Mumbai Calling – Uday Disley

A little update from our end is that we are going to have a presence in Mumbai, yes finally!

This has been on our agenda for a while now and we have started an office here from the first week of June. Though this is a small step for our firm, it is a giant leap for a ‘Bangalorean’, having to give up on round the corner ‘hot idli’ serving eateries to finding new age ‘vada pav’ vending retailers. Don’t know if it is fair to compare the two cities (we can’t be fair on this at all), but there is the opportunity of meeting new people (who speak the munnabhai lingo), new experiences (there are no taxis/ autos who overcharge or refuse to go with you) and somewhere down the line get some decent clients to work with. And for the cricket fanatics that we are (read test cricket), a pilgrimage to Shivaji Park/ Brabourne being just few miles away, will use that to our maximum advantage. So see you all in ‘Maximum City’, Mumbai.

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Bangalore:Big deal or No deal? – Deepak Srinath

As an investment bank focused on Tech and tech enabled services firms, it would seem that Bangalore is the perfect location for us, right? Afterall, Bangalore is the tech capital of the country on any parameter that one may choose to use. The history of Indian tech entrepreneurship is full of success stories from Bangalore. However, we find ourselves in the middle of a very curious situation – We do not have a single client in Bangalore today. What’s more, in the last six months, we have hardly come across a firm from Bangalore that has really excited us.  Are we doing a bad job in our home turf or is there a more endemic rationale to this?

I set about posing this question to my colleagues in Viedea, VC’s ,  fellow I-bankers, etc and heard several interesting explanations. For one, they all agreed that they were seeing fewer ‘doable’ deals from Bangalore. (Now the word ‘doable’ in our industry parlance needs some explanation- It means that it is a VC or M&A deal that has all the hygiene factors covered – good entrepreneurs/management team, product or service addressing a large market,  solid business model validated by enough customers,  decent revenue and growth path, no complications or legacy baggage,  etc.).

A VC with one of India’s best known funds has this to say – Entrepreneurs in Bangalore understand enterprise services very well. Culturally and historically, this is their DNA. Therefore they have been able to build good IT Services, BPO, KPO, Analytics services type of businesses. These industries have all matured and compete on scale.  There is not much of an opportunity for a new entrant in this space and hence VC’s won’t invest. Moreover, those that haven’t scaled are languishing and may not be of much interest to strategic acquirers either.

Rajeev Agrawal, founder and MD of PE fund Ambit Pragma added another interesting twist – the first and second generation entrepreneurs from Bangalore (read late 80’s and 90’s) cut their teeth in the Wipro’s and Infy’s during their early growth phase. They were in many ways like the pioneers who ventured out ‘west’ and built the United States. They learnt how to deal with uncertainty, create new markets and built businesses from scratch. These skills were then put to use to create the Mindtree’s, Onmobile’s, Indecomm’s, etc.  Today’s executives in Bangalore’s mature tech industry learn a very different set of skills – managing scale, working in a highly process driven environment- not exactly the skills required to go out and build a start-up from scratch. Therefore, they may not equipped to become entrepreneurs.

While both these theories have merit, a very pertinent fact is that we continue to see plenty of startup’s from Bangalore, but very few of them are ‘doable’. I think the real reason is because the Bangalore entrepreneurs’ greatest strength (tech savvyness) is also his greatest weakness. He/She is enamored by a brilliant technical idea, but fails to do enough diligence on the market or requirements of the intended users.  The real opportunity today is for businesses that seek to serve the burgeoning Indian domestic market. In our interactions, we often find that entrepreneurs from Mumbai, Delhi and even Pune, seem to have a much better understanding of the market and consumers than those from Bangalore.  They build their products and services for the market and not the other way round, ie, build a product and then try to find a market for it.

We hope this is just a learning phase for Bangalore and we start seeing ‘doable’ deals from this city soon.  The city has some incredibly bright, tech savvy young people and it would be a pity if many of them don’t go on to build innovative, successful and large businesses.

“I need more business plans on my desk” – A tête-à-tête with Ritesh Banglani, IDG Ventures

When ordinary people look at PE or VC fund managers they often forget that these guys could be normal folk too. Take Ritesh Banglani, Vice President of IDG Ventures India, if he is not dreaming of traveling to forests and valleys he is actually out there in the wild.  In his interview with Viedea, Banglani travels in to the world of entrepreneurs and candidly discusses why he expects many more business ideas and plans on his table by the end of this financial year. He admits that there is room for many more entrepreneurs in the technology space, especially those supporting sectors such as telecommunications and consumer services. Here are excerpts from the interview:

1. What sectors do you see money flowing in to for the next 6 years?

A. I see venture capital flowing in to the technology space. 70 percent of the $ 10 billion VC money will go in to the technology space in India over the next 6 years,. Then if you look at the private equity space where $ 70-75 billion is expected to be invested during this period, sectors like manufacturing, telecom and BFSI will be the space to watch out for. Education is another sector where we see larger investments during this period.

2. Why is your India fund smaller than the $2.5 billion invested for China?

A. There are 400 million internet users in China compared to 40 million in India. This is reflected in the large exits Venture Capital funds have had in the Chinese consumer internet space – companies like Baidu, Tencent, CTrip etc. We expect Indian venture-backed companies to provide similarly large exits over the next 10 years, maybe led by the mobile space, where we have 600 million mobile users. With 3G becoming a reality soon there will be more need for data services and mobile based applications in India.

3. What companies in the technology space do you like?

A. We like companies in software products, niche services like analytics and game development, scalable internet and mobile consumer plays, and core engineering products like medical devices. In general, we look for capital efficient companies which have the ability to grow non-linearly and can generate a high revenue per employee.

4. What is your wish list as a VC when you go scouting for entrepreneurs?

A. Firstly I would like to see many more business plans from entrepreneurs, especially serial entrepreneurs and senior corporate executives. Also, I would like to see more companies that already have revenues and profits. We see about 1000 business plans per year; I would like to see that number double soon because the country has tremendous potential for entrepreneurship.

5. You have been a VC for three years and are on the board of two companies, do entrepreneurs inspire you?

A. Yes, absolutely. It is the entrepreneur who creates all the value in a company and takes most of the risk.  As a VC I can spread my risks across multiple opportunities, but an entrepreneur cannot. The energy and enthusiasm of the entrepneur community is infectious, and I have tremendously enjoyed their company over the last three years

The Mobile Wars: Apple vs. Google – Alap Bharadwaj

At Viedea we keep a tab on the day to day action of the ever changing ‘mobile’ space. This domain receives a lot of coverage from the media and lately the news has become even hotter because of the scintillating race for dominance that is emerging. The battle for mobile supremacy has well and truly commenced and the main event clearly belongs to former collaborators Apple and Google. With a certain contender from Redmond, WA undoubtedly out of the race, this will be one of the few times that two of the “good guys” will be ‘duking’ it out. The question remains, however, as to who will set the tone that others will follow and I believe I have the answer.

Google and Apple will draw swords in four main arenas of mobile warfare – Hardware, Software, Advertising and Search, and a close inspection of each reveals that the race isn’t as close as it seems.

The Hardware portion is a no brainer – The iPhone has been a game changer and has rapidly eaten away at Nokia and RIM’s market share, while Google’s Nexus One has been a colossal disappointment with major carriers Sprint and Verizon refusing to continue to offer it and Google itself admitting that its sales strategy (selling through its own store) was flawed.

Moving on, the software battle might look deceivingly close but the statistics do not lie. Apple’s iTunes App Store boasts more than 200,000 applications compared to Android’s 50,000 with comparable market share. Moreover while Google’s ‘open’ operating system might seem to have a leg up on Apple’s closely held iPhone OS, Google’s Open Handset Alliance (a group of carriers, software developers and handset makers that supported the Android Open Source Project) is showing significant signs of strain and struggling to maintain partner interest.

Carrying on to the hotly contested world of Mobile Advertising where both Apple & Google have employed the inorganic route to bolster their capabilities. In my opinion Google significantly overpaid for ‘AdMob’ buying them at almost 25x (Deal Value: US$ 750 MM) the 2009 revenues compared with just 12x (Deal Value: US$ 250 MM) that Apple paid for Quattro. While ‘Admob’ does boast significantly larger click volume, the firm only outdoes Quattro by approximately US$ 10 MM in revenues, which is not very encouraging for Google. Moreover Apple’s iAd plans which include “exclusive integration with the App Store” and ensuring iPhone, iPad and iPod advertising remains exclusively in house present a daunting challenge for Google.

Finally we look at Search, the cornerstone around which Google has built its sprawling internet Empire and something that poses a seemingly insurmountable challenge for its Californian neighbor. Apple has dealt with this trial in an ingenious manner – by changing the way people access information on their mobile devices – through apps. According to Nielsen the average number of apps on any smartphone hovers around 22 (with the iPhone at 37!), clearly indicating that search is being replaced by apps as an information access starting point. A superb blog post points out that “Apple has trained us to look for apps and use apps, not web sites”, thereby rendering the browser and in effect Google search to a large extent ineffective! Apple has made significant strides to change the mobile user experience in order to negate Google’s influence via search.

Ultimately Google’s mobile strategy might pan out, but only if it can manage to attract a significant customer base to its software and services, which is no easy task. Meanwhile it’s hard to look past Apple as the clear leader of the new school when it comes to the world of Mobile. The others better get their act together soon or they will be relegated to being mere observers in the smart phone race, struggling to stay relevant only by playing in the highly fragmented and low margin world of feature phones.

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