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Concept Arbitrage: Preface

Posted on Friday, Jun 23rd 2006

This is an introduction to a series on entrpreneurship in India, investments, investment prospects, and emerging trends and opportunities. The structure I will follow in the series is that I will analyze specific sectors, deals in those sectors, how they came about, and summarize conclusion nuggets and trend implications.

In researching the series, I have looked into the India portfolios of those funds that are involved in the early-stage investment game in India. The deals that I will discuss are:

May be others. Don’t know yet. If you have ideas and segments or companies that you want to see covered, please ping me.

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Seed Funds in India

Posted on Friday, Jun 23rd 2006

In my previous piece, I posed the question whether a next Bill Gates might emerge out of Bangalore, which developed into a discussion on seed investment in India, and its lack thereof.

This then led me to ask around, and collect some information on efforts to put together seed funds, as well as support very early stage entrepreneurs in India.

Subrata Mitra of Erasmic had first approached me with this concept, about a year back. I asked him for an overview of the early-stage investment scenario in India yesterday.

“… there really are the following organizations which are trying to do things at our level:
1. Band of angels (from Delhi)
2. Mentor Partners (from Bangalore)
3. Seed fund (Mumbai)
4. There’s one other fellow who is supposed to setup in Hyderabad; not sure where they are.

Funds such as Ashish Gupta (HelionVC) & others are much bigger ($100+M, and are in the real VC side of things). However, the following US funds have made early stage investments in India: DFJ, Sierra, Sequoia (WBCP) and Battery. Not sure about any others.”

Also from K. Ganesh, CEO of TutorVista, who just raised Series A from Sequoia (Westbridge): “See TiE Bangalore EAP program that is trying to help entrepreneurs”. (Btw, Ganesh and his team have boot-strapped their seed stage, and raised the Sequoia money only after they built up a bit of traction, albeit very little for a consumer play, nothing statistically significant.)

In summary, there IS a very early stage investment community coming together in India. I have a great deal of respect for these guys for venturing, since it is an extremely high risk segment to play in. The market needs are high on the mentoring side, relatively low on the capital aspect. Most of these funds understand that, and are hands on.

Erasmic considers companies for funding with the following characteristics, in an India-US mode:

* Indian companies that have little or no access to markets outside of India but have some customer validation and (usually) a small revenue stream in place

* US founders that have ideas that require a strong Development / BPO like back-end presence

* US founders with product ideas that can receive significant VC traction once an initial team, prototype & early validation is in place through involvement of this fund

The first category does not qualify as seed investment per se, but the two latter categories do. It is also a much better strategy to pair up experienced entrepreneurs in the US, close to the market, with entrepreneurs / early team members in India, to mitigate risks.

In the case of entrepreneurs like K. Ganesh, they are India-based successful back-office entrepreneurs. Whether they will be able to scale their expertise to be able to market to US consumers – remains to be seen.

Anyway, I will continue to track this segment, and invite opinions and contributions from both investors and entrepreneurs who are active in the space. If you have interesting information, please email me, or add your comments right here.

Silicon Valley Fails Well

Posted on Wednesday, Jun 21st 2006

I was at a keynote this afternoon with Geoffrey Moore, who was talking about models from his new book, “Dealing With Darwin”. I later realized that Geoff also has a blog where he has a recent entry called Top Ten Truths About the Digital Ecosystem, which is a good piece, especially Point No. 1.

I have always enjoyed Geoff’s books, especially “Crossing The Chasm”, which in my opinion is one of the best technology marketing books ever written.

Today, someone asked him from the audience about the future of Silicon Valley and the US. I liked his answer, and wanted to write about it in today’s blog post:

– Silicon Valley is very good at failing. Failing fast. Learning from failures. Using that learning to do new and different things. In any other place in the world, you get one chance, and if you fail, that carries a stigma for life, and you never get a second chance. Very powerful advantage.

– The US still has the best higher education system. Great universities.

– The US still has the most mature and best organized capital market.

These three, Geoff thought, could still help maintain the US lead.

On the negative side, he thought that the US has become very lazy. “We’ve had such a cushy life for so long, and during the boom years, things just became goofy.” Faced with hungrier competition, this can become the defining factor for this century.

There is a lot of discussion these days at the tech leadership circles about Silicon Valley’s chiefs starting to feel fatigued, especially in the context of the announcement of Bill Gates’ retirement from Microsoft. A friend of mine commented today: “I’ve heard some of them are taking the whole summer off.” Unheard of, when things were hot! Geoff also touched on this topic.

Well, I know I have a lot of passionate readers in Bangalore … do you think Bangalore has an answer to a Bill Gates or a Steve Jobs yet?

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More on Bill Gates

Posted on Monday, Jun 19th 2006

From Betsy Corcoran.

I happen to be in complete agreement with everything she describes, including that Gates is justifiably moving on to the next stage of his legacy-building journey.

Bill Gates

Posted on Thursday, Jun 15th 2006

Bill Gates has announced today that he will no longer be involved with running Microsoft on a day-to-day basis.¬†All through the nineties, and still today, it has been fashionable to bash Gates and his lifetime achievement, Microsoft, the world’s largest software enterprise.

Personally, I have a HUGE amount of respect for Gates and what he has accomplished, and I can relate with his decision to leave the Microsoft job to focus on his philanthropic cause.

You see, there is a time for everything in life. For Gates, spending close to 30 years of his life building Microsoft was enough. It is time to step away, and unlike Larry Ellison who can think of not much else besides competing with Microsoft and Gates, I applaud the fact that Gates wants to dedicate the rest of his life to Education and Philanthropy.

Microsoft is a strong company, and recruiting and developing the next generation of leadership is a good idea. For Microsoft to sustain itself into the latter decades of the twenty first century, it needs to look well past Gates and his legacy. There is absolutely no question that Gates is leaving a lasting legacy, by making PCs ubiquitous.

So what if he missed the Internet initially? So what if he has missed On Demand / SaaS initially? He had the vision of putting computers on every desk, and he achieved that vision to a very large degree – more than the degree to which most people’s visions get translated into action. And frankly, so what if Windows is a rather buggy piece of software? Perhaps, the future Microsoft leaders can focus on producing robust, bug free software. Gates had bigger fishes to fry.

Most of the richest men of our generation – Jobs, Ellison, Buffet – are not great Philanthropists. Gates is.

For that, and that alone, I take my hats off to the man and his missions. To vaccinate the world and protect children from preventable diseases. To improve education.

Mr. Gates, never mind the bitterness and venom you have always received from the world as the big, bad empire.

For me, you are a Man.

On Demand Requires TeleSales

Posted on Wednesday, Jun 14th 2006

Anneke Seley, Founder and CEO of Phoneworks, is advising a number of On Demand software firms on their channel strategy, and below is her brief analysis on why TeleSales is a necessary channel for this business model.

“Whether we call them Hosted Applications, Software as a Service (SaaS), On Demand Software or ASP model products, everyone is talking about delivering technology through an internet connection. It is a recent priorityfor companies who once only offered software through traditional, perpetual licensing to incorporate a hosted product into their business models. And forward-thinking companies like Salesforce.com, Webex, RightNow Technologies, Everdream, and other start-ups have launched with on demand as their primary strategy.

But changing or adding software delivery models requires re-thinking of distribution strategies. Without the right sales approach, properly implemented, all the benefits of the On Demand Software delivery model to both the vendor and the customer can easily be lost.

There are certain characteristics of software products that put them in the sweet spot for the telesales channel. Many of these characteristics also exist for software sold as a service, including:

  • Small and medium-sized businesses are key market, driving growth
  • Large number of geographically dispersed customers
  • Product benefits can be easily demonstrated on-line
  • Products significantly differentiated by ease-of-use
  • High number of transactions and interactions
  • Monthly or annual subscription pricing
  • Lower average deal size
  • Shorter sales cycle
  • Recurring, renewable revenue stream
  • Trial license often offered initially as hook or to seed an account
  • Easy, quick installation and maintenance
  • Decentralized, departmental purchasing, line-of-business decision makers (not just IT)

Given these factors, Telesales is an ideal and complementary sales channel for On Demand software. While Field Sales is still appropriate for large or strategic accounts, it is not cost-effective for the majority of lower-dollar, high-transaction SaaS sales models. Without a well-planned, professionally-managed Telesales force, On Demand Software vendors will face missed opportunities, increased cost of sale, and ultimately decreased revenue and profit.”

Today, with the ability to share desktops via technologies such as Webex, Macromedia’s Breeze, or Microsoft’s Placeware, selling low-ASP products and services by phone has become viable. Before, this price-point used to be in a dead-zone between very low cost shrink-wrapped software that was sold through retail channels, and the very high cost enterprise software sold through direct field sales forces. Consequently, the SME market was also out-of-reach, by and large.

That has changed. On Demand and Telesales make SME markets extremely viable at this point. But for On Demand to succeed, Telesales is a necessary component.

Yahoo Needs To Open APIs

Posted on Monday, Jun 12th 2006

The last few weeks, I have noticed that every time I log into MyYahoo, the large banner ad it shows me is that of Netflix. That too, a Netflix ad that is geared towards acquiring new customers.

I have been a loyal Netflix customer for at least 5 years. This ad is wasted on me.

This makes me wonder how difficult it would be to correlate Yahoo’s customer accounts with Netflix’s, and target the ads with much more precise and personalized messages.

For me, the message from Netflix that might make sense is that of an upgrade suggestion to their 8-at-a-time offering from my current 4-at-a-time subscription level.

However, as it stands, such personalization systems do not exist. To achieve such personalization, media giants like Yahoo would need to come up with open, secure API’s, and companies like Netflix would need to invest in integrating their CRM systems with Yahoo’s advertising management system.

In the increasing precision of targeting online advertising, such moves could generate tremendous efficiency and value.

IBM: “India Is More Than Good”

Posted on Tuesday, Jun 6th 2006

At the heels of Apple pulling out of India comes IBM’s announcement that they will triple their investment in India to $6 Billion over the next 3 years.

In the past three years, the company has invested more than $2 billion in India and increased staff from 9,000 to 43,000, becoming the largest foreign employer in the country. India is IBM’s second-largest base of operations, trailing only the U.S., which has 125,000 of IBM’s 330,000 people.

Earlier, Cisco and Microsoft have already announced Billions of dollars of investment commitment into growing their India presence.

IBM has followed the strategy of building mutliple operations in different parts of India, and has large offices in Bangalore, Pune, Gaugaon, Delhi, Mumbai and Calcutta. In the next round of investment, I am sure they will also tap into Hyderabad and Chennai, as well as other second tier cities. The sheer volume of their hiring needs offer them the opportunity to follow
The Team Of Twenty One philosophy.

Recently, a friend of mine came by to brainstorm about his career strategy. With a Bachelors from IIT Bombay, a PhD from Stanford, and several years of work experience in the US, his is a classic profile that feels velocity constrained in the US, but his career could absolutely fly in India, given the country’s hunger for Grade A engineering talent and leadership.

Of late, I have been advising all my Indian friends who are doing engineering careers in the US to go back to India. Interestingly enough, most of them have been in the US for a dozen plus years, and want to only return to a city where they have friends and / or family, and do not have to rebuild a social network from scratch.

I wonder to what extent employers understand and leverage this socio-cultural dynamic!