#17 - FEBRUARY 2009 by CyberMedia (I) Ltd

Vol 2 / Issue 05 / Feb 09

/Rs 30

HOW TO BUY A PUBLIC HOW MUCH (RETURNS) DO MAKE? LISTED ANGEL INVESTORS THE BUSINESS COMPANY OF ANIMATION THE BUSINESS CANE FURNITURE: A WHO WON THE DARE BLACKBERRY BOLD CONTEST?

OF LUXURY BOATS PLUSH FUTURE

CAN WE TRUST BUSINESS EXCHANGE PRICEWATERHOUSECOOPERS? Doing business in New Zealand Heritage tourism: A historic opportunity 15 minute guide to patents Selling handicrafts with enthusiasm Power of identity Where is the Indian activist investor?

investor of the month/

Kumar Shiralagi, NEA-Indo-US Ventures innovation of the month/

A better biogas plant for your home The Mini Weeder BYST in micro-entrepreneurship But thatâ&#x20AC;&#x2122;s been done before! Case: Helion Venture Partners and SMS Gupshup 100 pages including cover

Vol 2 / Issue 05 / FEB 09

BOARD OF ADVISORS C K Prahalad

University of Michigan

N R Narayanamurthy

Chief Mentor, Infosys

Kanwal Rekhi

Chairman, TiE

Romesh Wadhwani Chairman & President, Wadhwani Foundation Gururaj ‘Desh’ Deshpande

Chairman, Sycamore Networks

Saurabh Srivastava Chairman, Indian Venture Capital Association Kiran Mazumdar Shaw

Chairman & MD, Biocon

R Gopalakrishnan

Executive Director, Tata Sons

Philip Anderson

Professor of Entrepreneurship, INSEAD

Shyam Malhotra Editor-in-Chief Krishna Kumar Group Editor ANALYSTS Ambrish Jha Aswathi Muralidharan Binesh Kutty Mohita Nagpal Vimarsh Bajpai OPERATIONS Ajay Dhoundiyal Product Manager VIjay Rana Design Anil John Photography SALES & MA Jaideep Mario Gabriel Imran Ali Dayanath Levaj Jagadeesh Kingshuk Sircar

/strategy

How to buy a public listed company

MARKETING Associate VP West West South South South-East Asia

PRINT & CIRCULATION SERVICES NC George Associate VP T Srirengan GM, Print Services Sudhir Arora Circulation Services Manager Pooja Bharadwaj Assistant Manager, Subscriptions Sarita Shridhar Assistant Manager, Reader Service Printed and published by Pradeep Gupta. Owner, CyberMedia (India) Ltd. Printed at International Print-O-Pack Limited, B-204-206, Okhla Industrial Area, Phase 1, New Delhi-20 Published from D-74, Panchsheel Enclave, New Delhi-17. Editor: Krishna Kumar. Distributors in India: Living Media India Limited, Mumbai. All rights reserved. No part of this publication may be reproduced by any means without prior written permission. BANGALORE 205, 2nd Floor, # 73, Shree Complex, St.Johns Road, Tel: 41238238 CHENNAI 5B, 6th Floor, Gemini Parsn Apts, 599 Mount Road, Tel: 28221712 KOLKATA 307, 3rd Floor, Ballygunj A.C. Market, 46/31/1 Gariahat Road Tel: 65250117 MUMBAI Road No 16, D 7/1 MIDC, Andheri (East) Tel: 28387241 DELHI D-74 Panchsheel Enclave Tel: 41751234 PUNE D/4 Sukhwani Park North Main Road, Koregaon Tel: 64004065 SECUNDERABAD #5,6 1st Floor, Srinath Commercial Complex, SD Road. Tel: 27841970 SINGAPORE 1, North Bridge Road, # 14-03 High Street Center Tel: +65-63369142 CORPORATE OFFICE Cyber House, B-35, Sec 32, Gurgaon, NCR Delhi-122001. Tel: 0124-4031234, Fax: 2380694.

100 pages including cover

DARE.CO.IN 4

FEBRUARY 2009

The year 2008 witnessed several global mergers and acquisitions, with Indian companies playing an active role. The trend is expected to continue during the slowdown with cash-rich companies on the lookout for easier targets. It makes it imperative, therefore, to investigate how public listed companies can be acquired.

Analyses on

'WHO WILL BE THE

NEXT MANUFACTURING SUPERPOWER?' England

USA

Japan

China

Steam engine

Petrol engine Electricity

Electronics

Cheap goods Massive scale

? ?

that won BlackBerry Bold

DARE.CO.IN

/contents

opportunities/ The business of animation ....................... 30 Cane furniture: A plush future.................. 66 The business of luxury boats .................... 76

investor of the month

Kumar Shiralagi Managing Director, NEA-IndoUS Ventures

NEA-IndoUS Ventures is a venture capital firm that provides early and mid-stage funding to new or growing businesses in India.

strategy/ A 15 minute guide to patents ................... 46

global opportunities/

Doing business in New Zealand The country’s rich natural resources and an importdependent economy offer Indian businesses exciting opportunities.

innovation/ The Mini Weeder ....................................... 34 society/ The blacksmith family .............................. 45 Selling handicrafts with enthusiasm ....... 94 DARE blogs/ Can we trust PricewaterhouseCoopers? ....... 72

blogs/columns Philip Anderson ........ 20

How much (returns) do angels make? ......... 91 Is agri biz the flavor of the season? ............ 91

Rupin Jayal ............. 48

Paranjoy Guha Thakurta ... 69

opportunities/ Heritage tourism: A historic opportunity

Anurag Batra ........... 88

It has emerged as one of the niche segments of tourism in India and worldwide. based

brand

capital

come

business companies

company

cost country crore customers delhi don’t entrepreneur entrepreneurs experience growth help high idea india indian industry investment

look

make

management market marketing money need number people products second services start team technology think time used value venture want waste work world years

innovation/ A better biogas plant for your home

INSEAD/ Helion Venture Partners and SMS Gupshup ... 22 ‘BYST’ in micro-entrepreneurship................. 62

NEN / What makes India’s hottest startups HOT? .... 74 Angel investing: Not for the faint-hearted ....... 86

others / Exchange ............................................... 08 Feedback ............................................... 12 FEBRUARY 2009 5

www.dare.co.in

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blogs/edit

That demon called sentiment The best examples of sentiment can be found in the stock market. Why do companies with perfectly healthy balance sheets and order positions suddenly take a beating at the stock markets? Just because one company has done badly, why should a whole industry be penalized without any reference to their fundamentals?

“W

here has all the money gone? Where has all the money gone and why?” I was at the DARE CEO seminar in Thane and this was a question from one of the participants. If India is not facing a recession, and if Indian businesses were doing well till last quarter, where indeed has all the money gone? As far as exporters are concerned, the answer is obvious. Their buyers have disappeared and all their money is tied up in unsold stocks. The case of real estate is also similar. There are no takers for fresh offerings and the money is tied up in unfinished projects and in land. Clearly, a lot of money across industries is tied up in unsold inventory. But surely, unsold inventory cannot be the answer for all the misery (and I am choosing this word with care) that we see around us.

Welcome to the wonderful new art of managing by sentiment. The best examples of sentiment can be found in the stock market. Why do companies with perfectly healthy balance sheets and order positions suddenly take a beating at the stock markets? Just because one company has done badly, why should a whole industry be penalized without any reference to their fundamentals? They call it sentiment. In an older world order, we used to call it the herd mentality. Today, we use the word sentiment to cloak our inability to make considered, independent decision and instead opting to follow the herd – to follow decisions made by an unseen committee if you will. The problem with such decisions are that they are, well – sentimental.. And sentimental decisions have a way of swinging between extremes without rhyme or reason. The currently prevailing sentiment is one of fear. Fear that the future is going to be worse than the present. Those who have the money are holding on to it in fear. They are not spending it or adding value to it or to use a quaint old term, they are not “rotating” the money. They are simply holding on to it. That is where all the money has gone. And it will take another swing of the sentiment pendulum to bring the money out.

/Krishna Kumar

FEBRUARY 2009 7

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• partners • mentoring • funding • guidance • advice • ideas...

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Published: December 2008

Grama Sewa Kendra (GSK) seeks support for the

Binod Kumar runs three ice-cream parlors selling

implementation of a pilot project to provide food

traditional variety of ice-creams, with an annual

security and sustainable livelihood for the Dalit

turnover of Rs 20 lakhs on a capital investment of Rs

peasant community of Kilvelur and Keelaiyur block

5 lakhs. He was looking for angel investment of Rs 20-

in Nagapattinam. Also kindly help us with information

25 lakhs for expanding the number of outlets to 20

on suitable donor agencies in your country or from

and the annual turnover to Rs 1-1.5 crore.

other countries.

About the Project

Response: December 2008 I am presently working with Credit Agricole Asset Management in Riyadh. I read your exchange request published in DARE, December 2008 issue.

Our project aims to preserve endangered species of traditional rice and promote bio-diversity of traditional rice varieties by adopting organic farming. The project events include collecting and

I am thankful to DARE for providing a platform for dumping of traditional rice varieties; training SHG entrepreneurs and investors to join forces to make it women, youth and farmers for the promotion of happen in the business world. a seed bank; promotion of demonstration farm; I have been looking to invest in startups where printing of educational materials; campaign of the management is good. On the face of it, your busibio-diversity of traditional rice varieties by cultural ness looks interesting and inviting to me. I am will-

media, etc.

ing to invest in your business, provided you show me how your track record has been and what are your business expansion plans and how feasible they are. If you are interested we can take this forward. Asif Ahmed

About GSK Grama Sewa Kendra (GSK) — a registered, non-profit and secular voluntary organization — is involved in various educational, awareness generation and community development activities in remote villages

I am a subscriber of DARE. I need information on

of Kilvelur and Keelaiyur Block in Nagapattinam, a

VCs who support IT-related projects. I am looking

part of which is situated on a coastal region that was

for VCs in Mumbai.

affected by the Tsunami. Mandar Deval

R Manoharan, Grama Sewa Kendra

FEBRUARY 2009 9

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BECAME ENTREPRENEUR AFTER READING DARE NOW LOOKING FOR INVESTMENT

Published: December 2008

This is a letter that I have been wanting to write for

and was planning to diversify in the areas of ERP

a long time! First of all, I would like to thank you for

implementation for a web-based ERP product, high-

starting a magazine that caters to a market that no

end training (in the areas of OOAD and automated

other magazine does and that too so very well!

testing),

I have been an avid reader of DARE since the first

Saurin Mehta runs an IT company in Vadodara,

deployment

services

and

interactive

architecture. He was looking for angel investors.

edition and in fact I quit my job and started a tiffin delivery service in Bangalore after reading an arti-

Response: January 2009 Purnima Gupta, VP – Marketing of CPG

cle in DARE. This brings me to the second part of my letter. I am looking for investments to expand my business. Shailendra, MealStation

Business Synergies, has contacted DARE showing interest in contacting Saurin Mehta. We have exchanged contact details between them.

Is anyone interested in funding a private automotive Your article on ‘New opportunities in kids furniture supplier of plastic components to well known and furnishing’ was quite informative. I am planning OEMs in India? The company is doing well since its to set up a store in Noida, NCR Delhi. Kindly help me inception (20 years back), with a CAGR of 15% over by providing information such as where and how to the last years. The funds are needed for expansion. source products. The company is also interested in selling stake Shilpa Dubey of upto 50% to a larger MNC or Indian player with complementary products. I am an avid reader of DARE from the first issue

Ashish Apte

itself. It is doubtless that your magazine is like a Bible to budding entrepreneurs. I have a BPO, Greatway Infotech, wherein we deal with the payroll process. Our USP is that we provide an employee information portal to view salary payslips.

Published: January 2009 Alex Puthoor Abraham has an outdoor LCD advertising project and was looking for a mentor and angel investor willing to invest at least 25 lakhss.

We are Chennai-based and are looking forward for associates who can work with us for getting new

Response: January 2009

clients. Those with good corporate contacts and

I am willing to invest in the outdoor

interested in having a part time income can associate

LCD advertising project, and want to contact Alex

with us.

Puthoor Abraham. Lakshmanan

FEBRUARY 2009

Marutha Rvs, Chennai

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Published: December 2008

I, along with my partner, have started a web-listing

M Rajesh was planning to start a unique telephone directory website, and was looking for angel funding and a mentor for the project.

service dedicated to machines/equipments from all industries. We are supporting it with a back office for reaching our prospects through phone as the

Response: January 2009

penetration of the Internet is not that prevalent in

Purnima Gupta, VP – Marketing of CPG

rural India. We want to provide a one-stop-shop for

Business Synergies, has contacted DARE showing

people to rent, buy or sell their machines/equipments

interest in contacting Rajesh. We have exchanged

online through our channel.

contact details between them.

We are facing difficulties in generating revenue and are unable to find out the loopholes. We are

Published: November 2008

desperately looking for a mentor or consultant who

Vasant Yaji was planning to introduce some new

can help our business achieve success. This has been

concepts on his portal, www.indiamybrand.com, and

our dream project that we started by pulling in our

was looking for feedback and angel funding.

little savings and it will be a nightmare for us to back out now. Please help !

Response: January 2009

Lagan Jaiswal

Purnima Gupta, VP – Marketing of CPG Business Synergies, has contacted DARE showing interest in contacting Vasant Yaji. We have exchanged

I am a subscriber of DARE magazine. I have completed

contact details between them.

my mechanical engineering. I read an article in your I am a startup travels and tours company, providing services like air ticketing, car rental, money exchange, hotel reservation and other travel needs. I have a website itransits.com, which will be bilingual in another one month. I need a mentor (as I lack managerial skills) to guide me for good ideas and

magazine on jute diversified products. It was very impressive. I want to start a jute industry, and need information on that. Can you please guide me as to how I can get the machinery and raw materials and the cost involved of starting the project in Andhra Pradesh. Can I get details about this industry and exports?

suggestions to promote this business.

Anil Kumar

Lenard Frederic iTransits Tours & Forex Pvt. Ltd, Pondicherry

We are looking for angel investors who can invest I need to find a technology partner to develop a unique travel services portal. Can you help me find one? Via SMS

FEBRUARY 2009

Rs 1-2 crore for the up and running NBFC micro finance institution Durai-Bangalore. Via SMS

Feedback DARE.CO.IN

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How to reduce costs on travel and

to keep the ‘cash flow’ view as 80% of

The solution lies within the share-

telephone bills? BLOG

overly ambitious enterprise die in that

holders and investors of all listed en-

Nowadays, many Wi-Fi enabled mobile

effort — being futuristic at the cost of

tities to identify an audit firm that is

phones are there in the market, a tiny

thinking about the current survival!

not part of the big four and make

Sameer Dubey

software available at www.fring.com

them joint auditors along with the big four who are already auditors in that

can be loaded onto mobiles, it can receive/make VoIP calls from/to Skype,

The good thing about the

company. On doing this there will be

GoogleTalk, SIP, Yahoo, MSN and fring

Satyam fiasco BLOG

a change in the reporting pattern to

network itself. The call can be made

What is independence, if the audi-

the share holders and investors or

from PC or the Wi-Fi phone. I am using

tor’s appointment is made by the pro-

there is already a body that appoints

this utility successfully on Nokia E51,

moter who holds majority stake or

auditors for public sector banks and

both at office and home.

can get through the resolution because

companies that can be tapped to

he is managing the company in a

get the information on auditors who

listed company.

have a good track record on audit

Arun Sharma 11 industry segments most affected by

As one of the professionals who

of companies.

the current financial downturn BLOG

is into company audits for the last 25

To avoid major mishaps in the fi-

An insightful story indeed. I, at one

years, I feel that there is a clash of in-

nancial reporting, appointment of

point can’t help but say, "don’t think

terest in being appointed as auditor by

joint auditors of two, three or four etc

so." Organized retail too is feeling the

the promoter who holds majority stake

based on the turnover of the enterprise

heat of the economic downturn, but

or he has a say in the company because

is very important as one auditor will

only in specific segments. As soon as

he can yield pressure on appointment

not be able to exercise independence

you hear organized retail, you start

in the general meeting.

and report in the factual matter.

Pantaloons, Vishal

I was also part of the audit team

I request all the investor commu-

Megamart, Reliance stores, Big Bazaars

when our audit firm were statutory

nity to look into this and implement

and the list goes on.

auditors and audited banks and com-

the suggestion given so that a second Satyam fiasco will not happen.

thinking

about

I believe, these hyper-marts, due to

panies like State Bank of India, Vijaya

logistical expertise, enjoy better price

Bank, Indian Overseas Bank, BEL, HMT

M R Jayaprakash

deals and hence can extend the same to

and other government organizations.

Chartered Accountant , Bangalore

the consumers. So in the the economic

Here the joint auditors used to work as

slowdown, with less money to spare,

a team, with joint discussions we used

Earn Rs 6,000 crore to clean

they expand the purchasing power by

to identify the areas where we need to

this muck ARTICLE

giving more value to their disposable

concentrate more and get informa-

As C K Prahlad has said that there is

income.

tion from the company/bank. Audit

money at the bottom of pyramid, this

So with no relief in sight in near

finalization was done with mutual

business also portrays the same thing.

future, these hyper-marts should do

consultation on matters that we need-

A very good business proposition.

well as consumers would like to make

ed to qualify based on materiality and

weekly/monthly purchases and avoid

other factors. If an analysis is made on the qual-

the around the corner vendor. Adish

ity of reporting on these public sector companies and the audits made by the

How startups can take on established

'big four', the quality of reporting of

players? ARTICLE

auditors who are not part of big four,

Well stated. Particularly the part on In-

surpasses the quality of the big four by

novation vs. Cash flow. Its pragmatic

a great margin.

FEBRUARY 2009

Ankur Agrawal

SMS “DARE <your comments, questions or suggestions>” to 56677 or Drop us an email: dare@cybermedia.co.in

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You can be the next Narayana Murthy ARTICLE

(23rd in queue) to find out the status,

various sectors. The common man is

The biggest asset of Mr Muthy is that

it was bluntly told to me that the book-

suffering as there is not only scarcity of

no one else was like him, and he didn’t

ing has been canceled and without

jobs, but there has also been a virtual

copy anyone. He had his own views

even giving a chance to say a word, the

freeze on promotions and increments.

and ideas and created a niche mar-

call was disconnected! Twice this has

As a result there is less money in the

ket for himself. But, right now in In-

happened to me so far. First time I just

hands of the people. Given the present

dia, we have many who are copying

barely managed to reach the New Delhi

scenario the best bet that the people

Mr Murthy.

station to catch my train on time.

have is to cut down on expenditure and

The biggest learning is “You should

I don’t understand why do you open

not borrow unless it is absolutely nec-

be like Mr Murthy not to be Mr Murthy,"

a shop when you can’t run it, more so

essary like for medical reasons. They

but in terms of industry and market

at the cost of people’s patience, time

should also avoid investing in risky

knowledge, capability to find the gap

and their important deadlines. I just

ventures and in the stock market and

and fill it and a strong vision and dedi-

checked out on the Internet whether

invest, if at all, in safe financial mecha-

cation. Create your own sphere with a

other people are also experiencing the

nisms like fixed deposits.

novel and unique business model.

same and it was true. Do you ever hap-

Sushil Dubey

Mahesh Kapasi

pen to look into the blogs, what people feel about your services?

Have Money. Want to write? ARTICLE

Having said this, I don’t expect any

Interesting stuff! I’m nearing the age

dynamics of the business? BLOG

sort of compensation (that's too much

of retirement and making a list of my

Below is the content of the mail I have

to expect from you guys) or any sorry/

“bucket” so to speak and I love the idea

written to marketing and business

thankyou mail reply. No wonder you

of writing. Print on demand is a good

heads of QucikCabs.

may even trash this mail out.

idea indeed. Thanks.

New radio cab player to change the

Hello Mr Gurvinder/Himanshu,

What I can only suggest is that god

Ana

Thought of writing a feedback mail

has given this precious gift of life to live

to you after I have faced the second in-

with all possible bright colors, so either

How much (returns) do angel

cidence of your worst services. It's not

live fully or die out (As an analogy).

investors make? ARTICLE

worse, rather PATHETIC. I requested for a cab today at

Delhi Guys, Be careful — Quality is always associated with its right price. Vineet Agarwal

12:15pm (17th in queue on your hel-

Interesting insights. Helps an entrepreneur to make a good judgment on the kind of investor to bring in. You just don’t need money bags, you also need

pline!!) after which I was allocated a request no 5479 mentioning the status

Global financial crisis and

a thinking and participating investor

revert to be provided in next 15 min. Till

common men MAG

who will bring value to the business

the time of departure I didn’t get any

The present global financial crisis has

idea and thus create wealth for all.

confirmation. When I called up again

already resulted in retrenchment across

Gabriel John

FEBRUARY 2009 13

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Breeding exotic pets ARTICLE

business. I, for one, have used Seven-

ing business. Didn’t someone from one

Hi. Thanks for this article! It’s seldom

tymm and I can tell you that their serv-

of the big IT firms make a statement

that you find articles regarding pets

ice is bad. I am now not so inclined to

that their bigger challenge was recover-

other than animal cruelty. When will we

try out any other rental service.

ing payments?

Ankur Bhatnagar

wakeup from sleep and act in the right

Several articles that talked about corporate governance in the wake of

direction by helping conservation of wild animal rather than destroying the

KPMG also has tainted record BLOG

the Satyam fiasco say that every one

Aviculture in India in the name of ani-

Lets face it. The auditing firm will do

agrees that there are many more scams

mal cruelty?

what its clients ask for it. My friends

or frauds that are perpetrated in corpo-

from school (stated to reflect that I am

rate India and the only disagreement is

speaking from experience) that started

over the magnitude of the still hidden

PlaySpan Announces $16.8 Million in

preparing for CA exams when work-

scams/frauds. All of these articles or

Series B Funding NEWS

ing for auditors as part of their course

opinion pieces agree on one fact: the in-

Layoffs have already started at Play-

would tell me of several instances where

creased focus on corporate governance

Span. It’s either a sign of poor money

they were asked (rather told) to look

in the wake of the Satyam scandal will

management or discrimination. Most

away from certain issues or cover them

only help.

of those laid off are over 40. If those laid

up. These guys were working for Indian

What is also important is that regard-

off decide to file suit, there won’t be any

auditors not the big four . The simplest

less of the auditor chosen we need to look

money left to mismanage.

of cover ups that I was told about by

at the mandate that the auditor receives

these guys, receiving a pair of footwear

from the new management. and when

for altering the stock figures at a foot-

you come to it, why should Indian busi-

Online movie rental business ARTICLE

wear distributors godown after a physi-

nesses employ foreign companies as au-

This is a detailed well written article on

cal stock check

ditors when there are comparably good

Raj Bharadwaj

Neal

movie rental. It would be interesting to

Very few Indians worry about what

know how today’s customers view this

is ethically or morally wrong when do-

or even better prospects in our country? Jagjot

WATCH OUT FOR A SPECIAL BOOKLET FROM SIDBI Containing complete details of • SIDBI’s Direct Credit Scheme • MSME Receivable Finance Scheme • Micro Finance

DARE MARCH 2009 FEBRUARY 2009 15

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opportunity/tourism

Heritage tourism: A historic opportunity Tourism in India has been on rise and is expected to emerge as the most important revenue earner for India by 2010. Heritage tourism has emerged as one of the niche segments of tourism in India and worldwide. It is often offered in combination with other elements like religion, wildlife, ecotourism, and even adventure. /Ambrish Jha

ultural heritage tourism or heritage tourism is a niche element of the overall tourism spectrum. It is meant to gain an appreciation of the past or something we have got in legacy. It is one of the oldest forms of travel, and involves heritages of all kinds – colonial heritage, urban renewal, religious tourism, genealogy, industrial heritage, and ethnicity. Thus a visit to Cellular Jail in Port Blair, or to Haldighati and Ellora Caves constitute heritage tourism in the Indian context. Heritage tourism is difficult to segregate from other elements of tourism. Tourists interested in other areas, like adventure, religion and leisure also visit different Indian heritage sites; with monuments like Taj Mahal, Humayun’s Tomb, Red Fort, Sarnath, Kaziranja, Tirupati, Varanasi, Rameshwaram, and Ajanta being quite popular. UNESCO has identified 27 heritage sites in India as world heritage, and has collaborated with state government authorities to develop several themed itineraries, like linking Buddhist holy places, legends of Shiva, yoga, and ayurvedic healing.

Travel Industry – Important Statistics • According to the World Tour and Travel Council, India ranks number one in long term growth. • Ministry of Tourism expects 10 million foreign tourists and 500 million domestic tourists in 2010 • This will create 15 million additional jobs by 2010. The contribution of the Travel & Tourism economy to employment is expected to rise from 30.5 million jobs in 2008, 6.4% of total employment or one in every 15.6 jobs to 39,6 million jobs, 7.2% of total employment or one in every 13.8 jobs by 2018. • Real GDP growth for Travel & Tourism economy is expected to average 7.6 percent per annum over the next ten years • Export earnings from international visitors and tourism goods will grow (nominal terms) to Rs 2,750.2 bn or US$51.6 bn (4.4% of total) in 2018 • The contribution of Travel & Tourism to Gross Domestic Product is expected to stay the same at 6.1% (INR 2,859.9 bn or US$73.6 bn) in 2008 to 6.1% (Rs 9,141.1 bn or US$171.5 bn) by 2018. SOURCE: Ministry of Tourism, Newspaper reports

More than five million foreigners visited India in 2007, and out of these, at least, three million visited heritage sites in India. Number of domestic tourists outnumbered foreign travelers by more than 60 times in 2007. The share of cultural heritage tourism in the overall tourism figures in India, be it domestic or foreign trave-

The Taj Mahal

FEBRUARY 2009

lers, is over 60 percent, according to various estimates. India needs quite a lot of effort and professional touch to keep its heritage sites intact. While government authorities have been mainly responsible for this, heritage management in India has started seeing the participation of big players like Tata, Oberoi, Indian

Banks of Ganges in Varanasi

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opportunity/tourism Oil Corporation, and others, on the lines of European countries and the US. Heritage hotels, another color in the spectrum of heritage tourism, are quite popular among tourists, with celebrities like Amitabh Bachchhan and Richard Gere also voicing their preference for them. Barring most of major hotel players like Taj, Oberoi, and ITC, there are several heritage hotels owned by the descendants of former rulers and aristocrats. Not everything is, however, honky dory in the field of heritage tourism. Services at heritage sites are nowhere compared to those at similar sites in countries like Italy, UK, China and Spain. Foreign tourists often feel cheated as they pay several times more entrance fees compared to Indians. They often feel disappointed by the shabby treatment they receive at the hands of the vendors, whose only agenda seems to be to extract the maximum possible money from the tourists. Tourists are also miffed at the lower levels of services offered by several heritage hotels, tour operators, transporters and others.

Heritage sites Be it the exquisite marble inlay work of the Taj Mahal or the titillating sculptures of the Khajuraho temples or the excellent fusion of science and art in Konark Sun Temple, Indian heritage sites manifest their richness everywhere. Taj Mahal, the most popular heritage of India, alone attracts some 2.5 million tourists every year. According to various estimates, heritage tourism contributes well over

60 percent to the overall share of tourists in India, both domestic and foreigners. An interesting aspect of this, however, is that almost 80 percent of foreign tourists visiting India restrict themselves to the Golden Triangle (Delhi-Jaipur-Agra) and Rajasthan, areas quite rich in heritage monuments. This comes as a surprise considering places like Bihar, Tamil Nadu, Kerala, Andhra Pradesh, Uttar Pradesh, Madhya Pradesh have so many beautiful heritage monuments. This, however, also spells huge untapped opportunities heritage tourism presents. Even if a fraction of the potential of these states is tapped, it can do wonders. Aditya Nath, managing director, Apass India Leisure Solutions, a Delhibased tour operator, says, “A package for the Golden Triangle can easily be sold. Everyone wants to make easy money. Convincing tourists to visit other places will require more efforts.” Nath says, “Rajasthan looked at heritage tourism as an opportunity to shed its BIMARU (Bihar, Madhya Pradesh, Rajasthan, and UP) tag. Better marketing strategy backed by focus on infrastructure development and creating safe environment for tourists in the state have proved the differentiator.” Rajasthan has been systematic in promoting its heritage sites. It has been flexible with time as well. While till a few years ago the state was busy promoting better known places like Jaipur, Udaipur and Jaisalmer, now attempts are successfully being made to market lesser known places, often in hinterlands, like Sawai Madhopur,

Khajuraho Temple

UNESCO heritage sites in India S.No. Place 1

Ajanta Caves

Ellora Caves

Agra Fort

Taj Mahal

Sun Temple, Konark

Group of Monuments at Mahabalipuram

Kaziranga National Park

Manas Wildlife Sanctuary

Keoladeo National Park

Churches and Convents of Goa

Khajuraho Group of Monuments

Group of Monuments at Hampi

Fatehpur Sikri

Group of monuments at Pattadakal

Elephanta Caves

Great Living Chola Temple

Sundarbans National Park

Nanda Devi and Valley of Flowers National Parks

Buddhist Monuments at Sanchi

Humayun’s Tomb, Delhi

Qutub Minar and its monuments, Delhi

Mountain Railways of India

Mahabodhi Temple Complex at Sanchi

Rock Shelters of Bhimbetka

Champaner – Pavagadh Archaeological Park

Chhatrapati Shivaji Terminus (Formerly Victoria Terminus) Station

Red Fort Complex

Rameshwaram Temple

Painting at Ajanta

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opportunity/tourism Indian Heritage Hotels demographics of average occupancy

Kumbhalgarh, Kota, Sariska, Alwar, Bundi, Barmer, and Dungarpur. Nath says, “Entrepreneurs do not hesitate to move to lesser explored areas, provided business opportunities are there. The Rajasthan government has really been supportive on this front, something other states have failed to emulate.” With greater awareness among entrepreneurs and tourists, demand for heritage monuments from under-explored areas is rising. Sujit Kumar, a guide registered with the Ministry of Tourism, says, “I have hosted a few groups of British tourists who went to visit World War II memorials in Kohima.”

Heritage management – an opportunity for entrepreneurs Realizing that managing heritage monuments is not possible by the Archaeological Survey of India alone, different state governments and the Ministry of Tourism have thrown open several

France, Germany and the UK constitute close to half of the international tourists’ market for heritage hotels on an average SOURCE: HVS International

Services offered by most of heritage hotels are substandard. Properties are good, but management standards have to improve. Staff need to be trained.

— Eva Steigler MD, One Vision, Oslo, Norway

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monuments to private players. They market, promote and use the heritage sites for tourist-friendly services such as parking for vehicles, guides, refreshment centers, events and maintenance. The Oberoi Group and the Aga Khan Foundation were granted the conservation and upkeep of Humayun Tomb in Delhi. Indian Oil Corporation is responsible for maintenance of Konark Temple. The company paid Rs 20 crores for taking over the monument and every year they contribute Rs 10 crores to the National Culture Fund. The UP government has so far privatized the upkeep of at least 50 monuments. Recently, the Maharashtra government has expressed intent to hand over 244 of its heritage monuments for upkeep by private players. This is a win-win situation for both the private players and the governments. Private players levy entry fees, use the monuments for advertising and their photographs on calendars and diaries, and they get tax exemptions on the funds they use for conservation of these heritage sites.

The Ministry of Tourism, according to its former secretary, Amitabh Kanth, is always willing to bring on board private players provided entrepreneurs have sustainable business models to form the basis of a fruitful partnership. Market size of heritage management is difficult to estimate at the moment, but it can turn out to be a serious scale of business in India, considering the way tourism is tipped to pick up in India in the near future.

Heritage hotels Heritage hotels have always been seen as something romantic. But they are not just about fantasy. Heritage hotels have been a big hit among tourists, and there are groups which manage only heritage properties. Prominent among such groups are HRH group, and Neemrana hotels. Sujit Kumar says, “Some tourists visit Rajasthan only to stay in some of the heritage hotels. They like to move around on camels and camel- driven carts, and enjoy the traditions Rajasthan has to offer.”

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opportunity/tourism The Ministry of Tourism has come up with a mechanism to sub-classify heritage hotels. They are sub-classified into Heritage Basic, Heritage Classic, Heritage Grand and Heritage Renaissance, depending on the number of rooms they have on offer and the year in which they were built. Heritage Basic – This category includes hotels in residences, havelis, hunting lodges, castles, forts, and palaces built prior to 1950. The hotels in this category should have a minimum of five rooms (ten beds). Heritage Classic - This category includes hotels in residences, havelis, hunting lodges, castles, forts, and palaces built prior to 1935. The hotels in this category should have a minimum of 15 rooms (30 beds). Heritage Grand - This category includes hotels in residences, havelis, hunting lodges, castles, forts, and palaces built prior to 1950. The hotels in this category should have a minimum of five rooms (ten beds). All the rooms in hotels of this category should be air conditioned. Heritage Renaissance - This category includes hotels in residences, havelis, hunting lodges, castles, forts, and palaces built prior to 1950. The hotels in this category should have a minimum of five rooms (Ten beds). This category includes those properties constructed prior to 1950 which have been dismantled and are rebuilt at new locations. Established hotel players like Taj and Oberoi showcase their heritage properties with rare pride. Taj manages palaces and rustic safari lodges like Fort Aguada Beach Resort in Goa, Usha Kiran Palace in Gwalior, Rambagh Palace in Jaipur, Umaid Bhawan Palace in Jodhpur, and Sawai Madhopur Lodge at Ranthambore in Sawai Madhopur. Oberois have heritage properties like Oberoi Cecil in Shimla, and Maidens in Delhi. However, heritage hotels have not always been able to deliver on the kind of services normal modern hotels provide. Eva Steigler, Managing director, One Vision Tours, Oslo, Norway, says, “Services offered by most of heritage hotels are substandard. Properties are good, but

Indian Tourism Fact Sheet Annual Foreign Tourist Arrivals (All India data for 2007)

53 lakh

Real GDP growth for Travel & Tourism economy expected in 2008

7.90%

Annual forex Inflow in 2007

$11.96 billion

Growth in forex inflow

18.00%

Domestic tourists in 2006

462 million

Export earnings from international visitors and tourism goods as expected in 2008

$18.5 billion (6.7% of total exports earnings)

Assuming 50% of tourists visit some heritage sites, there would have been three million foreign visitors and nearly 250 million domestic tourists in 2008. SOURCE: Ministry of Tourism, Newspaper reports

management standards have to improve. Staff need to be trained.” She says heritage hotels need a complete makeover in terms of providing services to meet the growing number of tourists in India.

Prospects

Rajasthan looked at heritage tourism as an opportunity to shed its BIMARU (Bihar, Madhya Pradesh, Rajasthan, and UP) tag. Better marketing strategy backed by focus on infrastructure development and creating safe environment for tourists in the state have proved the differentiator.

— Aditya Nath MD, Apass India Leisure Solutions

Considering that even if 50 percent of the Indian tourists opt for heritage sites in the near future, India will have more than five million foreign and 400 million domestic tourists visiting heritage sites. This is a huge number, and will create huge opportunities for entrepreneurs in various fields – be it tour operation, transport, restaurants, hotels, and airlines to name a few. Considering the direct opportunities heritage tourism will have with such big number of tourists, is also quite apparent. There would be nice heritage management players, and heritage hotels should have better services to offer. Tourism infrastructure needs to be improved in areas which have huge heritage opportunities but are largely unexplored. Bihar, North East, Central India and Eastern India are some of the areas. No doubt Taj Mahal will continue to be the big attraction, but India must back its strengths fully, and its strength lies in mixing heritage elements with other tourism segments as well. With awareness increasing among all involved players – government, entrepreneurs, hoteliers, and tourists – future for heritage tourism seems quite DAR E bright in days ahead. FEBRUARY 2009 19

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blogs/INSEAD

“But That’s Been Done Before!” T

/Philip Anderson

Being the first company to a market space or the only one addressing a market space is not necessarily a good thing. There are surprising benefits to having competition, and even more surprising benefits to pursuing an idea that has already failed before. 20

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he MBA student sitting across from my desk looked pale and upset. Clearly, she hadn’t slept the night before. I wondered whether there had been a death in her family or whether she had been diagnosed with a serious illness. She heaved a sigh and said, “It’s all ruined.” “What’s ruined?” I asked. “Everything. It’s all down the drain,” she replied. “What happened?” “I have a filter that dumps articles and press releases into a folder based on keywords related to my business plan,” she answered. “Last night, I checked the folder, and there was a press release announcing that a company doing almost exactly what I’m doing received US$ 3.5 million from a venture capital fund.” “I would have thought that is good news, not bad news,” I suggested. “You don’t understand!” she wailed. “I’ve spent my entire year working on this idea so I could start a company after graduation. But now I have been scooped! Someone got there ahead of me, so I’m going to have to throw away the work I have done and come up with a different concept!” Many entrepreneurs have related to me a moment such as this, when they find out that another entrepreneur (or in some cases a large company) is starting a business very similar to theirs. The feeling, they tell me, is like a blow to the stomach. When you create a novel business idea and build it into an enterprise, it’s quite de-moralizing to learn that someone has beaten you to the marketplace. Because first-mover advantage is often the cornerstone of an entrepreneurial strategy, finding out

that you are not a first-mover is more than disappointing — it can sap your morale and make you question your entire endeavor. An even worse moment can occur when you are presenting your business idea to someone whose support you need — for example, a venture capitalist — and s/he tells you that some other entrepreneur tried to do the same thing before and failed. Often, that is treated as if it were definitive evidence. If someone else tried your idea and went out of business, you must have been too ignorant to know that your concept is 'A Proven Bad Idea.' The key thought I want to convey in this month’s column is that when someone tells you, “But that’s been done before!” or tells you that a competitor has beaten you to market, you may well be hearing positive news. Being the first company to a market space or the only one addressing a market space is not necessarily a good thing. There are surprising benefits to having competition, and even more surprising benefits to pursuing an idea that has already failed before. For example, suppose you decide to start a website that sells online fashion and sports apparel to young, well-off, fashion-conscious customers around the world. You assemble a stable of famous brands such as Tommy Hilfiger and Adidas, and provide your customers with a virtual salesperson who seems human to them and who becomes a sort of online friend. You provide customizable virtual mannequins so your audience can visualize what the clothes will look like when they wear them. Before too long, you will probably learn that this was exactly the idea behind Boo.com, one of the most fa-

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blogs/INSEAD mous fiascos in Internet history. Boo. com opened in November, 1999 and went bankrupt in May, 2000, sucking down with it an estimated US$ 135 million in investors’ money. Should you now conclude that your idea is a proven failure and that you should move on to something else? What we learn from the failure of Boo.com is not that the sports/fashion space online is toxic. What we learn is that attacking that space the way these entrepreneurs did it at the time they launched their enterprise didn’t work. The lessons learned include, “Don’t build a huge infrastructure before you have sales,” and “Engage in thorough usability testing before you launch,” and “Launching in thirty countries at once is risky.” You’ll have to show prospective investors that you understand why Boo.com failed and explain what you are doing differently. But the fact that they failed — visibly, completely, and expensively — does not prove that any other venture choosing to attack the same space is doomed. Someday, another firm might well build a huge business following the trail that Boo. com blazed. When you move forward with an idea that has failed before, you end up enjoying an unusual competitive edge. Potential rivals will dismiss you, because they think you are either naïve or stupid. As “everybody knows” your business won’t work, they won’t waste much time monitoring what you are doing. If you do achieve some initial success, you are judged lucky, not good, and potential rivals will give you a lot of latitude to entrench yourself while persuading themselves your achievements are temporary and your comeuppance is nigh. Never underestimate the competitive advantage of being underestimated. It gives you considerable lead time before challengers decide they ought to start paying attention to you. What about the other case, where you read that another firm is doing something very similar to what you have in mind, and perhaps you even discover that they have secured a key customer, strategic partner, or inves-

tor you were targeting? Is there a silver lining to what would appear to be a dark cloud? In my view, that depends on how much you are able to learn. Imagine, for example, that you are golfing in a foursome on a windy day. Would you rather tee off first? I wouldn’t. I’d much prefer to let as many of my partners as possible hit their first drive ahead of me, so I have more information about how the wind is blowing and whether the grass is allowing for much roll that day. Similarly, if someone else pioneers an idea similar to yours and you are able to observe what they are doing, you’re better off than you would be if you are the guinea pig and everyone else is learning from your experience. That’s not to say you should wait endlessly in hopes you’ll learn more and more the longer you delay. Getting things done swiftly is usually an advantage, which is why Napoleon said, “I may lose a battle, but I shall never lose a minute.” But we must not lose sight of what first-mover advantage really is. Victory goes not to the entrepreneur who enters a market first, but to the first one who gets the business model right. If others attack your prospective customers before you get there, you can still win as long as you find a better approach than those used by the pioneers who precede you. The unexpected appearance of a competitor can be good news for several reasons beyond the opportunity to learn from your rivals’ experience. First, it validates your niche. If you are the only entrepreneur who sees a particular opportunity, others whose support you need must always take seriously the plausible hypothesis that you are mad. As soon as other firms begin competing with you, the debate switches from whether your idea is viable at all to which challenger has the best offering. Second, prospective customers like to feel they have choices. Particularly if you are selling to sophisticated users or to purchasing departments, they prefer to line up alternatives, compare benefits side by side, and feel they have chosen the one that fits

them best. Whenever people feel they have no alternatives, they are much more prone to question their choices later. If there are some teething problems with your product or service, they are more likely to wonder whether they made a mistake in buying from you. Customers who believe they have a viable second source are more willing to risk working with an unproven startup company. Third, when rivals enter and start building networks, a competitive dynamic emerges that can operate in your favor. Imagine, for example, that a Japanese company announces it has invested several million dollars into a startup. You can expect the executives of its rivals to start asking, “Are they going to get a lead on us when this space matures?” If these executives haven’t been searching for possible investments to keep open their options, they will start; if they have been searching already, they will now feel a new sense of urgency. The same can be true for venture capital funds, distribution channels, strategic allies, vendors, and the rest of the ecosystem you must build around yourself for your young enterprise to succeed. You’ll have to demonstrate to third parties that you are approaching the space in a different and better way, but you can expect them to lean forward and listen to you with more interest when their rivals are backing your rivals. In the medium run, an entrepreneurial venture should always aim to be the recognized #1 in its niche. There is a huge difference in valuation between being first and being second. In cases where network effects predominate — such as the GupShup case in this month’s issue of DARE — the first firm to get traction can be hard to dislodge. But don’t feel dismayed when you realize you have more competitors than you initially thought. If you differentiate and learn from them, a race against others can take you further, faster than a race DAR E against yourself. The author is INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab FEBRUARY 2009 21

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case/INSEAD

Should the Venture Capitalist Invest? Helion Venture Partners and SMS Gupshup This month’s case takes you behind the scenes of a venture capital partnership to deepen your understanding of how private equity professionals build their enterprises and make investment decisions. We profile one of India’s largest locally managed funds, and investigate an investment decision it faced in Fall 2008 — whether to back a promising group of entrepreneurs whose company was growing rapidly, but was not yet profitable /Philip Anderson

shish Gupta’s mobile phone buzzed in his pocket, signaling the receipt of another text message. The buzzing reminded him of a decision that the venture investment firm he had co-founded, Helion Venture Partners, must soon make — whether to invest in India’s leading community platform for SMS (Short Messaging Services) texts, SMS Gupshup. The opportunity to nurture talented venture teams such as the one behind Gupshup was why Gupta, a veteran entrepreneur himself, had chosen to become a venture capitalist. However, Gupshup represented a significant risk due to a combination of high monthly expenses and a revenue model that was still emerging. In a season when most venture investors were conserving capital to keep portfolio companies afloat during the difficult economic times ahead, should Helion embrace this opportunity?

The Path of a Venture Capitalist Ashish Gupta was born in Dehradun (then part of Uttar Pradesh and now the capital of Uttarakhand) in 1966, and graduated with the President’s gold medal from the Indian Institute of Technology in Kanpur in 1988. He then went to Stanford University, where he completed a PhD in computer science in 1994. He stayed in the US after earn22

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ing his degree, working first for IBM Research and then for Oracle. “I came to the conclusion that large companies are not my cup of tea,” he recalls. “I missed some good opportunities within those enterprises because I didn’t know how to work in a big company. I didn’t appreciate then the opportunities they offered, but in retrospect I didn’t try hard enough. I didn’t have the patience to stick around and build a career there, despite having extraordinary mentors and managers.”

The spirit of Stanford and of the times in 1996 led Gupta, like thousands of others in Silicon Valley, to start his own enterprise with Stanford colleagues Dallan Quass, Venky Harinarayan and Anand Rajaraman. Gupta was the vice president of engineering for the new venture, called Junglee that pioneered virtual database technology. One application was to take data in various formats from the Web and make it look like a set of relational tables to a database, so that external data sources could be queried as if they were part of the database. Says Gupta, “We had some interesting technical ideas, but we had no idea what we were doing.” The young founders attracted Rakesh Mathur, already a serial entrepreneur, to join Junglee as CEO, and he was instrumental in securing funding from a Japanese angel. Says Gupta, “We implemented an application to manage online classified advertisements in order to advertise the technology, but what we did not know is that this space provides most of the profits of newspaper companies.” As a result, the company secured further investment from the Washington Post and two Japanese companies. Continues Gupta, “When the Washington Post came on board as an investor, they helped us form a coalition of all the major newspaper companies in the US, except for the New

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India is uniquely suited for investors like us because the ecosystem does not have enough support for entrepreneurs to learn from other entrepreneurs. In Silicon Valley, people in your social circle are your advisory ecosystem â&#x20AC;&#x201D; Ashish Gupta Co-founder, Helion Venture Partners FEBRUARY JANUARY 2009 23

DARE.CO.IN York Times, to manage their classified advertisements online. We aggregated the online classified listings of large companies such as Oracle and IBM; and the newspapers collected advertising monies from these companies for distributing these listings on the newspapers’ online employment classified section.” Although classified advertisements gave Junglee its foothold, it soon located an even richer niche. Says Gupta, “We stumbled into comparison shopping by accident. The Yahoo guys were looking for a solution in that area, and we could aggregate data on products on e-tailers’ sites, so we implemented Yahoo’s shopping engine for them.” Junglee emerged as a leader in the “shopping bot” arena, which led to the firm’s acquisition in August 1998 by Amazon for 1.6 million shares of Amazon stock, valued then just above $185 million. Says Gupta, “Amazon believed they wanted to be in the comparison shopping space, but only after we were acquired did everyone realize that the company was not then ready to cannibalize their core retailing revenues. We all figured that out a year late but that learning was utilized soon after.” Gupta moved to Seattle and worked on strategic issue for the next two years. He says, “A few of us shared the insight that Amazon had multiple monetizable assets--customers, software, warehouses, and data centers-and we tried to figure out how to monetize these lines of business.” This took Gupta into the software-as-a-service (SaaS) space. Comparison shopping cannibalized Amazon’s revenues earlier in the work flow than what made sense for the company, but by providing its software and customers as a service, Amazon could create marketplaces where independent vendors could sell products, e.g. books. In 2000, Gupta left Amazon to help start a SaaS company with a former Junglee colleague, Sarvesh Mahesh. “Raising money was easy then, so we made the mistake of taking it, going down a path we should not have gone down,” Gupta says. “The SaaS idea was terrible, but credit goes to Mahesh 24

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Throughout his time at Amazon and Tavant, Gupta was an advisor to, and angel investor in a number of startups. He wanted to keep up his investing activities, but had run out of his own capital and wanted to learn more formally about venture investing, so he decided to join the Kauffmann Fellows Program in 2002 for saying ‘Let’s make it into a service company.’” Today with Sarvesh as CEO, Tavant Technologies has revenues over $40 million from building solutions and providing end-to-end services. Throughout his time at Amazon and Tavant, Gupta was an advisor to, and angel investor in a number of startups. He wanted to keep up his investing activities, but had run out of his own capital and wanted to learn more formally about venture investing, so he decided to join the Kauffmann Fellows Program in 2002. This program places promising entrepreneurs with venture funds, and Gupta was assigned to Woodside Fund in Silicon Valley. “That was one of my best experiences,” he says. “I made a lot of good friends in the venture business who taught me what the best investors are like.” After completing his Kauffman fellowship, Gupta was asked to stay on at Woodside. By the middle of 2004, however, Gupta was thinking about returning to India. “I didn’t want to make a ten year commitment, so I joined as a Venture Partner until I figured out what to do,” he says. Tavant was among the companies that had pioneered the model of having headquarters in Silicon Valley and engineering in India, and Gupta could see its mushrooming potential. He says, “Several venture firms approached me and asked if I would relocate to India as their guy on the

ground. But being the lone man in India, dragging along partners who wake up in a different environment was not exciting for me. I didn’t want to become a lonely guy who feels compelled to do something in order to prove he belongs on the team. Sometimes you start doing stupid things to prove that something is happening in your geography.” Instead, Gupta began exploring the possibility of raising his own India fund. By early 2005, he was talking with three prospective partners about starting a venture investment firm together. Kanwaljit Singh headed The Carlyle Group’s India venture operations at the time after a distinguished career in marketing and business development for Intel and Hindustan Lever. Sanjeev Aggarwal was a veteran of Motorola, DEC and 3com before starting Daksh, one of India’s fastest-growing BPO operations before it was acquired by IBM. Rahul Chandra had been the first India hire of the venture investing firm Walden International. Says Gupta, “These are great executives who are very wellregarded and are considered to have the highest ethics, which is very important to me. They knew India which was crucial for the team; and I added to the global experience.” By November, 2005, it became clear to Gupta that he and his partners could raise a fund, so he moved back to India. Helion Venture Partners publicly announced the launch of its first fund, pegged at $140 million, in August, 2006. Gupta remarks, “We hit the market at the right time, before India became very hot. Yet not so early as to miss the time when interests in India awakened. We were still relatively accessible in the LPs outbox when the India story hit, so that they called us back. It is seldom the case that you can get the right set of people with the right philosophical alignment when the market is ready to accept what you offer and the environment is ripe to support the results you want to produce.”

Helion Venture Partners strategic positioning “We decided to distinguish ourselves on the basis of people,” says Gupta,

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case/INSEAD explaining the firm’s strategy. “A venture fund’s assets are money, people, and what the people bring to the table. When we started in India, everyone had money, so people were the only distinguishing characteristic. We provide active capital – namely we give companies help in execution, which is the hard part. All of us have an operational background, and we have more than 50 years of operational experience between us. We understand how to build companies, and among ourselves have started three that reached a healthy level of sales while as angel and institutional investors we have helped other people build more than 50 firms.” This distinctive position was different than one the partners would have adopted had Helion been headquartered in California. Gupta comments, “India is uniquely suited for investors like us because the ecosystem hasn’t enough support for entrepreneurs to learn from other entrepreneurs. In Silicon Valley, people in your social circle are your advisory ecosystem. If you go to a Christmas party, you’ll run into three folks who have been entrepreneurs in areas you know fairly well, but in India, that is not the case.” Like their counterparts in the West, Helion’s partners took an advisory role, operating through board seats instead of supplementing management teams. Gupta notes, “The call at the end of the day is the entrepreneur’s. We are not in the driver’s seat and do not want to parlay our experience into controlling companies. We have a lot of experience that can be useful, but we don’t want to cross that line. We would like to be perceived as being there when the entrepreneur believes he needs help or is in trouble. We’d like to be the first port of call when there is bad news, because being the CEO is a fairly lonely job.” Originally, Helion intended to pursue a focused strategy in sourcing deals by pursuing technology-powered opportunities. “We planned to concentrate on mobility, the Internet, knowledge process outsourcing, and so on: businesses where technology is a distinguishing part of the business or a core part of the business model,” Gupta explains. How-

ever, he continues, “Every sector is so thin that you must look at multiple sectors if you have more than $100 million to invest. I submit that everyone who writes the size of check we do for early stage companies has adopted a similar strategy, and we all evolved in lockstep. Everyone has wandered into retail, consumer services and other things. Helion has since invested in a beauty chain, serviced apartments, and other things unrelated to technology.” Helion’s partners agreed to base their investment decisions primarily on a venture’s management team and the nature of its market opportunity. Gupta elaborates, “With time, we have gotten sharper in assessing teams and the bar has gotten higher as we have learned. A large part of the management team should be in India, since we can’t play this game remotely. We want to work with people who are operationally inclined and intellectually honest, which also leads to strong ethics. An execution orientation is key.” He adds, “The market opportunity should let them build a business worth at least $100 million, and they should have very meaningful things to do in India. We prefer a pan-Indian focus.”

A venture investing opportunity: SMS Gupshup In 2004 while he was pondering his future, Ashish Gupta helped his friend

Like their counterparts in the West, Helion’s partners took an advisory role, operating through board seats instead of supplementing management teams. Originally, Helion intended to pursue a focused strategy in sourcing deals by pursuing technologypowered opportunities.

and Junglee colleague Rakesh Mathur recruit the first engineers for a new venture called Webaroo. “I was at loose ends, hung out with them, and helped them recruit their team,” he says. Mathur was the chairman of the new enterprise, while co-founder Beerud Sheth served as CEO. Sheth was born in Mumbai and earned a degree in computer science from IIT Mumbai in 1991, going on to complete a master’s degree in the subject from MIT in 1994. After four years in investment banking, he started a company called Elance in 1998 and soon moved to California to grow that business. “I saw the Internet grow with a lot of early focus around content and commerce for physical goods,” he says. “No one was focusing on service transactions, and I thought wouldn’t it be nice to create a marketplace where people could contract for services?” Elance grew well for six years and was recognized as a leader in its sector. By 2004, Sheth was ready for a new venture. “By then, the Web had evolved tremendously, and some of the winners were large companies,” he says. “There were many dominant players and brands already in place, and they were getting stronger. But the mobile internet was virgin territory where habits were not formed and brands were not developed, so there was opportunity to create a really big company.” As Mathur had invested in Elance and the two had a good relationship, they decided to build Webaroo together. Sheth remained in Silicon Valley, but commuted constantly, spending more than half his time in India. “Business is globalized, and I don’t know if there is one specific place you can live and not have to travel,” he says. The co-founders launched Webaroo using money from friends and family, and keeping the bulk of the firm’s employees in India held the cash burn rate down. This was fortunate, because the firm changed its business model dramatically. Sheth relates, “We started from a Silicon Valley perspective, where everyone was focused on high-end devices such as the BlackFEBRUARY 2009 25

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I saw the Internet grow with a lot of early focus around content and commerce for physical goods. No one was focusing on service transactions, and I thought wouldn’t it be nice to create a marketplace where people could contract for services? — Beerud Sheth Co-founder, Webaroo 26

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case/INSEAD

berry. Storage was getting cheaper, so phones had more of it. That allowed us to build a product that had the ability to search using a mobile phone whether it was connected or not. The technology was really cool, but the device landscape didn’t grow as rapidly as we expected.” The partners had to correct course, as Sheth explains: “A startup has to achieve milestones to get to the next round of funding, which forced us to see what would add tremendous value in the world as it was, not as we wanted it to be. We asked how to deliver a richer experience on existing devices. SMS is constrained in the number of characters you can send in a text, but its weakness is its strength. Because it is not rich, it is ubiquitous, and you can sell at very low price points to a larger population.” Webaroo created a platform called “SMS Gupshup,” (GupShup means “chitchat” in many Indian languages)

launched as a group messaging product targeted at India, the world’s fastest-growing mobile telephone community. Users can bypass Gupshup’s web site (http://www.smsgupshup. com/) and register via SMS if they like. “That’s critical in India, with 300 million mobile users and 30 million Web users,” Sheth contends. A “publisher” creates a group of “subscribers,” and sends messages to Gupshup, which broadcasts the SMS to the group’s subscribers. “It’s designed to be simple and inherently viral,” Sheth comments. “Once someone invites you to their group, you think it’s cool and you want to create your own group too.” In this way, Gupshup signed on 15 million users across 500,000 groups in its first 18 months, with a marketing budget of zero. Sheth notes, “The community grows by word of mouth, which creates a network effect, and that is the biggest barrier to entry. The next subscriber goes where his friends already are. If you have a successful, rapidly growing product and are the first to assemble a large community, it’s very hard for a second mover to follow you into a social space.” By 2008, Gupshup accounted for 67% of all the SMS traffic in India, according to Sheth. The biggest challenge for the venture was that its growth kept escalating its cost base. Gupshup was sending 400-500 million messages per month, and had to pay carriers for each one, though it enjoyed pricing in accordance with its economies of scale. How could the firm monetize its huge user base? It seemed to Sheth that the business model would have three components. One would be advertising, inserted in the footer of each SMS and targeted based on the user profile and message context. Another would be interactivity, charging users to send SMS’s in reply to messages or who wished to initiate interactions. A third would be transactions, selling mobile content to users. Additionally, Sheth hoped that Gupshup could charge companies who wanted to use its huge messaging infrastructure for their own messages.

DARE.CO.IN

case/INSEAD To invest or not? Webaroo raised $12 million from several Asian private equity funds in 2006 in order to launch its service, which debuted in April, 2007. By mid-2008, Gupshup was growing so fast that another injection of capital was needed, to continue growing the community while developing the business model. “It’s a tricky balance,” Sheth asserts. “We wanted the community to grow, but we were fully aware we had to develop the business model. There is an inherent sequencing between expanding your audience and monetizing it. So we talked to a number of funds in Asia and Silicon Valley, and ended up with three or four good options.” Sheth was looking for strategic fit with a venture investor. “We need someone who understands this business,” he says. “There are many successful companies in Silicon Valley that require a lot of initial investment to create a large, loyal audience. It’s expensive, but it often makes strategic sense because you have scale and profitability when the business model kicks in. Many investors would say that at first glance the finances look terrible, but it is a deliberate choice we made, and if you don’t grow, you don’t have a community.” Sheth also wanted to work with a venture investor with whom his team felt comfortable. He explains, “Having good chemistry between the investors and the entrepreneurs is critical, because board dynamics can make or break a company. You can have difficult conversations without personalizing them when you have mutual respect,.” From Gupta’s point of view, Webaroo was interesting in part because Gupshup had built a large audience. “We liked that this community they had built was by far the largest in the world, three or four times as big as the next largest,” Gupta relates. “They enable people to do micro-publishing, and if you want to target and address a group through that medium, they are the ones you go to.” Gupta also thought the management team had a number of important strengths. “They are able to inno-

vate on technology. They are hungry to succeed. They were operationally strong, disciplined, and getting better. They measure stuff accurately and are metrics-oriented, which is important to us because you can get lost in the data. We also felt that the CEO would be good for the foreseeable future, and his ability to scale the business was promising.” The downside, of course, was the revenue model. “They don’t yet have one,” Gupta says. “You have to believe they can monetize such a large com-

munity in order to do this deal. That risk could sink the whole thing very quickly if it is not mitigated. The big downside is an unproven business model with a high monthly expense. You don’t have that much time to save your life if the business model doesn’t play out relatively quickly.” Weighing these pros and cons in the fall of 2008, the four partners of Helion had to decide whether to invest in Webaroo or not, Did it fit their investing model, and could they add value? HELION VENTURE - SMS GUPSHUP CASE STUDY, CONTD. ON PG 70 FEBRUARY 2009 27

INNOVATION

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A better biogas plant for your home The use of waste food instead of dung as feedstock makes this biogas plant distinct and more practical to use by people in both rural and urban areas /Aswathi Muralidharan

hat comes to your mind first when “a biogas plant” is mentioned? Does the picture include a large smelly tank attached to a gas stove used mostly in villages? Well, you might have been correct if not for an innovative compact biogas plant that uses waste food rather than cattle dung as the feedstock! Brainchild of Dr Anand Karve, a Pune-based biologist, this biogas plant can be used both in rural and urban households, thanks to the source of energy. The use of biogas – a mixture of mainly methane and some carbon dioxide – as an alternative to conventional fuels such as coal and LPG in rural households is not new. However, the size of the plant and its reliance on large quantities of cattle dung has acted as a dampener for urban households. Also, because of the dung’s low calorific value, the energy produced per kilogram of dung is low vis-àvis waste food. It was this that made Dr Karve decide on replacing the traditional feedstock with waste food as the input. “It is known that methane gas can be produced from sugar, starch, cellulose and fat, and one kg of food waste (dry weight) – which contains starch, sugar, protein or fat – yields about 250 gms of methane. So I decided to replace dung used in a conventional biogas plant with waste food,” says Dr Karve, who runs Appropriate Rural Technology Institute (ARTI), an NGO. The result was an efficient and less cumbersome device that can also be used in urban households. Since 2006, nearly 3,000 such plants have been installed both in India and abroad in rural and urban households and in commercial establishments such as hostels and hotels.

FEBRUARY 2009

Dr Anand Karve

Appropriate Rural Technology Institute (ARTI)

How does it work? • The standard plant uses two tanks, which typically have a volume of 0.75 cu.m. and 1 cu.m. The smaller tank, which is the gas holder, is inverted over the larger one containing a mixture of feedstock and water. An inlet pipe is provided for adding feedstock and an overflow pipe for removing the digested residue. • A pipe takes the biogas to the kitchen, where it is used with a biogas stove. • The gas holder gradually rises as gas is produced, and sinks down again as the gas is used for cooking. • Initially the plant is fed with a starter mix, which contains either cattle dung mixed with water and waste flour or effluent from an existing biogas plant mixed with starch. The feeding of the plant is built up over a few weeks.

Benefits So why has this biogas plant aroused a lot of interest? There are several reasons behind this. One, the conventional biogas plant produces 250 gms of biogas from 40 kgs of excreta in 40 days. In contrast, the new plant requires just 1 kg of sugar or starch – in the form of waste food from household or hotels, spoilt grain, overripe fruit, non-edible seeds, kitchen waste, etc. – to produce the

same quantity of methane in just 24 hours. According to Dr Karve, through the use of this compact system it has been demonstrated that using feedstock having higher calorific value increases the efficiency of methane generation. Two, the choice of feedstock facilitates its use in urban households. Reliance on cattle excreta has been one of the major restricting factors limiting its usage in urban homes. Traditional

INNOVATION

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plants require approximately 40 kg of input on a daily basis, and have a high retention period of 40 days. The large quantity of input and the longer period require plenty of storage space, which is a major constraint in cities. Three, according to Dr. Karve the higher calorific value of the input results in better quality of gas thus produced. From the point of view of conversion of feedstock into methane, this system is 400 times more efficient than conventional system. He says, the biogas thus produced has all the virtues of LPG – it produces a clean blue flame, has the same intensity, provides finger tip control of flame, produces no soot and smoke, etc. As methane has the same calorific value as LPG, it becomes as efficient and cost effective too. Four, besides having higher efficiency compared to a conventional plant, the compact biogas plant takes care of another pressing problem faced by cities – the problem of waste disposal. Not only this, the quantity of residue produced from this plant is smaller than the traditional plant. The residue is liquid, with good nutrient content, and hence can be used as fertilizer for plants.

What can be used as a feedstock? • Waste flour • Vegetable residue • Waste food • Fruit peelings and rotten fruit • Oil cake, left over from oil-pressing • Even rhizomes of banana, canna, nutgrass, non-edible seeds (e.g. Leucaena, Sesbania, tamarind, mango kernels) and spoilt grain

Concerns There are some disadvantages of the system as well. Says Dr Karve, “For a family of four, you will need about 1 cubic meter of gas, which will give you continuous flame for 2 hours. If you are a chappati consuming family, this will not be enough, because chappatis

are made serially one after the other and consumes more fuel. But for a rice eating family this would be sufficient for all the meals.” Another disadvantage with the biogas system is that the process of

DARE/comparison Conventional Biogas Systems

Compact Biogas Plant

Feedstock Requirement

40 kg+40 liter water

1-1.5 kg+15 liter water

Nature of feedstock

Mostly cattle dung

Waste food (high in starch)

Feedstock Reaction/Retention time

40 days

24 hours

Standard size for household

4000 liters

1000-1500 liters

Residue produced

80 liter (sludge)

15 liter (watery)

Capital Investment per unit including stove

Rs. 25,000

Rs. 10,000

fermentation requires a sufficiently higher temperature of around 35oC. Dr Karve says, “This system works best in peninsular India, because the bacteria requires high temperature to ferment – that is more than 30oC. In North India, especially in winters, the biogas production will drop considerably.”

Cost The use of waste food as feedstock reduces the storage space (size of the tank) required by the system drastically, which has a direct impact on the price. A conventional plant may cost approximately Rs 25,000, whereas the compact biogas system costs Rs 10,000. Of that Rs 7,000 is for the hardware and the rest for installation and transport. However, compared to LPG, the up-front cost of a biogas system is higher. “The up-front cost of a biogas system is higher than for LPG, since an LPG cylinder plus a two burner stove costs only Rs 5,000 whereas the compact biogas plan plus a biogas stove costs about Rs 10,000. However, the operational cost for biogas is only about Rs 2 per day if waste flour is used as feedstock, and can be zero if the plant uses only food wastes,” acDAR E cording to ARTI. FEBRUARY 2009 29

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opportunity/animation

With plenty of outsourced animation work coming to India and Indian animation movies coming of age, lucrative opportunities exist for entrepreneurs in this sunrise sector

/Mohita Nagpal

hen the Hollywood movie The Golden Compass opened in theaters across the globe in 2007, the film caught the fancy of many cinemagoers who were stunned by its special effects—many of which were made by Rhythm & Hues, an animation studio in Mumbai. A year later, the Daniel Craig and Nicole Kidman starrer won the Academy Award for its visual effects, giving a thumbs up to the Indian animation industry, projected to grow to Rs 4,200 crore by 2009. The

FEBRUARY 2009

size of the global market is likely to touch Rs 400,000 crore by 2010. Top Hollywood production houses such as Walt Disney, Warner Brothers, Universal, Paramount and Sony regularly outsource animation work to Indian companies. The country’s cheap labor and top-class production standards are making India an attractive outsourcing hub for many international animation behemoths. Bollywood too has given the Indian animation business a new lease of life with movies such as Hanu-

man, Roadside Romeo and Ganesha. The first Indian animation movie, Hanuman, was produced at a cost of approximately Rs 5 crore and went on to do business worth Rs 12-13 crore. With big business opportunities waiting to be tapped, the sector is an attractive one for entrepreneurs.

What is the animation process? The animation process is divided into three stages—pre-production, production and post-production. The cost

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Major Animation Studios

Animation Institutes

Indian Animation Movies

MAYA Entertainment, Mumbai

Arena

Hanuman

Paprikas, Bangalore

MAAC

Hanuman Returns

DQ Entertainment, Hyderabad

Framebox

Roadside Romeo

Crest Animation, Mumbai

DASA

Ganesha

Prana, Mumbai

Toonz Academy

Bal Ganesha

effects, music, sub-titling, and digital intermediate.

The business

of equipment used at the postproduction stage is quite expensive. Pre-production: This involves concept development, character development and creating a storyboard for 2D animation. Voice-overs for characters are also recorded at this stage. Production: The production department deals with compositing (for 2D animation), staging, animation, lighting, particle animation, rendering and compositing (for 3D animation), texturing, rendering and rigging. Post-production: Post-production involves editing, adding special

Free Fonix

Tenali Raman

Hanuman Returns

Photos: Toonz Animation India

opportunity/animation

After setting up an animation studio, you can work on multiple business models. A majority of the studios work only on projects they get from their overseas customers. Alternatively, you can produce your own movies and TV serials. But this involves risk in terms of returns as the success largely depends on box office or TRP ratings. Outsourcing: With large production houses abroad focusing heavily on cutting costs, more and more animation work is coming to India, making it a big back office for such work. Big names such as Warner Brothers, Sony Pictures, and Walt Disney now outsource work to India. Animators in the US cost about $125 an hour whereas in India they cost $25 an hour. Other outsourcing destinations are China, Korea and the Philippines. The pre-production part is done by the client itself. Indian compa-

nies do more of the production work. They get paid on a per minute basis to per project basis. However, this business is not like any other outsourcing business. It requires creative skills as well. As Jai Natrajan, EVP-Business Development at Maya Entertainment says, â&#x20AC;&#x153;Animation is a techno-creative field. It is a combination of technology and creativity. It is a misconception that if you are successful in the IT field, you can do a BPO kind of a thing with animation. Only people from creative fields or knowledge domain can apply their experience to this industry.â&#x20AC;? Creating your own IP: This is still an emerging business in India. The work here involves the whole gamut of producing the film right from the concept stage. Not all studios in India have the bandwidth to work on this model as it requires huge investments. As only a handful of animation movies are made in India, there is not enough business right now, but it is expected that the sector would see boom time soon. This is because more producers are willing to commit money to such FEBRUARY 2009 31

DARE.CO.IN

Hanuman

ventures and also the box-office performance of such movies is improving. According to industry sources, around 100 animation movies are planned for the next two years. Toonz Animation India in Chennai now does its own production work after having done outsourced work in the past. “We believe we are adding more value to our shareholders once we own the IP. Outsourcing is a margins business and we are not creating any value. By owning the IP, one can use it to create different revenue streams,” says P Jayakumar, CEO, Toonz Animation India. In full production mode, the animation studio identifies an idea. It has to pass the internal testing team of the company after which it is taken to a distributor to understand his interest level. After getting the validation, one can pre-sell the project in some territories and use the money to finance the film. Once the script is ready and

opportunity/animation finance is in place, the movie making work begins. Revenue comes from distributors, theatrical releases, music, satellite television rights and home video rights. Another source of revenue that is prominent in animation movies is merchandising. Co-production: You can also coproduce a movie. In this someone else creates the IP and you produce the movie at a reduced price. When the movie makes profit, some percentage might be yours. However, you need the experience to judge projects that are more sellable.

Starting your own biz You can start off a small, medium or a large animation studio depending on the work you intend to do. The investment required would be based on the technology used and the type of animation the studio would focus on. If you are looking at setting up a studio that can cater to the production of 3D animated TV series, you would require over a 100 work stations, the total cost of which would be around four to five lac rupees per machine inclusive of the software license. Some of the common animation software used are Autodesk Maya, Studio Max, SGI, 3DMax, SoftImage, Tictactoon, Flash, Giff Animator, Ulead and Adobe.

We believe we are adding more value to our shareholders once we own the IP. Outsourcing business is a margin business and we are not creating any value. By owning the IP, one can use it to create different revenue streams. — P Jayakumar CEO, Toonz Animation India In addition to this, investments in broadband, networking, rendering and storage machines are required. A support staff of 15-20 would be required to carry out ancillary functions. A space of 30-40 square feet per person would be needed, according to industry standards. Broadly, a 3D animation production facility with manpower of 100 would require an investment of around Rs 10-15 crore. This doesn’t take into account the working capital requirements for creating your own projects.

DARE/STARTING YOUR OWN BIZ RESOURCES: SOFTWARE LICENSES, HARDWARE, STORAGE DEVICES, SKILLED MANPOWER BUSINESS MODEL: OUTSOURCING, CO-PRODUCTION, CREATING OWN MOVIES INITIAL CAPITAL: Rs

10-15 crore*

Photo: Maya Entertainment

CHALLENGES: RETAINING MANPOWER, QUALITY OUTPUT, PROJECT WORKFLOW, LONG GESTATION PERIOD INDIAN MARKET SIZE: Rs

4,200 crore

GLOBAL MARKET SIZE: Rs

400,000 crore by 2010 * estimate for a fully equipped 100 seater studio

FEBRUARY 2009

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opportunity/animation

USE OF ANIMATION, MAJOR AREAS (WORLDWIDE) Others (architecture, corporate, real estate) 15%

Photo: Maya Entertainment

Contacts speak loud in the industry, so if you have a young inexperienced team you have to really prove your credentials to the clients. Creating a show-reel or a demo-reel helps. Clients prefer seeing your work before they give you business. A show-reel can be made from the good work of employees in previous studios. Alternatively, you can create some work in-house to show off your capabilities. As Natrajan puts it, “No one will give you work unless they see your capability. It’s not a corporate deal wherein you can boast of your infrastructure facilities and the number of employees and get work from customers.”

Medical 20% Entertainment (feature ﬁlms, television, gaming) 65%

Challenges The biggest challenge in this business is manpower crunch. Though a lot of animation training institutes are mushrooming everyday, their skills don’t match the industry requirements. Says Jayakumar: “There is a yawning gap in the skills of the available personnel in the industry and the demands of quality production.” Also, if you are planning to produce your own movies, then raising seed capital for your business is a hurdle. According to Rajeev Dwivedi, CEO, Animation Today, “The gestation period is really long. If you are creating your own IP, then don’t expect to see any returns for the next two years.” Another major hurdle at a startup level is managing the flow of projects. It is a pipeline system of work, in which a pre-production team works for the first four to five months on the project, production team for the next six to seven months and post-production for the last four to five months. So, if one does not have enough projects in the pipeline, then teams are supposed to sit on bench. That is a huge manpower cost. Jai Natrajan gives some solutions to combat this problem. “Hiring allrounders in the team eradicates this problem completely. Also, startups can work with freelancers. The trend of contract employees is also on the rise. Or you can have a specialized

studio, concentrating only on the production stage.”

Animation training academies As the animation industry is growing, there is a huge demand for quality animators. There are couple of academies who are providing short and long term courses in animation. However, one shall get into this business only after some experience in the industry. Maya Entertainment was established in 1996. Its education division, MAAC came up only in 2001. Today they have 60 institutes in 35 cities of India. MAYA is a 300 crore company today. Another institute by the name of Digital Asia School of Animation (DASA) which already has presence in Bangkok opened recently in India. It is the brainchild of, Shyam Ramanna, founder of one of the leading animation studios in India, Crest Animation. Initial investment required in setting up an animation academy depends completely on how you want it be known as. You can start a small animation institute under 30 lakhs, whereas, setting up a big campus can

cost upto a crore(land excluded). You could also tie-up with some foreign university or create your own brand. The major investment areas are, software license, hardware infrastructure and faculty. Incidentally, hiring quality faculty members is also a challenge This is where industry experience counts as one can tap potential trainers from past contacts. Most of the institutes hire people from studios as faculty as they impart practical knowledge. DASA prefer calling their academies as campuses due to the size of 3000 square feet area standard it follows. They also have a policy of opening their academies only in metros as they want to maintain some exclusivity. According to Nikhil, Co-founder, DASA , “We don’t want to follow the franchisee route because we don’t want to compromise on quality. If we open 50 branches we won’t be able to maintain quality standards in each branch.” He further adds, “IIT’ s and NID’ s have a handful of branches throughout India. They have an esteemed reputation. We are trying to follow the DAR E same path.” FEBRUARY 2009 33

INNOVATION

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The Mini Weeder

Faced with labor shortage in his village, P Kumar developed a weeder that works well between densely cropped plants. He is now on the lookout for marketing partners /Aswathi Muralidharan

t is said that necessity is the mother of all inventions. That certainly seems to be the motivation for P Kumar, who invented a mini weeder after he got fed up with the labor shortage in his village in Tamil Nadu. The 62year-old farmer from the Dharmapuri district of Tamil Nadu owns about 40 acres of land. “Agriculture is a laborintensive activity and most of the land here is agricultural. Every farmer is in need of workers, so there is always labor shortage. Most of them ask for higher wages,” says Kumar’s son, Senthil. Kumar, who is educated up to the XII standard, has always been 34

FEBRUARY 2009

fascinated by mechanics, having designed some crude machines for his household use. This paved the way for his invention, the MiniWEEDER. “Weeds are a big problem for farmers,” says Kumar, adding that the timely removal of weeds is important to get higher yields. “Weeds can be removed manually or mechanically. However, as we face labor shortage and the existing machines are too heavy and consume more fuel, this innovation will help farmers in a big way,” he adds. The project is currently being incubated by L-RAMP, a Chennai-based

DARE/fact sheet INVENTOR: P Kumar INVENTION: MiniWEEDER DESCRIPTION: A small fueldriven weeding machine for crops with a row distance of 24 inches; ideal for small land holdings of five to ten acres DIMENSIONS: Length: 130 cm, Width: 50 cm, Height: 90 cm, Weight: 120 kgs CUTTING WIDTH: 45 cm PRICE: Rs 35,000-40,000 OPERATING COST: Runs for 80 minutes on one liter of kerosene or petrol

INNOVATION

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joint initiative of IIT Madras and Rural Innovations Network (RIN).

is well suited for holdings of five to ten acres.

What is a mini weeder?

How is it different from other weeders?

Kumar’s fuel-run mini weeder can work between narrow plantations of crops. Agricultural crops such as sugarcane and maize are placed too close for a weeder to work effectively. However, the mini weeder is 130 cm in length, 50 cm in width and 90 cm in height, and so can be used on crops that have a narrow row distance of 24 inches. “It can be used in gardens, vegetable farms, sugarcane, maize, tomatoes, etc,” says Kumar. The machine, weighing 120 kgs, is powered by a 1.2 HP petrol and kerosene engine. For starting the machine, one needs petrol, but can switch over to either petrol or kerosene later. The weeder runs for approximately 80 minutes on one liter of kerosene or petrol, and takes about three-anda-half to four hours to remove weeds on one acre of land. The machine

The mini weeder has a cutting width of about 45 cm, or less than two feet. However, unlike the other weeders commonly available in the market, its cutting blade is not fixed. Kumar says, “The blade of the mini weeder adjusts itself to the ridges and furrows and moves up and down accordingly. Many weeders in the market do not have this feature. Ridges and furrows or channels are made on the agricultural land to facilitate irrigation. Other weeders, which have fixed blades, tend to erase them thus hampering irrigation.”

What is its cost? Kumar is yet to decide on what figure would sport the final price tag of the weeder. But it could range between Rs 30,000 and Rs 35,000 once mass production begins. Quizzed as to whether Indian farmers would be able to afford

DARE/technology • The machine has an engine at the rear with a turning control wheel at the front. The rotating disc with cutting blades is placed at the front and is not fixed • This machine is powered by a 1.2 HP engine and uses an auto clutch system. The power is transmitted to the gear box by a belt and to the rotating disc from the gear box by a pair of chains • The cutting blades cut the weeds at appropriate depth on rotation of the disc. The machine has four forward and four reverse gears. It can be reversed by just pressing the lever • The machine runs on a dual fuel engine on either petrol, or petrol and kerosene the weeder, he says, “The machine can be an additional source of income for poor farmers as they can rent it out to others. Or they can also pool and buy the product.”

What is its current status?

P Kumar with former President Dr A P J Abdul Kalam at the Ceremony of Award of Excellence 2007 by L-RAMP held at IIT Madras

Most of the research and field trials of the product have been completed and Kumar has applied for a patent. He says, “We are using one machine continuously for trial purposes and its performance has been satisfactory. Another ten machines are getting ready. From them, another one or two will be tested and then we will commercialize it.” There is no succession plan for the mini weeder project. Kumar talks of his plans for commercialization and says, “In this machine, production means that only an assembly line is required, which is not a problem for us. But we are definitely looking for marketing partners.” Asked as to when his product is expected to hit the market, he says, DAR E “Six months.” FEBRUARY 2009 35

DARE.CO.IN

/contest

Analyses on

'WHO WILL BE THE

NEXT MANUFACTURING SUPERPOWER?' England

USA

Japan

China

Steam engine

Petrol engine Electricity

Electronics

Cheap goods Massive scale

that won BlackBerry Bold We had left our cover story â&#x20AC;&#x153;Who will be the next manufacturing superpower?â&#x20AC;? open for our readers to predict exactly who will be the the next manufacturing superpower and what the country's driving factor will be. We received a plethora of predictions via. comments, email, snail mail, and SMS. Some of these were as short as one word, while some ran in multiple pages. Thank you all for your interest and participation. Today, we announce the two best predictions that made it to the winners list. Please wish the winners a hearty congratulations, here they are.... 36

FEBRUARY 2009

? ?

DARE.CO.IN

/contest

RAVI CHANDULAL JAGANI Promoter/Director GM Engineering Solutions Pvt Ltd, Rajkot, Gujarat

s mentioned in the article, the first manufacturing superpower was England in the era of steam engines, the second cycle moved to the USA in the era of petrol engine and electricity, the third cycle moved to Japan in the era of electronic goods, the fourth cycle moved to China in the era of cheap goods and massive scale and the fifth cycle will take place in India and that will be the era of extensive use of railways, petrol engine, electronics, cheap goods and quality goods, massive scale, wind energy (emergence of companies like Suzlon on the global scene), growth of entrepreneurship, the IT industry and human resource. The reasons for me backing India as the next manufacturing superpower are as follows: 1. India being the second most populated in the world, the self-consumption or the domestic demand will be so huge that it will automatically create economies of scale for India to cater to its domestic demand. Thus goods produced in India will become cheaper and hence,

India will be selling those goods the world over at cheaper rates. 2. In the coming years, the working population of India will be at its maximum and in the age of 20 to 50 years, whereas in other countries the population would aging. This will give India a great advantage over other countries as it will have more productive population (working population) in the coming years. While India is getting young, the same is not the case with the West. While there will be a deficiency of population in the working age group in almost all western countries, India will have a huge surplus, thus the work will naturally flow to India, which will further drive the growth. So, there are no chances of any of the European countries becoming the next manufacturing superpower. 3. At present, the English-speaking population in India is much higher than the English-speaking population of China. As years go by and the schooling, college and university infrastructure improves in India, the English speaking population of India will be much more than that of China giving it an edge over China in ease of communication for business and its acceptability around the world. Large English-speaking population with technical expertise and talent to conduct clinical research is an added advantage. 4. The Indian IT industry is far ahead and developed than the IT industry of China. During my visit to China as a student of entrepreneurship from Nirma University, one of the professors at a Chinese university (who was a member or a seat holder in the Chinese house and educated from a reputed university from the

US) told us that they (China) only envy one thing from India and that is the Indian IT Industry. Use of IT in various aspects of life and industry will be the turning point in the coming years. 5. From my experience of visiting China thrice in the last 20 months in various roles, I feel that the Indian industry is ahead of the Chinese industry when it comes to quality. In the last 20 months, I have traveled a lot in India visiting various companies and their manufacturing facilities for setting up my new business and also for getting a view and feel of Indian manufacturing. I feel as far as quality work goes, India is much ahead of China in production of quality goods. 6. China is far behind India in the ability to politically manage conflicts because of it being a Communist country. At present, India is about 10 to 12 years behind China in respect of infrastructure. While China also enjoys most of the cost advantages that India does, I believe that the Chinese presence in outsourcing is likely to be restricted largely to intermediates and low-end goods/products, while Indian companies are likely to be present across the value chain. Then too India faces competition from many countries. Entrepreneurship in India is growing day-by-day and people are being motivated for innovation and entrepreneurial ventures by the growing number of incubation cells, venture funds and PE funds flowing into India. This has led to a substantial number of successful stories and ventures. There are many severe pitfalls and roadblocks that India has to overcome in the near future before it becomes a manufacturing superpower in the international scene on a sustained basis. One more probable candidate for being the manufacturing superpower are the African countries, but I feel it is still a long a time before African countries can make their presence felt. In my opinion, India will be the next manufacturing superpower. FEBRUARY 2009 37

DARE.CO.IN tion. Then entered China with its low cost and massive scale production. China made products more affordable and is the preferred manufacturing destination for any company who wants to reduce its manufacturing costs. Also its low cost imitations, though of cheap quality, made the sought-after products accessible to the economically weaker section of the society. So where does one go from here? The answer lies in understanding the customers and the value proposition they will expect from a product in future. The next phase of manufacturing will have to fulfill the following four aspects of the unique customer value proposition. 1. High quality: The craving for quality products created Deputy Manager, LCA (Light Combat Aircraft) Project Group , Hindustan Aeronautics Ltd, Bangalore, Karnataka by the Japanese can never be satiated. And lack of quality in Chinese manufacturing has efinitely not an easy question left customers more aware and apto answer, given the dynapreciative of quality. Quality will be mism and uncertainly of the the cornerstone of future manufacworld economy, political conditions turing excellence. and changing customer aspirations. For 2. Low cost: Again, after tasting the low such predictions, one can always look cost products of Chinese manufacinto the past and present for trends and turing, one cannot go back to paying clues and extrapolate them with best of more. Value for money will be on top human intention and judgement. of the customer mind. Let’s take a brief look at the history of 3. Innovative and customized prodprevious shifts. The shifts in manufacucts with short delivery time: This turing base in the past were not disjoint is the stage to which a customer has or unrelated. It was always an improvebeen pampered by companies nowment shift. Not only the improvement adays. The coming generation will in methodology of manufacturing but be highly individualistic. They will more importantly the improvement in seek expression of their personality serving the customers at that time. The and individuality in every product US took the lead from the UK and the they use. Be it clothes, shoes, gadgrest of Europe, when it used mechanizaets, food or anything else. At the tion coupled with new inventions, mass same time, the economically weaker production and assembly techniques section will look for bare minimum to make new useful products and make product features and will not pay for them available to the masses. Japan any feature that they don’t require. took the lead, when it added the qualInnovative and customized prodity and sophistication to what USA proucts will be the key to meet the devided. The Japanese hi-tech products mands at both top and the bottom of made the customers worldwide crave the pyramid, and customers will for them more. Japan would have mainexpect quick delivery as usual. The tained its lead but for its aging popula-

ASHUTOSH AGRAWAL

FEBRUARY 2009

/contest company who delays the product delivery will lose the customers to its competitors. Seamless integration of product and services: A customer will not look for a product but for a solution. A complete package of product and service bundled together, which will cover his needs. To put it this way, the customer of the future will demand a car customized to his body size and his tastes of performance and style, at the cost of Tata Nano, with quality of a Porsche and he will expect the company to give delivery and after sales service at his doorstep and if he doesn’t know driving, to teach him driving too. Sounds outrageous! But just before you reject it as a wishful thinking, won’t you as a customer wish that way? These four aspects will form the theme of the next manufacturing phase. Convergence of the above conflicting four aspects may seem impossible today but only that nation which enables this convergence and fulfills this irresistible customer value proposition will undoubtedly host the next manufacturing revolution in the world.

The Drivers What will be the drivers to achieve this uphill and seemingly impossible task? History is full of paradigm-changing, path-breaking thoughts that revolutionized manufacturing. Did anyone really expect to reduce cost and improve quality by decreasing the batch size? No one did before Taiichi Ohno. It was a paradigm change. Did anyone think that rather than arm-twisting the suppliers, collaborating with them will reduce cost? Or did anyone even dream that giving away a chunk of operation to someone else will reduce cost for them? Again a paradigm change. Did anyone really think that our legacy of functional based organization is in fact hampering our growth and the need of the hour is to re-engineer with process focus? Old paradigms and mindset have been challenged and changed before and it is imperative to change them further to see another manufacturing revolution. Also global outlook and world sourcing will be the key aspect of the future. An

DARE.CO.IN

/contest

Analyses on

'WHO WILL BE THE

NEXT MANUFACTURING SUPERPOWER?' England

USA

Japan

China

Steam engine

Petrol engine Electricity

Electronics

Cheap goods Massive scale

? ?

that won BlackBerry Bold engineer sitting in Germany converting the requirements of a customer in Australia, into required drawings and passing it on to a manufacturing hub in India, which in turn will source the raw material from Africa and other parts of the world. The whole world will be the playground for companies as they seek customers and resources in the future. Needless to say, this uphill task will require next-generation, paradigmchanging and path-breaking thinking and action. And this will be the biggest driver for the manufacturing revolution. Any nation with leadership, entrepreneurship and managerial capacity to take risk, challenge existing mindsets, generate new thoughts and put them in action will herald the new revolution in manufacturing. Another major driver will be the way we will manage our energy requirements. One thing is for sure, the new manufacturing phase will not be powered by fossil fuels. The following case points in that direction. A small town in Uttar Pradesh received electricity only for 6-7 hours a day. The sugar mills in that area were struggling to survive as energy costs were soaring. Rather than blame the government or diesel prices, sugar mills installed a boiler and tur-

bine to generate electricity. And guess what the fuel was? It was bagasse, the by-product and a waste of sugarcane crushing. This breakthrough story is already old now. Innovative means of trapping renewable sources have been in progress for quite some time. We need to integrate all possible renewable energy means into a solution package, scale them up and drive down their lifecycle cost. Imagine a manufacturing plant, with its roof covered with solar panels, solar concentrators fitted in adjoining area, concentrating the solar energy onto a tower like receiver on top of the buildings, windmills dotting the rooftops and adjoining landscape, a biogas plant collecting all the human excreta from the buildings, any useful by-product from the manufacturing plant being ploughed back to generate energy, the buildings and landscape designed for maximum energy efficiency with use of LED-based lighting systems and passive cooling. Such a manufacturing plant will not only be self-sufficient and save money, but also bring earnings in the form of carbon credits and some extra electricity over the weekends. The next phase of manufacturing will happen in this type of plant. The nation that adopts these technologies rapidly and

on a large scale, to power both manufacturing and transportation, will make technologies affordable in the process and gain an edge. Another driver will be the adoption of new technologies like rapid prototyping, nano-technology and others in mainstream manufacturing. It should not be confused that the next manufacturing phase will be technology-driven. Instead, it will be valuedriven and only those new technologies that are able to deliver desired product features at low cost will drive the next manufacturing phase. Also remember, the focus will be on adoption of technologies on large scale rather than doing basic research on them. A nation that takes risk and adopts new technologies fast on a large scale will have an upper hand. Further, a significant driver will be to find the right blend of technology and human intervention to allow customization at a low cost. Consider this. An engineer after interpreting the customer requirements makes required drawings for its manufacturing and passes them on to automated machine shops to make parts for that customer order. The assembly line worker receives customized parts on the belt and assemFEBRUARY 2009 39

DARE.CO.IN

/contest

bles them as per the drawings and parts list for that particular customer order. The truck for transporting the products to the distribution center will be converted to a paint shop, inside which painters are painting each product as per the customer requirements on route to the distribution center. Any guess, where the product is being packaged? At distribution centers. It all sounds funny, until someone starts doing it profitably. The next pertinent driver is the competent, flexible and motivated workforce to make it possible. Multi-skilled workers adept at various crafts will form the asset base of any manufacturing industry of future. Last, but not the least, government policies will also be a major driver. Policies that enable adoption of renewable energy sources, infrastructure development and entrepreneurship will give a boost to the next manufacturing revolution. The rise of China in manufacturing is due to the top down approach â&#x20AC;&#x201D; the government support to industries and entrepreneurship in the form of capital and other facilities.

Who will it be? No one better than India is in that demographic sweet spot to make it happen. A young workforce, entrepreneurial spirit, managerial talent and global outlook â&#x20AC;&#x201D; we have nearly all the drivers, but not at their best. We are a young nation and within a decade our working population will peak to 800 million. But still organizations are complaining about talent crunch. Out of so many graduates being churned out every year, only 10-25% are employable. India is riding high on entrepreneurship, but more confined to IT and services sector, as entrepreneurship suffers in manufacturing sector due to high capital requirements and lack of manpower with relevant skills. The worldâ&#x20AC;&#x2122;s biggest democracy, but with unstable governments, resorting to retrograde steps to woo vote banks. Also, India lags behind when it comes to adoption of new technologies. If India fails to bridge the gaps with respect to these drivers, then China may continue as the world manufacturing leader. China is also in same sweet demographic spot as India and is in a fairly

good position on many drivers. If they wake up and come out of their cheap, low cost and massive scale production to provide the irresistible customer proposition discussed above, then China may continue to host the next manufacturing revolution. One more region can prove to be an underdog, the rich Middle East nations. They are quick in adopting the best technologies in the world, evident from their grand buildings, manmade islands and other engineering marvels. Their wealth increases their appetite for new technologies and risks associated with them. They have started to look beyond oil. They have been leveraging their wealth to attract the talent from other countries and they can continue to do so to drive the next manufacturing revolution. By doing so, they will also come strong on all the drivers for the next manufacturing excellence. It would be premature to zero on any one of them. All three have the potential, but let us not forget, one is not rewarded for having the potential but for applying it. DAR E

Website:

www.dare.co.in Ma

Email:

il B

t t h 40

FEBRUARY 2009

w / / : p

w w

dare@cybermedia.co.in SMS: 56677 (SMS Instruction: Type 'DARE <comments, questions, suggestions'> and send it to 56677)

TiE Delhi Spreads across NCR With a network of 53 chapters across 12 countries, TiE is recognized as the largest organization worldwide dedicated to the advancement of entrepreneurship. TiE helps entrepreneurs leverage opportunities in the global market place. By facilitating ideas to germinate into actual businesses, TiE has created wealth, created job creators from job seekers and helped accelerate the global economy. The Delhi Chapter is among the largest and most vibrant across the vast TiE network world wide. TiE Delhi has seen a steady growth making it the best chapter in the Asia Pacific region and among the leading chapters worldwide. Since its inception in 1999, the TiE Delhi chapter has worked towards the development of a multi-dimensional entrepreneurial ecosystem which engages successful & experienced as well as budding entrepreneurs, venture capital firms, angel investors, service providers, policy makers, academia and students. Over the past decade, TiE Delhi has grown not just in the volume and scale of its events, activities & members but also the geographical spread of its impact. Today it caters to diverse stakeholders from areas around Delhi such as Gurgaon, Noida and Faridabad. With the further development of NCR, TiE Delhi is keen to establish a stronger presence in these areas and help support entrepreneurial activities leading to nation building. TiE Delhi thus plans to hold regular activities in the National Capital Region and brings to you a special event on Friday, 27th Feb 2009 in Gurgaon. The event would showcase some of our key initiatives & feature success stories of the region showcasing the thriving business and entrepreneurial community in Gurgaon. It would generate valuable feedback for TiE Delhi to help understand the needs of entrepreneurs to take concrete potential steps in supporting developmental work and attracting investments in the NCR. Whether you are an individual, professional or entrepreneur; a start up enterprise or an established organization on the growth path, this event would help you understand the various ways in which TiE platform could be beneficial to you and your ambitions. If you wish to attend this event, please contact Manish Joshi at manish@tienewdelhi.org

DARE.CO.IN

/going global

Doing Business in New Zealand The country’s rich natural resources and an import-dependent economy offer Indian businesses exciting opportunities

/Vimarsh Bajpai

DARE/opportunity areas

he widening demand-supply gap for coking coal in India is prompting companies to explore mines in New Zealand. The country has extremely high quality of coking coal for the steel industry. Gujarat NRE Coke, the metallurgical coke producer, holds stake in Pike River Coal, a company that has mines located on the South Island’s West Coast in New Zealand. Another Indian company that holds stake in Pike River is Saurashtra Fuels. The mine is expected to produce 17.6 million tonnes of high quality, low ash coking coal that would

FEBRUARY 2009

be used by steel manufacturers. According to estimates, India’s demand for coal – thermal and coking – is likely to grow to 1.87 billion tonnes per year by 2026. Besides coal, several other sectors in New Zealand, one of the most picturesque countries in the world, are attracting Indian businesses and entrepreneurs. These include information technology, biotechnology, pharmaceuticals and green technologies. The country has significant expertise in geo-thermal and hydro power. Forestry is another area that is gaining

Biotechnology

Coal

Information Technology

Green Technologies

Agricultural Technologies

Forestry

Creative Industries

DARE country facts /going /global

DARE.CO.IN

Area: 268,021 SQ KM Average Temperature: Summer: 20 - 30ºC Winter: 10 - 15ºC. GDP: $112.4 billion (2007 est.) GDP per capita : $27,200 (2007 est.) Exports: 27.35 billion (2007 est.) Imports: $29.06 billion (2007 est.) Population: 4,173,460 (July 2008 est.) Labor Force: 2.236 million (2007 est.)

INDIA-NEW ZEALAND TRADE

Note: All figures in US$ Million Source: Ministry of Commerce, Government of India

DARE/doing business 2009

Photo: istock.com

Ease of….

traction. “We supply huge quantities of timber to India. It tends to be exported in the form of logs. It comes over to Gujarat, mainly to Kandla port. We now have Indian investors looking at that opportunity,” says Paul Vaughan, New Zealand Trade Commissioner for South Asia.

Why New Zealand? The island country in the south-western Pacific Ocean is rich in terms of natural resources and has world-class road and transport systems. Its deepwater ports and international airports

2009 Rank

2008 Rank

Change in Rank

Doing Business

Starting a Business

Dealing in Construction Permits

Employing Workers

Registering Property

-2

Getting Credit

Protecting Investors

Paying Taxes

-2

Trading Across Borders

-6

Enforcing Contracts

Closing a Business

-1

SOURCE: World Bank Doing Business 2009 Report

make it a major business hub in the region. Although the population of the country is only four million, its citizens belong to the high-income group and thus possess considerable purchasing power. Its economy is highly import-dependent, as the country does not have a large manufacturing base for consumer products. This offers a great opportunity for Indian exporters to look at the lucrative New Zealand market, as everything from crockery to clothes and shoes are imported. How-

ever, China remains a big challenge as a free trade agreement (FTA) between China and New Zealand is now operational. An FTA between India and New Zealand could be a possibility in the near future given that both countries are studying the benefits of such an agreement. “We have the study going on at the moment about the benefits of a free trade agreement. The two countries are studying the benefits; our ministry of foreign affairs and trade and your ministry of commerce. FEBRUARY 2009 43

DARE.CO.IN

/going global What makes New Zealand an attractive destination for entrepreneurs and businesses?

New Zealand has consistently ranked among the top halfdozen countries of the world in terms of ease of doing business. This is because setting up a company, understanding the business, and getting the company registered, etc can be done online before you even go to New Zealand. It is a very open and easy country to do business in. Another area where we have ranked consistently among the top few countries in the world is in transparency and lack of corruption. There are a couple of very positive factors that make New Zealand a generally attractive destination. New Zealand is a rich country in terms of natural resources, land-based resources, and is well-placed around alternative energies, and has a ‘green’ image. It is a result of its low population and its consistent approach to stopping heavily polluting industries. New Zealand is very well placed for companies who want to establish themselves in a country which has all the correct policies in place for business to thrive. Specific for Indian businesses, a couple of things come to mind. We are part of a closer economic relationship with Australia. So we have free trade in goods and services across New Zealand and Australia. There are no import barriers or significant non-tariff barriers between two Paul Vaughan countries, so zero tariffs. Anything that you make in New New Zealand Trade Commissioner for South Asia Zealand, you can export to Australia. There is also freedom of movement. People who have New Zealand citizenship can live and work in Australia and vice versa. It is a mini-version to the EU but not quite as advanced as the EU. New Zealand has a slightly lower cost base than Australia because of lower labor costs and lower costs across our economy. Given the global economic slowdown, how is New Zealand assuring investors?

There are no significant economic risks to the New Zealand economy. Over recent years, the government has been fiscally very prudent and has build up considerable surpluses. It is well placed if needed to invest in an economic stimulus package. We have a new government that has indicated it will be focusing on areas like infrastructure, etc. New Zealand is still creating jobs in many areas. We are short of people in many areas. It is not a particularly gloomy scenario. Treasury and Reserve Bank have indicated that this year, we will have only may be a maximum of one percent economic growth, predicting that we will come out of this short recession probably at the end of the second quarter, and we will have growth again in the third and fourth quarter. But that depends a little on international events because New Zealand has a very rich natural resource base. A lot is based around farm products, which we export to other markets because we are only four million people. The international prices of our export commodities have, in most cases, gone down. The price of dairy products, meat, wood and coal are all falling. That does have an effect on New Zealand economy. Which are some of the sectors where you think Indian businesses can invest and leverage the strengths of New Zealand?

There has been some investment by Indian companies in IT sector. That is partly around big Indian companies getting contracts for outsourcing or IT support and that will continue. There are some large contracts available in New Zealand with some of our large companies and also in our health sector and government agencies. There is an interesting project that we promote, which is coming back the other way, ie, looking at New Zealand’s IT technologies and how they can be used in India and globally. New Zealand has some good IT technology. Its IT companies are quite small so they look for global partners. We have got our first partnership with CMC, which is part of TCS. CMC has a technology sourcing hub in Auckland where it looks at bringing those technologies to the Indian market to see whether they can sell them in the Indian market or replicate it or even put them out globally through the TCS network. We are quite keen on those types of partnerships. Another area where we felt some interest is in the green technologies. The third is in the area of agricultural technology. New Zealand’s agriculture is somewhat different. The farms can be extremely large. So, we don’t necessarily have the technology that will suit your small farmers but what we do have is very good technology around harvesting, sorting, grading, and cold chain. We are probably the only country that exports the furthest. We export meat to Europe, fresh by sea. It all goes inside containers kept in cold conditions in gas-protected packaging. It arrives in Europe six weeks later in the same condition that it left New Zealand. We have had a couple of successes with Mahindra & Mahindra looking at some New Zealand technologies that are replicable for the Indian market. 44

FEBRUARY 2009

If it concludes and there are benefits then it will go through the formal FTA negotiations later this year,” says Vaughan. Two acquisitions by Indian companies are believed to be in the pipeline – one in the biotechnology sector and the other in IT. Five international submarine cable systems and four onshore mobile networks back New Zealand’s telecommunications infrastructure. The country’s energy needs are met to a large extent by hydroelectricity and wind energy even as its coal mines make up for the oil that it imports. According to Investment New Zealand, the country’s official investment promotion agency, growth will be dominated by a 3.5% per annum increase in geothermal energy generation, and a 17% per annum growth in wind power production. High-class research and development facilities make New Zealand a favorite for biotechnology and pharmaceutical companies. Around 40% of the country’s R&D expenditure goes to private sector research. New Zealand’s education system is constantly attracting more and more Indian students, some of who join the 2.24 million strong workforce. Starting a business in New Zealand is easy. There are very few controls over foreign owned issues. “The main control over foreign owned issues is relating to agricultural land where you would need to make an application to the minister. It is just to make sure that it is in the national interest,” DAR E says Vaughan.

DARE.CO.IN

/society

The tools needed for hammering, bending, cutting and shaping the iron, are all prepared by Pritam himself. On an average, they sell goods worth Rs 300 every day, making an easy Rs 9000 per month. However, saving is still a distant dream, with expenses mounting every day. According to Santara, sales are at the peak in the morning between 9 and 11 am. As far as competition is concerned, there are four more blacksmiths in the vicinity of 100 meters. They all are Pritam’s younger brothers. Quiz him why he doesn’t relocate to a place with less competition and he says, “We don’t know what emergency we might have to face. There are months when we are not able to make ends meet. Having relatives nearby provides financial security,” he says.

The

family

Tucked in the midst of plush high-rises, the family of eight forges metal throughout the day, and is an enterprise in itself /Mohita Nagpal

ritam, Santara and their six children have entrepreneurship running in their “royal” blood, if one were to believe Pritam. He claims to be the member of the extended family of Maharana Pratap, the chivalrous Rajput king who ruled over Mewar in the 16th century. This “400-year-old” family business of blacksmiths has passed like tradition down the generations. However, Pritam is unsure about the generation he belongs to. This is not all. He does not even know how old he is, though his wife, Santara, believes he must be around 45 or 50. He also has no idea as to which city or town he lived in before the family moved to Gurgaon five years ago. Quiz him about his second name and he unintentionally quotes Shakespeare, saying, “Naam main kya rakha hai?" (What’s in a name?). The family has no birth certificates and voter ID cards but is known to everyone as the blacksmith family. Despite the identity crisis, the family has been running their business in the Jharsa area of Gurgaon, tucked amidst the high-rise apartments and plush office

complexes that make their existence even more ironical.

The Business Work begins at 8 AM and ends by six in the evening. They produce different tools like hammers, spades, pruners, weeders, knives, wood saws, soil knives, and sledgehammers, apart from kitchen utensils like tongs, ladles and stoves. The prices range from Rs 10 to Rs 500, with an average price of Rs 50. The raw material needed is iron and wood. Coal is used to make a small furnace. A tie-up with three scrap dealers in the Mayapuri and Lal Quila areas of Delhi and Bhiwadi in Rajasthan makes sure that the family gets their uninterrupted supply of iron. They buy as per customer demand, but the usual size of the order is 30 kg at Rs 40 per kg a month. On the other hand, buying charcoal is comparatively an easier task; one doesn’t have to go beyond the nearby bus stop to buy it. A quintal for a month at Rs 25 per kg is sufficient. Apart from these, there are hardly any other input costs of the business.

The NextGen Pritam’s trained hands carve out hammers, tongs, spades and knives with ease and the decades of experience shows on his wrinkled face. Sitting comfortably on a low stool, hammering iron and smoking hookah, one can easily believe that he would not have changed his posture in years. His wife, Santara has quite an eagle eye. She quietly sits in the corner observing passersby, standing up swiftly, the moment she notices a probable customer. The youngest daughter, Savita, is the most enthusiastic of the lot. She easily slips into the shoes of a sales girl, and enumerates the names of products that line up on a makeshift wooden table, right outside their tents. The eldest son, Surender is the blueeyed boy of the family and the successor to the family business. He is learning the tricks of the trade. Right hand to his aging father, he assists him while he works with iron, picking up key techniques in between. On the other hand, the eldest daughter has the job of burning the charcoal. Something about her tells you that she doesn’t quite like her job. The remaining three children don’t do much apart from smiling with exhilaration at every customer. But Pritam believes that “time will make them wiser and they will start concentrating on work.” He says his biggest responsibility is to train his chilDAR E dren in the best possible way. FEBRUARY 2009 45

DARE.CO.IN

strategy/legal

A 15 minute guide to patents hat is a Patent?

A patent is a kind of an Intellectual Property Right (IPR) that grants statutory monopolistic rights for an invention. It gives the inventor certain rights â&#x20AC;&#x201C; such as manufacturing, using, selling, and importing rights â&#x20AC;&#x201C; within a specified territory for a limited period of time. This brings us to the question: what is considered an invention under the Indian Patents Act? According to the website of the Intellectual Property Office (www. ipindia.nic.in), a patentable invention is a product or a process that is new, involving an inventive step, and capable of industrial application. However, there are certain categories of inventions that are not patentable.

Why should you apply for a patent? Unlike a trademark or a copyright, an inventor has to apply for a patent to enjoy exclusive rights to his invention. If the inventor does not get a patent, anybody can copy his invention and gain out of it. Hence, a patent becomes necessary to restrict others from using, selling, manufacturing or importing the invention without the consent of the inventor.

examination of international applications. It makes the process of obtaining patents easier in contracting states by allowing filing in one international application. However, even under the PCT, the decision of finally granting a patent is left to the respective country.

Where do I register? In India, there are four patent offices located in New Delhi, Chennai, Mumbai, and Kolkata. A patent application is filed depending on the territorial jurisdiction of the applicant. An international application or a PCT application can be applied in all these four patent offices.

What is the process of patenting in India? After a patent application is filed, it is published in the Indian Patent Journal after 18 months from the date of filing or priority date, whichever is earlier. After publishing, a request has to be made for examination of the patent by the appli-

Who can apply for a patent and what is its term? An inventor, either alone or jointly, or any person/company assigned by the inventor can obtain a patent over the invention. A patent is valid for a period of 20 years from the date of filing.

Is a patent granted in one country valid everywhere? No, a patent is a territorial right. For example, a patent granted in a particular country, say India, is effective only within the country. However, due to many multilateral agreements, such as the Patent Cooperation Treaty (PCT) and the European Patent Convention (EPC), patenting systems are increasingly being globalized. For example, the PCT facilitates filing, searching, publication and 46

FEBRUARY 2009

* From date of filing

cant. It is important to note that an application is not examined automatically; it is examined only after the examination request is received. Generally, after the examination, a First Examination Report is issued and then the applicant has to satisfy the objections raised in the report within a prescribed time period. After this, the patent is granted and notified in the Patent office Journal. However, any person can make a pre-grant or postgrant opposition against any invention.

What are pre-grant and post-grant oppositions? According to the website of the patent office, a pre-grant opposition is made after the patent application has been published and before the patent is granted. Anyone can file for a representation and request for an examination. The patent is not granted until the opposition is set aside. In a pre-grant opposition, the burden of proof lies with the applicant.

DARE.CO.IN

strategy/legal A post-grant opposition is made after the patent has been granted but within a period of one year from the date of publication of grant of patent. In this case, the burden of proof lies with the person who is raising the opposition.

What cannot be patented under Section 3 and 4 of the Indian Patent Act?

Who is a patent agent? Is it necessary to engage his services?

• A mere discovery of a new form of a known substance, which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or mere new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant

A patent agent is a person who is registered with the Indian Patent Office. He is entitled to prepare patent documents, transact business and perform functions with respect to any proceedings before the Controller. It is not mandatory to engage a patent agent for filing -a patent under the patent law.

What are the renewal terms of a patent? A renewal fee has to be paid from third year onwards, after the patent is granted, till the twentieth year. The patent can be revoked if the renewal fee is not paid within the prescribed time. However, the patent can be restored if a request for restoration is filed within 18 months. And during this period, that is from when the patent was revoked till the time it is restored, a patentee cannot take any action if his patent is infringed.

Whose responsibility is it to ensure that a patent has not been infringed? It is the responsibility of the patentee to ensure that his patent is not being infringed. It is his responsibility to file for infringement against the infringer.

How can a patent be licensed or assigned? A patentee has the right to use, sale, transfer, license, mortgage and pledge his patent. However, it is important that the agreement should be in writing, have consent of all holders of the patent and duly registered with the Controller of Patents. The terms of the agreement must be clear and explicit.

What is compulsory licensing? The controller of patents can grant compulsory license to interested parties, three years after the patent is granted, under certain circumstances. For example, compulsory licensing can be invoked if there is a national emer-

• An invention which is frivolous or claims anything contrary to well-established natural laws • An invention which could be contrary to public order or morality or which causes serious prejudice to human, animal or plant life, health or to the environment • A mere discovery of a scientific principle or the formulation of an abstract theory (or discovery of any living or non-living substances occurring in nature)

• A substance obtained by a mere admixture resulting only in the aggregation of the properties of the components thereof or a process for producing such substance • The mere arrangement or re-arrangement or duplication of known devices each functioning independently of one another in a known way • A method of agriculture or horticulture • Any process for the medicinal, surgical, curative, prophylactic, diagnostic, therapeutic or other treatment of human beings or any process for a similar treatment of animals to render them free of disease or to increase their economic value or that of their products • Plants and animals in whole or any part thereof other than micro-organisms but including seeds, varieties and species and essentially biological processes for production or propagation of plants and animals • A mathematical or business method or a computer program or algorithms • A literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever including cinematographic works and television productions • A mere scheme or rule or method of performing mental act or method of playing game • A presentation of information • Topography of integrated circuits • An invention which in effect is traditional knowledge or which is an aggregation or duplication of known properties of traditionally known component or components • Inventions relating to atomic energy and the inventions prejudicial to the interest of national security. gency, if the reasonable requirement of the public has not been satisfied, the patented invention is not available to the public at a reasonable price, the invention is not worked commercially to fullest extent in India, etc. In January 2008, the first petition for compulsory licensing under the Indian Patents (Amendment) Act, 2005 was made by Hyderabad-based cancer drug maker Natco Pharma. The company had sought permission to manufacture and export generic versions of two drugs – Roche’s lung cancer drug Tarceva, and Pfizer’s kidney cancer drug Sutent – to Nepal, using a provision in the patent law that allows local firms to make a patented drug for export to less developed countries. However, the company later withdrew its plea in September 2008.

What precautions need to be taken? There are some precautions that need to be taken by the inventor. First, a patent application should be filed after the idea is conceived because the first person to file a patent on an innovation is granted the patent. Second, an invention should never be published in newspapers, scientific journals, etc, or be publicly displayed or commercially used before applying for a patent because then it may not be considered novel due to it. However, under certain conditions, a grace period of 12 months may be given after the invention is published or displayed. Third, apply for a provisional patent once the invention has taken some definitive shape. This gives the inventor 12 months time to file complete specifiDAR E cation of his invention. FEBRUARY 2009 47

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/blog

Power of Identity Identity: The collective aspect of the set of characteristics by which a thing is definitively recognizable or known.

/Rupin Jayal

rand identity is the unique set of brand associations that the brand strategist aspires to create or maintain. These associations represent what the brand stands for and imply a promise to the customers from the organization." — David Aaker. "Brand identity refers to the producer’s side of a brand. Having an identity means being your true self. " — Jean-Noël Kapferer. "Brand identity refers to that part of a brand that makes it more attractive as a possible purchase. It is a product of the melding of a brand’s positioning and strategic personality, and the singular way in which those two components stream together." — Lynn Upshaw. "The failure to develop and commit to a clear and meaningful brand identity, in essence the reason to be is our single best predictor for the weakness of a brand." — David Miller - Phinney/ Bischoff Design House, Seattle. There are many interpretations and definitions of the term “Brand Identity.” There are also many models used in describing the anatomy of a brand’s identity. However, despite the body of work done on the subject, the virtual universal acceptance of the value of brands (Interbrand now estimates that 70% of the average FTSE company’s value is based on intangibles — The Dawn of the Ethical Brand, Chris Davis and Corrine Moy - GfK NOP MRS

FEBRUARY 2009

2007) and the fact that millions are poured into the creation, development, sustenance, or rejuvenation of brands, actual examples of brands that have created and nurtured a distinct identity over a period of time are few and far between. Identity is not just the way a brand “looks” but the way it acts, feels, interacts and relates to its environment. What is brand identity? It is truly the “hot button” by which a brand is recognized and that enables it to connect with the people who buy it, the people who manage it, the people who supply goods and services to support it, the people who express opinions about it and even the people who reject it. It includes but is not limited to the

logo, the colors, sounds and sometimes even smells, uniquely associated with it. It is both a physical entity as well as a set of values, beliefs, convictions, tenets and the overall vision for the brand. It is encapsulated in those precious few words that anyone aware and/or associated with it expresses spontaneously. It is embedded in the arguments that its loyalist have in favor of it. It is articulated by those who wish to be a part of managing it and it is inherent in the reasons why its competitors are wary of it. There are a large number of factors that play a key role in creating and sustaining the identity of a brand — symbolism and iconography, graphic identity, communication, core brand values, benefits and brand characteristics, products/services and category definition, perception of the people who use it, role of the category and brand in people’s lives. It needs to be both of its times and yet immortal. Hence, it must evolve over time but any dramatic change to it needs to be dealt with extreme care. Associations take a great deal of time to form in the mind. Once firmly implanted, they become a part of the culture. Disturbing them entirely results in virtually starting from scratch; evolution ensures that they remain relevant, without losing their place.

/blog A simple way to define brand identity is:

Virgin too seeks to maintain its iconoclastic identity, which it carries across Intrinsic Brand categories. Similarly, Apple imbues categories with its own values as we have seen it do with computers, portable music and mobile phones. The brand identity is now so strong that it could Brand Identity enter any (unrelated) technology category and the prospective buyers would Marketplace Socio-cultural context be very clear about what to expect, as The intrinsic brand comprises all would the employees in terms of what the factors that constitute the brand they have to deliver. The marketplace here is not in terms mentioned above. The socio-cultural context is critical of the category alone but the entire as it can impact the relevance and how commercial ecosystem within which a the brand is perceived by people. For brand that may be present in multiple example, in the post World War II years, categories, operates. To develop a distinct brand identity order, discipline, decency and conformity were very important values. Thus, a one must, instead of starting with the brand that represented opposing values product or service and the category suffered. Hence, "You Meet the Nicest that it operates within, start with the People on a Honda" was totally in sync brand itself. Given the way brands with the tenor of the times and Harley evolve outside their categories of origin Davidson’s “outlaw” image was not. In and the massive cost of creating brands the recent past, the core value of self- in most markets, it is increasingly imempowerment and the need to rebel portant to define the core brand’s real against mundane everyday life, the estate in people’s minds and leaving growth of individualism, the search for products and services associated with an individual identity and the need to it to emerge basis opportunity and find ways to express masculinity in an resource availability. Google started increasingly non-masculine world, all out as a search engine, but now offers contributed to the dramatic resurgence a wide array of Web-based products, of Harley Davidson. While this was not most of which are not intrinsically rethe only reason, the socio-cultural con- lated to Web-based search. Many would text was a critical catalyst. However, be unaware that Wipro was originally a Harley Davidson has also evolved to re- brand of commodities and consumer main relevant and desirable to the next products. Tata brings its own identity to generation with the launch of the V-rod any category that it enters and it is not and most recently the XR 1200. Whether limited to any single category. Apple, Virgin, Dunhill, Porsche, Mont these more “modern” models will dilute the classic nature of the brand’s identity Blanc are just some of the brands that and put off purists or strengthen and have transcended category but where widen its connect with a new genera- their own identity has not been diluted. tion, has to be seen. Similarly, Porsche Nothing is more powerful than a clearly moved into an entirely new category, articulated brand core and even more seemingly quite antithetical to high per- importantly, a well understood identity. formance sports cars when it launched People remember the core identity of a the Porsche Cayenne. There was an out- brand and that evokes the whole meanburst of indignation by Porsche loyalists ing of the brand for them. If we meet — a clear indicator of how powerfully a guy who we label “the mimic” in our the identity of the brand was ingrained minds then forever when we meet the within them. Similarly the saga of “new” person, even after a very long time, he Coke shows that the identity of the or she will have a unique space in our brand went far farther than merely bot- memory. Hence the feeling of familiartle carbonated water and was one of the ity and the resulting warmth would be significantly enhanced versus someone icons of “Americana.”

DARE.CO.IN whose name we struggle to remember. We use this ability to create identities to not just remember people, but also to connect with those who we remember. Similarly a brand that is more than just a name and has a clearly defined sense of who it is — its personality, its values, what it seeks to do for us — stands out in our minds and occupies a special place in our hearts. This will be a brand that we will greet with warmth no matter what product or service it appears upon, just so long as those core means of identity do not get diluted. As the world goes through a time of unprecedented turmoil and these peculiar times see audacious hope in the form of Barack Obama and insecurity financially and physically, brands with a clearly defined and articulated identity, while certainly not solving the problems of the world, will bring a sense of stability and an oasis of trust. When the world emerges from its current turmoil, these brands will come to acquire a far more powerful place in people’s lives. Brands have played such a role in the past in numerous cases — GM in the US ("because for years I thought what was good for the country was good for General Motors and vice versa" — Charles Erwin Wilson President GM 1953), Surya Tobacco in Nepal, Tata and Infosys in India, Rolls Royce in the UK are just some examples. The power of brand identity is as a beacon and also an anchor. It has the capability to transcend category and products. Articulated, nurtured and evolved effectively it can build a bulwark against adversity. As mediums to communicate it proliferate, it will be even more critical to safeguard it, articulate it and enrich it. Those who choose it will want to be encouraged to play a more active role in nurturing it. The Apple faithful, the HOG (Harley Owners Group), Snapple, Swatch clubs and the Linux community are examples of co-created and nurtured brands with a very clearly articulated identity “owned” by more than just their managers. But to ensure that co-creation and nurturing does not result in chaos, a clearly defined and consistently maintained brand identity will DAR E be even more critical. The author is Director-Strategic Planning at M&C Saatchi. FEBRUARY 2009 49

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strategy/m&a

How To Buy A Public Listed Company

FEBRUARY 2009

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strategy/m&a

iven the current economic uncertainty, the interest in mergers and acquisitions (M&A) will be high. Cash- rich companies get good targets at reasonable prices. Companies not doing well may also be on the lookout for stronger companies that they can be a part of. Two possibilities – a merger or an acquisition – emerge in such situations. While a merger refers to the combination of two entities through mutual negotiation to form a third company, an acquisition refers to acquiring a target company’s controlling interest or asset. The target company can dissolve and operate under the acquirer’s name. This article is about acquisition and that too specifically about the acquisition of a company listed on the stock exchanges in India. Acquisition, also called takeover, can be friendly or hostile, and is accomplished through a complex process.

Friendly vs Hostile Takeovers There is no difference between the legal framework applicable to friendly and hostile acquisitions, says Mohit Saraf, Senior Partner, Luthra & Luthra, a reputed legal firm in India. “However sometimes, as a practical matter, certain regulations may not be relevant in the case of a hostile acquisition or in the case of a friendly acquisition.” In a friendly takeover, there is an agreement to acquire shares either between the acquirer and the target company or between the acquirer and the incumbent promoters of the target company. This agreement is then followed by an open offer to the shareholders of the target company to acquire shares from them. “Since the acquisition is a negotiated acquisition, the acquirer is generally given access to the books and premises of the target company to conduct a due diligence exercise,” Saraf says. In a friendly acquisition, the acquirer is generally able to negotiate a set of representations and warranties from the company or the seller pertaining to various aspects of the target company. This is valuable, Saraf points out, as it acts as an insurance against any liabilities that may be uncovered in the future

and that could not be known earlier from publicly available information. In a hostile takeover, however, there is no agreement between the acquirer and the target company. Instead, the acquirer generally moves straight to an open offer to the public shareholders of the target company. This is because in a hostile takeover, the incumbent promoters of the target company are opposed to the takeover. Saraf says that sometimes in a hostile takeover, there may be one or more agreement to acquire shares between the acquirer and some shareholder of the target company who hold large chunks of shares in the target company. This was seen during the Emami-Zandu transaction, where there acquirer (Emami) had acquired shares of Zandu from the Vaidyas, who held a large block of shares and had then made an open offer for Zandu shares.

Alcan acquiring 20% in Indal • Sterlite Industries (SIL) made an open offer to purchase ten percent shares of Indian Aluminum Company (Indal) from the public offer in April 1998 (Takeover trigger at ten percent then). • SEBI came up with a ruling of public offer of not less than 20%. • Sterlite required increasing its public offer to 20%. • Indal, feeling vulnerable to a takeover threat from Sterlite, requested its foreign collaborator Alcan to come to its rescue. • Sterlite made a cash offer at Rs 115 per share and Alcan made a bid for Rs 175. • Sterlite revised it price to Rs 221 per share (Rs 131 cash and Rs 90 by way of preference share issue) and announced its intention to acquire 52%. • Financial institutions (FIs) held the key as they held 36% of the equity. • Sterlite’s bid was stumped by SEBI, which asked it to take fresh approval from its board for issuing preference issue of shares. FIs had no other choice but to accept Alcan’s offer of Rs 200 per share on the day of closure of the offer. • Indal, with the help of Alcan, was successful in warding off the hostile threat.

“Hostile acquisition is, however, laden with certain disadvantages. A hostile acquirer cannot conduct a due diligence exercise on the target company and its assets,” Saraf says. There may be hidden liabilities that can deplete the valuation of the target company. A hostile acquirer does not receive any representations and warranties from the target company and its promoters in relation to the financial health and other matters.

Applicable legislations While the acquisition of private companies is done under the provisions of the Companies Act 1956; the takeover of publicly listed companies involves compliance of other laws also. TM Rustomjee, senior director, Deloitte Touche, India, says, “The Companies Act and securities laws, including SEBI’s Substantial Acquisition of Shares and Takeovers Regulation, 1997, require compliance for the acquisition of publicly listed companies.” The term ‘takeover’ is not clearly defined under SEBI’s Substantial Acquisition of Shares and Takeovers Regulations, 1997, but it essentially envisages the concept of an acquirer taking over the control or management of a target company through the process of substantial acquisition of shares (also referred to as Takeover Code). This explains why the term ‘substantial acquisition of shares’ attains a vital importance in case of corporate restructuring through (merger or) acquisition. The Takeover Code has defined substantial quantity of shares or voting rights for two different purposes for an acquirer: 1) Threshold of disclosure to be made, and 2) Trigger point for making an open offer. As per the Takeover Code under SEBI’s regulations, an “Acquirer” is any person who directly or indirectly acquires or agrees to acquire shares or voting rights in a target company, or extend control over the target company either by himself/herself or with any person acting in concert (PAC) with the acquirer. PAC, as pointed out by Mohit Saraf, has been defined by law as any person established to FEBRUARY 2009 53

DARE.CO.IN have the common objective of buying a substantial amount of shares, or voting rights in a company; or gaining control of a company following an agreement or understanding (formal or informal) or by cooperating with the acquirer, directly or indirectly. The Takeover code, as discussed under SEBI’s Substantial Acquisition of Shares and Takeovers Regulations, 1997, has defined ‘control’ as: a) the right to appoint the majority of the directors, and b) to control the management or policy decisions.

Procedures Friendly or hostile, the process of acquisition involves several activities. It starts generally with the acquirer appointing an advisor to assist. This can include, depending upon the size of the deal, a banker, solicitor, and a chartered accountant. “Most acquirers would carry out a due diligence on the target company (even if listed), which could give crucial information about the financial position, legal status of the target’s operations and commercial aspects, which may not be available in the public domain,” Rustomjee says. The board of the acquirer has to approve the acquisition unanimously in a meeting. If the amount to be spent on acquisition is more than the specified limits of its net worth, the acquirer will require prior approval of shareholders and its lenders, he points out. In case of hostile acquisition, acquirer can start the process by appointing a merchant banker to make an open offer on his/her behalf to all the shareholders of the target company. Alternately, if he/she knows of shareholders in the target company who hold sizable chunks of shares in the target company, he/she may enter into negotiations with these shareholders to acquire their shares. Saraf says, “In such a case, the stage of making an open offer would come after the share purchase agreements have been acted upon or (if they trigger an open offer then) after the share purchase agreements have been signed but before they are acted upon.” 54

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strategy/m&a Takeover of Damania Airways The takeover is an example of a company failing to deliver because of insufficient funds. • The NEPC group, owned by the Khemkas, after acquiring management control in Damania Airways (was renamed as Skyline NEPC), made an open offer to acquire 20% in the company at Rs19.60 per share in May 1995. • The ruling price of the Damania shares then was Rs 15.50. • SEBI pressure forced Khemkas to revise price of open offer to Rs 35.25. • Open offer was opened on February 1, 1996, and closed on February 29, 1996. Shareholders submitted 64.6 million shares to NEPC. Payment needed for this was Rs 228 million. • NEPC group could not make payments to all the shareholders. • SEBI issued show cause notice to NEPC for its failure to meet commitments to shareholders who responded to the open offer. • Khemkas and their group companies were barred from accessing the capital market for five years for violating the takeover regulations in August 2001. Sometimes a hostile acquisition would be preceded by the acquirer picking up shares of the target company in the open market, he says. Acquiring company would have to reveal its shareholding in the target company as soon as threshold of disclosure is reached.

Threshold of Disclosure (as described by Takeover Code) I) ä

Five percent or more shares or voting rights: An acquirer, along with the PAC, who acquires shares or voting rights taken together with his existing holding,that would entitle him to more than 5% but less than 15% shares or voting rights of a target company, is required to disclose at every stage (stages being at 5%, 10% and14%) the aggregate of his shareholding to the target company and the stock exchanges within two days of acquisition of

shares or voting rights, as the case may be II) More than 15% but less than 75% shares or voting rights: Any acquirer along with PAC holding more than 15% but less than 75% of shares or voting rights in a target company shall disclose to the company upon acquiring a further 5% or 5% of shares or voting rights during any period of 12 months III) A promoter or every person having control of a company shall within 21 days from the financial year ending March 31, as well as the record date fixed for the purpose of dividend declaration, has to disclose the number as well as percentage of shares or voting rights held by him/her along with PAC in that company to the target company IV) The target company, in turn, is required to inform all the stock exchanges, where the shares of target company are listed, every year within 30 days from the financial year ending March 31 as well as the record date fixed for the purpose of dividend declaration However, under certain circumstances, Takeover Code is triggered by acquirer.

Trigger points for open offer I) ä

Voting rights or 15% shares: An acquirer intending to acquire 15% or more shares or voting rights, which includes his existing shareholding, can do so only after making a public announcement to acquire at least additional 20% of the voting capital of target company from the shareholders through an open offer Exceptions can be made to the above provision in two cases - I) if the acquirer is already holding less than 75% or more of shares or voting rights; and ii) if the acquirer has deposited in the escrow account 50% of the consideration in cash. II) Creeping acquisition limit of five percent: ä An acquirer holding 15% or more but less than 75% of the shares or

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strategy/m&a voting rights of the company can consolidate his holding up to 5% in any period of 12 months. Beyond five percent, in any financial year ending March 31, acquirer can do so only after a public announcement to acquire at least additional 20 per cent shares of target company from the shareholders through an open offer. However, in cases where only five per cent or less shares or voting rights may be acquired in aggregate, whether the person acquired it individually or together with PAC, public announcement (PA) is not required to be made. This is called creeping acquisition ä In October 2008, SEBI allowed promoters of companies to increase their stake up to 75% through the creeping acquisition route, without triggering an open offer. Earlier, this limit was capped at 55 percent. III) Consolidation of holding: ä An acquirer, having 75% shares or voting rights of a target company, can acquire additional shares through an open offer after making a PA An open offer is made by a PA, which is an announcement given in the newspapers by the acquirer, disclosing his/her intention to acquire a minimum of 20% of shareholding from existing shareholders. PA is to ensure the shareholders of the target company are aware of the exit opportunities available to them in case of a takeover. The acquirer is required to appoint a merchant banker registered with SEBI before making a PA. The most reliable way of effecting an acquisition over a stock exchange is to do the trade through something called a block window. Saraf says, “This is more reliable than the ordinary trading mechanism of the stock exchanges because the chances of another seller eating into the transaction or of another buyer buying up the shares on sale (a phenomenon that M&A advisors call “leakage”) are lower when a sale is affected over the block window.”

Mohit Saraf Senior Partner Luthra & Luthra However, SEBI’s rules prescribe that the price at which a trade can be affected on the block window cannot vary from the last traded price of the scrip on the previous day by more than one percent. "Generally, the price of the stock moves between the launch of the open offer and the day of its closure and sometimes the differences is such that the price at which the shares have to be sold under the share purchase agreement is higher or lower than the ruling price at the conclusion of the open offer by more than one percent," Saraf says.

Competitive Bid Once an open offer is made by a company, any other company (or a person along with PAC) can make a counter offer, often called competitive bid. Competitive bids can be made within 21 days of public announcement of the offer made by the acquirer. Once competitive bid is announced, first bidder has the option to either revise the original offer or withdraw it.

SEBI’s takeover regulations are not as evolved as the UK’s City Takeover Code. SEBI’s takeover regulations do not cover a host of factual situations that can arise in their implementation. This means that SEBI officials have a wide margin of discretion in applying the regulations. Exemptions from public offer There are, however, certain exceptions made for the public offer under the SEBI regulations. These are not applicable for allotments in pursuance of an application made to a public issue. Public offer is also not applicable for allotments done in pursuance of an application by the shareholder for rights issue, provided such rights issues do not change in control and management of the company. In case acquirer is targeting a sick company, public offer is not mandatory. Preferential allotment, if done with the approval of at least 75% of the shareholders of the company, is also exempted from making public offer. “Issue of American Depository Receipts and Global Depository Receipts or Foreign Currency Convertible Bonds are also not subject to public offers,” says Anuj Kumar Baksh, professor, corporate law, Indraprastha University. “However, if these are converted into equity shares, public offers would be mandatory.” FEBRUARY 2009 55

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strategy/m&a

Steps after Public Announcement Within 14 days of the public announcement, acquirer is required to file a draft offer document with SEBI through its merchant banker along with filing fees (at present fee is Rs 50,000/- per offer document). “The filing of the draft offer document is a joint responsibility of both the acquirer and the merchant banker. The merchant banker has to submit a due diligence certificate and certain registration details,” Mohit Saraf says. The acquirer has to send the offer document and a blank acceptance form within 45 days from the date of PA to all the shareholders whose names appear in the register of the company. The offer remains open for 30 days. The acquirer is obligated to offer a minimum offer price as is required to be paid by him to all those shareholders whose shares are accepted under the offer, within 30 days from the closure of offer.

Safeguards for shareholders SEBI has introduced certain safeguard measures for shareholders. The acquirer has to compulsorily open an escrow account before making a PA regarding open offer. Escrow account should have 25 per cent of total amount under consideration if the offer of size is up to Rs 100 crore (Additional 10% if offer size is more than Rs 100 crore). The escrow account has to be in the form of cash deposited with a scheduled commercial bank, with bank guarantee in favor of the merchant banker. The merchant banker is obliged to to confirm that the financial arrangements of the firm are in place for fulfilling the offer obligations. If the acquirer fails to make payment, merchant banker has a right to forfeit the escrow account and distribute one-third of the proceeds in proportion to each of the three parties – target company, regional stock exchanges for credit to investor protection fund, and to the shareholders who have accepted the offer. In addition to this, SEBI may initiate action against the acquirer. This may include barring the acquirer from entering the capital market for a specific period. For in56

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“

Companies Act and Securities laws including SEBI Substantial Acquisition of Shares and Takeovers Regulation, 1997, require compliance for acquisition of publicly listed companies.

”

— T M Rustomjee

Senior Director, Deloitte Touche, India.

stance, NEPC promoters were barred from entering stock market for five years after they failed to buy shares of Damania Airways from shareholders in open offer.

Need for revamp With the probability of acquisition of Satyam and other companies being high, questions are being asked about the effectiveness of the Takeover Code. Questions are also being raised about it in terms of acquisitions abroad, and foreign companies acquiring publicly listed companies in India. Saraf points out that SEBI’s takeover regulations are not as evolved as the UK’s

City Takeover Code. He says UK’s City Takeover Code is more detailed and precise in its prescriptions than SEBI’s takeover regulations. “The SEBI’s takeover regulations do not cover a host of factual situations which can arise in their implementation. This means that SEBI officials have a wide margin of discretion in applying the regulations,” he says. There are other glaring loopholes. For instance, time required to complete the takeover process is often quite longer than prescribed in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Rustomjee says some four to five months are consumed to complete the process even after open offer is made. The law is also ambiguous on terms like ‘change in control’, ‘persons acting in concert’ and ‘promoters’; and M&A history in India proves how this has been misused many times. What rubs to salt is that enough time is taken for punitive actions as well, rendering the whole process a mockery. NEPC promoters, Khemkas, for instance, were punished five years after they failed to obey their open offers in case of the takeover of Damania Airways. By the time punishment was announced, promoters had folded their business, effectively making punishment useless. There is no mechanism to prevent misuse of exemptions such as preferential offers and stake transfer, which are often extended to co-promoters. Takeover Code lacks provisions for simple and transparent regulations on how the changes in ownership stake at the global level, affect the application of the Code, leading to a high degree of confusion. Issue of disinvestment of public sector units is also inadequately addressed in the Code. There are suggestions that SEBI should provide for better disclosure norms governing corporate M&A activities. Role of financial institutions in cases of a takeover also need to be defined. The provisions for bailout takeovers, many say, should not limit competition and must bring maximum benefits to sick companies thereby benefitDAR E ing the economy.

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hen was this fund set up and how many startups have you funded so far? We are a $189.4 million fund, and a little less than two years old. NEA, the US investor, has partnered with us to invest in early and mid-stage companies in India. We invest in technology and technology-enabled companies that have a strong connection to India. Either they sell their products in India or if they have their business elsewhere, they should be predominantly focused on India. We would like to invest in a tech company beyond those in the BPO and KPO areas. If there is a new business model that has given rise to something because of a change in technology, particularly in computing and communication, then we would be interested in investing in those kinds of companies as well.

What is the minimum ticket size of the investment you make and how long do you plan to stay invested in a company? We typically like to invest around $4-5 million in the first round of investment of a company. But we have made investments as low as $1 million and as high as close to $10 million. However, our sweet spot is $4-5 million, and we like to put around $10 million in the lifecycle of the company. We look at four to five years as horizon for investments to have some kind of return options. We have made about 16-17 investments from the existing funds. Typical fund life

funding/strategy NEA-IndoUS Ventures is a venture capital firm that provides early and mid-stage funding to new or growing businesses in India. Prior to joining NEAIUV in 2007, Kumar was the head of Intel Capital India, the venture capital group responsible for Indian investments. As the Country Director, he drove Intel's India investments. Notable companies in the portfolio were NIIT, Subex Systems, Futuresoft, R-systems, IndiaInfoline etc. and past boards he has served on include Sasken Communications, Tejas Networks, Sharekhan, Nipuna, Deccanet and Real Image Media Technologies among others. our existing companies and the other is about what we do with the new investments. I have been investing in India for many years now and I was heading Intel Capital before this. We had a strong portfolio from year 2000 that we were managing. In some respect, we are going through another downturn and the investment phase will slow down to some extent, but good investments will still happen. But in

investor of the month cycle is about ten years. Some of the investors might invest in late stage, in which case, exit opportunities may come as early as two years. As we are an early stage investor, it is very unlikely that we will get an exit that quickly. But four years is when you start to look at an exit. How has been the performance of your portfolio companies so far? We are pretty happy with the performance of the portfolio. In some aspects it is a risky set of investments that we make. I cannot talk in detail of each company about their performance, as it would be unfair to them. In our business, it is always the case that bad news comes first. Companies that are not doing too well and if we do not want to invest more money or if they don't look like great prospects, that happens sooner. We might get out of the company sooner. But on the other hand, the companies that are doing great, we will end up putting in more money, waiting longer so that the company continues to grow. So the good news comes a little later. In that sense, overall, on a portfolio basis, we have a good set of companies that are doing well. In view of the current slowdown, have you reworked on your investment strategy? There are two aspects to this. One is about what we do with 58

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reality, we have stretched out a little bit on the time horizon of when those companies will become big and give us exits. That affects valuation to some extent because we are concerned about the internal rate of returns we make on an yearly basis. So that affects valuation because you need to get the right price to make sure that you can still get a good rate of return. When you take all this into consideration, investments will slow down a little bit, but good companies will still continue to get funded. We are still looking to continue to invest in good companies. We have money out of the fund so there is no slowdown on that aspect. As far as our existing companies are concerned, they all raise money for a certain amount of runway. With the slowdown, their ability to raise money or go public, etc will get pushed out a little bit. Consequently, they need to figure out a way to survive longer or anticipate longer fund raising cycles. So they need to be really watchful about the cash flows in the company. Despite the slowdown, are you still open to making new investments? We continue to meet companies at the same pace. The bar is raised a little bit so we weed out more companies sooner but on the other hand, we continue to look at the same pace. There are good companies we are going to invest in.

funding/strategy

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Kumar Shiralagi

Managing Director, NEA-IndoUS Ventures FEBRUARY 2009 59

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funding/strategy

How are your portfolio companies dealing with the slowdown? We are three partners and all three of us have had entrepreneurial background. In some ways we do get closely associated with the companies that we invest in. Good days or bad days, we have periodic calls with them. In these times, we bring them some amount of market intelligence on what is happening. The advice we give is specific to companies. For some companies, it is the best time to grow. For some BPO and KPO businesses, it is a fantastic time to position themselves for growth and it is going to come their way. For some of those that are in core sectors where the growth is going to be slow, they need to make sure that they turn cash flow positive. How closely are you involved with your investee companies? We get quite engaged with them. We help them on aspects they need help on; sometimes it may be introduction to some key customers. We get quite involved with the hiring that they do. When it comes to fund raising, we do a lot of help on the diligence as well as introducing other investors and helping them raise money, but usually on strategy and positioning. The earlier the stage, the more we are involved with them. It depends on the weakness of the company. There is a perception that when investors come in, they try to call the shots. How do you allay such fears? An entrepreneur should choose his investor carefully to look at what kind of companies they are involved in, what relationship they share. But many companies may or may not have a choice. You need to build a relationship with the key guys you work with. When you work with the company, it is in the best interest of both the promoter and the investor to make the company very successful. If the company becomes successful, both of them win. But about how to make it successful, there can be different ideas. On a majority of the issues, there is alignment, for some of the things, there is not. As an investor, we are not involved in the routine operations of the company. We count on the promoter to build the company and we give whatever support that is required. There can be a divergence of interests at times, and when that happens there are conflicts, but on the other hand, there are ways to solve it. This does not have to be acrimonious.

Do you see some bright spots despite the slowdown? In many ways, downturns are good for some companies because attrition goes down. Even for a smaller company, it won't be that difficult to attract talent, but in a booming market it is very difficult to attract people. It is good with respect to the development of the product and getting to some critical milestone stages — the time is right to do it. It is not like you have 20 other competitors who are doing it. Also, some of the sectors benefit. We are seeing it even in our portfolio. Do you think entrepreneurship is going to suffer a setback during the slowdown? In 2002-03, things did slow down a lot. Consequently money dried up at a lot of places and entrepreneurship suffered in the early and mid-stage companies. In this environment, there is some history of success in India for some of the funds. There are many who are new and for them this will be their first experience of a slowdown in India. But on the other hand, if you compare what is happening worldwide with what is happening in India, we are in a better position. Many of the Indian companies are still attractive to invest in. Good companies still get funded. Those who believe their idea is good, the real strong ones and there is a compelling value proposition, I believe they will still continue to do well. People will have to come with creative ways to weather through the rough times. What should an entrepreneur keep in mind while approaching an investor? To an entrepreneur, his idea is the best idea. They have to be passionate about it — they are and they will be. But as far as an investor is concerned, he looks at a lot of them and something has to catch his attention or he has to feel that the area looks really good. An entrepreneur should do his homework properly before approaching an investor. He should figure out what would be of interest to an investor. For instance, if someone approaches me with a real-estate deal, I would have zero interest in it. Going through a referral is a good idea. One should send a brief business plan. If you send 20 pages, it will sit in the inbox. If it is a two-page summary, people usually look at it right away and then ask for some additional information or at least give some feedback. Most people send incomplete information or too much information. DAR E

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‘BYST’ in micro-entrepreneurship Set up in 1992 with JRD Tata as its founding chairman, the NGO has been nurturing entrepreneurship at the grass root level. It has generated employment for almost 25,000 people and financed approximately $3 million for over 1,700 entrepreneurs /Irawati Gowariker and Philip Anderson

hen Prof. Y.S. Rajan, Principal Advisor to the Confederation of Indian Industry (CII) was asked to name a few steps that can help aspiring entrepreneurs make a headstart, pat came his multi-pronged response. Having co-authored the book ‘India 2020: A Vision for the New Millennium’ along with former President of India Abdul J. Kalam, Rajan’s prompt reply was, “There are five doors, that entrepreneurs can knock on, to grow”. Former Executive Director, TIFAC (Technology Information, Forecasting and Assessment Council) of the Government of India Department of Science & Technology, Rajan is an authority on Technology Development and Business Management. His overview is undoubtedly a treasure trove of tips and advice for budding entrepreneurs. “Among these”, as Rajan elaborates, “are the Technology Business incubators launched by the Department of Science & Technology, the Technopreneur Promotion Programme (TePP) of TIFAC, patent-buying company Intellectual Ventures and BYST, a strategic partner of CII. And finally, the ‘Knowledge Intermediation’ process which reduces uncertainties (technical, business and market) for entrepreneurs involved in future products and services.” We will open this treasure trove by closely examining one of these five “doors”- the BYST (Bharatiya Yuva Shakti Trust). Set up in 1992 with JRD Tata as its founding Chairman, this registered NGO has been levelling the playing field for small businesses by nurturing entrepreneurship at the grass root level. And it has generated employment for almost 25,000 people

FEBRUARY 2009

and financed approximately USD 3 million for over 1,700 entrepreneurs. Founding trustee of this not-forprofit organisation is Lakshmi V. Venkatesan, daughter of India’s former President, R. Venkataraman. Speaking of the ethos of BYST, she recaps, “BYST has supported the entrepreneurial

There are five doors, that entrepreneurs can knock on to grow. Among these is Bharatiya Yuva Shakti Trust, a strategic partner of CII. — Prof. Y.S. Rajan Principal Advisor, Confederation of Indian Industry

dreams of the underprivileged youth of India and is modelled along the lines of the age-old guru-shishya (teacherstudent) tradition”. Since its inception 16 years back, BYST has successfully expanded its operations across five states with regions of operations in urban Delhi, Chennai, Pune, Hyderabad and rural Haryana and Maharashtra. Mentoring is key to BYST’s Entrepreneurship Development program where mentors, mostly senior business professionals that have volunteered their services, provide guidance and advice to underprivileged young entrepreneurs to succeed in their fledgling businesses. Venkatesan explains that,

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/INSEAD

“The process is inbuilt in such a way that each entrepreneur is handheld from Day 1 of counselling, to firm up his/her business plans, attend a expert workshop, get loans sanctioned and finally be assigned a business guide who guides him/her on effectively running the business”. BYST’s Board of Trustees reads like a Who’s Who of India Inc. BYST’s corporate partners include the Tatas, Bajaj, Godrej, American Insurance Group (AIG), DIAGEO and The Keep Walking Fund. As a Founding Member of Youth Business International (YBI), UK, BYST is working closely with HRH Prince Charles to set up similar programs around the world in Asia, Africa and Latin America. And the Confederation of Indian Industry (CII) is its strategic partner, providing infrastructure and administrative support to BYST. CII’s Deputy Director General Dr. Sarita Nagpal describes CII’s associa-

Since its inception, BYST has expanded its operations across five states with regions of operations in urban Delhi, Chennai, Pune, Hyderabad and rural Haryana and Maharashtra. Mentoring is key to BYST’s Entrepreneurship Development program where mentors provide guidance and advice to underprivileged young entrepreneurs to succeed in their fledgling businesses

tion with BYST. “With a view to proactively address & mitigate issues being faced by the MSME (micro and small, medium entrepreneurs) sector, an apex National Council for the MSMEs as well as the BYST are the two key activities presently being operated for CII membership” Dr. Nagpal mentions. CII proposes to launch the following two key initiatives for micro-entrepreneurs this year-‘I’msme’ and Entrepreneurship India (EI). According to Dr. Nagpal, “I’msme (I am SME) is CII’s unique initiative to create a brand for MSMEs in India. This will help integrate them into the global economy. And I’msme portal will nurture communities of MSMEs to connect to other SMEs, service providers, institutions, access knowledge resources for tangible benefits, ask and find solutions to their business problems and showcase their products and services in a business to business marketplace. The second CII FEBRUARY 2009 63

DARE.CO.IN initiative is an entrepreneurial movement to catapult Indian entrepreneurship into the high growth phase of global economic development”. As job markets tighten, the BYST model which has successfully helped job-seekers become job creators, deserves to take centre stage. Heartening are the voices of BYST entrepreneurs such as M.C. Raja, the proprietor of Rexmiller Garments who recounts, “I came to know about BYST on Doordarshan. There are many trusts in our country working for very serious issues like safe guarding old age, providing food for the pavement dwellers, providing education for poor children but I think BYST is particularly unique and special”. Raja overcame the common funding challenges that micro-entrepreneurs face, but experienced BYST as a differentiator. “Before approaching BYST for a loan, I had approached commercial banks and other micro-financial institutions for financial help, but I could not avail those due to lack of property. BYST is able to provide a permanent solution for the problems and difficulties of a businessmen or an entrepreneur by providing financial assistance without security and valu-

As job markets tighten, the BYST model which has successfully helped jobseekers become job creators, deserves to take centre stage. Heartening are the voices of BYST entrepreneurs such as M.C. Raja, the proprietor of Rexmiller Garments. Raja overcame the common funding challenges that micro-entrepreneurs face, but experienced BYST as a differentiator. 64

FEBRUARY 2009

/INSEAD able mentoring. It also brought changes in my life style and I now have over 25 people working with me”, says this grateful businessman. As pointed out by Raja, BYST emphasises end-to-end support to dis-

advantaged young dynamic microentrepreneurs in the form of loans, business mentors, training, networking & marketing. BYST’s professional outlook is ingrained in its operations and the team’s outlook to their mis-

BYST: A ROLE PLAY DEPICTING THE REAL DIFFERENCE

Ashok, I’m thinking of applying to BYST to seek the assistance of a business mentor. I want to ask you if it has helped you in having one. I’m not sure what BYST does.

Arif, when I started, I was not sure either. I think I was hoping that they would do some of the work for me, especially in accoun ng. What my mentor does is talk to me about how the business is going, and whether I’m having any problems. He also asks me if I have any ideas for next month’s business.

Well Ashok, I am s ll confused, how does talking to a mentor help?

DARE.CO.IN

/INSEAD Good point Arif. My mentor is very experienced in business and always seems to know the right ques ons to ask to get me thinking. I can then talk about my ideas without the fear of being thought of as a fool. Some mes, he also shares his ideas and experiences, which can make all the diﬀerence. I come away from the mee ngs with some clear ideas to work on, maybe even an ac on plan, which is like a list of things to do, or even an introduc on to a business contact. But I always come away thinking that I can succeed because someone believes in me.

Wow Ashok! That sounds very impressive. I think I’ll contact BYST right away, having a mentor sounds as though it can make a real diﬀerence.

sion. Referring to some of their abovementioned achievements as their Key Performance Indicators (KPIs), the team at BYST took us in detail through the role of mentors and the process adopted to encourage entrepreneurs along their growth path. The role of mentors is described visually in the illustration (1) provided. With the emphasis on mentoring of entrepreneurs, training of mentors is key to the success of BYST. A 6-hour self-paced, interactive, user-friendly “Mentor-Online” (MOL) tool is available for potential mentors. Mentors who complete MOL courseware and provide on-the-ground mentoring to entrepreneurs (10 hrs in a year) become eligible for an International Accreditation. This accreditation ensures consistent training standards across the country. 1000 mentors have already been accredited by City and Guild, UK’s largest and best known vocational awarding body. Having created a pool of 3,000 volunteer business mentors across the country, BYST has established 21 mentor chapters in all its regions of operations, to encourage formal grouping of business mentors and effective networking and exchange of ideas amongst them.

With the emphasis on mentoring of entrepreneurs, training of mentors is key to the success of BYST. A 6hour self-paced, interactive, user-friendly “Mentor-Online” (MOL) tool is available for potential mentors. Mentors who complete MOL courseware and provide on-the-ground mentoring to entrepreneurs (10 hrs in a year) become eligible for an International Accreditation. Oath taking by accredited mentors of BYST

‘BYST’ IN MICRO-ENTREPRENEURSHIP, CONTD. ON PG 82 ç FEBRUARY 2009 65

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opportunity/furniture

Cane furniture: A plush future Cane furniture has mostly been dismissed as something cheaper and meant, at the best, exclusively for outdoor purposes. However, the segment has witnessed metamorphosis of late and has managed to create a niche market for itself, competing with stylish Italian furniture.

Photos: Cane Boutique

/Ambrish Jha

f you are a Delhiite, your perception of cane furniture would be of the vendors selling them by the roadside in Noida, on Jail Road, or at Panchkuyian road outlets. It would be the same in Mumbai, with just a difference in the name of the locales â&#x20AC;&#x201C; Bandra, Borivali or Andheri. The cane furniture market works roughly on three planes. At the lowest rung are those who help form the above perception. They sell their products at anything between Rs 5000 to Rs 10,000 depending on whom they get

FEBRUARY 2009

as their customers, and how long the customers are ready to negotiate. At the intermediate level, come the small furniture stores, who sell the products at anything between Rs 9,000 to Rs 15,000, and at times even at Rs 20,000. At the top of the pyramid are the fancy stores that employ designers, and come up with cane products looking as gorgeous as affluent Indians would want in their drawing rooms. They import cane materials like rattan and other wickers from countries like the Philippines, Indonesia and Thailand. These

are then designed and conceived into good-looking products. These stores, through their well-designed products, have managed to turn cane products into an integral part of the interiors of a sophisticated house. Cane furniture has, in other words, managed to create a niche market for itself, thanks to the efforts put in by some of the big stores like Cane Boutique (Bangalore), Cane-line (Mumbai), The Next Shop (Delhi) and others. It is no surprise that these big cane furniture stores manage to sell their products for anything from Rs 35,000 to several lakhs of rupees. A fourth dimension has been added to the market with the emergence of imported products from China and, to some extent, from Malaysia. They have often better finishing than what vendors sell on the streets. However, they have not yet managed to make a distinct mark for themselves in the market. The metamorphosis of cane from an exterior furniture item, used mostly in gardens, to a product adorning lavish bedrooms and posh living rooms has opened new avenues for entrepreneurs. India does not produce rattan, which is normally imported, but the north-east produces a number of plants that yield natural canes. Bam-

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opportunity/furniture boo is also used to extract cane. Not much effort has been done to explore these in the past, apart from some encouragement programs run by the central and the state governments. With the rising popularity of cane among the affluent class, one can expect entrepreneurs would turn their attention to bolster supplies from the north-eastern states. Another new trend that has set in, albeit slowly, is that of cane getting blended with metal bases like aluminum or steel to produce durable and trendy furniture items.

Cane sources and manufacturing Plants of the reed family are used for sourcing cane. India has rich reserves of such plants in the north-eastern states like Assam, Arunachal Pradesh, Mizoram and others. Generally, three species of cane are exploited in commercial quantities—jati (calamus tenuis), tita (calamus leptesadix) and lejai (calamus floribundus). Some lesser known qualities, like sundi (calamus garuba) and raidang (calamus flagellum), are also extracted. The cane and bamboo products used for domestic purposes are prepared in every nook and corner of these states, out of split bamboo and fine flexible cane strips. The manufacture of cane furniture, however, calls for a high degree of skill on the part of the workers. Such skill is found to be traditional. Cachar district of Assam, for instance, has ample number of skilled artisans specialising in the manufacture of cane furniture. The process of manufacturing of cane furniture starts with making bamboo slips of various diameters. Different bamboo parts are then joined with the help of nails and a rough structure of furniture is thus being crafted. When it comes to round cone furniture, thin iron rods are used to get the round cane bend. Actual weaving of the structure so made is done with fine slips of flexible cane. Skill of artisans determine how fine slips can be used in coiling and plaiting.

Internationally, rattan is the most common source of cane. It is native to tropical regions of Asia, Africa and Australia, though found in abundance in Indonesia, Cambodia, and the Philippines. It is superficially similar to bamboos, but differs from them in that its stems are solid, rather than hollow. Rattan needs support of some sort, unlike bamboos, which can grow on their own. Rattan is used to manufacture furniture and baskets and other furniture by cutting it into sections. Rattan is being imported into India as well. Cane Boutique, for instance, imports it to make different types of furniture.

Cane in niche market Cane had traditionally been used with wooden bases to make furniture for outdoors. Unorganized players, mainly the not-so-educated ones, used to be the main drivers of the sector. With globalization and better exposure, cane furniture is now being looked upon as something niche. Ritu Todi of Cane Boutique, a Bangalore-based cane furniture store, says, “It (cane) was never neglected. It was always used for outdoor furniture. You can say it was never in the niche market.” A member of the Planning Commission had once described cane furniture as voluminous and cumbersome, making it uneconomical to transport. This is why the north-eastern states producing cane products of various kinds could never catch fancy of the well-to-do. Margins on which unorganized players often sell their products used to be quite low. All these had hampered the growth of the cane industry and its reachability. Ritu says that cane furniture is now coming into focus for interior furniture also. People want to move beyond Italian furniture, which is much costlier than cane items, she says. She adds, “The latest trend is that many hotels, resorts and homes have a section where only cane furniture is displayed.” FEBRUARY 2009 67

DARE.CO.IN How cane furniture has gone trendy is evident from the price range of the interior and exterior furniture sold at some of the niche stores like Cane Line (Mumbai) or Cane Boutique. Interior furniture, for instance in Cane Boutique, starts at over Rs 50,000, and goes up to a few lakh rupees. At Cane Line, a leading European manufacture of wicker furniture, chairs start at Rs 20,000 while two-seater sofas cost you as much as Rs 40,000. Cane-based elements can now be found in trolleys, side-tables, centerpieces, and stools as well. Delhi-based store, The Next Shop, also showcases various accessories in cane such as candle holders, dinner sets and colored trays. The range of cane products has expanded to include lounge chairs, classy dining chairs, and stylish sofas. One can also come across various funky accessories in these stores. From the earlier perception of being voluminous and cumbersome, cane furniture has turned sleeker and trendier. It has also shed its wood’s-poor-cousin image in terms of durability and resistance to the elements. The outdoor Cane Line collection, for instance, is reportedly UV resistant, and waterproof. The company claims it can easily bear the different variations in temperature. “Gone are the days when people used to be happy with spending Rs 5,000-10,000 on outdoor furniture. Exterior furniture has taken a complete takeover,” Ritu says. She sells exterior furniture for more than Rs 35,000 in her store.

Unorganized sector and small stores Roadside vendors are generally those who have been into this business for a long time. They are traditional craftsmen who find it hard to evolve with time. Demand for their products has almost disappeared from the countryside, and the middle class does not perceive cane furniture as something that deserves huge expenditure. Some of these vendors have always been vying to turn into organized players by owning or renting small stores. They have mostly been unsuccessful due to the high rentals of these stores and 68

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opportunity/furniture have been forced to turn into traders of cane furniture rather than remain manufacturers. They do not have space to put together even the smallest of manufacturing units. A number of small time manufacturers have sprung into action to fill this space, and most of these unorganized players buy from these units. In north India, areas around Bareilly have emerged as the hub of such small time manufacturers. Some of these manufacturers have, however, left behind the tag of being ‘small’. They have even started exporting cane items to different countries. One such big regional manufacturer is Bhatia Cane.

“

Latest trend is that many hotels, resorts and homes have a section where only cane furniture is displayed.

”

— Ritu Todi

Cane Boutique, Bangalore

Smaller units are also working in Shahadra and Noida. They are backed by small stores in Noida, New Delhi and areas in the National Capital Region. These small stores are quite secretive about their functioning. One such New Delhi-based store owner, when contacted, simply refused to divulge any details. He admitted, however, they get their furniture manufactured in Shahadra. He said, “Bigger stores on Jail Road or Panchkuiyan Road may give you more details, but we won’t.” Some of the cane furniture is imported from China, and they are quite cheap – much cheaper than what Indian unorganized players sell on the streets of Mumbai or Delhi. Cane furniture is also imported from a number of other places. Not

many in the trade are willing to reveal from where these are imported and at what cost. Those on sale at the lower end are imported mostly from Indonesia, Thailand and China. However, cane imported from countries like Italy, UK, Indonesia and Australia end up in niche stores selling at premium prices. They are mostly designed by good designers, and their finishing is better than those on sale by the unorganized players. Ritu, who herself designs furniture for her store, imports cane raw materials from countries like Indonesia and Thailand. She says, “They (cane furniture) are easy to design, and looks are trendier. They are lighter and cheaper than Italian furniture.”

Future Cane furniture has got a future for sure. It is a very versatile natural material used in various home accessories. It can be used to make candle stands on one hand, and on the other hand, can be used to make furniture such as chairs and coffee tables. Cane can be painted in different colors according to one’s taste. One can decide to have an ethnic feel by leaving it uncolored as well. The mindset about cane furniture is changing. A few entrepreneurs like Ritu Todi did realize the potentials of cane as a furniture base material. They, however, have chosen to stick with the niche market, for this ensures a better margin to them. People in the niche segment are open to newer faces of cane to give a difference to their interior and exterior décor and they are prepared to spend hefty sums for this. Since fashion percolates down from the niche, it is just a matter of time when the middle class will start buying these. This makes it mandatory to change the model of business. Unorganized players need to be organized through various means of entrepreneurship. They should not remain under-prepared for a boom in the segment. And, if they are caught unawares, imported cane furniture will occupy the space in no time. Are entrepreneurs listening? D A R E

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/blogs

Satyam scam: An eye-opener

/Paranjoy Guha Thakurta

he financial fraud at Satyam Computer Services running into more than Rs 7,000 crore has surprised and shocked many. The sheer audacity of the manner in which B. Ramalinga Raju, his cohorts and his collaborators were able to manipulate the books of account of a widely-held public limited company indicates that official oversight mechanisms and systems for ensuring good corporate governance exist largely in name. One is not suggesting that most entrepreneurs in the country or even large numbers of them are as blatant in their venality as Raju was. At the same time, the Satyam scam should act as an eye-opener to those who swallow the claims put out by public relations practitioners acting on behalf of their large corporate clients – and their faithful supplicants in sections of the financial media -- about how efficient some of India’s businesspersons are supposed to be and how socially responsible their actions are. After all, Raju was no ordinary boss; the flagship of his corporate was the fourth largest information technology company in the country. Satyam used to count among its clients and customers no less than 185 companies that were ranked in the Fortune list of the 500 of the world’s biggest corporate bodies. Before the fraud became known, Satyam was supposed to be employing as many as 53,000 employees. It subsequently transpired that some 13,000 employees existed only on the rolls of the company. What Raju and his co-criminal conspirators used to be would be to use the names

of ‘ghost’ employees to siphon off large sums of money (estimated at around Rs 20 crore a month) into their own pockets. Three weeks before he confessed, Raju proposed an investment of $1.6 billion that was supposed to belong to Satyam Computer Services – funds that we now know never existed – in two real estate companies (Maytas Infra and Maytas Properties) controlled by his sons. This was cronyism at its worst. Investors protested, Raju backtracked but by then, the damage had been done. He later claimed that the aborted deal with Maytas was an attempt to replace Satyam’s fictitious assets with real ones. Behind the greed for maximizing profits any which way they can, many corporate captains do not think twice before using money belonging to small investors for their personal benefit. They are able to achieve their nefarious goals because of pliant auditors and government officials who turn a blind eye. The process of acquiring assets, especially land, is greased by generous donations to those in positions of power and authority. It is common knowledge that large tracts of land cannot be acquired in this country without the active support (one should say, connivance) of politicians in power and their favoured bureaucrats. Raju and his gang had become the single biggest group of landowners in his state. The big break for Raju’s family came after a consortium of firms led by Maytas Infra was awarded a prestigious contract to construct the Rs 12,500-crore Hyderabad Metro Rail (HMR) project – now the implementation of this project is under a cloud. The managing director of the Delhi Metro Rail Corporation (DMRC) E. Sreedharan was roped in as an adviser or consultant of sorts but he parted ways. In a letter he wrote to the Deputy Chairman of the Planning Commission Montek Singh Ahluwalia in September, Sreedharan raised a series of uncomfortable questions about the way the contract had been awarded to the consortium led by Maytas. Sreedharan remarked that the process through which Maytas had been given concessions on the use of land in Hyderabad could result in a “big political scandal some time later”. He was right. The And-

hra Pradesh demanded a public apology from him. He refused to. Then the state government threatened to sue him for defamation. It still has not. Businesspersons, like politicians, are often excessively opportunistic. Witness, for example, the speed with which Raju switched his loyalties from N. Chandrababu Naidu after he lost the elections in 2004 and jumped on to the bandwagon of Y.S. Rajasekhar Reddy, the current Chief Minister of Andhra Pradesh. Witness also in this instance the alacrity with which both Naidu and YSR have sought to denounce their links with the disgraced Raju. Why did Raju confess and admit to his crimes? He realized that his time was up, that sooner rather than later, he would be exposed as a scamster. He decided that if indeed he had to spent time behind bars it might be better to do so in an Indian jail instead of an American prison. Satyam’s shares were, after all, quoted on the New York Stock Exchange. An important consequence of the Satyam scam is the arrest of partners of the internationallyrenowned firm of auditors PriceWaterhouse Coopers. This is the first time that auditors have been arrested. Hopefully in the future, other auditors will think twice before colluding with company promoters to manipulate books of account. The scam has also highlighted how socalled independent directors on the board of a company can be kept completely in the dark. Satyam boasted of eminent directors such as T.R. Prasad, former Cabinet Secretary, the former dean of the high-profile Indian School of Business M. Rammohan Rao, Mangalam Srinivasan who advises the Kennedy School of Government of Harvard University and had served as scientific adviser to Indira Gandhi’s government, Vinod K. Dham, the “father of the Pentium microprocessor chip” and Krishna G. Palepu, professor at the Harvard Business School and a supposed expert on corporate governance. There are many lessons to be learnt from the Satyam scam. Will the Indian corporate sector reform itself? Or will we have to wait for another scandal? D A R E The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media—print, radio, television, Internet and documentary cinema. FEBRUARY 2009 69

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case/INSEAD

HELION VENTURE - SMS GUPSHUP CASE STUDY, CONTD. FROM PG 27

In September, 2008, Helion Venture Partners and Charles River Ventures together injected US $ 11 million into SMS Gupshup In September, 2008, Helion Venture Partners and Charles River Ventures together injected $11 million into SMS Gupshup. Each took a seat on the board, with Ashish Gupta representing Helion. Gupta comments, “We think we can add real value to Gupshup. Online companies are either transaction-oriented, like Makemytrip, or media oriented, like GupShup. The power that comes to media companies stems from their ability to put out products much more quickly than a conventional company can. The team at GupShup is technically strong, but they lack media savvy. They didn’t have a strong sales element on the team, and we were able to help them recruit a very good executive who understands media and advertising sales.” Sheth agrees, adding, “We have a very strong technology team with a lot of IIT alumni, and we are located on campus in the IIT Mumbai incubator. We needed to ramp up sales and marketing, and we think scaling 70

FEBRUARY 2009

the business will involve a strong element of consumer marketing, sales, and business development, backed by strong engineering and product management. The Silicon Valley experience that we and our investors have is

“

We spend a lot of time interacting with the CEO, and we stay connected to other key executives in the company to ensure we are all keeping up together. I talk to the product management and engineering people, since that has been my background, and Devdutt has experience with sales, so he helps there

great, because new media businesses require a lot of counterintuitive insights about how to grow them and the level of investment required. Ashish and Devdutt Yellurkar from Charles River are high-quality individuals, and

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case/INSEAD

we have hit it off very well. Rakesh and I have known Ashish for a long time, but we have a new and productive relationship with him now as a venture capitalist.” Says Gupta, “We spend a lot of time interacting with the CEO, and we stay connected to other key executives in the company to ensure we are all keeping up together. I talk to the product management and engineering people, since that has been my background, and Devdutt has

“

The Silicon Valley experience that we and our investors have is great, because new media businesses require a lot of counterintuitive insights about how to grow them and the level of investment required. Ashish and Devdutt Yellurkar from Charles River are high-quality individuals, and we have hit it off very well

”

experience with sales, so he helps there. We have regular conversations to ensure we are all on the same page. We’re early in the life of our engagement with the company and we want to ensure we all find the right way to work together, which DAR E is a subjective thing.” FEBRUARY 2009 71

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Satyam/Maytas : Collateral damage from real estate sector troubles. And some more questions Posted by: Krishna Kumar in yayathi, Satyam Computer Services, Satyam, real estate, puru, maytas, hiscock, financial crisis, crisis, corporate frauds, B. Ramalinga Raju, accouting fraud on Jan 13, 2009 uch has been written about the now infamous Satyam fiasco. What seems to be generally underplayed is the linkages with the real estate sector and how the meltdown in the real estate sector has been the straw that broke this camel's back. Briefly, Satyam's profits were not exactly what it was claimed to be. Further, shares owned by the promoters were pledged in the market to raise money for Maytas Properties and Maytas Infrastructure. When the share price went down as part of the share market squeeze, these pledged shares were sold by those who held them. It is difficult to imagine that like Prince Puru of yore, who willingly exchanged his youth for his father Yayati's old age, Maytas too freely agreed to merge into the shell that was once Satyam. No one has yet investigated Maytas Infrastructure or Maytas Properties in detail. It is quite possible that the returns that the Rajus were expecting from all the money put into the real estate business did not happen because of the problems faced by that sector. More importantly, it is quite possible that the two companies are also in a similar financial trouble. Perhaps the attempt at merging the two Maytas into Satyam was an attempt at diminishing the problems of all three entities in one go? Besides all this, there are a number of questions that are as yet unanswered. 1. Why did Ramalinga Raju choose to "come clean" and be "prepared to subject myself to the laws of the land and face the consequences thereof" rather than take any other option, including continuing as if nothing happened and hoping for the best? 2. How was the timing of the announcement chosen? Was the situation beyond saving? 3. Why were options other than merger with the two Maytas entities not explored? 4. Why was the resignation letter unsigned? 5. In his book, India's Wealth Club, Geoff Hiscock (2007) estimated that Ramilinga Raju was worth US$ 1.1 billion (1 billion = 1,000 million) . The extent of the fraud is estimated at US$ 823 million or Rs 7,000 crores.The estimate of funds required to keep Satyam running is Rs 2,000 crores. Even if we write off the Satyam shares, there will be a substantial bit left in Raju's pockets. Assuming that he is convicted for his deeds and even serves a term in prison, once he is out, will he get to enjoy his wealth, while others bear the burden of what he did?

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PS: While writing earlier on about the problems faced by the real estate sector, I had missed out on collateral damage â&#x20AC;&#x201D; those in other industries getting affected by the problems in real estate. Unfortunately for me, the first news out was about collateral damage.

Can we trust PricewaterhouseCoopers? Posted by: Ambrish Jha in Tyco, SEC, PWC, Oriental bank of Commerce, MicroStrategy, HPL Technologies, Global Trust Bank, Bristol-Meyers Squibb on Jan 09, 2009 ith the expose of fraud involving Satyam, fingers are pointing to the role of the audit and accounting firm PricewaterhouseCoopers (PwC) as well. But this is not first time PwC has erred. It has erred on several occasions in the US, and it is under investigation even in India. It has actually 'erred' too much to be believed easily. Let's look at some of the accounting scandal cases where PwC was the auditor. PwC was found wanting by RBI in its audit of Global Trust Bank (GTB) three years ago. Indian Chartered Accountants of India (ICAI) is still investigating the firm's role in the said case. PwC, RBI had noted, failed to point out in its audit reports about the high levels of NPA of the GTB. Consequently, RBI put on hold the merger of GTB with Oriental Bank of Commerce. PwC had failed to point out irregularities of the firm called HPL Technologies in 2002 in Dallas, USA. The company was sued for US$100 million by some of the shareholders of the company for failing to prevent the fraud. PwC has audited some other scandal-ridden companies as well, and its partners have been punished for their roles. A PwC partner responsible for a US-based public company Tyco's account was banned for life by the Securities Exchange Comminission (SEC) from working on publicly-held companies. The company settled lawsuits filed against it by the shareholders of the company by paying US$225 million in 2007. In 2001, PwC paid US$ 55 million to settle class-action lawsuits over its role in auditing the books of dot-com disaster MicroStrategy. The PwC partner in charge of that account was similarly barred by the SEC. PwC was the auditor for the drug giant Bristol-Myers Squibb, which was accused by the SEC of fudging numbers in 2002. It was also under fire for its role at the time of bankruptcy of Kmart in 2002. The company had to pay another US$1 million in 2003 to settle US government allegations of improper auditing of the accounts of a company called Lucent. In fact in July 2002, PwC paid a US$5 million settlement to the SEC and accepted an official reprimand over its auditing of 16 companies from 1996 to 2001. Is PwC heading towards the same fate in India? How will it respond to its allegations of connivance with the Satyam top brass? If it did not help in the fraud Raju had accepted himself, it reflects poorly on the professional competence of the firm. Even to believe so it needs to be proved beyond reasonable doubts that the Indian arm of the 'audit and accounting giant' was not hand-in-glove with the Satyam top brass.

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KPMG also has tainted record Posted by: Ambrish Jha in SEC, Satyam, Rupert Murdoch, PWC, KPMG, Deloitte, ASIC on Jan 19, 2009 fter the Satyam fiasco, the newly constituted board of the company has appointed KPMG and Deloitte as auditors for the company. Question marks were raised over PwC audits as it failed to prevent the fraud practices going on in the company for over seven to eight years. The company was found to have faced punitive action in the US also on several occasions. Now KPMG has come in its place. But even KPMG does not have clean records as it has been fined and sued in Australia, UK and the US, where the accounting standards are of the highest standard. KPMG, like PwC, has been fined many times, and has faced suits as well. Australian Securities and Investments Commission (ASIC) has initiated action in the Supreme Court of Victoria against accountancy firm KPMG over its auditing of companies in the Westpoint Group, which collapsed in early 2006 with losses in excess of US$ 300 million. ASIC is seeking compensation for the benefit of investors. The claims are for negligent conduct by KPMG of audits of the financial accounts of various Westpoint companies for the years ended June 30, 2002, 2003 and 2004 and are in the order of US$ 200 million. KPMG and partner Andrew Sayers were hit with penalties totalling £1.65 million in June 2008 for their failure to alert investors to the fraudulent trading of the bosses of Independent Insurance, which was — before its collapse in 2001 — one of Britain's largest and bestregarded insurance companies. KPMG admitted to running fraudulent tax shelters for rich clients and settled with prosecutors for US$ 456 million in 2006. The scheme, which took place from 1996 to 2002, churned out US$ 11 billion dollars in phony tax losses that cost the US$ 2.5 billion in evaded taxes. Eight former-KPMG executives and an outside lawyer were also indicted in the case. The firm is, in fact, still under monitor by a former Securities and Exchange Commission (SEC) chairman, Richard Breeden. An independent report commissioned by the US Justice Department concluded in March 2008 that the "improper and imprudent practices" of now-bankrupt subprime lender New Century Financial were condoned and enabled by the company's independent auditor, KPMG. The accounting firm, according to the commission, allowed New Century to change its accounting to report strong profits during the housing boom, when a more conservative treatment would have shown losses. The company, once the second-biggest US subprime-mortgage lender, was engaged in accounting fraud in 2005 and 2006 before filing for bankruptcy in April 2007. There are reports New Century may sue KPMG. The SEC is also reviewing KPMG's role as New Century's auditor. In October 2004, KPMG was ordered to pay US$ 10 million for giving Gemstar-TV Guide International a clean bill of health while its own audit revealed the company was declaring non-existent revenue.

DARE.CO.IN It led to the largest loss in Australian history and tarnished Rupert Murdoch's reputation as a canny investor. Bought by News Corporation, Gemstar overstated revenue by about US$ 200 million from 1999 to 2002, according to the SEC. Gemstar paid US$ 68million to settle its own lawsuit with shareholders in February 2004. Probably, time has come for regulators to make it mandatory for companies to change accounting firms, rather than just employees within the same firm, every few years to avoid entrenchment and cozy relationships. After all, allowing companies to hire and fire their own independent auditing firms has only raised questions about whether they are really independent.

Where is the Indian activist investor? Posted by: Vimarsh Bajpai in The Home Depot, shareholder activism, Satyam Computer Services, Rabindranath Tagore, QVT Financial, Lucian A Bebchuk, Laxey Partners, Hirco, Hiranandani Group, activist investor on Jan 14, 2009

"...t

he resolutions are economically damaging to shareholders, dilute shareholder voting power, and may remove the company from regulatory oversight. At the same time, the resolutions are favorable to the company's management, namely the Hiranandani Group, which stands to reap both a financial windfall and voting control of the company." Here is the voice of an activist investor — QVT Financial, a US-based hedge fund that is opposing the proposed move by the Hiranandani Group, the Mumbai-based real estate developer, to merge two of its companies Hirco Development and Hiranandani Investment Companies with Hirco, the AIM-listed investment vehicle of the Group. After securing the approval of the board, Hirco has called an extraordinary general meeting (EGM) of Hirco shareholders in Mumbai on January 16. In a statement issued to PRNewswire, QVT has also raised questions over the timing and the "remote location" of the venue saying that it may "disenfranchise shareholders." Besides QVT Financial, another investor Laxey Partners is also believed to have opposed the move by Hirco management. The pressure seems to be working. According to media reports, Hirco has postponed the EGM till further notice. Developed markets of the US and the UK have over the last few years witnessed the growing importance of activist investors, who from time to time have made a name for themselves by putting pressure on the management to review or change their decisions that they believe could go against the interest of the company. The tussle between Lucian A Bebchuk, the Harvard Law School Professor, and The Home Depot, the American home improvement retail giant, is a case in point. In 2007, Bebchuk's shareholder proposals forced The Home Depot to change its corporate by-laws to ensure that the company does not provide a CEO pay package without widespread support from the independent directors. FEBRUARY 2009 73

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What makes India’s hottest startups HOT? When the going gets tough, the tough gets going. TATA NEN Hottest Startups top 30 finalists embody this saying.

espite a slowing economy, India has a thriving entrepreneurship community, as witnessed in the TATA NEN Hottest Startups Awards that closed with 588 nominated startups in December 2008. In India’s first community-chosen awards for startups, a combination of public votes and expert ratings selected the hottest 30 startups. On paths that large companies might cautiously tread, especially during recession time, these 30 startups are daring to try. With small but highly motivated teams, scope for growth, and space for creativity, these entrepreneurs are tapping pockets of opportunities — and profitably so! Though these startups hail from different sectors, what makes them stand out is their spirit of exploration, experimentation, and ideas founded on common sense. Here is a peek into some of the strategies that India’s top 30 hottest startups follow.

For example, Elements Akademia is ‘grooming’ the youth of tier-II and tier-III cities for jobs, attracting 200 new student enrollments every month. ITCONS e-Solutions, an IT product company, has developed software that provides optimal recruiter matches for job-seeking youth. Its customers now place 44 candidates every month against an industry average of 11. Meanwhile, Lakshya, a dream-child of four IIT graduates in Patiala, is helping students from small towns make it to the country’s top engineering and medical colleges. Two hundred and fifty five of its students have made it to top institutes in two years. Bangalore-based Greycaps India focuses on “quizzing” as a platform for educating young students. The startup is growing at over 100% year-over-year. Another startup, GoSports, targets budding sportspersons by guiding aspiring Olympians, including swimmer Virdhawal Khade and badminton player Anup Sridhar.

Movers are the new shakers Invest in the young India is uniquely positioned as the world’s second-most populous country to become the largest provider of working-age manpower. And entrepreneurs, in unique ways, are helping India unlock this potential. 74

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It is no still life for today’s professionals. With today’s mobile working-class population, a few of the Hottest Startups finalists provide 360-degree services for people on the move, on work or for play. Rentimental.com offers the world on rent! The website today has around 150 to

200 visitors with around 30 to 40 registrations per day. A group of IIM-Ahmedabad graduates has started Mantis Technologies to ease last-minute bus bookings, by connecting bus operators to agents on an online platform. At present, transactions worth around Rs 35 lakh happen every day on their website. Equally active is Inasra Technologies’ online hotel network that benefits lowbudget travelers by providing them accommodation options in over 460 towns at affordable prices.

Healthcare still healthy Despite the recession, the healthcare sector continues its upward growth trajectory, especially in the lesser-known field of radiology. Perfint’s product enables radiologists to access very small tumors in a minimally invasive mode that would help diagnose early-stage cancer. On the other hand, Medsphere, with its software solution helps deliver radiology services from leading doctors to patients in remote villages.

Going green The startup world is going green. Daily Dump empowers customers to compost daily domestic waste. Ecomove Solutions aims to facilitate cycling as a mode of

DARE.CO.IN agement, a Kota-based startup, is changing the very nature of agri-marketing by streamlining warehousing, procurement and collateral management. The company began with a paid-up capital of Rs 5 lakh in 2006 and, as of August 2008, had raised a capital of Rs 5 crore. Another startup, Wyn Brands, manages the supply chain for fresh vegetables for restaurants like McDonald’s, Pizza Hut, KFC and Domino’s, assuring ontime supplies in ready-to-use cut sizes.

Illustration: NEN

For the People…

urban transport. One startup is literally going green. Fieldturf Tarkett produces a next-generation, maintenance-free artificial grass that can help you acquire a lush green lawn or a sports field in a matter of days. The company has over 1,000 clients in India.

Buyers buy in Who doesn’t love a good deal when shopping? This consumer instinct has rung in profits for The Loot, a retail chain that sells over 100 apparel brands with yearround discounts. Their turnover in fiscal 2007-08 was Rs 53 crore, and the number of chains increased from 17 to 70 during this period. With efficient distribution models, Librarywala and Cafegadgets pass on their savings to customers. Librarywala customers select books online that are delivered to their doorstep within 24 hours and at low cost — the cost of reading is reduced from Rs 500 to Rs 30 per book. Cafegadgets, a one-stop online shop for gadget lovers, offers over 4000 branded products to its 120,000 customers.

Farmers reap benefits Startups increasingly turn towards rural regions for business, realizing huge opportunities in the agriculture sector. Star Agri Warehousing and Collateral Man-

Never has the common man received such attention before. Patna-based Sammaan Foundation helps rickshaw cyclists provide services like mineral water, juices, mobile recharge, courier and bills collections for their customers, opening new income channels. What started with five cycle rickshaws in 2006 has now grown to a pool of 100,000 rickshaw operators. Sacred Moments combines tradition with modernity. They have pioneered designer pooja kits customized for various festivals in India. Their sales this year is expected to touch Rs 1 crore with a net margin of 18%. Meanwhile, Evam Entertainment, a ‘theater entrepreneurship’ venture, dabbles in the business of spreading happiness through storytelling. This effort definitely makes the Evam team happy — turnover for the year 2007-08 crossed Rs 50 lakh. In a different take, Takeovercode.com understands that legal compliance in India is complicated for the layman. Thus, they have developed an online platform for providing techno-legal help. The portal has 2,600 registrations, which includes owners of India’s top law firms.

Innovation transplant — the new IT Despite the market slowdown, smaller IT companies are coming of age. A former Satyam team wanted outsourcing to be more than a cost-arbitrage decision. Thus, they founded Anantara Solutions to deliver high-value solutions that provide competitive advantages for their clients. Formed in 2006, the startup already has customers from 15 countries including USA and mainland Europe,

and over 5,000 people in its global delivery partner network. Activecubes Solutions, formed by exInfys, is another startup that breaks the back-office stereotype. It is a business intelligence consulting firm delivering solutions for global markets by helping analyze and make sense of large volumes of business data to drive decision-making and profits. Addressing the problems of SMEs are new startups like A2Z Applications and Ennovasys. A2Z Applications has taken the Software-as-a-Service (SaaS) revolution to a new level. They provide a platform for developing and deploying vertical-agnostic business applications in days rather than months. Ennovasys is a software company helping SMEs track and monitor enterprise assets in real time. In the radio frequency identification field (RFID) is Rasilant Technologies, tackling the critical issue of security. Business has picked up since 11/26, as they have developed a car-tracking solution for building and parking lots. Some startups such as Vayavya Labs and ValueMinds have streamlined the testing process for hardware and software developers. Vayavya Labs’ patent-pending technology helps with automation of embedded design processes and activities such as device driver generation and chip verification test case generation. ‘IT professionals’ as customers is also gaining popularity. Two-year-old ValueMinds brings convenience to software testers with their online toolbox that requires no local installation hassles besides bringing in new paradigms like SaaS and OnDemand tooling in the area of software testing. ValueMinds’ test documentation process claims to reduce over 70 % of effort on the regular tedious documenting process, largely conserving human resource and time. Meanwhile, Deskaway provides a project collaboration service that help distributed teams organize, manage and track their project from a central location, without depending on cumbersome emails, DAR E multiple files and spreadsheets. More articles on www.nenonline.org. Content provided by NEN FEBRUARY 2009 75

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opportunity/infra

The luxury boat business has been on an upswing for the last four years, having grown at 25-30% annually. The current slowdown is only a blip in the industry that rides on the back of the rich and the famous /Vimarsh Bajpai

ashim Mongia was happily riding the waves as a commissioned officer in the Indian Navy until 1994, when a blood disorder pulled him out of the high seas. The Navy decided to put him on a ground job that required pushing papers all through the day. For Mongia, an Arjuna awardee, who had participated in several world championships in sailing, including the Asian Games in the past, it was quite a mundane offer. Despite having the options of joining an MNC in Dubai or a boat building business in Canada, he decided to partner with a friend who owned a boatyard in Mumbai. The business was in the red and Mongia had the responsibility of turning it around. From maintenance contracts to selling luxu76

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ry boats, West Coast Marine has come a long way since. It now offers end-toend solutions that include yacht management services, and establishment of water sports centers and marinas. Mongia is among the new breed of entrepreneurs who have ventured into the business of luxury boats and yachts, sensing the opportunity arising out of the boom that propelled the Indian economy over the last five years. It is no secret that business tycoons such as Vijay Mallya and Gautam Singhania have owned yachts for some time now. Several influential business groups such as the Bajaj Group and Mahindra & Mahindra are also proud owners of such boats. The latest to join the club is Anil Ambani, who is believed to

DARE/opportunity areas • Buying and selling of new and old yachts & boats • Manufacturing • Consultancy • Technical maintenance • Training and placement of crew and staff • Charter services • Development of marinas • Fractional ownership

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opportunity/infra DARE/major players • West Coast Marine • Marine Solutions • Ocean Crest Marine • Ocean Blue Boating

DARE/quick points

• Sorenstam Ventures

Photos: Infinity Yachts

• Infinity Yachts

• The luxury boat market in India is pegged at around Rs 500 crore • The market has grown steadily at 25-30% annually in the last four years • Higher purchasing power of businessmen and corporate organizations, and greater inflow of tourists is driving the luxury boat business • The cost of a luxury yacht could vary from Rs 7 crore to Rs 800 crore while that of a tourist boat could be Rs 15 lakh and above • The brokerage on each yacht may range from 5% to 18% depending upon the size. The smaller the yacht, the larger the percentage and vice versa

have gifted a super luxury yacht worth Rs 400 crore to his wife Tina. “The world over, luxury yachts are sought after for their ability to offer fun and exclusive mobile lifestyle. In India too, users are attracted to these yachts for similar reasons,” says Pooja Choudary, MD, Infinity Yachts, a distributor of two Brunswick brands, Maxum and Sealine, and an Italian brand Aicon. Maxum features in the entry-level sports boat and sports cruiser category, while Sealine is in the sports cruiser and flybridge category. Aicon is in the luxury motor yacht and cruiser category.

ury boats are equipped with state-ofthe-art facilities that include a master bedroom, guest suites, gymnasium, Jacuzzi, entertainment center, and walk-in corridors leading to the deck. The cost of a luxury yacht could vary from Rs 7 crore to Rs 800 crore. Customers of such boats are rich business tycoons and corporate organizations. Smaller boats that ply as houseboats in India cost around Rs 15 lakh. They are popular among tourists. Various types of luxury boats are sold across the world. Some of them are motor yachts, sail yachts and power boats.

What is a Luxury Boat?

The Business

A luxury boat is a fancy boat meant for recreational purposes. High-end lux-

The luxury boats segment offers a host of business opportunities for entre-

• Many buyers upgrade to high-end boats, leaving the old boats to be sold at 20-40% less price than the new ones. There is a big opportunity in brokering the sale of old boats • The import duty on a new yacht has come down to 35% now from 150% in 1994 preneurs. They range from importing and selling boats to maintaining them at a price. Other opportunities include manufacturing, training and placement of crew and staff, and charter services. Most players in the business today offer end-to-end solutions to their customers. Take, for instance, Marine Solutions, a Mumbai-based company started by Gautama Dutta. Right from helping customers zero in on the product, Marine Solutions ofFEBRUARY 2009 77

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opportunity/infra What prompted you to get into the business of yachts?

The lifestyle of the Indian individual is changing. Affluent people are increasingly spending on new things that complement their busy schedules. The world over, luxury yachts are sought for their ability to offer a fun, exclusive and mobile lifestyle. In India too, users are attracted to these yachts for similar reasons. Given that we already catered to the affluent customers of Mumbai by offering them BMW luxury cars, it was a natural extension for us to venture into this business. What were the initial inputs in terms of capital, resources, manpower, etc? As with our car business, we invested in highly trained and qualified sales and Pooja Choudary service people; fully functional service MD, Infinity Yachts facilities; select inventory of six to eight luxury vessels; spare parts and accessories; service boats, etc. It is important to invest in each of these spheres as we have demanding customers to look after, especially considering the infrastructure shortcomings in our city and given the industry is in its nascence. What are the challenges associated with this business? Marine infrastructure such as marinas and full-fledged workshops are missing in our country. Financial institutions are also wary of offering financial support to both dealers and customers. The used boat market is yet to develop. Qualified sales and service personnel are difficult to come by. Local inventory of spare parts, etc could be improved upon. Having noted these difficulties, these issues are typical for all early stage markets. In due course, we anticipate that each of these concerns will be addressed by initiatives taken by industry participants and the government and owning a boat will be increasingly pleasurable. What kind of after-sale services do you provide? We offer the full spectrum of services——annual maintenance, crewing, dry docking, etc. Our service facility, service support boat, trained technicians assist us in catering to our customers ahead of standards typically seen in the local market. It is our constant endeavor to improve on our services and capabilities at all times and try and bring our standards on par with the best globally, in due course. Who are some of your important customers? What is the average profile of your customer? Customers are typically end-users such as individuals who want to travel from point A to point B; there are hotels and corporate businesses that want to use these vessels for their guests; people that want to use the vessels in lakes and sea for fishing, diving, etc. At what rate is your business growing? Where do you see it five years from now? We are witnessing a steady growth in the business. Within our first six months of operations we have successfully sold a variety of vessels. We believe an annual growth of 20-30% is achievable in the market in the coming few years. Long term growth will likely be stronger once infrastructure and other concerns are sorted. fers a range of services that include handling the import, commissioning the boats, warranty service and various options in maintenance backup and boat management. The company has sales and service offices in Mumbai, Goa and Calcutta, and an engine workshop and a boat yard in Mumbai. The sailing season in the country lasts for about seven months (Octo78

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ber to April). It is the time when most people prefer to buy boats. The enthusiasm for leisure boating is also on the rise. This has led to several owners upgrading their fleet in the last two years. Luxury yachts have become a mark of corporate culture too. Many companies prefer to organize their official parties and meetings on luxury yachts and this points to a big business po-

tential waiting to be tapped. No special licenses are required to get into the luxury boat business.

Buying and Selling Buying a luxury yacht is a highly specialized business. It may take a couple of months from the day the order is placed. This is because the first step is to identify the need of the customer and suggest various options. The customer of a luxury boat is from the upper echelons and extremely demanding in terms of the facilities. This makes it a little difficult to zero in on the requirements. The size of the luxury yacht could vary between 40 feet and hundreds of feet and it could have intricate work and art on the machinery. Ferretti Yachts, for instance, are manufactured in state-of-the-art shipyards in Italy, making it one of the world’s most prestigious yacht brands. The brokerage on each yacht may range from 5% to 18% depending upon the size. The smaller the yacht, the larger the percentage, and vice versa. For bigger boats, the broker takes the order and then ships it. “But for smaller boats, it is window shopping,” says Riyadh Kundanmal, Director, Ocean Crest Marine. He is now setting up a showroom where people will have the option of buying then and there. “We will do the loading, unloading, pick up the boat, store the boat, provide you the captain, backend sales service, training facilities, fresh water facilities, fueling and all the back-end stuff,” he adds. There is also a big opportunity in brokering the sale of old yachts. Over the last two years, many people have upgraded to more luxurious boats, leaving plenty of old boats for sale. Industry sources say that the brokerage on the sale of old boats is low yet lucrative enough to look around for clients. In these times of a slowdown, the number of people looking to buy old or used boats has increased. The value of an old boat could be 20-40% less than that of the new boat.

Manufacturing Boat manufacturing is not new in India. The kinds of boats manufactured

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Photo: Infinity Yachts

opportunity/infra

DARE/big brands • Princess

• Azimut

• Sunseeker

• Benetti

• Larson

• Cobalt

• Grady White

• Ferretti

• Jeanneau

• Pershing

• Kawasaki

standards,” says Dutta, who would himself want to get into the manufacturing business. Just like in the automotive sector, India could become a big hub for luxury boat manufacturing in the near future, but the lack of any encouragement from the government is acting as a dampener. Also, poor quality marine infrastructure is unwelcoming.

The list is only indicative.

in the country are house boats, motor boats, fishing boats, petrol boats, etc. But there are no players in the country that manufacture luxury boats and yachts. This is partly because the cost of manufacturing in the country is too high, and such manufacturing is highly specialized. Some of the manufacturers are Matha Marines, Samudra Engineering and Bristol Boats. “There are local manufacturers, but nothing to talk about or even compete with any of the foreign manufacturers; built quality, materials, craftsmanship, design, technology, balance, warranty. You can’t compare an Indian car with a Mercedes or BMW,” says Kundanmal. The company boasts of high-profile customers from all over India. Kundanmal believes that making boats more affordable could give a big boost to the business, given that the country has a very long coastline. “We aim our boats and yachts at a price that is affordable. We start at about Rs 15 lakh and it goes up to a couple of crores. We don’t want to cater only to millionaires,” he says. “The quality of our manufacturing is not very good. They make shoddy products. If you want to build luxury yachts, you have got to meet very high

Management and Maintenance Buying a luxury boat is probably easier than maintaining it. It involves a number of activities, from getting the right crew appointed on board, catering, fueling to docking. There is an acute shortage of crew and personnel that work on the boat. Thus, buyers prefer to tie-up with external agencies to provide the same. The work of the agency involves selecting and training seamen and technical staff. “Qualified sales and service personnel are difficult to come by. Local inventory of spare parts, etc could be improved upon,” says Choudary. Similarly, technical maintenance is also intricate. Most players make the best technical hands available to their customers. Getting trained technicians is also a difficult task.

The Market Although no exact figures are available for the size of the luxury boat market in India, experts peg the market size at Rs 500 core. “In 1994, there were about 50 boats at Bombay harbor. Top-end luxury yachts must have been two or three. Today there are 269 boats,” says Mongia. “The markets have grown

very steadily in the last three to four years and it has been seeing a growth of 25-30% a year. But there will not be that kind of growth in 2009,” he adds. Given the big size of the global luxury boat market, the Indian market size is a fraction of a percent. The current slowdown has hit the market, with even the rich and famous tightening their belts. Many prospective wealthy buyers are believed to have shelved plans to procure new boats. “I have seen a slip in demand. A lot of people have said that they wanted to buy a boat but because of the cash crunch, they want to wait for some time,” says Kundanmal. “We have a client that has been looking at a yacht of Rs 5,000 crore. But because of the recession, I do not see the deal go through,” he adds.

Challenges High custom duty on these boats has been hampering the growth of this business. In 1994, the custom duty was 150-180% and now stands at 35%. This is still high given that the cost of a yacht could range anywhere between Rs 7 crore to Rs 800 crore. Lack of infrastructure, including marinas, is a big impediment in the growth of this business. “The infrastructure is zero at the moment. Anywhere in the world, a place like Bombay would have a million boats. We have only 269. A coastline like India would have 6,000 marinas, we don’t have one,” says Mongia. This also means that there is a big opportunity in building marine infrastructure across the country. Thankfully some state governments are doing their bit. “Goa is moving at full speed to build marinas. They are taking our technical advice for it,” says Dutta, who also owns Marina India, a company that is in the business of building marinas. Marina India recently finished a project report for the Maharashtra Maritime Board, and has done a study for a property developer who wants to build a marina on the Bombay Harbor. Kerala too is taking keen interest in setting up good DAR E marine infrastructure. FEBRUARY 2009 79

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/event

HeadStart provides platform for Indian startups The company introduces top ten technology product startups /CyberMedia News Correspondent

eadStart Foundation, an organization engaged in providing a platform for startups in India, held an annual conference focused on technology and innovation in partnership with Association of Computing Machinery, an association of researchers and professionals in computing, on January 09, 2009. The event was organized to provide a platform to startups and corporate to jointly identify, pursue, and execute business and also create an

opportunity for startups to directly access large corporates. The event showcased India's best technology start-ups.

CashNXT Technologies: A startup offering phone-to-phone money transaction model. The major advantage of this technology is that it does not depend on any operators. High Pitch sound gets transferred from phoneto-phone.

The solution is not in the market yet. The company has tied up with four banks in India and is planning to deploy the product by February. Verismo Networks: They have created a device that has an Internet/WiFi port HDMI, and other Analog ports to plug into the TV and USB ports to input and output the content. They have tied up with Google and others to source the content. They also have an inbuilt search engine in place. This can play pictures

Art in Dynamics - Energy Saving Products

CashNxt - Sound Authentication Based Mobile Payment System

Entrip For Travel Planning + Alert Pedia For Automatic Alerts

Indus Geeks - Virtual Reality Platform

Meshlabs - Semantic Web Tools

Snappy Fingers - Question and Answer Search Engine

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Top Indian startups:

DARE.CO.IN

/event

Tring Me - Voice for Web Applications

Verismo Networks - View Web Videos on TV

Wisdom Tap - Intelligent Product Search Engine

Wolf Frameworks - Reusable Software as Service Applications

Kallol Borah, Director, HeadStart Foundation

Aditya Mishra, Director, HeadStart Foundation

Chandrakant Patel, HP delivering Keynote

Announcing Industry-Startup collaboration initiative by HeadStart, Kallol Borah, Naveen Kulkarni (Philips), Vishy Poosala (Bell Labs/Alcatel Lucent), Harish Gandhi (Canaan), Harsha Angeri (Honeywell)

and audio as well. The product at SD is priced at $99. The product is in its pilot stage in India and is available in the US only. SnappyFingers: A search product in Q&A vertical. They are looking at building search engines in several verticals. The monetization is through ad display on the search results. There are concerns on copyright protection. Alertpedia: It is a kind of Google Alert with more sources and more possible ways, like searching for a house for rent or online classifieds. It would

enable getting information ranging from traffic or earthquake or simply a web search. There are a host of ways in which all alerts can be managed and aggregated. JobHive.com: A professionalsocial networking website focused on employer and salary information. The website allows users to rate and review companies, research on salaries, and get information on the companies. Tring me: The company's flashbased telephony provides Unified

Communication Platform, which can handle 20 million calls every month. iDuple: The company's small medium business startup kit is a SaaS product that includes necessary web software for a startup. The worry of IT infrastructure is taken care of by this product. The customers would have to subscribe the package on a monthly basis. The event witnessed participation of various corporate houses like Honeywell, Phillips, TCS, Alcatel Lucent - Bell DAR E Labs, etc. FEBRUARY 2009 81

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/INSEAD

ç ‘BYST’ IN MICRO-ENTREPRENEURSHIP, CONTD. FROM PG 65

(LtoR) Lakshmi V. Venkatesan, Founding Trustee & Executive Vice President of BYST, Ramu Uyyala, BYST Entrepreneur and Global Award Winner of the Year 2008, Willie Haughey The mentor network also plays a vital role in the second key element of the BYST model, that is, money. Selection and screening of entrepreneurs is done through mentor networks. Once selected by BYST, entrepreneurs can receive funding from banks that are in financial partnerships with BYST. Currently, in West and North India, BYST has tied up with Bank of Baroda and South India through Indian Bank. BYST has funded 300 entrepreneurs with Rs 100 million loans, a 20-fold increase in yearly financing compared to previous years. Additionally, a BYST

growth fund has also been piloted in partnership with International Finance Corporation to support high growth grass-root entrepreneurs through social venture capital. With a corpus of USD 3 million, the fund will make its first disbursements to the top 50 BYST entrepreneurs. But how exactly do entrepreneurs come up to the funding stage? A walk through the BYST process involves four stages. When potential entrepreneurs approach BYST and they meet basic criteria, they are guided by mentor counsellors on Business Plan Development

Citi Group award winner of BYST - year 2007-2008 82

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and invited to a financial planning workshop in stage 1. After successfully completing the workshop, they reach the 2nd stage. A site verification and technical evaluation is done by the mentor selector who is a technical counsellor. Once they get a green signal from the technical counsellor, the prospective entrepreneur meets the Entrepreneur Selection panel (ESP) in stage 3. The ESP closely evaluates the entrepreneur’s vision, growth potential and also jointly gauges required investment, repayment schedule and the market demand. If these are viable and the ESP is satisfied, the candidate clears stage 4 making him/her eligible for a funding. However, at every stage of the process, if a candidate fails, he is counselled and signposted towards his/her areas of improvement. Today, not only has BYST trained and signposted as many as 65,000 youth on entrepreneurship but 170 amongst them have succeeded in their business ventures to become millionaires! The composition of BYST entrepreneurs is diverse - women, people from ethnic minorities, and, the physically

The mentor network also plays a vital role in the second key element of the BYST model, that is, money. Selection and screening of entrepreneurs is done through mentor networks. Once selected by BYST, entrepreneurs can receive funding from banks that are in financial partnerships with BYST. Currently, in West and North India, BYST has tied up with Bank of Baroda and South India through Indian Bank.

/INSEAD

DARE.CO.IN Illustration-1

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/INSEAD

PROFILES OF THREE SUCCESSFUL BYST ENTREPRENEURS NAME

BHAUSAHEB B. JANJIRE AGE

26 YEARS BUSINESS

TURNKEY SOLUTIONS PROVIDER BYST LOAN

RS. 50000 ANNUAL TURNOVER

RS. 7.66 CRORES (2007-08)

DR. PRADEEP BHALWANKAR

NO. OF EMPLOYEES

225 MENTOR

DR. PRADEEP BHALWANKAR MD. TWIN ENGINEERS PVT. LTD. NAME

NEETA JAIN AGE

29 YEARS BUSINESS

IT & CONSUMER PRODUCTS BYST LOAN

RS. 46250 ANNUAL TURNOVER

RS. 25 LAKHS

ASHOK DAYAL

NO. OF EMPLOYEES

9 MENTOR

MR. ASHOK DAYAL MD, BELLMAN INDIA PVT. LTD. NAME

RAJA. C AGE

27 YEARS BUSINESS

TAILORING – UNIFORMS / READYMADE BYST LOAN

RS. 25000/ANNUAL TURNOVER

RS. 40 LAKHS NO. OF EMPLOYEES

22 MENTOR

MR. A.V. SRIDHAR MARKETING CONSULTANT, PRANAM ASSOCIATES

FEBRUARY 2009

A.V. SRIDHAR

DARE.CO.IN

/INSEAD challenged. Manisha Kirad, who has risen above great adversity, runs a successful business in plastic injection, has this emotional tribute to pay to BYST, “Being a woman, I had to face lot of hurdles in this male dominated society, to carve out a place for myself. But with my conviction, determination and the support of my family, my mentor and my own BYST, I stood against all odds and answered boldly to the comments of my male counterparts. At the time when no bank or financial institution was willing to support me, it was God’s grace that I happened to meet one of the BYST entrepreneurs and came to know about BYST. I really thank BYST for believing in people and their aspirations”. BYST was recently in the news last year for bagging the ‘International entrepreneur of the year’ award 2008. BYST entrepreneur Ramu Uyyala won this prestigious award. The three finalists were chosen from a shortlist of 10 entrepreneurs chosen from among nominations received from 36 countries, which were picked by a judging panel from the International Business Leaders Forum. Educated only up to the age of 13, Ramu Uyyala’s plastic bag recycling business has grown in

The composition of BYST entrepreneurs is diverse - women, people from ethnic minorities, and, the physically challenged. BYST last year bagged the ‘International entrepreneur of the year’ award 2008. BYST entrepreneur Ramu Uyyala won this prestigious award. The three finalists were chosen from a shortlist of 10 entrepreneurs chosen from among nominations received from 36 countries, which were picked by a judging panel from the International Business Leaders Forum.

ers via dealers. Besides acknowledging the “outstanding support” he received from BYST and his mentor, Uyyala’s shares his plans for the future, “I plan to have at least sixty employees more in the near future and l would like to see some of them spinning off and starting their own companies.” A gratifying moment for Ramu’s mentor, E. Satyanarayana Rao, Managing Partner of Transpack Industries, who admits that, “I am greatly satisfied as my efforts in grooming my mentee are recognized by such a prestigious award”. BYST entrepreneurs have also consistently been bagging the Citi Group Entrepreneurs' Awards instituted by Citi Bank. Having formalised its 5-year plan to rapidly scale up, BYST could well be an opportunity, as Rajan mentions, for young entrepreneurs. By 2013, BYST plans to create 100,000 jobs (25000 jobs created to date) by supporting 6500 entrepreneurs in aggregate and to train/counsel over 1 million DAR E young people.

leaps and bounds. He has a staff of 40 now. Ramu Uyyala’s M.R. Plastics recycles old plastic bags to make new bags. His raw material comes from rag-pick-

With her rich background in media and marketing, Irawati Gowariker has led strategic communications for large corporates including HSBC and ANZ. She now ‘dares’ to tell the story of Indian micro-entrepreneurs.

Website:

www.dare.co.in Email: Ma

il B

dare@cybermedia.co.in SMS: 56677 (SMS Instruction: Type 'DARE <comments, questions, suggestions'> and send it to 56677) FEBRUARY 2009 85

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/straight talk

Angel investing: not for the faint-hearted Luckily for entrepreneurs, more people are becoming angels every day in India. NEN asked its angel experts: Why? Is investing in raw startups a good way to make money?

R RAMARAJ The Chennai Fund Angel investing is not for your nest egg. Of course not. I think we should be prepared mentally to lose all of it. I think you should come with the attitude that it may not work at all. And if you come with that attitude, you will be looking at helping the entrepreneur, and not really be worried about the return to yourself. So, I think you must come to angel investing saying that this money is already written off, and then whatever comes is, "Wow, Christmas!" 86

FEBRUARY 2009

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/straight talk SRIDAR IYENGAR Bessemer Venture Partners Angel investing has got to be fun for you. For me, it is not a portfolio approach where I say: I have got so much to spend let me find 10 good deals and put the money in. That’s not for me. I think for angel investing you have got to say, "even if I lose the money I am going to have fun doing it."

PRADEEP GUPTA Cybermedia and Indian Angel Network If making money was the goal, then I would have invested my surplus in a VC fund or given it to a portfolio manager who would have put it in a mutual fund or whatever. But not in angel investing, because the risks of angel investing are far higher...of course the potential returns are also higher. All of us, what we do with our surplus is that we will put a certain amount into debt, so there is very little risk, but the returns are also lower. Then we will also put some money in mutual funds, which is equity, where there is a slightly higher risk, but then the returns are also higher. Then you say so much of my surplus is what I’m going to put in high risk. That is the amount you will put in angel investing.

PADMAJA RUPAREL Indian Angel Network Is angel investing a good way to make money? Absolutely. But it’s a disproportionate game. What I tell entrepreneurs is that every angel would want to have the potential to make much more on their investments in startups than their other asset classes are giving them. I don’t think angels are going to be excited about 18% to 15% returns on their Angel funds because that is what the market is giving them — and the market is much safer. Why would they take such a big risk for an additional 2%? But when we bring in new angels, we expect a person to have an appetite for not only angel investing, but also for spending time on due diligence and mentoring. We would want people to get actively engaged — it’s not just about writing a cheque. More NEN Straight Talks on www.nenonline.org

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blogs/opinion

Entrepreneurs and Ethical Dilemmas P

resident Abraham Lincoln said

than people who stand upright. I know

“Honor is better than Honors.”

that every entrepreneur has

The Satyam Saga has done a

cal dilemmas, but the best way to get

disservice to all entrepreneurs and In-

/Anurag Batra

As a young professional whose par-

will flourish as a land of entrepreneurs

ents are both academicians and served

in spite of this aberration called Satyam.

in government jobs and lived lives of

Some entrepreneurs and businessmen

frugality and honor, today’s times do

forget what Abraham Lincloln said and

serve up a lot of dilemmas for me and

go for material honors like wealth and

it is easy for me to write about that in

property and forego the moral high of

a column. I know it takes a lot out of

being ethical and right.

you to go out everyday and do what is

In one of my previous columns I

morally right. My father always looked

had asked what were the motivations

at business people with suspicion, as

and drivers for being an entrepreneur,

a class that had pawned its peace of

and I would reiterate that it is a com-

mind and conscience and made too

bination of being wealthy, creating

many compromises. I hope you, me

wealth, doing something that one is

and our generation proves my and our

passionate about, doing and creating

dads wrong.

FEBRUARY 2009

Let me end with an excerpt from a

Most of us who have seen the mov-

story that is perhaps an apt motto for

ie Guru might tend to believe the old

all entrepreneurs and budding entre-

adage that behind every fortune is

preneurs:

a scam. But that is clearly not true.

But you were always a good man of

There are rotten apples in every fruit

business, Jacob,” faltered Scrooge, who

basket. We cannot let them spoil the

now began to apply this to himself.

other apples. What we see with Satyam

“Business!” cried the Ghost, wring-

is not representative of the average In-

ing its hands again. “Mankind was my

dian industrialist and entrepreneur.

business. The common welfare was my

Entrepreneurs in the future will be

business; charity, mercy, forbearance,

known by how enduring what they

and benevolence, were, all, my busi-

create is. Will what they call a world-

ness. The dealings of my trade were

class organization pass the test of time

but a drop of water in the comprehen-

and generations?

sive ocean of my business!” (Dickens,

In my view this can only happen

C. 1843. A Christmas Carol).

DAR E

if an entrepreneur follows the Indian value system of being honest, ethical, and giving, and builds the enterprise on the principle of no-compromise. I know this can be very tough in today’s environment where the system may reward people who bend it rather

around them is to follow your heart.

dia. India is a land of entrepreneurs and

larger good and creating a legacy.

There are rotten apples in every fruit basket. We cannot let them spoil the other apples. What we see with Satyam is not representative of the average Indian industrialist and entrepreneur

ethi-

Anurag Batra is real life, ﬁrst generation entrepreneur who is Much Below Average (MBA) from the prestigious Management Development Institute, MDI. When he is not busy writing such columns, he can be reached at anuragbatrayo@gmail.com. Anurag is the co founder and editor-in-chief of exchange4media group which includes exchange4media.com.

DARE.CO.IN The Financial Times in the past had named some of the 'influential activist investors' that included Bill Ackman, who campaigned against McDonald's and Wendy's in recent years; Eric Knight, who made his name fighting the management of European groups such as Suez and VNU; Carl Icahn, who attacked Time Warner, although he was unsuccessful in his bid to break up the company; and Chris Hohn, who made his name helping to oust the CEO of Deutsche BĂśrse. In a listed company, it is the board that runs the show while a retail investor has hardly any say except for nodding to the decisions taken by the management. This leaves him vulnerable to the vagaries of the impact that the board's decisions have on the fate of the company. In view of this, it falls upon the independent directors to safeguard the interests of the common shareholder. Unfortunately in the case of Satyam, it seems the independent directors failed to live up to the expectations. Had it not been for the institutional investors who raised a note of protest over the Satyam-Maytas deal, the culprits behind India's biggest corporate fraud would have had their way. It is high time the small investor in India dons the hat of activism and keeps a close watch on the goings-on inside the boardroom and on the stock market. If so much action is happening in the West, what's stopping Indian investors from turning activists? One reason could be the hesitation on the part of retail investors who fear that the complexity of regulations and the huge legal costs would take a bearing on them. So they prefer to avoid taking on the "powerful" management/promoters of a company. The other reason could be the short-term view that most retail investors take when it comes to putting money in the stock market. But now with the lid off the Satyam fraud, most investors may want to watch their investee companies a little more closely. Even if it is one voice of dissent, it needs to heard to uphold the spirit of shareholding. The following lines written by Rabindranath Tagore, the famous Bengali poet, probably best describe the role and sentiments of an activist investor in today's corporate world, more so in the aftermath of the Satyam fiasco. If they answer not to thy call, walk alone, If they are afraid and cower mutely facing the wall, Open thy mind and speak out alone.

Big guns eye US$ 100 billion opportunity in Indian defense industry Posted by: Vimarsh Bajpai in Walchandnagar Industries, Tata Group, Singapore Technologies Kinetics, Samtel Display Systems, Punj Lloyd, M&M, L&T, Israel Aerospace Industries, Frost & Sullivan, FIPB, defence, CII, BAE Systems on Jan 13, 2009 otal opportunities for procurement are to exceed US$ 100 billion by 2022, including the maintenance, repair and overhaul market, according to Frost & Sullivan. The Foreign Investment Promotion Board (FIPB) last week finally gave its nod to the joint venture between Mahindra & Mahindra and

T 90

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/http://www.dare.co.in/blogs.htm from the BAE Systems for production of armored vehicles in the country. While M&M will hold 74% in the JV, the remaining 26% will be held by BAE Systems, Europe's largest defense contractor. With a manufacturing facility in Faridabad and headquarters in Delhi, the JV will initially employ 50 to 60 people. The initial work would include the up-armouring of Rakshack vehicles, Axe vehicle production, and starting the process of developing a mine resistant ambush protected vehicle. The FIPB had in the past rejected the proposal as it was found wanting on the equity sharing parameters of the government's policy because BAE Systems was seeking 49% equity in the JV, as against 26% approved by the government. The M&M-BAE venture adds yet another player to India's lucrative defense industry that is set to grow in leaps and bounds in view of higher spending commitments by the government. Consulting firm Frost & Sullivan estimates that the total spending for the Indian defence market will reach US$ 36.2 billion by 2013. The total opportunities for procurement are forecast to exceed US$ 100 billion by 2022, including the maintenance, repair and overhaul (MRO) market, while the offset potential during the forecast period is expected to reach US$ 10 billion by 2013. In May last year, Frost & Sullivan's Aerospace & Defence Practice organized a seminar in London to give an in-depth view of the business opportunities within the Indian defense industry. Many of the big Indian firms have already tied-up with global biggies to tap the huge potential that exists in the defense space, thanks to the offset clause i in the Defence Procurement Policy 2002. The clause makes it mandatory for companies that bag an Indian defense contract worth over Rs 300 crore to plough 30% of the value back into the country. This could be either in the form of purchase of local components and services or investments. The clause translates into higher purchases by foreign players to meet the 30% norm injected in the policy. This is seeing greater interest by overseas defense companies to tie-up with Indian firms. In the middle of last year, Punj Lloyd, the engineering and construction major, inked a collaboration agreement with Singapore Technologies Kinetics (ST Kinetics), for the manufacture of defense equipment. Punj Lloyd has been issued a license by the government for the manufacture of guns, rockets and missile artillery systems and related equipment in addition to other defense equipment, says a company release. ST Kinetics is one of Asiaâ&#x20AC;&#x2122;s leading land systems and speciality vehicle companies with sales of US$ 1.18 billion in 2007. A similar tie-up was announced last year by the Tata Group and Israel Aerospace Industries (IAI) for cooperation in the development, manufacturing, marketing and support of defence products in India. The agreement covers a wide range of defense and aerospace products including missiles, unmanned aerial vehicles (UAVs), radars, electronic warfare (EW) systems and homeland security (HLS) systems. Other private players eying the market are infrastructure major Larsen & Toubro, Walchandnagar Industries, and Samtel Display Systems among others.

/http://www.dare.co.in/blogs.htm from the India is the third largest importer of arms and equipment in the world. Every year nearly 30 to 40% of the defense budget finds its way out of the country towards acquisitions, either through direct or indirect imports, according to industry chamber CII.

How much (returns) do angel investors make? Posted by: Krishna Kumar in ROI, Kauffman Foundation, investment, due diligence, Angel investing on Jan 09, 2009

hat makes an angel investment successful? How much can an angel expect to make? The Kauffman Foundation has a study on angel investors that has several interesting insights. (Note: this study was one in November 2007 on US Angels. While the economic situation is much different today, these numbers can act as broad indicators) Firstly, the average returns for angel investments is 2.6 times and the average investment period is 3.5 years. But there is a wide variation â&#x20AC;&#x201D; 7% of all investments made 10 times or more the money invested. Highlighting the speculative nature of angel investments is the fact that about 50% of the exits happened in three years with returns being less than the amount invested. In fact, there seems to be a direct correlation between the time that the angel stays invested and the returns they make, with the small percentage of investors who made 30 times or more of their investments staying invested for six years. Possibly a case of investors recognizing a good investment and holding on to it! The study also has lessons for angels, finding direct correlations between the time spent on due diligence and the returns they get as well as between the investors industry expertise and the rate of returns. The median value of time spent on due diligence was found to be 20 hours and 26% of the investments took more than 40 hours of due diligence. For those investments with more time spent on diligence, average returns was found to be 5.9 times with an investment period of 4.9 years, while for investments with lesser time spent on due diligence, returns was found to be just 1.1 times with an average investment period of 3.4 years. 50% of the deals studied where in areas where the angel had no expertise and where the angel had expertise, they had typically 14 years of experience in the area. Investments in areas where the angel had expertise yielded nearly double the returns when compared to investments where such expertise did not exist. 30% of the deals had follow on investments by the same angel and surprisingly, 70% of these had loss-making exits! A case of the angel throwing more money after bad money? And not surprisingly, when the angel invested time and effort to participate in the venture, the returns have been significantly higher. High participation deals got an average return of 3.7 times while low participation deals got just 1.3 times the returns. A good majority of the investments that had returns of 5 times or more had high participation levels from the angels.

DARE.CO.IN Summary The study seems to indicate that the chances of an angel investment being successful (and netting more returns) improves: (a) when the investment is made after thorough due diligence (b) by an angel who has experience in the area where the investment is being made (c) the angel participates in the investee firm (d) is in it for the medium to long term and (e) does not make follow through investments in the same venture.

Is agri business the ďŹ&#x201A;avor of the season? Posted by: Vimarsh Bajpai in Sree Ramcides, organic farming, NSL Seeds, Morgan Stanley, food processing, floriculture, farm sector, ePlanet Ventures, Blackstone, Biotor Industries, agriculture, agri-tourism, agri business on Jan 12, 2009 ven as the economy reels under the slowdown with the services and the manufacturing sectors facing tremendous pressure, three deals in the agri-business space seem to indicate the unwavering sentiments in the agriculture sector. It is heartening to see some action in the agriculture sector that grew 4.4% in 2007-08, as against 3.8% in 2006-07. In a deal pegged at Rs 250-300 crore, Blackstone, the private equity behemoth, is believed to have taken a 20-25% stake in NSL Seeds, a significant player in the hybrid seeds business. NSL is into R&D, production and marketing of not only cotton hybrid seeds but also the hybrid seeds of other field crops like corn, rice, sunflower, sorghum, pearlmillet, and vegetable crops. The company is also working on developing high yielding varieties and hybrids in wheat and mustard. The second deal involved agro-solutions firm Sree Ramcides and private equity major ePlanet Ventures. Despite the credit crunch staring in the face of Indian companies, Sree Ramcides raised Rs 25 crore from ePlanet. The agri-chemicals company is likely to use the money to expand into cities beyond Chennai. In yet another deal in the sector, Morgan Stanley Private Equity grabbed around 30% stake in Biotor Industries for Rs 240 crore. Biotor is a major producer of castor oil and its derivatives. A host of stories in DARE focus on the opportunities in the farm sector. With global demand for organic food set to quadruple in the next decade, there could well be a few hidden treasures in organic farming. Similarly, the floriculture exports sector is set to touch Rs 700 crore by 2010. Huge government subsidies, diverse geo-climatic conditions and a dearth of big players make it lucrative for the entry of new players. Agri-tourism is another area of opportunity. Commercialization of a number of tropical and subtropical fruits holds big potential, but is vastly unexplored. The food processing sector, currently growing at around 13%, is another case in point. The industry is still in a nascent stage. DAR E

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/society

Selling handicrafts with enthusiasm We ran into Shaffi Pehalwaan and we ended up admitting that this elderly artisan, who is very young at heart, has something that every entrepreneur can learn from

/Binesh Kutty

his story is set amidst the bustling Brigade Road in Bengaluru. In an alley that leads to an exquisite handcrafted products’ store called Poompuhar (Tamil Nadu Handicrafts Development Corporation); there are these small makeshift stalls displaying a variety of handicrafts. If you were there in December, your attention would not fail to go towards at least one of the products there. The moment you spot an artifact and veer towards it, you will find the most enthusiastic, vibrant, and a radiantly smiling old man attending to you. Meet Shaffi Pehalwaan! Pehalwaan is this 75-year-old artisan who has a way with passersby, charming them with his wit, zeal, and equally captivating products (see pictures). Pick up any merchandise from his stall and he has a unique twist of a tale to make the sales pitch. Even if you don’t buy anything, it is, at the very least, entertaining to be there. With, us, however, his charm worked to perfection and we ended up with a big load of shopping. Sayed Shaffiullah aka Shaffi Pehalwaan is a native of Chenapatna, a small town, 45 kilometers away from Bengaluru, famous for wooden toys and lacquerware. He travels to Bengaluru daily to trade his created products. Ask about his alias and he replies, “Oh! I always liked wrestling. As a kid and youngster, we used to have these bouts in which I used to participate and that is when I earned this nickname. I can show you photos, you would not recognize me!” His father, Shah Sayed Miyan, originally started this business. His father was trained by a master artisan of Chenapatna called Nizam Hazrat and was even sent abroad to countries like Japan on assignments. After several years of training, his father went solo and gathered a workforce of 50-odd men whom he trained – right from learning to use a charkha to becoming a seasoned craftsman. “At least 150-200 mouths were fed 94

FEBRUARY 2009

daily in this course of time,” says Pehalwaan with a sense of pride. Even as a boy, young Shaffi showed interest in making handicraft products with his father. “I used to go out into the wilderness looking for wood, helping my dad make toys, and assist in selling them. I only assumed total responsibility of the business after he passed away. At that time I was 20,” recalls Pehalwaan. Pehalwaan then took this business to the next level by putting some machines in place. He also increased the sourcing of products by tying up with hundreds of artisans who are from in and around Chenapatna. On an average, an artisan makes anywhere between Rs 200 to Rs 500 per day, depending on how skilled he is.

In his small stall (5x5 yards), for which he pays a monthly sum of Rs 10,000, he displays his products which are in an array of colors and ideas. Besides this stall, he supplies goods worth at least Rs 6,000 to Cauvery Emporium. “I make good money in my stand sales. It is collecting money from emporiums that is challenging,” he tells us. Pehalwaan also works on gems and jewelry for many traders. This work too earns him a handsome income. For creative inspiration, Pehalwan looks outside the country. “In my lifetime and in this business, I have traveled to many places abroad—Indonesia, Malaysia, Hong King, Singapore, etc. From all these places, I got a lot of inspiration and ideas which I further innovate on,”

PEHALWAAN’S WITTY SALES PITCHES He rotates the giant wheel clockwise and says, “Out there in fancy fairs, you see the giant wheel that keeps rotating in the same direction,” He quickly rotates the giant wheel in the opposite direction and adds, “My giant wheel rotates in the other direction too!”

DARE.CO.IN

/society he says. We were left amazed, but he made me chuckle when he said, “I will show you my passport and the entries made on it.” How did he end up going to all these places? “I used to supply goods to this vendor from Alipur, who used to sell them in Bangkok. I asked myself, if he can do it, why can’t I?” Even in India he has traveled extensively. “I think I have been to every temple in the country, except maybe Tirupati. My products such as kum kum cases sell well there. You see, my products don’t have a religion,” he smiles. Ask him his secret of doing good business and he replies, “Before employing people to work for you, you should master the work yourself. Also, one has to be God-fearing and thankful to the almighty.” And as for his wit and enthusiasm, “I live my life happily. I have always loved laughing and making people laugh. I enjoy my trade and I always try to pull off a good bargain—sometimes I win, sometimes the customer wins,” he says with utmost honesty.

WHO IS HE? Shaffi Pehalwaan, 75 years old Artisan (wooden toys and lacquerware) WHERE DID WE FIND HIM? Brigade Road, Bengaluru WHAT IS HIS USP? Wit and the zeal with which he sells his products As we bid him goodbye, he shows us his senior citizen card, “This gets me a lot of concessions,” and bursts out laughing. Pehalwaan has nine children, who are all well-educated. He has two sons here in India, one of whom is trained to carry on the legacy of handicrafts, three sons who are doing well in Saudi Arabia, and four daughters who are married. We ask him what is the next big target in his life, and he flashes this very confident smile and says, “I intend to score my century,” and leaves us an unforget-

“These roosters don’t just eat grains; they also know how to woo the hens!” – winks and quickly shows the difference between the dolls with roosters and the ones with hens – The hens just keep on eating while the roosters look up after every peck.

table line – “Manmaani ki dunia hai, manmaani mein jee raha hoon [The world favors those who live on their own terms, and that is what I do.]” In retrospect, we wondered whether it was the products or the sales pitch that compelled us to buy. In either case, we ended up admitting that this elderly artisan, who is very young at heart, has something that every entrepreneur can learn from – products with a twist and an endearing and compelling sales pitch to sell DAR E them by!

After winding this product’s musical chimes, he says with a serious tone, “These penguins dance separately with a mind of their own. For your partner, I could also make one of a couple...they will dance together forever!” and bursts out laughing.

FEBRUARY 2009 95

Organizations DARE.CO.IN

covered in this issue, in alphabetic order; first appearance

A2Z Applications........................................................ 75

HeadStart Foundation ............................................... 81

Pike River Coal .......................................................... 42

Activecubes Solutions ............................................... 75

Helion Venture Partners ............................................ 22

Pizza Hut ................................................................... 75

Adobe ........................................................................ 32

Hindustan Aeronautics Ltd ........................................ 38

Alert Pedia ................................................................. 80

Hindustan Lever......................................................... 24

Poompuhar (Tamil Nadu Handicrafts Development Corporation) ........................................ 94

Amazon ..................................................................... 24

Honda ........................................................................ 49

Porsche...................................................................... 38

Anantara Solutions .................................................... 75

Honeywell .................................................................. 81

Rasilant Technologies ................................................ 75

Animation Today ........................................................ 33

HP.............................................................................. 81

Rhythm & Hues ......................................................... 30

Apass India Leisure Solutions ................................... 17

IBM ............................................................................ 22

Roche ........................................................................ 47

Apple ......................................................................... 49

IIM-Ahmedabad ......................................................... 74

Rolls Royce ............................................................... 49

Appropriate Rural Technology Institute ...................... 28

Inasra Technologies ................................................... 74

Rural Innovations Network......................................... 35

Art in Dynamics ......................................................... 80

Indian Angel Network ................................................ 87

Sacred Moments ....................................................... 75

Bell Labs/Alcatel Lucent ............................................ 81

Indian Institute of Technology .................................... 33

Sammaan Foundation ............................................... 75

Bessemer Venture Partners....................................... 87

Indus Geeks .............................................................. 80

Satyam ...................................................................... 75

BlackBerry ................................................................. 36

Infinity Yachts ............................................................. 77

Saurashtra Fuels ....................................................... 42

Boo.com..................................................................... 20

Infosys ....................................................................... 49

SEBI .......................................................................... 53

Cafegadgets .............................................................. 75

Intel ............................................................................ 24

SMS Gupshup ........................................................... 22

Canaan ...................................................................... 81

Intellectual Property Office ........................................ 46

Snapple ..................................................................... 49

Cane Boutique ........................................................... 66

Investment New Zealand ........................................... 44

Snappy Fingers ......................................................... 80

Cane-line ................................................................... 66

ITCONS e-Solutions .................................................. 74

Sony .......................................................................... 30

CashNxt ..................................................................... 80

Junglee ...................................................................... 22

Stanford University .................................................... 22

Cauvery Emporium .................................................... 94

KFC ........................................................................... 75

Star Agri Warehousing and Collateral Management...... 75

CMC .......................................................................... 44

Khemkas.................................................................... 56

Surya Tobacco ........................................................... 49

Coca-Cola.................................................................. 49

L-RAMP ..................................................................... 34

Crest Animation ......................................................... 33

Lakshya ..................................................................... 74

Cybermedia ............................................................... 87

Librarywala ................................................................ 75

Daily Dump ................................................................ 74

Luthra & Luthra, ......................................................... 53

Daksh ........................................................................ 24

MAAC ........................................................................ 33

Damania Airways ....................................................... 56

Maharashtra Maritime Board ..................................... 79

Deloitte Touche .......................................................... 53

Mahindra & Mahindra ................................................ 76

Deskaway .................................................................. 75

Mantis Technologies .................................................. 74

Digital Asia School of Animation ............................... 33

Maya Entertainment .................................................. 31

Domino’s .................................................................... 75

McDonald’s ................................................................ 75

Dunhill........................................................................ 49

Medsphere................................................................. 74

Ecomove Solutions .................................................... 74

Meshlabs ................................................................... 80

Elements Akademia................................................... 74

Mont Blanc................................................................. 49

Emami-Zandu ........................................................... 53

Natco Pharma ........................................................... 47

Ennovasys ................................................................. 75

NEA-IndoUS Ventures ............................................... 59

Entrip ......................................................................... 80

NEPC ........................................................................ 56

Evam Entertainment .................................................. 75

Nirma University ........................................................ 37

Verismo Networks...................................................... 81

Fieldturf Tarkett .......................................................... 75

Ocean Blue Boating................................................... 77

Virgin ......................................................................... 49

General Motors .......................................................... 49

Ocean Crest Marine .................................................. 77

Walt Disney................................................................ 30

GM Engineering Solutions Pvt Ltd............................. 37

One Vision Tours........................................................ 19

Warner Brothers ........................................................ 30

Google ....................................................................... 49

Oracle ........................................................................ 22

West Coast Marine .................................................... 77

GoSports ................................................................... 74

Paramount ................................................................. 30

Wipro ......................................................................... 49

Greycaps India .......................................................... 74

Perfint ........................................................................ 74

Wisdom Tap ............................................................... 81

Gujarat NRE Coke ..................................................... 42

Pfizer ......................................................................... 47

Wolf Frameworks ....................................................... 81

Harley Davidson ........................................................ 49

Philips ........................................................................ 81

Yahoo......................................................................... 24

FEBRUARY 2009

Suzlon........................................................................ 37 Swatch ....................................................................... 49 Takeovercode.com..................................................... 75 Tata ............................................................................ 38 Tavant Technologies .................................................. 24 TCS ........................................................................... 44 The Carlyle Group ..................................................... 24 The Chennai Fund ..................................................... 86 The Loot .................................................................... 75 The Next Shop........................................................... 66 Toonz Animation India ............................................... 32 Tring Me ..................................................................... 81 Universal,................................................................... 30 ValueMinds ................................................................ 75 Vayavya Labs............................................................. 75

People DARE.CO.IN

covered in this issue, in alphabetic order; first appearance

Abraham Lincoln................................ 88

Maharana Pratap ............................... 45

Aditya Mishra ..................................... 81

Mohit Saraf ........................................ 53

Aditya Nath ........................................ 17

Naveen Kulkarni ................................ 81

Amitabh Bachchhan .......................... 17

Nicole Kidman ................................... 30

Anand Rajaraman.............................. 22

Nizam Hazrat ..................................... 94

Anil Ambani ....................................... 76

P Jayakumar ...................................... 32

Anup Sridhar...................................... 74

P Kumar............................................. 34

Ashish Gupta ..................................... 22

Padmaja Ruparel ............................... 87

Ashutosh Agrawal .............................. 38

Pradeep Gupta .................................. 87

Chandrakant Patel ............................. 81

R Ramaraj ......................................... 86

Charles Dickens ................................ 88

Ravi Chandulal Jagani ....................... 37

Charles Erwin Wilson ........................ 49

Richard Gere ..................................... 17

Dallan Quass ..................................... 22

Ritu Todi ............................................ 67

Daniel Craig ....................................... 30

Sayed Shaffiullah ............................... 94

Dr Anand Karve ................................. 28

Senthil Kumar .................................... 34

Eva Steigler ....................................... 19

Shah Sayed Miyan............................. 94

Gautam Singhania ............................. 76

Shyam Ramanna ............................... 33

Harish Gandhi.................................... 81

Sridar Iyengar .................................... 87

Harsha Angeri.................................... 81

T M Rustomje .................................... 53

Jai Natrajan ....................................... 31

Venky Harinarayan ............................ 22

Kallol Borah ....................................... 81

Vijay Mallya........................................ 76

Kanwaljit Singh .................................. 24

Virdhawal Khade ............................... 74

Kumar Shiralagi ................................. 59

Vishy Poosala .................................... 81

DARE is not an acronym. It represents the daring spirit of the entrepreneur. The red color for the R of DARE represents the fire in the belly of the entrepreneur. You could think of the D representing the face, A representing the chest, R representing the belly and E representing the feet of the human body. Hence the red R. The entrepreneur dares to do things. (S)he dares to do things differently

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