Sethi:
When we raised our US$ 150 million fund and started operations in September 2006, we focused on early stage technology investments. Our focus was and continues to be in Software Products and Services, manufacturing and engineering, medical electronics, digital consumer and telecom / semiconductor sectors.

Our first surprise was the pace at which funds are vacating the venture
investment space and moving increasingly to the growth investment stage. Our intention is to dominate the venture stage technology focused sectors as an early stage fund.

Our second surprise was the extent of competition in our sectors; except for digital consumer space (internet / mobile VAS), we really do not face significant competitive pressures in our other sectors.

Our third surprise was on valuations; we find valuations in the venture stage of the technology sector extremely attractive.

Our fourth surprise was the maturity of the entrepreneur who today values relationships and value-add from a venture investor.

...In the past 18 months, we also found that venture investments in India require business model innovations to create companies and not just fund conventional deal flow; hence we funded ConnectM, a spin out from Sasken; Aujas a managed security services pure play, through an EIR Program and 3D Solid Compression, which was incubated by Stanford and Indian Institute of Science, Bangalore.

The full interview is available here

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Entrepreneur Interview: Educational Initiatives’ Sridhar Rajagopalan

Educational Initiatives’ Co-founder & Managing Director Sridhar Rajagopalan became an entrepreneur in school education after acquiring a B.Tech from IIT Chennai and a PGDM from IIM-Ahmedabad followed by a three-year stint at Tata IBM. He was a member of the team that set up Eklavya School in Ahmedabad in the mid-nineties.

In 2001, along with a few batch-mates from IIMA, Sridhar set up EI with an aim to create a school education system where children learn with understanding as against the currently dominant learning by rote. Sridhar firmly believes that this goal can be achieved through a 'for profit' enterprise focused on assessment tests for children based on research-based methodologies.



Educational Initiatives’ Sridhar Rajagopalan

Ahmedabad-headquartered EI's flagship product ASSET (Assessment of Scholastic Skills through Educational Testing) is a diagnostic test which, instead of trying only to find out how much a child knows (or has memorized), measures how well a student has understood concepts and gives detailed feedback on the same, to help them improve.

EI recently received Venture Capital from Bangalore-based Footprint Ventures, Chennai-based IFMR Trust and US-based Novak Biddle Venture Partners. Industrialist Gautam Thapar has also invested in his personal capacity.

Sridhar shares his views on education as an enterprise in a conversation with Venture Intelligence’s N. Sriram. Excerpts:

VI: Are you planning to get into segments beyond assessment? Or will you stick to assessment and go for a larger footprint?
Sridhar: We will develop products and services based on research and assessment that will do three things: one, measure how children are learning; two, gain and share insights and information about the learning process – understanding what children learn and what they do not and why, etc; three, improved self-learning. In the third area, we have just launched a product called Mindspark. If a child spends the recommended time on Mindspark every day, learning does happen on its own. Mindspark is able to do that because it is a research-based product.

We plan to develop deeper expertise in the crucial but much neglected area of assessment and develop products. Our research into assessment gives insights into learning. Some of the products might look like learning products but they come out of our expertise in assessment. So we will stay in assessment in K-12.

VI: Will your assessment products evolve as parallels to exams by boards like CBSE or ICSE?
Sridhar: We are working with CBSE. They invited us to see how critical thinking skills can be built in CBSE and if the board can do an assessment and get back to schools and teachers on areas of weaknesses and strengths of the children in a school.

VI: Education appears a hot sector for investors. But is there a gap between where the money is actually needed and where the money is going?
Sridhar: There is a gap because there isn’t a great understanding and also because most players are looking at short term returns. The real win-win will come when we look at these two things together: what is going to fundamentally make a difference and what is the value-add we can make there?

But things are beginning to happen. Intelligent people are becoming interested in the issues. Many people from top institutes such as IITs and IIMs are getting into education.

Today, if someone is trying to better science in schools, he won’t get much venture funding. This may change in the next 3-4 years. But interestingly, when you work on fundamentals, if one product doesn’t work, your fundamental work is strong enough to modify it into something else. In contrast, if you are investing in tutorials, if that is not working, you look elsewhere to see what the ‘in-thing’ is.

VI: Does the Indian education segment have a global role?
Sridhar: I think India has the opportunity to be a global leader in providing educational services. I am surprised that despite our short experience, we are doing things which others elsewhere in the world are not doing. We already have global customers for our products and services.

VI: Do your investors share your vision?
Sridhar: Even in an area like this, the commercial model is the best. We ourselves have set fairly rigorous business targets. For a product like Mindspark, a year before it launched, we decided how much business we want to do in the third year. It is not like we will start Mindspark and see how many we can sell. I don’t think that works. We explain to investors what we are trying to do, why we are trying to and what the larger vision is. We need to recognize that investors are looking for returns on their money. And we need to better that.

VI: Can we say that your enterprise is a proof of concept for good education being a profitable enterprise?
Sridhar: I strongly believe in that. I also think that ‘For Profit’ schools should be allowed to run. However, profit should not be the direct motive. Innovation and quality should be. Profits will certainly follow.

VI: What have been the key contribution of your investors?
Sridhar: There has been value addition in a number of ways. For example, we are now measuring stickiness very carefully – measuring factors like ‘what is the number of children who are taking ASSET year after year?’ very carefully. For example, we have been told that for a product like Mindspark, one of the best markets would be South Korea. Whether or not you do those things, thinking on those lines helps. And issues like how education companies have moved in the US, what they have done right and what they have done wrong…our investors help us with perspectives on these issues.

VI: What is your advice to entrepreneurs in education?
Sridhar: Be very clear about the fundamental goals that you are working towards. Do a very, very strong job on that. And don’t compromise on that. Look at the profit as secondary to the basic goals you are trying to achieve. We have rejected commercial propositions that were not in tune with our basic objectives. I think it is important for businesses to draw the line and declare that we want to do the right things, the right way. At every step, check if that is in tune with your objective. Would your company’s existence help the larger world? If your answer is, ‘yes, it would’, then you could be probably on the right side.

VI: Do you have any role model?
Sridhar: Vikram Sarabhai. He was a great institution builder. He set up IIMA and was the father of India’s space research programme. He was also a businessman. He comes the closest to a source of inspiration.

VI: Your key learning in running a business so far?
Sridhar: Learn from failures. Look at Microsoft Office. It is a successful product. I remember the first product they released. It was absolutely terrible. But they persisted. Think of an idea, persist with it. You will always have successes and failures. Work through the failures and try and get things right. In any business, you will have successes and failures in fairly uniform measure. The key question is whether you can learn and align your learning with the larger goal.

Secondly, people are critical. You basically work through people to get to the goals.

(You can download the full text of the interview here.)

August 08, 2008

Limited Partner Interview: PCG International's Steven Cowan

Venture Intelligence recently spoke to Steven Cowan, Managing Director, PCG International (PCGI), an affiliate of US-based Pacific Corporate Group, that invests in emerging markets private equity funds. Prior to PCGI, he had worked with Overseas Private Investment Corporation (OPIC) and before that, was an attorney with leading US law firms. (The full interview will be published in the forthcoming Venture Intelligence Quarterly Roundup Report).



Venture Intelligence: Please tell us more about your firm and its investments in India.

Steven Cowan: Founded in 2005, PCGI is focused on Private Equity outside the US through partnership and co-investments across VC and PE sectors and stages. We are currently a team of 10 based in Washington D.C, with offices in California and Hong Kong and manage more than $1 billion. Our team is experienced in the emerging markets and some of them have been associated with PE in India since the 90s. Our geographical split right now is approximately around 25% in Central & Eastern Europe, Latin America 20%, India 15%, China 15%; Japan 5%, Israel 5% and regional Asian funds 15%.

VI: Can you tell more about your investments in India-focused funds?

SC: Excluding regional funds, PCGI has so far committed about $50 million in India across 5 funds. Being stage agnostic, we have invested across the spectrum. We are very interested in groups attempting complete control transactions.

VI: What is your typical investment size?

SC: We typically invest between $5-50 million in any fund. In certain cases, our bite size could go higher.

VI: Do you invest in first-time funds?

SC: We generally avoid first time funds unless it’s a compelling opportunity or the team is very promising.

VI: We noticed fewer new funds being closed in recent months compared to a couple of years back. How do you see the current fund raising environment?

SC: The fund raising environment is going to be a little bit more challenging in the immediate term. With think this change comes in some measure because institutional investors have had to reduce the rate of increase in their exposure to Private Equity as many have guidelines to cap it at a certain percentage of their overall portfolio. And, as the value of their portfolio diminishes with the public equity markets falling, their ability to commit to additional funds is reduced. This is what is referred to as the ‘Denominator Effect’.

At the same time, investors are also becoming more cautious. This caution may have some impact on the PE in India. The macro-economic environment and the run-up to the general elections also could have an impact on fund raising. Investors may ‘wait and watch’ to gauge the policy initiatives of the next government.

VI: The sweet spot in India seems to be largely in the growth capital segment. Is this going to continue? What trends are you seeing in terms of new funds being raised?

SC: The market appears as though it is gradually evolving towards an increasing number of control transactions. We are also seeing increasing specialization among funds. While there has been a great deal of emphasis on Real Estate and infrastructure, we are seeing an increasing number of funds focusing on other sectors and stages as well.

VI: What is the biggest issue facing Indian private equity at the moment?

SC: From our perspective, the two big challenges appear to be the macro environment and an increasingly competitive market resulting in higher entry multiples.

Top Investors from General Atlantic, UTI Ventures & Baring PE join Speaker Roster at IT Services

Sunil Kolangara of UTI Ventures; Abhay Havaldar of General Atlantic; Subbu Subramaniam of Baring Private Equity and Dev Raman of Tricolor India will be the investor speakers at IT Services & BPO Connect '08 (IB Connect).

IB Connect is a conference that brings together investors, entrepreneurs and top executives in the IT Services & BPO sectors to network, discuss and share best practices. The 2008 edition, to be held on August 28 at Mumbai, aims to review current trends and explore new opportunities.

Here is the latest speakers at the conference:

Aparup Sengupta, CEO, Aegis BPO
Nitin Shah, CMD, Allied Digital
Subbu Subramaniam, Partner, Baring Private Equity
Salil Parekh, Executive Chairman, Capgemini India
Akshaya Bhargava, CEO, Fulcrum Group
Abhay Havaldar, Managing Director, General Atlantic
Partha De Sarkar, CEO, HTMT Global
Srinath Batni, Director, Infosys
Rajesh Jain, Director, KPMG
Niteen Tulpule, Director, KPMG
Raj Chatterjea, Director-M&A, Motilal Oswal
Shailesh Shah, Chief Strategy Officer, Satyam
V.K. Raman, Head-BPO Services, TCS
Dev Raman, Principal, Tricolor India
Sunil Kolangara, Director-Private Equity, UTI Ventures
Ashutosh Vaidya, CEO, Wipro BPO


Participants at the event include a healthy mix of Large- & Mid-sized Companies as well as Leading Private Equity & Public Markets Investors.

For participation details, Email info@ventureintelligence.in or SMS “IBCONNECT” to 56677.

August 07, 2008

More Credit Crisis Jokes

Give a man a fish; he'll eat for a day. Give him a sub-prime fish loan and you’re in business, buddy! - Stephen Colbert

(Hat tip: Dealmaker)

Now, Bloomberg has another "fishy tale" which starts with a Hedge-Fund Guy walking into an investment bank complaining about a derivative security which he purchased not so long ago... Click Here for the full tale.

Of course, my favorite not-to-miss video on the credit crisis featuring comics John Bird and John Fortune is linked here.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

August 04, 2008

Knowledge Commission recommendations on entrepreneurship

The National Knowledge Commission, headed by former Telecom Commission Chairman Sam Pitroda, has published recommendations on entrepreneurship.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

"Expensive Economy"

Businessworld has a cover story on how rising input costs, specially that of labour and power, coupled with shifting political alliances have made India an expensive business destination.
Services, which accounts for 54 per cent of India’s GDP, is one frontier the country has to guard dearly. The sector has been hit by facilities and manpower expenses, which account for 65-70 per cent of costs. Several MNCs — including Nokia and Dell — have shut their captive business process outsourcing (BPO) units in India. “HR costs are growing at 15-20 per cent every year; globally, they grow at 2-5 per cent,” says Tanmay Kapoor, partner of business advisory at Ernst & Young (E&Y). In most areas of the services sector, CEOs in India are actually earning more than their counterparts in the US. The Rs 34-crore Cairn India’s CEO Rahul Dhir’s remuneration in 2007 was nearly Rs 7 crore. The median for a CEO’s salary in the US is $1.1 million (Rs 4.4 crore).

...A bigger challenge for companies is that demand-supply imbalance is raising employees’ salaries without adding to their skill sets. When London-based Axiom Estates was hiring its India staff, it analysed the wages versus skill sets of candidates in India, the UK and the US. It eventually hired the top level from the UK and the US and placed them in India. “We found that for that price, the skill level wasn’t that good in India,” explains Rajesh Goenka, chairman & CEO of Axiom Estates, which sells Indian real estate properties to buyers around the world.

Then there is the workforce inefficiency. “Labour in India is far more inefficient than labour in any developed country,” says Gaurav Taneja, partner at E&Y. A survey by Kelly Services, the world’s fourth largest recruitment company, last year said people efficiency in India (measured by financial performance against targets and deliveries) was barely 50-60 per cent against the global average of 80-90 per cent. “If you account for the cost of hiring, attrition, training and inefficiency, India will rank very high,” says Dhirendra Shantilal, Asia-pacific head of Kelly Services.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.