/Rs 50
JULY 2010
Vol 3 / Issue 10 / July 10
DL(S)-17/3314/2008-09-2010 DARE
RNI No.DELENG/2007/22197. Posting Date: 5th & 6th of every month. Posted at Lodi Road HPO.
HOW TO RAISE BANK LOANS FOR YOUR BUSINESS
S
FOR YOUR BUSINES
A 20 Page Special Report
entrepreneur of the month/
How To Get Money To Start A New Business
investor of the month/
How To Apply For A Loan
Sridhar Mitta, NextWealth Entrepreneurs
Lalit Agarwal, V Mart Retail
VOLUME 3 ISSUE 10
ask the investor/
Increasing Your Chance Of Getting A Loan
Pavan Krishnamurthy, Ojas Ventures
The First Million
other/ Direct Taxes Code Explained Everybody Loves A Good Slum!
How Important Is Collateral
92 pages including cover
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Contents
BOARD OF ADVISORS N R Narayanamurthy
Chief Mentor, Infosys
Kanwal Rekhi
Chairman, TiE
Romesh Wadhwani Chairman & President, Wadhwani Foundation Gururaj ‘Desh’ Deshpande
35 How to Increase Your Chance Of Getiing A Bank Loan?
Chairman, Sycamore Networks
Saurabh Srivastava Chairman, Indian Venture Capital Association Kiran Mazumdar Shaw R Gopalakrishnan
Chairman & MD, Biocon Executive Director, Tata Sons
Philip Anderson
Professor of Entrepreneurship, INSEAD
Shyam Malhotra Editor-in-Chief Abraham Mathew President Prashanth Hebbar Senior Editor ANALYSTS Binesh Kutty Nimesh Sharma Shinjini Ganguli Shradha Mohanty Vimarsh Bajpai OPERATIONS Ajay Dhoundiyal Product Manager Prasanna Srivastava Product Manager Debabrata T Joshi Manager Events VIjay Rana Design Anil John Photography SALES & MA Jaideep Mario Gabriel Yogesh Bhosle Ankur Kalia Manas Mishra Kingshuk Sircar
MARKETING Associate VP National Sales Manager West North South South-East Asia
PRINT & CIRCULATION SERVICES Rachna Garga VP T Srirengan GM, Print Services Sudhir Arora Senior Manager Circulation 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: Mirchandani & Co., 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: 43412333 CHENNAI 5B, 6th Floor, Gemini Parsn Apts, 599 Mount Road, Tel: 28221712 KOLKATA 23/54, Gariahat Road, Ground Floor, Near South City College, Tel: 65250117 MUMBAI Road No 16, D 7/1 MIDC, Andheri (East) Tel: 42082222 DELHI D-74 Panchsheel Enclave Tel: 41751234 PUNE Flat No. 9, F Block, Popular Heights 3 Koregaon Park Tel: 65000996 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: 0124-4822222, Fax: 2380694
92 pages including cover 4
A good project viability report, coupled with a positive credit rating and collateral security can help SMEs raise loans faster. While banks closely look at the repayment capacity of the borrower, it is the relationship between the banks and the SMEs that has a direct bearing on raising a business loan. By Vimarsh Bajpai & Nimesh Sharma
COVER STORY
SOCIETY
44 The Devil Called Collateral
76 Making Music And More
Collateral security is a bane for all entrepreneurs seeking loans from banks and financial institutions. Are there alternatives available By Shinjini Ganguli
There are plenty of people like you out there who are passionate about music and have thought of getting into the music business at least once in their lifetime. But while many have backed out because it does not look like a lucrative career option, the concept of 'music entrepreneurship' is slowly gaining ground in India. Various people in the music industry discuss the challenges of this business By Shradha Mohanty
COVER STORY
48 Applying For A Loan An entrepreneur's guide By Shradha Mohanty SECTOR ANALYSIS
ASK THE INVESTOR
24 Everybody Loves A Good Slum!
70 Do Investors Favour Service Startups?
Collateral security is a bane for all entrepreneurs seeking loans from banks and financial institutions. Are there alternatives available By Shinjini Ganguli
While some investors may favor service startups, in general most VCs would rather invest in a product startup. This is because unlike a service startup where the revenue potential is linear and headcount dependant, a product startup has the potential for non-linear growth. By Pavan Krishnamurthy INNOVATION
20 Digital Resurrection Of Indian Heritage 65 Husk Power Systems 66 Innovations For The Common Man
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ENTREPRENEUR OF THE MONTH
STATISTICS
32 Lalit Agarwal, V-Mart Retail
72 Private Equity / Venture Capital in May 2010 FROM THE BLOGS
28 Don't run behind the VC 28 The status message story 29 Funding your first project with a cash advance 29 Make money with Dung 30 Good ol' Champi 30 Mystery shopping in India COLUMNS Lalit Agarwal established V Mart Retail in the year 2002. The company made its foray into the retail sector in October 2003 by opening its maiden showroom in Ahmedabad. As of now, he has successfully driven the business to have a 150 crore plus turnover and have a presence with 57 fully-integrated stores in 44 different cities spread in an area in excess of 400,000 square feet. Agarwal speaks to DARE about his entrepreneurial journey, and shares his knowledge about the industry
18 A Workforce of One By Vijay Anand
27 Light at the end of a Tunnel By Anurag Batra
54 No Credit For MSME By Paranjoy Guha Thakurta
56 The First Million By Srikala Bhashyam
60 The Business of Healing By Dr. Hrishikesh Damle
74 Direct Tax Code By Prashant Bhojwani
83 Start-up hiccups By Rajaram Rajendran INVESTOR OF THE MONTH
EVENT
62 Dr Sridhar Mitta NextWealth Entrepreneurs
58 SMEs On A Growth Path 68 Headstart Startup Saturday NEN
88 The Tipping Point OTHERS
08 Exchange 14 Feedback 80 Back of the Book
SMS: “DARE <your comments, questions or suggestions>” to 56677 NextWealth Entrepreneurs, whose vision is social uplift through entrepreneurship, has been co-founded by Dr Mitta who has nearly four decades of experience in information technology R&D and related businesses in India and the United States. He joined Wipro at its inception in 1980 and served as its chief technology officer and head of global R&D. He played a critical role in helping Wipro achieve technology leadership—the company became the highest valued company in India during his tenure.
Email: dare@cybermedia.co.in Website: www.dare.co.in Follow us at: http://twitter.com/daretostartup DARE.CO.IN | CONTENTS | JULY 2010 5
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From the editor
How bankable is your project? /Prashanth Hebbar
This issue of DARE has a set of insightful reports on the state of SME lending and experiences of some of the SME in raising or failing in raising loans
O
How to raise bank loans for your business
ne of the first advices I had got on financing a business was this: "Never raise equity investment for working capital." This is so simple and universally accepted that most financial advisers have forgotten it. And there lies the tragedy. Today we see that it is common in the SME microcosm to raise a loan based on a project report and using it for other purposes. Banks loathe this as their repayment assumptions do not hold good and they never get any insight on how the money is being utilized. As a result institutional lending has developed laborious and longwinding processes and checks and balances and moreover a system of securing their loans. Call it throwing the baby with the bathwater, but such universal lending policies harm the good SMEs more than stopping the bad SMEs. Not to mention, the micro entrepreneurs are crushed under such lending regimes. The government and the institutions have seen their folly and are racing each other in suggesting and promulgating models that will help SMEs raise loans. Collateral-free loans is the new war cry of the lending institutions. The world over there has been a quest for a perfect credit guarantee model right
from early '80s. Only a handful of countries, led by the South Korean ones, seem to have found a reasonably effective framework. One lesson to carry out from this issue is that there is no easy route to a successful loan. The lending agency is taking a big risk by betting on your business and hence has to take adequate measures to ensure recovery. No one can blame the lending institutions for it. When we set out to do a special issue on "How to raise business loans," we realised that merely listing a set of dos and don'ts are not what our readers would be interested in. Every rookie businessman knows and understands how to raise business loans and the labor involved in it. What we have come up with is a set of insightful reports on the state of SME lending and experiences of some of the SME in raising or failing in raising loans. Of course, we also have a section where we give you some practical tips. By understanding the banking processes better, we hope to see SMEs coming up with better bankable projects. Hope you will enjoy the special report as much as we did in putting it together. Interact with me on Twitter @hebbarp
DARE.CO.IN | BLOGS | JULY 2010 7
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Exchange Submit exchange requests at: website: http://www.dare.co.in/ marketplace.htm OR email: dare@cybermedia. co.in or SMS â&#x20AC;&#x2DC;DARE <your msg>â&#x20AC;&#x2122; to 56677
Response to Navneet Vermani I have a showroom in Sector-17, Chandigarh and run a bookshop for the last 35 years. I would like to increase my sales through net selling. Though I have been sending traditionally say through VPP, or say courier, these are mere modes of sending but not the advertising. How do I enhance my sales through net? -Navneet Vermani Response I am with a Dutch organization here in Delhi, which is a full e-commerce solution provider to enterprises from all over the globe. We do the online sales and online marketing of NSICIndia.com (a Government of India enterprise). As you want to increase your sales through the internet, we can help you by creating your visibility on the internet. We can provide you with an online business solution through a completely customizable, virtual storefront at your own domain. It will be a complete ecommerce solution that will enable you to reach new customers, extend your brand and sell online. Please call me or email me. -Varun Sharma
Financial assistance for Emu farming Central India Emu Farms is the first emu farm of Madhya Pradesh situated at Indore. We have already invested Rs 30 lakh from our side, but need more assistance for our future plans and action. We are planning to set up a hatchery and processing unit also. -Bawse Akshay
Business ideas solicited for Jaipur Any person who have good ideas in any business in Jaipur or near about Jaipur and needs a financial partner then contact us. -Amit Parekh
Funding partners needed to promote a patent model of IC engine I have fabricated a working model of a rotary vane IC engine based on my own patent number 149237 of 1979. I 8
have made some improvements in the original, but as the patent has expired, I am looking for investment partners to promote the same. -G Parashuram Response What city are you located in? What benefits does your engine have over current models? I can put you in front of some auto manufacturers, but they have limited time so it will have to be a very attractive model. -Anil Gupte Your invention looks interesting, however I have some queries: What are the tangible advantages that your engine has over the latest engines given the fact that the design is almost 30 years old? Can your design match/exceed today's engines in terms of mileage, emmission norms, BHP etc? What about the interaction of the engine with other car modules/sub assemblies? Why have you not commercialized the patent for so long and waited until it expired? Is it possible for you to re-patent the same in the IPO as well as the USPO? In case, we decide to go ahead, what do you think is the commercial value of your invention and what are the terms you are ready to offer? -Rohan Patkar
Consultation required for setting up a bicycle unit We are interested in setting up a bicycle unit and are looking forward to meet consultants and international players to start a joint venture company. -Saurabh Response Which city are you located in, or in which city will your unit be located? If near Pune, I may have some interest. -Anil Gupte
Need partners or funding for a matrimonial portal We have a unique portal that caters to the wedding industry. We were featured twice on NDTV. The media has appreciated our services on innumerable occasions. We are looking for
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mergers with bigger players or funding to take us to the next level. Association and alliances from firms that can lead us to funding are welcome. We arenâ&#x20AC;&#x2122;t generating revenues. Traffic is around 800 visits and around 15 registrations per day. We expect more information from the respondents (their background, what they look for etc). This will help us to determine if wavelengths match. -Dr. Natesh Babu Response I specialize in finding funding, but it becomes difficult if there is no revenue. Even if you can generate a little revenue (say one out of 15 registrations every day signs up for a premium service) I can get investors to look at it. -Anil Gupte
Funding required for remote healthcare services I have a concept on remote healthcare servicesâ&#x20AC;&#x201D;an end-to-end healthcare delivery system for the developing world. I am looking for people who want to be a part of the core team and also angel funding to kick off the pilot. - Tarunesh Response I specialize in finding funding for companies. If this is a scalable concept and could work in the US, I know people who will fund it for sure. I have lived in the US for 24 years and am looking for opportunities in India that could also go to the US. -Anil Gupte
Planning to scale up social venture in the education sector DARE is one of the most encoring magazines I have ever read for entrepreneurs! I am a social entrepreneur and founder president of Milaan, an organization working for quality education and vocational training in rural India since 2007. Now, I wish to scale up the project from around 100 children to 1,000 children and youth by 2012. I am looking for investors, partners and mentors for the project. 10
Commercial properties available I read your DARE magazine, May Issue, first time and I liked it very much. I have residential properties in Faridabad, Navi Mumbai, Dasna (Gaziabad) and Allahabad, and I want to utilize them for any suitable business. If anybody have some suitable plan for serious business, he can e-mail me. - Vinish Saxena Response We are a merchant banking firm based in Delhi and would help you in raising funds for your venture. Kindly send us a detailed mail with your requirements, if you would be interested in taking our services. -Nithya Ranganathan, Sobhagya Capital Options Limited I have started a new training institute to promote employable skills in the industry and am looking for the assignment of trainers to handle the work load. -Manish Joshi, Promoter
Have an Internet startup in the online space based on a unique gaming/auction model I represent an Internet startup in the online space based on a unique gaming/auction model. We were one of the finalists (among the 254 shortlisted entries) in the ET Power of Ideas contest and are launching the pilot for our site in about ten days. We are looking for an angel investor to fund the scaling up of business. -Harpreet Response We are a merchant banking firm based in Delhi and would help you in raising funds for your venture. Kindly send us a detailed mail with your requirements, if you would be interested in taking our services. -Nithya Ranganathan, Sobhagya Capital Options Limited
Excavator for sale We want to sell the following equipments: L&T PC 200 Excavator cum Loader - 1, JCB excavators JS 140 - 2. The machines are in new condition purchased in December 2009. We can sell you machines at a good price.
Please reply if you are willing to buy. -Bikram Singh/Rahul Sharma
Looking for people interested in doing bamboo business on a large scale I am looking for individuals, private or public limited companies who would like to get involved with us in doing bamboo business on a large scale. I am basically based in London and have access to UK and EU markets. -Pranab Debnath Response Hello Pranab, I am currently working out of Mumbai. I am keen to explore the idea of bamboo business. Please revert with more details. -Vikram Misra I am from Shanghai, China. We can discuss. Please mail me. -Bharath We are doing bamboo business for the last three years and distribute highquality bamboo blinds and other bamboo products. Please let us know how can we help you. -Sajith KR
Information required to start business of handmade paper I am looking for people who can provide me with information on starting a business of making handmade paper using agriwaste. -Anantha Response We are not people but a expert company that is engaged in energy and renewable energy. We have technology for using agricultural waste in making particle board, corrugated board, fuel briquette, direct energy fuel cakes, paper and hardboard. We can provide you technology for making handmade paper and
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hardboard as per your requirement. We charge 1.05 for complete DPR, technology know-how, production process and layout. We also provide plant and machinery for making handmade paper out of agricultural waste. If interested, please contact. -Tapan Singh, CEO, GoodEarth Technologies, Ranchi, Bihar
is interested please reply with your capacity to export American 8 Newsprint and American 10 Cardboard and other waste paper qualities as well, with CIF price in US dollars. Thanks. Reply at email. -Gaurav Sharma
Finance required
We are a startup in the education sector in NCR and are now planning to enter in the playschool domain and are looking for suitable partners. If anyone is interested then feel free to contact. -Kabeer Response Hi, we are interested in partnership. Please send us the plan you have got and details up to what stage you are at in setting up the playschool and some details regarding the investment and also what percentage we are looking at in the partnership (just an approximation). Thanks. -NK Sharma
I want to start women boutique chain stores in Maharashtra. I have already started two boutiques in Pune and Aurangabad recently with my own money. I have a small manufacturing Unit in Pune. Can anybody guide me to expand my business? -Alpanna
International staffing company We have come up with a very unique international staffing model, focusing on servicing Asian, European and South American markets.There are three modes of revenue—placements, training and contracting in international markets. We are looking for experienced people based in Europe or South-East Asia, who would be interested in joining us in the international staffing business. Job seekers, please excuse. -Sathish
Waste paper opportunity I have an opportunity to export approximately 300 containers of waste paper to China per year. If anyone
Partners needed for a playschool in NCR
Franchise options with preschool and daycare We are a well-known preschool and daycare brand in Delhi—“Brats n Cuties”. We are looking for expansion through franchising. We want to open our branches across India. Our preschool has various features that are different from the regular preschools and daycare centers. We also provide startup support, site selection support, training support
Daring entrepreneurs sought to globally expand business The product is being used since last 40 years, yet only two companies one in Europe and the other in Asia are manufacturing it. It is a very closelyguarded technology, and application and manufacturing is unknown in USA, Canada, East Europe, Japan, Brazil etc. Capital required about Rs 15 lakhs for production of 100 tons/ year. Highly profitable [min 60 percent]. Transferred technology to one company in Asia, manufacturing since 10 years for captive consumption. If any daring entrepreneur is willing to convince the users of above mentioned countries to evaluate the product, please contact me. All the details of possible users and the uses of the product will be supplied. -Sanjay Mukherjee Response I would like to contact Sanjay Mukherjee for this globally-expanding business. -Manish Sharma
Team required for food venture
Pre-seed funding required for a craft center I have completed my education from VGSOM, IIT-Kharagpur and I am working with an Indian retail organization as a marketing manager. I already have entrepreneurial experience in running an online t-shirt design firm. I have recently resigned from the services to pursue my interest in starting a crafts center in Chennai. I am planning to expand it further to other southern cities in due course. I am looking forward to preseed funds who would be interested in providing me with mentorship and funding. - Vaasu
Response Hi, would love to discuss your idea. Can you reach me at my email address? -Arundhati, The Juice Station
12
and other required assistance for setting up and successfully running your preschool. Contact us for exciting franchise opportunities. -Meenakshi Sengupta Response We are interested in franchise options. Could you get back to me with what all we need to do and how much is the investment and approximate return on our investment? Thanks. -Narinder Kumar Sharma
I am from BITS-Pilani Goa Campus (2005-09) and a regular reader of DARE. I have always been passionate about food and running my business. I am starting my own food venture in Gurgaon-Delhi-NCR (declining an offer from Symantec). As a first-time entrepreneur, I am facing various issues and will continue to encounter such issues as I grow along. As of now, I am facing uphill task in finding a good team. I have done all the
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groundwork in the last four weeks and need atleast one more member who is equally passionate for food and a career in this field. I have planned to launch the venture in next two to three weeks. I request you to help me find a apt person. The help could be via your magazine or personal contacts. I have my reasons to believe that DARE always supports upcoming entrepreneurs. -Sumit Agarwal Great to hear that you are looking for opening a food business. I am also passionate about food. Can you please send me your number or write a brief at my email ID? -Raja Guha Response I would like to get in touch with Sumit Agarwal regarding his food venture. -Paul Joseph
Fresh-water ďŹ sh farming We are suppliers of fish seed from Kolkata. We can supply fish seed like Rohu, Katla, Mirgal, Grass Carp, Big Head, Common Carp, Silver Carp, Pangas, Magur etc. If any one is interested, please do call me. -Md Obaidur Rehman (Bobby)
Investor needed for corporate hospital I am from Hyderabad. I did my Master's degree in hospital management from Osmania University. I worked for two years as an administrator, but I am looking for investor to establish a corporate hospital in my home town, Sangareddy, because it's a good potential area and has good scope to success. NRIs, businessmen etc. are welcome. Those interested please contact me on my e-mail. -Narresh
Need a partner for hand-block printed bed sheet business We are manufacturers of hand-block printed bed sheets with vegetable colors and hand-knotted carpets. Currently we are selling our products in the domestic market and indirectly exporting. Now we want to start exporting of all our Rajasthani handmade items but I donâ&#x20AC;&#x2122;t have money power. I need a partner. -Imtiyaaz Rangrez
porting food products and countries where demand is high. -Balakrishna Reddy Response This is with reference to Mr. Bala Krishna Reddy's post on pickle export. I am interested to contact him. We are doing retail business in pickles in a very small way in Chennai as a homebased business. Wish to explore the possibility of expanding our business with tie-up and support of Mr. Reddy. -Krishna Rao Please provide contact details of Balakrishna Reddy for pickles. -Via SMS
Agents required for Chinese water bamboo mat We are sincerely seeking for an agent for our special water bamboo mat, which is not only an excellent mat, but also reprents our Chinese age-old culture. These mats are made of 'mist bamboo', which is very rare. The total output is less than 6000 sheets in China every year! We sincerely would like to develop the new market in your country. Could you please take time to review our website if you are interested in this? Looking forward to hearing from you soon. -Rocky Lee Response Please give website address of Rocky Lee for water bamboo mats. -Gaurav Mathur
Model for monetizing Twitter Pickle business I am running household pickle business from the past 12 years and now want to expand my business from local to global approach. Can you kindly tell me the way of approach and Indian government rules on ex-
I have read nearly most issues of DARE published till now and I am a big fan of this magazine. Anyways, coming to the point, I have started a small startup on Twitter monetizing and advertising (keyword targeted ads for Twitter) and I am getting good
response from users. I am looking forward for investment or a tie-up with an advertiser to scale up the operations. This platform of mine can be accessed from both computer and mobile, and people can make money on the move just by tweeting. So if possible, please help me in finding an investor, VC or angel interested in mobile and web sphere for a funding of around $750K to $1 million. -Techie (TwtBuck)
Expanding bamboo business We have bamboo furniture business here in Lucknow that we are running since the last ten years. Now we want to expand our business and explore opportunities related to bamboo. If interested, please mail me details of your plans. -Anuj Gupta
Expanding food venture for corporate business We are operating for more than one year in South Delhi with two outlets offering biryani, kebab and kathi rolls. We are looking for expansion in NCR with five more outlets and focussing on corporate business. Please let us know if anyone interested. - Raja G
Hair-raising business ideas! Waste human hair supplier in Chennai: I am supplying waste human hair below 4 inches, 50 tonnes to 100 tonnes If any requirements please contact my email or cell. Thank you very much. -D Shanthakumarr DISCLAIMER: Due to a big deluge of exchange requests from our readers, we had to restrict the number of requests being published in the magazine to include new, broadscoped and higher-on-quality requests. DARE.CO.IN | EXCHANGE | JULY 2010 13
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feedback 14
Juice bar chain: The coming of age
have to depart from the old ways of
Franchising is the way to go... I am run-
proposition to win-win situation.
thinking i.e. change from win-lose -Rajeev Goyal
ning the franchisee of Juice Lounge Juice Bar and it's a great success. The and has opened two more stores in
Indian population: Issues and opportunities they hide
Nashik and Ghaziabad last month.
Remove reservations and automati-
All of you should also consider taking
cally population will show declining
the franchisee of Juice Lounge as in
growth rate. Immediate steps like no
the beginning even I was considering
ration card if a person has more than
opening a brand of my own, but af-
two children, no free education be-
ter wasting three months and spend-
yond two children, withdrawing rail-
ing a lot of money I realized I needed
way concessions, LTC, medical facili-
professional help.
ties etc are needed.
company is growing tremendously
I was able to start a Juice Lounge - Juice Bar in just 36 days! Franchisee
Save the country first. No political gimmicks in this attitude.
is the right way to grow as you get a
-Dr BKB Rao
ready brand that has all the experience in the business, you get a ready
Online movie rental business
model, the work is absolutely profes-
I have had bad experiences with on-
sional and the recipes of juices and
line movie rentals. "Customer can
food is just fantastic. This helps in the
also decide the time slot", this point
growth of business.
is completely false. Most of the peo-
I am only concentrating on sales
ple who commented on your article
and it's wonderful that the company
are from same business field. So, I
executes all my ideas as well as plans
didn't find any reason for them to re-
something special for my brand eve-
veal the problems of this industry.
ry week.
Let's take the example of seven-R Mishra
tymm.com. For delivery, the customer is on the delivery boy's mercy.
An earthmoving opportunity
They have a fixed time for your area.
Construction equipment rentals is
If you are there, then good, else they
the concept of future in our country. It
will not deliver the movie. Quality
can actually untie a lot of capital that
of movies is another major concern.
is currently being invested, and at the
Many times it's worse than pirat-
same time achieve better equipment
ed ones. Rugged, highly-used and
utilization. However, presently, there
corrupted are the words I can use
are few areas that needs to be looked
for describing the quality of CD/
into, like movement of equipment
DVDs delivered.
from one state to another, good oper-
Service wise, customer service is
ator-cum-mechanics, modern tech-
not equipped to assist you. What they
niques of equipment management,
assure you, they don't necessarily do
understanding the application well
at the back end. They never reveal
etc. In fact, we need to see the rental
complete information while adver-
business flourish, both the clients
tising any service/package, especially
and the equipment hirer will have to
information related to refund, in case
work in tandem with each other and
you are not satisfied with the service,
JULY 2010 | FEEDBACK | DARE.CO.IN
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or change your mind. All this information is revealed later when you
I am a regular reader of DARE right from the first issue. The "Entrepreneur" maga-
chase them in case of any problem.
zine must be giving you competition, however you should not stop your magazine.
-KP
See how many English news channels are there. I am eagerly waiting for your June
How to improve productivity in any organization using workflow analysis
issue. Please provide me the details about this issue. - Santosujit Mohanty
Interesting analysis! When the employee has to do a lot of tasks and co-
The status message story
been thinking of starting a small pa-
ordinate with many different points
The concept of status messages is
per recycling business. But due to
of contacts, some discrepancies start
quite unclear to me till now. It in-
lack of information and knowledge I
cropping up.
volves a lot of non-English or regu-
couldn't get started on my plan. To-
lar-language words that are hard to
day, I am lucky to come across this
pick for a guy like me. Along with
website article and the space provid-
Can entrepreneurship be taught in a classroom?
the messages that one directly sends
ed for contact.
The blog entry on "Can entrepre-
one's social network, there is there
neurship be taught in a classroom"
regular stream of status messages go-
Make money from dung!
was crisp and inspiring.
ing around.
I liked the author's views. DARE has
-Priyanka D
to
followers/friends/contacts
- R Ngupani Tao
in
One needs to have good learn-
Status messages can, no doubt,
written a lot of articles on waste
ing skills to become a happy entre-
convey what nothing else can. Like
management and how money can
preneur. None will teach and none
somebody says, "What can't be said
be generated from things called and
can teach! Learn with a clear mind
on face, can be said on FaceBook!"
that appear as "waste". I am sure a
and things will work out surely. Take
-Lokesh Goyal
could be generated in this field. Keep
small, safe and smart steps towards
Business from waste paper
success every day. -Mohan
lot of social entrepreneurship ideas up the good work.
For quite some time back I have
-Vivek Kumar Singhal
SMS: â&#x20AC;&#x153;DARE <your comments, questions or suggestions>â&#x20AC;? to 56677 Email: dare@cybermedia.co.in Website: www.dare.co.in Follow us at: http://twitter.com/daretostartup 16
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blogs/opinion
/Vijay Anand
A Workforce of One Whoever told you that entrepreneurship meant being your own boss, was lying. Working for someone else, for a while, under a vision and banner helps to hone your capacity, to deliver without having to be emotionally attached to everything
P
eople often ask me when would be a good time to start a company. Most people seem to advocate that the best time to start is now. Like most discussions in life, the answer to this really depends. Here are a few reasons as to why it might not be the best reason to start the company right after college.
1. The Culture of Work The few companies that I work with that have amazing work culture were built by people that have two things in common—they all have prior working experience, and they know exactly what were the things they hated about the earlier organizations. It really helps to define how to manage people and to build a culture that would be fun and productive. Managing a team and people are one of the crucial factors of building a company.
2. Semblance of Maturity For any real education to happen, for any real learning to occur, one has to, at some point, trust oneself in the hands of another—to be broken and then put back together. Through each one of such processes you actually come back with a better understanding of yourself, the way you see the world and the contribution you can make. The system of gurukul was perhaps the epitome of education in the truest sense— try saying that to anyone who is itching for a reform in education. Whoever told you that entrepreneurship meant being your own boss, was lying. Working for someone else, for a while, under a vision and banner helps hone your capacity, to deliver without having to be emotionally attached to everything. 18
JULY 2010 | COLUMN | DARE.CO.IN
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3. Networks
I was once told by my mentor that we, as individuals, are the final product. Everything we do, go through, the companies we build, lose, sell, succeed, all are seasons that pass through us.
Who you know matters. Deals happen because of people, not because of anything else. Money is invested into companies because ultimately one trusts the capability of the team, nothing else. Most people underestimate the power of the chair they sit on. The right chair in the right organization can give you the reach to network, connect and lay the foundation for a future company. That doesn't mean you have to sit on it forever, just long enough to get your insignia in the industry and start working on your dream.
4. Personal Cashflow Management. Would you say you are profitable? Think about it. You grow up, invest in education, network, get into a career all for a reason—to be able to make enough money, cater to your needs and still have enough to save. Are you profitable? Most people wait till they start a company to learn the lessons of financial management, when technically they could start with the smallest company of all—just themselves. Presume that you are the product—you have been built with the best academic education, honed with soft skills, and have the capacity to deliver. If your cost of living is higher than the amount you are able to earn, it is obvious that you need to upgrade your skills, and reposition yourself in the industry. All of which is very much like what you would do for a product. This is important, because if you are selfsustainable, and are making the best of what you can, that's when you are really an asset to a startup, because you already carry a commercial skill. Bring two or three people with such skills and it starts to multiply. That is the key ingredient behind a startup. I was once told by my mentor that we, as individuals, are the final product. Everything we do, go through, the companies we build, lose, sell, succeed, all are seasons that pass through us. What we have achieved in this lifetime is what speaks about us, but those are also reflections of what we were—not the titles we held, or the companies we built. Thomas Jefferson understood that bit about building a legacy—in his tombstone there are mentions of the Constitution, the design of the university and several others, but no mention of holding the presidential post - twice. Think about it! R Vijay Anand is a serial entrepreneur, the founder of Proto.in, and the Vice President (Incubation) at IIT's RTBI. He tweets at @vijayanands. To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Vijay Anand'. DISCLAIMER: The views expressed here are that of the author and do not represent the magazine's. DARE.CO.IN | COLUMN | JULY 2010 19
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Digital Resurrection of Indian Heritage A 3-D application that can recreate virtual history in real-time /Vantika Dixit
I
magine getting the power to recreate history as it existed 500 years ago and witness it today in real-time. Ramachandra Budihal, founder of Mahabharata Research Foundation (MRF) and India Innovation Labs, Bangalore has developed an application to make this possible. His software together with a 3-D console can enable users to experience the past in present, virtually. With interest in cognitive science, augmented reality, humanoid robotics as well as history and heritage of India, Budihal is a solution architect and researcher at Wipro Technologies, Bangalore. Along with a team of 10, he has developed a software application that computes human gestures into virtual reality. To execute this application, the user needs to wear a pair of 3-D glasses fitted with a camera. As the user sees through the 3-D glasses, hand gestures are captured by the camera on the console and are wirelessly transmitted to the computer where the program is stored. Accordingly, the program inserts artificial information in real time and presents it to the user as an information layer on top of the real world view. “Human beings communicate with symbols, speech, sound along with gestures and expressions. We sense visual, auditory, tactile (touch), olfactory (smell), and gustatory (taste) stimuli. Our actions are dynamic and dramatic in space and time. We at India Innovation Labs are
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trying to explore if we can extend the human computer interface technology by incorporating tactile and olfactory perceptions into the system,” explains Budihal. He has created Digital Hampi - a project in which his application has been put in use to not only bring the ruins of Hampi to glory, but also to allow users to virtually experience the era and see the monuments that were present then but are broken now. Digital Hampi is an Indian public private non- profit partnership project, with international cooperation, to holistically resurrect Hampi digitally.
HISTORY Hampi, a World Heritage Site since 1986, used to be the capital of the last Hindu kingdom of Vijayanagar which flourished under the rule of King Krishna Deva Raya (1509-1529). The kingdom’s Dravidian temples and palaces won the admiration of travelers between the fourteen and sixteen centuries. Conquered by the Deccan Muslim confederacy in 1565, the city was pillaged over a period of six months before being abandoned (UNESCO World Heritage Centre). The site, now in the Bellary district of Karnataka, also holds great importance according to the Hindu mythology, Ramayana. Budihal’s efforts are marked towards preserving the unique history and heritage of the site. His Digital Hampi project was first demonstrat-
ed at TEDIndia conference on November 4-7, 2009 in Mysore as a proof of concept. Much of the project work is still in progress.
TECHNOLOGY The software application developed by MRF, as part of the organization’s aim to contextualize India’s ancient
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1 2
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1. The E3IT software together with a 3-D console can enable users to experience the past in present, virtually.
3
2. The rear view of how the 3-D console may look like. 3. When the user makes hand gestures the camera on the console captures it and wirelessly transmits it to the computer where the software is stored. 4. The E3IT software inserts artificial information in real-time and presents it to the user as an information layer on top of the real world view.
wisdom and knowledge, is called E3IT (engage, entertain, educate, immerse, and transform). The E3IT application is enabled with GPS to detect the userâ&#x20AC;&#x2122;s location and navigate accordingly. The software enables the user to create a profile and customize the kind of information that should be deliv-
ered. For example, while an architect would receive the guided tour with architecture details of Hampi, a historian would get all historical details of the same place. The application will also comprise features such as voice recognition, pupil recognition, and content delivery in 10-12 languages initially.
Some of the key aspects of the technology are digital time machine and immersive modes. The digital time machine mode delivers mixed reality digitally. It allows users to set the date back in time and see what existed on that spot at that specific time of the day. For example, if the user is in front of a broken temple structure DARE.CO.IN | INNOVATION | JULY 2010 21
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The ancient scripts on palm leaves and paper. The E3IT application can show user the scripts that were written during a particular era, along with the translation in the user's preferred language.
in Hampi at 6 PM, setting a date back up to 500 years he or she will see how that temple looked like and what used to take place at the temple at 6 PM, 500 years ago. However, the time machine content is close to reality. “The content for the entire experience has been collated from extensive literature that is available to us. As far as the time and exactness of rituals are concerned, there will be some fiction associated with it to complete the story and give user a feel of that era,” explains Budihal. The immersive mode is a step ahead. It actually creates virtual structures and through the exo-skeleton – a robotic arm – allows the user to feel the virtual reality and hear the sound. In Hampi, the musical pillars of the Vijay Vittala Temple are famous for producing sounds of different instruments. However, now they are prohibited to touch as the structures have become fragile over the years. With the E3IT application the user can make a gesture and see virtual musical pillars. It even allows the user to hit the virtual pillars by exo-skeleton arm and hear 22
the same sound that the real pillars would have produced. The user could also use the general guided tour or a free roam mode to see around the site. The application even allows users to virtually scribble on monuments and save it for future generations – a feature that is meant exclusively for Indian tourists who are fond of scribbling their names on monuments. Through the application the users can also track their group partners in the vast site. Each user can interact and show his or her partner what he or she is seeing at a different location. They can share photos and video in real time. The feature intensive application showcases both tangible and intangible past. On demand, it is even capable of showing user the scripts that were written during a particular era, along with the translation in the user’s preferred language. Budihal has been working hard for past 15 years on digitizing Indian scripts. In 2007, he received the Badrayan Vyas Samman award from the then president of India APJ Abdul
Kalam for digitizing over a million ancient Indian scripts and for developing digitization technologies for promotion of Indian classical literature. “India will have to remain India in order to be a change agent in the new world and the new economy. For this, as Indians we should know India, its people, culture, and heritage better than anyone else. The power of being traction of its culture is what people call as the soft power that influences and tracts other countries in the twenty-first century. India has infinite powerful stories that are imbibed in its ancient manuscripts. It has the world’s largest number of manuscripts. If we do not value and save them, we will lose our foundation and source of strength to tract other nations, and perhaps even our greatest identity as a country with immense knowledge heritage,” says Budihal. He plans to build similar kind of extensive data on historical places.
WORK IN PROGRESS “Much work needs to be done before the final prototype is ready in two years. By the final stage we want to make the application capable of capturing emotion and have better touch capability. We would also be developing the device ourselves along with a complete suit that can give the user a complete experience of traveling in time,” says Budihal. The MRF will be filing many patents for the technology. The first prototype of the digital travel guide is expected to be ready in 2010 in commemoration of the fifth centennial coronation of Krishna Deva Raya. R This article is sourced from: Technology Review India.
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Everybody Loves A Good Slum! Is slum tourism a mere profession of parasitic entrepreneurs feeding off the spectacles of poverty or is it compassion in an unconventional form /Shinjini Ganguli
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L
ike a good draught, everybody loves a good slum! And Christopher Way has no impregnable immunity. After a short trip to Mumbai that he took after graduating from Birmingham University he decided to prolong his stay. Today, itâ&#x20AC;&#x2122;s been more than half a decade; Chris frequents the streets of Mumbai, undistinguished from the inhabitants, the Mumbaikers. In 2005, along with his Indian partner Krishna Poojari, he started the first slum tourism agency in India called Reality Tours and Travel. It takes foreign tourists through the labyrinthine alleys of Dharavi to places replete with visible plight of the underprivileged. Dharavi is the largest slum in Mumbai and by most estimates the largest in Asia. As per a 2001 Harvard Business School (HBS) research, Mumbai had 5.82 million (49%) of its population living in 2,000 slum pockets, the largest absolute number and the largest proportion of slum dwellers in the world. Currently, it is speculated to be somewhere close to a billion. Unfortunately, makeshift houses, gaping sewers, rat-infested lanes and hungry children make for a redeemable sight. Tourists readily pay for a heart-wrenching tour around a slum to gratify their inflated appetite for voyeuristic pleasures. However, the liking for the same by flamboyant foreign travelers isn't new found. Tourism or poorism, as is alternatively known, began in 1992 in the shantytowns, locally known as favelas, of Rocinha in Rio de Janeiro. There are 750-odd slums spread across Rio's hillside, accommodating more than a quarter of the city's six million residents. However, it is not the abject poverty or the unhygienic living conditions that attract the voyeurs but the thrill of meeting the infamous drug peddlers and gangsters, and interacting with them without the fear of being shot down. The tour op-
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Photo: Stephen Chao Photo: Francesco Stelitano
Chris Way and Krishna Poojari of Reality Tours and Travel
Dharavi at a glace
erators functional in those areas help fulfill these dreams of the adventurestarved tourists. Poorism is a burgeoning business in Kenya, Nairobi, Johannesburg, Jakarta, Mexico City, etc. The operators there are constantly stretching their resources to cater to the increased business. They are in fact giving traditional tour operators a run for money with tourists increasingly opting for unconventional packages. Famous tour operators like Favela Tours and Exotica Tours in Rio and Jakarta Hidden Tours in Jakarta charge between the range of $29 to $129 for tours to slums. The rates prevalent in India are not far behind the international rates. A two-and-ahalf hour long tour from the house of Reality Tours, covering parts of Dharavi showcasing the industrious slum dwellers recycling garbage, making clay pots, baking, soap factory, leather tanning, papad-making, etc, costs
as much as $10 per head. While other tours (half-day, full-day, two-days) range between $10 and $100. Go Heritage India Journeys charges $20 for showing the slums around Trans-Yamuna in Delhi. While Salaam Baalak Trust, an NGO working for street children, charges Rs 200 only for an enlightening tour of oneand-a-half hours tracing the lives of street children starting from Nizamuddin Railway Station through the by-lanes of Paharganj to New Delhi Railway Station. The credit for such parity in rates is attributable to the Oscar-winning movie Slumdog Millionaire by Hollywood director Danny Boyle, who recreated the exaggerated plight of the poor in India thereby putting it on the international chart. "After watching Dharavi in Slumdog Millionaire, many Europeans flock to India to differentiate reel life from real life," says Subrata Mukher-
jee, MD of Go Heritage India Journeys. The increasing interest amongst foreign travelers in the 'real India', presumably fraught with poverty, hunger and the mafia, has boosted the business. In the past five years, since the first slum tourism agency was established in India, the number of operators has risen to five. This definitely is a sign that the industry is growing at a considerable speed. Authenticating the growth in unconventional slum tourism, Chris says, "We generated an annual income of approximately Rs 33 lakh in the last financial year (2008-09), which is tremendous considering the fact that we incurred a loss of Rs 111,166 in the first year of operation, which was just four years back." A triumphant Poojari further adds, "Today, on an average we serve about 20-30 tourists daily, while we could barely manage any back in 2005." The travel agency organizes four to five DARE.CO.IN | SECTOR ANALYSIS | JULY 2010 25
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Photo: Cory Goldberg
Life in a slum
tours a day now as against one or two tours a week in their early days. The critics, however, find such triumph cruel and the jubilating slum tour entrepreneurs parasitic. They particularly detest the practice of encashing the pitiful sights that constitute the sightseeing tour. "Slum tourism is as good as red-light tourism," says Mukesh Mehta, chairman of MM Project Consultants Pvt Ltd and consultant to Dharavi Redevelopment Project (DRP). "I am saddened by the fact that people get a thrill by marketing poverty," he opines. Slum tour agencies expose poverty and squalor hidden between the shiny walls of corporate India and trades off the dignity of the poor for a tinkle of the nickel. The practice of taking tourists around the rickety corners of the city displaying the plight of the poor is highly unethical and exploitative. Gautam Chatterjee, Chief Executive Officer, Dharavi Redevelopment Authority (DRA) believes, "Slum tourism is a failure of tourism agencies." He stresses on the fact that slums aren’t articles of exhibition. However, the players argue that through the tours they provide a valuable window into the lives of the slum dwellers. They show the foreigners that Dharavi, which is believed to be the breeding ground of poverty, has 11,000 commercial and industrial units that generate a turnover between $665 million and a billion annually. In fact, the average family income in 26
Dharavi is Rs 13,500 as per the socioeconomic survey conducted by Maharashtra Social Housing and Action League (MASHAL), clearing the slum of any sign of abject poverty. They claim that besides providing employment to the local guides and opportunity to sell souvenirs to tourists, they alter the skewed perception of the phirangs about India. However, charging for showing the spectacle of poverty isn't acceptable to critics. Scott Clark, an international photographer who has worked in the claustrophobic lanes of Dharavi says, "It can be seen akin to paying to watch lions tear apart a prisoner." However, there are a few who think that slum tourism, if done right, can bring changes, even if it only means marginal upliftment. The intention has to be right so has to be the action. Gerry Pinto, former UNICEF program officer and president of MASHAL, says, "Slum tourism helps nullify the negativity that the media cast on slums. It encourages survival." And it is important, as slums are the solution to the have-nots when the government fails. He believes that dollars that swiftly make way to the pockets of the tour operators need to trickle down in the slum. “The operators must put back a significant proportion of their profits in the slum as that’s where they reap profits from,” he emphasizes. In fact, responsible tourism agencies are already doing it.
Reality Tours and Travel puts 80 percent of its earnings back in the slums. This year it donated Rs 200,227 to Reality Gives, an NGO established by Reality Tours. The organization currently runs a kindergarten and community center in Dharavi. The NGO imparts education to children for a mere fee of Rs 60 a month. They also provide computer classes for Rs 500, which they refund after three months. “We change people's lives," says a contented Chris. Similarly, Salaam Baalak Trust also gives back to the society. It uses the revenues generated from city tours to educate children. It provides different kinds of courses to suit the needs of various kids. It has courses on formal education, non-formal education, bridge education and open education provided under the National Institute of Open Schooling (NIOS) scheme. “Our student Brijesh Pandey after studying here, worked with us for sometime time. And now he has gone to the US for studying tourism,” proudly says AK Tiwari from Salaam Baalak Trust. Most of the tour operators do contribute to the society and therefore, in fact, advocate that their “incomes should be tax free,” says Mukherjee of Go Heritage India Journeys. However, the contribution by slum tour operators wouldn't transform these slums. Despite various promises over the years, the government hasn't even been remotely efficient in eliminating poverty and unemployment. In fact, it's Rs 15,000 crore Dharavi Redevelopment Project (DRP), which entails rehabilitation of 57,000 families, is yet to take off six years since it was first cleared. Nonetheless, such failures ensure success for the slum tourism industry. And even if the government ever achieves its target, which is quite unlikely, "We will move to other slums. Slum tourism will stay. And stay profitable!" says an enthusiastic Krishna Poojari. R
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blogs/opinion
/Anurag Batra
Light at the end of a tunnel Entrepreneurs need to make sure that their ventures reach break-even and show returns early
Y
ou are aware that entrepreneurs have to be philosophers. In today’s environment, Facebook and other social media have turned all of us into philosophers anyway—we keep posting pearls of wisdom. So let me elaborate on what I mean by the title of this column— Light at the end of the tunnel. I simply mean to ask, when will a new venture turn profitable or at least break-even. In the era of bootstrappers, about whom I wrote in the last issue, this question becomes even more pertinent. How long should an entrepreneur fund a venture before it starts breaking even? Of course, there is no standard answer or formula. It depends on the sector, the nature of business, the scale and the skill-set of the entrepreneur. It also is determined by the environment. The only guiding principle I would like to propagate and share with you is that like the human body which generates its own healthy blood for itself and keeps the body in shape and disease-free, the venture needs to generate its own revenues at some stage to become like a human body. We know that any human body that does not produce its own healthy blood at some stage
can become weak and fade away or not be able to live well. The body at some stage can take doses of blood from outside but at best these need to be supplements. The startup business enterprise needs to become a healthy selfsustaining body in order to survive and thrive. The entrepreneur is like mother or father who realize the baby needs to stand on its own. Let me take the case of the industry I know little bit about—yes, I am talking of the media and entertainment industry. We know that most television ventures did not make money but still enjoyed unbelievable valuations. I believe those times are over. The days of long gestation periods and long days of break-even for startups are over. The investors wish to see traction early and could lose patience and interest in the venture if there is no light soon at the end of the tunnel. Entrepreneurs and ventures who can start showing faster break-evens and better cash-flows will soon attract more capital and attention. What I am saying was always the case, but I would say the investors' outlook on this in last few years has become even more clear and demonstrable of this trend.
My five suggestions for a budding entrepreneur: 1. Keep costs low 2. Get yourself to be a key contributor so that your equivalent cost can be eliminated 3. Try and do deals with partners' vendors that are linked to the venture and company's growth 4. Share the wealth as well as the risk with your core startup team 5. While low costs are welcome, there are some mission-critical and core aspects that need to be done on a certain quality and scale—don't be penny wise pound foolish in those aspects. I must also share that business plans are likely to go awry as the environment and competition are dynamic so having a mentality that I have talked about above is something that will keep you in good stead. R
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 founder and editor-in-chief of exchange4media group which includes exchange4media.com. To write to the author, please send an email to dare@ cybermedia.co.in with the subject line 'Anurag Batra'. DISCLAIMER: The views expressed here are that of the author and do not represent the magazine's. DARE.CO.IN | COLUMN | JULY 2010 27
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from the Blogs http://www.dare.co.in/blogs.htm
Don't run behind the VC Posted by: Prashanth Hebbar in News on Jun 16, 2010, Tagged in: Untagged
H
ow can I get a VC interested in my startup? This is a common question on entrepreneur circuits, be it a TiE meeting, a Dare event or a HeadStart StartUp Saturday event. My answer to this is simple. Don't run behind a VC. Work on your business model, actually jump into the water and start building the business. If your startup cannot start without VC money, then it most probably is not a good idea.
I encountered two bright, young, wannabe entrepreneurs, who surprised me by saying that they were working on products for the space research domain. Now in India there is only one agency that can buy them and that is ISRO. So where do they start? The duo was looking for some VCs who could help them sell their ideas to the space agency. I would think involving a VC at this stage is counter-productive. As the inventions have a direct buyer,
the entrepreneurs should approach the agency directly, perhaps through its external technology partnership arm. Being a government agency, it may have its own process of approvals and procurement that the entrepreneurs have to go through. There is no shortcut to the high road of success. In order to de-risk, the entrepreneurs can also look for alternative applications for their product inventions and pursue them as well.
The status message story Posted by: Shradha Mohanty in News on Jun 11, 2010, Tagged in: Untagged
I
was in a chatty mood last evening when I got online. I scrolled down the chat list to choose who I'd like to talk to. 'Not at my desk' 'Bak home till 26th...yaaaay!!' 'Connected through BlackBerry®' 'losing the pride' 'Youth is a circumstance you can't do anything about. The trick is to grow up without getting old.' 'don't ping until you're dead or dying' I pick the one with status message 'losing the pride', a school friend of mine, and chat for the next half an hour. I always do that. Pick a person if I like the status message, discuss it if it's thought-provoking or if it's an update of some sort, ask more questions about it etc. (I was addicted to changing my status every now and then on Orkut until a few months back). It is now one of the most popular features
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used on the Internet. It's there on instant messaging and e-mail services and it's a rage on social networking sites like Facebook, Orkut, LinkedIn etc. There are also a host of sites which do this: http://www.awaymessages.com/ “AwayMessages.com has a huge categorized collection of cool and funny away messages (a.k.a. status messages) for Aim, Yahoo, MSN, Facebook, MySpace, and other IM/Social Networks that will keep you entertained for hours!” http://www.allbestmessages.com/ “If you are looking for Facebook Status then your search ends here. You will find all the Facebook Status, facebook status messages... cute love facebook status text and funny facebook status sms related messages here.” http://www.debbieohi.com/files/ misc/creative-facebook-status.html “Creative Facebook and Twitter
Status Messages by Debbie Ridpath Ohi” I also came across this amusing/ scary article on ET's website. Amusing because I didn't really think 'inappropriate status messages may land you in jail' and scary because the article revealed scary examples to back itself. Apparently they contribute to robberies and broken hearts. Also, they can be used as proof in court cases or even by your employers to decide whether you will fit your job profile or not. It is a plane where people can post inquiries and advertise or promote their product or organization. In this way, status messages help in sifting through the deluge of information and get in touch with the right people. A survey shows that nearly 75 percent of 34,514 myYearbook users are influenced by status messages when purchasing any product or commodity, to interactions magazine.
JULY 2010 | FROM THE BLOGS | DARE.CO.IN
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from the Blogs http://www.dare.co.in/blogs.htm
Funding your first project with a cash advance Posted by: Prashanth Hebbar in News on Jun 10, 2010, Tagged in: startup, funds, finance
R
ecently a wannabe entrepreneur asked me how to raise money for his upcoming venture. He has all the skill set but requires money for capital expenses and monthly working capital. The upside is that he has a ready client who is promising a continuous flow of work. This is an excellent situation to be in if one is sure of the client and the business flow. Money automatically follows. I asked him if he could ask his client to give him some advance to fund his
small capital investment. My question may have scared my correspondent as he didn't come back. Then I remembered the words of wisdom from NR Narayana Murthy,
Chief Mentor, Infosys Technologies, who advises that we get an assurance from our clients for paying us enough money to run our monthly show. My correspondent is in a better position. His potential client believes he can deliver based on his personal skills and ability. The best thing to do in such cases is to go back to the client and explain your situation. As the client knows you are new and are a wannabe entrepreneur, he may come forward with an offer to help you. Give it a try.
Make money with dung Posted by: Shinjini Ganguli in On the Website on Jun 10, 2010, Tagged in: Untagged
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es, it is true that you can make money with dung. But not just any dung here, we are talking about elephant dung. For the uninitiated, elephant dung is no ordinary dung. It has several uses besides the mostly commonly known use, which is paper making. The multi-purpose elephant dung is used for making paper products, biofuel, nutritional manure, mosquito repellent etc. Late but finally there, entrepreneurs in India are starting to experiment with the ideas that have long been successfully executed in the West. Today, collecting elephant dung and selling them is a popular revenue model in rural villages in India. Many
NGOs buy the dung from the villagers and sell it to the organizations that make use of it. Villagers also sell it directly to people as mosquito repellent in markets. They, in fact, find it more lucrative than farming. Manu from the village of Sonepur in Bihar says, “By selling balls of elephant dung we sometimes even make Rs 100 in a day.” Many entrepreneurs are also trying to turn this shit industry into a no-shit industry. A Mumbai-based entrepreneur Nilima Chaubey along with her business partner Jeet Rana, a handmade paper producer from Udaipur, make a range of products from elephant dung—notebooks, photo albums, frames, bags, gift tags, stationery and tea coasters—all
priced between Rs 10 and Rs 350. And she is not the only entrepreneur in the market today. In fact, sometime back some students of biotechnology engineering of Sahrdaya College of Engineering and Technology, Kodakara in Kerala, came out with a novel project to convert elephant dung into useful bioproducts such as paper, briquette, biogas etc. The project will take care of the huge quantity of elephant dung generated at the Anakotta of Guruvayur Devaswom, which was otherwise disposed by dumping it in landfills or by burning. So if you have kept your hands off the shit, wait no longer and dig in to find your share of profit. DARE.CO.IN | FROM THE BLOGS | JULY 2010 29
From the blogs Jul10.indd 29
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from the Blogs http://www.dare.co.in/blogs.htm
Good ol' champi Posted by: Shinjini Ganguli in Ideas on Jun 14, 2010, Tagged in: Untagged
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ar jo tera chakraye ya dil dooba jaye, Aaja pyare paas humare, Khaahe ghabraye, Khaahe ghabraye I know you are humming it already. And you perhaps know where I am getting at; yes, I’m talking about "champi" here. Sadly not many from the new generation even know what good ol’ champi is. The plush high-end salons at every nook and corner of the city have replaced the old hollering champi-walas from their humble abodes on the pavements and streets around the city. With increased purchasing power among people, they prefer visiting air-conditioned salons for hair spas to sticky tel maalish. Ex-
pensive chemicals have taken over remedial champi tel that once used to be a brand bigger than any of today’s brands put together. Champi oil is a home-made mixture of aromatic ayurvedic oil mixed with several therapeutic herbal agents. And champi is actually the massage. It includes massage of the shoulders, upper arms, neck, scalp, face, ears and energy balancing that helps relieve all the blockages in the nerves and helps your body relax within minutes after the divine massage. It is practiced in India for over 1,000 years, and while Indians have forgotten the wonders of champi, the West is cashing in on it. Famous salons like Sunflower Studios in London and Lotus
Natural Health & Rejuvenation Clinic in Washington are offering champi tel maalish to their customers for as much as £35 for just 35 minutes. In fact, there are people abroad who give tuitions on champi massage. Needless to mention, they are earning a great deal from it. After reading this, if the entrepreneur in you has already started to contemplate the idea, go ahead and be the champi-guy. Open up a decent place, call it a salon, call it a parlor, call it whatever you please and give your customers the satisfaction that no chemicals-infused hair spa can. After all, if the phirangs can make money with our good ol’ champi business, why shouldn't we?
Mystery shopping in India Posted by: Nimesh Sharma in News on Jun 24, 2010, Tagged in: Spy shopping, Paid shopping, Mystery shopping, Mystery shopper, merits of a shopaholic
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ooking mysterious? Well, this term has not been coined by us and it's also not a term that has been coined by lexicologists or marketers. It's an organized industry and has very much participation from top MNCs in the world. It's a developed concept in advanced countries, but is relatively nascent in countries like India. Let's un-complicate things through an example. Let's give you a name, Parminder. Now, Parminder is a shopaholic. There's a FMCG company “Domi Does Not Know” Pizza who hires a company called MistyShop (imaginary name, even if a real exists). MistyShop has deployed say 500 Parminders to shop at “Domi Does Not Know” Pizza countrywide, but they are not its
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employees. According to some predetermined terms and conditions, shopping criteria, other constraints and parameters, Parminder goes to a “Domi Does Not Know” Pizza outlet. She acts like a normal customer, but is very careful and observant, and is constantly measuring the performance of the pizza outlet on various parameters with minutest details possible. She observes behavior, voice tone, language, non-verbal language of the employees, and takes note of outlet ambience, cleanliness, waiting time in inside and outside queues, time taken in ordering, serving etc, customers' reactions on employee behavior, food quality and many other things. But why would you alias Parminder do this? Because she gets paid for
the efforts by MistyShop, who has been hired by DDNK Pizza (and not for shopping, if you are already thinking of a sponsored pizza party). The money could range from Rs 500010,000 per month. Besides, don't worry, you won't be responsible for some employee being fired. It doesn't happen generally. The feedback is only used to improve the MNC's services and customer experience. Can Satvinder alias 'the other you' be a mystery shopper? Well, yes. Just go through the websites and contact any of the many mystery shopping organizations in India. Enlist with them and do the assignment properly. And be the mysterious millionaire! It pays to be a shopaholic! R
JULY 2010 | FROM THE BLOGS | DARE.CO.IN
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entrepreneur of the month
Lalit Agarwal established V Mart Retail in the year 2002. The company made its foray into the retail sector in October 2003 by opening its maiden showroom in Ahmedabad. As of now, he has successfully driven the business to have a 150 crore plus turnover and have a presence with 57 fully-integrated stores in 44 different cities spread in an area in excess of 400,000 square feet. Agarwal speaks to DARE about his entrepreneurial journey, and shares his knowledge about the industry
ow would you describe the genesis of V-Mart Retail? My family has been in the business of retail since 1975. I formally entered the business in 1999. I come from the same family as RC Agarwal of Vishal Retail, who is my first cousin. We started our business from Calcutta, and we were among the first ones to enter the market in an organized fashion. We saw slow but steady growth in our business, which I believe happened due to us being very open to implementing innovations, such as bar-coding products, being a fixed price shop, opening up a chain of stores etc. In 2003, we realized that we were not thinking on same lines, and we decided to part ways. That is when I started this retail chain called ‘VMart’. We opened our first store in Ahmedabad, Gujarat in 2003, and since then we have not looked back. Our store is basically a mini-hy-
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per-mall kind of a model, wherein each of our stores is approximately 10,000 square feet, catering to the middle class segment of the market, and mostly women and kids. We also nurture the aspirations of the middle class and have top-end products with us. By doing so, we have always had wide horizons on X-axis as well as Y-axis. Our group started its corporate journey with a mission to bring quality garments within the reach of the common man. We have a huge product line that lives up to our punch line “Sabse Sasta Sabse Achcha” (cheaper than all others, better than all others), wherein we try to get into the customers psyche, and make it a point to not charge any royalty, or offset product prices based upon the store location, and such. We offer products at the minimum margin and try to give the customers value for their money. As of today, we have
57 fully-integrated stores in 44 different cities spread in an area in excess of 400,000 square feet. In your experience, what are the five key things that one has to keep in mind in the business of retail? First and foremost, you need to identify what products you are going to deal in. When you zero in on that, ask yourself if you know what is the best way to source the product, price the product and display the product. Secondly, you should know where to sell these products, in terms of store location, as well as
Lalit Agarwal V Mart Retail
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Experience has made me realize that one should not over estimate and enter markets that are not suitable for you or markets that you yourself are not ready for
placement of the products within the store. Price is the third key thing to keep in mind. If you are targeting the masses, and even slightly overprice it, it will result in a lot of bad business. Also, you should know that you should arrive at acceptable price points of products, while keeping in mind things such as the investment that you have put in, and such. The fourth important element is to understand this Hindi phrase, â&#x20AC;&#x153;Jitni badi chaddar ho, utna hi pair fehlana chahiyeâ&#x20AC;? (spread your legs only as much as the sheets can accommodate). This is very important when thinking about expanding your business. The fifth and final thing is that you should put a lot of thought into knowing how to market your products, your brand, and publicize your chain of stores. What products typically do not do well in your format of retail chain? Almost everything that is out there in the market reaches the customers through a retail format. In our experience though, even though we have managed things very well, we have seen that electronic goods have not done all that well. Also, we have seen a similar thing happen with retailing footwear, which could have done much better than it has. What is the one big challenge in the retail business? Every entrepreneur in any segment of business will face various difficulties when they set up a business or try to grow the business. However, in retail, human resource is a big challenge. One does not require a lot of highly educated manpower, but you do want them to have good general knowledge, be street smart, have a sense of loyalty and be principled. As an entrepreneur, you should be very particular about how you want you handle your manpower and frame the HR policies that facilitate your vision.
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Your first big taste of success? The biggest success for me, I would say, was setting up our first store in Ahmedabad. This store was the first one in our venture and we were the first to enter in the markets in the west of India. We begun as an ordinary retailer in this category and we tasted grand success almost instantly. Any mistake that you learned from? Well, we had opened a store in Navi Mumbai, and that turned out to be a learning experience. This store did not do well at all. The reason behind it was wrong selection of place, wrong selection of market etc. The city itself is so large and just having one store out there does not really help in making your presence felt. This experience made me realize that one should not over estimate and enter markets that are not suitable for you or markets that you are not ready for. Did you see a downfall in your business during the period of recession? I would not say that I did not see a downfall of business. While the market has seen a lot of retail chains close down many of their outlets, we also had some of our outlets relocated. Now, relocation is a part and parcel of the business, and is not so much directly related to the slowdown of the economy. One mistake, which in your opinion, any aspiring entrepreneur should avoid? I would say one should avoid getting carried away with the existing business scenario. It is common sight to see people drift away into a mindset wherein they think that doing a business is all about investing some money, doing some marketing, giving out some discounts, and the business will flourish. The aspiring entrepreneurs should not be thinking so much about profitability, as much as about product line or services. R
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2.6 crore Number of MSME enterprises in India
How to increase your chances of getting a bank loan?
A good project viability report, coupled with a positive credit rating and collateral security can help SMEs raise loans faster. While banks closely look at the repayment capacity of the borrower, it is the relationship between the banks and the SMEs that has a direct bearing on raising a business loan /Vimarsh Bajpai & Nimesh Sharma 36
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at 2020 with high hopes to grow and match the best in the world. Besides skilled manpower and technology, it is finance that would either make or break their dreams. But it would be unfair to say that everyone is denied a loan. If that were the case, there would be no banks around. Take the case of Mohd Haroon, founder and managing director of Noida-based auto parts company Aglow Engineers, who managed to get a loan of Rs 35 lakh from a local bank, to buy sophisticated machinery to grow his business. His good working relationship with the bank worked in his favor. He had been taking working capital loan from his local bank at attractive rates.
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hen Pranab Roy of Progressive Engineering in Jamshedpur took over the executive role in his family business around a year back, he focused on expansion. While the basics were already in place, he needed growth capital to get going. A sound customer base, a good reputation and clean books were all he thought would fetch him a bank loan of an undeclared amount. But that was not to happen. “My company posted a growth of 50% in sales last year and profits were up three times. Yet I have difficulty getting the bank loan,” he says. Several meetings with bankers have come to naught and the capital for his business is still far away. Pranab is not the only one trying hard to raise capital. Thousands of promoters of small and medium enterprises are trying everyday to explore the credit route to grow. And they have good reasons to do so. SMEs are the engines of economic growth and India is dependent heavily on them for employment generation and exports. Dubbed as the “nursery for entrepreneurship” by a report of the government’s task force, these units employ over 60 million people, share 8% of the GDP and 40% of exports. Most SMEs today are looking
Business Loan Vs Equity Regardless of the size of the business, short-term, medium-term and longterm capital requirements remain unchanged. Short-term requirements are used to run the business, the longterm needs are aimed at taking the business to the next level, purchasing machinery or raw materials, acquiring a business etc. For work capital loans, banks are the obvious choice but growth capital, firms also look for equity and / or a mix of debt and equity. While there are pros and cons of debt, it is the availability that matters. You as a business might be keen to get a business loan, the bank also has to be equally satisfied about your eligibility to get funded. Industry watchers believe that although there are claims to the contrary, a service business still finds it hard to raise a business loan as compared to a products business. “A lot of IT services companies face this problem, as they don’t have assets such as a plant
8% Their contribution to the GDP
Type Of Bank Loans Working Capital Loan Overdraft Factoring Term Loans Syndicated Loans Project Finance or a machinery to pledge with the banks,” said a financial expert who works in an outsourced CFO model. The case for big corporations is however different. That is primarily due to their hefty order books, reputation and a solid promoter background to back you. Some experts advice caution while raising debt. "Dont take more loan then you require, as that would amount to over-exposure to risk," says Sanjeev Goel, SR. VP, Essel Shyam Communications, Though there are positives which point to a business loan as a good option, it is undeniable that equity gives freedom to operate and tax free incentives too. If you take debt, it spares you the trouble of dealing with an outsider who would sit on your board and tell you how to run your business. Certain tax benefits also accrue to the companies that take business loans from banks. But this comes at a price. If you take a business loan, you got to ensure timely repayment as this can lead to trouble with the bank. Stricter norms are now in place to deal with defaulters. Interest rates, collaterals and guarantees are other things you got to deal with while raising a bank loan.
Issues While Raising Loans Most SMEs that DARE spoke to talked of the difficulties in getting bank loans. Some of whom who had switched from public sector banks to private sector banks in the hope of availing easier credit talked of similar problems. One of the problems is that of bureaucratic set up in banks with DARE.CO.IN | COVER STORY | JULY 2010 37
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BANK CREDIT TO MSMEs Sectors
(AMOUNT IN RS. CRORE)
2005
2006
March 2007
March 2008
March 2009@
8,592
10,421
13,136
–
–
–
–
–
46,912
47,916
67,800
82,434
102,550
–
–
–
–
–
151,137
191,307
6,907
8,430
11,637
15,489
–
–
–
–
–
18,138
Pvt Sector Banks Small-scale industries Small Enterprises PSU Banks Small-scale industries Small Enterprise Foreign Banks Small-Scale Industries Small Enterprise * All SCBs % of MSE Credit to ANBC for SCBs
83,299
101,285
11.6
9.9
127,323
213,538
7.2
11.6
257,361 11.4
ANBC- Adjusted Net Bank Credit SCB -Scheduled Commercial Banks In September 2009 the total outstanding credit stood at Rs. 323565 crore February 2010 it further increased to Rs 369866 crore SOURCE: RBI Report on Trend and Progress of Banking in India/RBI Annual Report
6 crore People employed by MSMEs. Next to agriculture
“If an SME has blue chip customers, then the bills can be discounted to the bank. SMEs can raise money after submitting those bills with the bank.” – Pankaj Jain Vice-President, Era Infra Engineering 38
people getting transferred quite frequently. “You go to a bank branch today and talk to a loan officer, get an understanding of what documents to present while explaining your case, in the hope that the loan would move faster. Visit the same branch again after 15 days and you find there is a new person sitting across the table. You again have to explain your case. It takes up valuable time,” says a promoter of an SME in Coimbatore. “Sometimes the time taken to issue a loan is too long. Our business can't wait. The other problem is that of too many rules and regulations and obsession with financials. Banks should take a holistic view of
the borrower and not just stick to certain definitive parameters,” says Pranab Roy, CEO, Progressive Engineering in Jamshedpur. Mukesh Miglani, MD, Fabknit India has a similar story to tell. After dealing with public sector banks for a long time, he switched banks a few years back. Though the new bank had initially mentioned an interest rate of 12.5%, they increased charges after a few months, and Miglani had to pay an interest rate of 16% on repayment. Dejected, he switched back to the bank he was dealing with previously, and is quite happy now. On a loan of Ra 3.5 crore, he has a reasonably good overdraft limit. "Nationalized banks used to create problems earlier, but after the entry of other foreign banks and private banks, they have improved a lot", says Miglani. Accusations fly high when it comes to “hidden charges”, which are primarily the terms and conditions under which the loan is being sanctioned. It is, therefore, necessary to read the fine prints too. “We observe the 4 Cs while evaluating someone for loan - Capital (existing), Competence (of the team), Certainty (of projections) and Collateral (security)," says Joginder Singh, a Chartered Accountant. "A borrower should not agree to the terms of the bank, which he cannot comply with,” he adds. SMEs who raise loans have to deal with some strict financial discipline. This includes maintenance of accounts and timely repayments of loans. Although there is nothing wrong with this but some promoters complain of too much interference from banks. SMEs who take loans for a certain reason can’t divert funds for other purposes of the business. This prevents SMEs from constructively using the capital in hand. The borrowers have to undertake periodical monitoring of their usage with regard to loan amount. This usually comes in the form of financial statements
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Reach is the mantra T.R. Bajalia, Executive Director, IDBI large number of SMEs don’t have banking relationship. We are working with NGOs and government agencies towards RBI’s Rural Inclusion program. Today, a rural SME is faced with a number of roadblocks. Typically, the SME is a single person managed unit.
These units go to unorganized sector for their loans. There is a need to bring in awareness that finance is easily available. We have to counter the myth that "going to the bank is difficult." Many do not know that most proposals we (IDBI) get are covered under credit
and cash flow information that needs to be submitted to banks on a regular basis. The banks claim that they do it with the purpose of keeping a closer watch on borrowers. High collateral is also blamed by many SMEs as the reason for not being able to get loans. Some claim that if to raise Rs 1 crore as loan, they have to provide a collateral of Rs 3 crore, then why would they take the loan at all if they had so much funds in hand. Although banks have tried to allay fears that collateral is not the only thing they stress upon,
“For up to Rs 25 lakhs, we do not ask for coverage. From Rs 25 lakhs to Rs 1 crore, we ask for a reduced margin of 15%. Above that we see if the entrepreneur is contributing 20-25% himself towards his project. The last thing we look for is security. It is not a compulsory requirement." — S M Misra
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GM-SME, Indian Overseas Bank
guarantee (CGTMSE). We registered one lakh accounts last year. Interest rate in nationalized banks are the most competitive. If NBFCs offer at close to 20 per cent, ours will not exceed 14 per cent. IDBI increased portfolio by 100 per cent last year. We introduced 13 new products covering all requirements of SMEs such as road transport, shops and establishments, expansion, diversification and so on. SMEs are doing well. Private sector and nationalized banks, NBFCs are aggressive in giving money. Micro-finance companies are also aggressive in the under Rs 50 lakh loan requirement segment. Yet we see that going to the bank for a loan is perceived as cumbersome. We have to work towards removing this stigma. We need to work with banks with branches in semi-urban and rural areas by opening SME Care centers. Different segments within SME sector have different reasons for raising finances. Micro enterprises require working capital and capital for expansion. They will require collateral free loans. Small scale industries and medium require timely money at cost effective interest rates. This is where the lending market is most active. We are working on our turnaround time. Today, we sanction loan within 10 days of applying for an amount under Rs 5 crore and three weeks for a loan amounts above it.
95% Villages are not covered by banks the wish-list is quite long. “Borrowers will have to realize that we are a commercial entity and we have to ensure that the money comes back to us with interest. There is a difference between giving a loan and doing charity,” says a senior banker with a private sector bank. "While collateral is the prime security asked by banks, sometimes, even the property has to be given as collateral, which is a big hindrance. Often, the banks ask for both personal and corporate guarantees", says Sudhir Khurana, AVP, Finance
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“Nationalized banks used to create problems earlier, but after the entry of other foreign banks and private banks, they have improved a lot." – Mukesh Miglani MD, Fabknit
& Accounts, Essel Shyam Communications, a company that has grown through the stages as an SME. "Banks could ask for collateral that would be 20-25% of sales, and then 100% additional security", says Miglani. Another issue is that of pre-payments. Some SMEs have crossed swords with the banks over this issue. "While we tried to pay our installments in advance, the bank charged us prepayment penalty,” says a promoter of an SME. “While in several cases of default, the businessmen get waiver on principle and interest terms. This is the irony of our banking system,” he adds, Banks too have their good enough reasons for not lending sometimes. Lack of transparency on the part of the borrower is one among those. They insist that the promoter of an SME seeking a business loan should come out clean with their books and balance sheets. “SMEs who do not have reliable accounts and transparent financial data do find it tough to
"The whole process is divided into four parts: marketing, scrutinizing, sanctioning and disbursement. The centralized credit processing centre help in reducing the delays and hassels for these entrepreneurs who are starting their business." - S.Pattabiraman GM - SME, Corporation Bank
SOURCE: CII
raise growth capital. On the other hand, those who come out clean have higher chances of getting a loan,” says an official with a credit rating agency. “Unlike in nationalized bank, sales and collections are decoupled in private banks. We are very watchful of our NPAs and there is strong performance evaluation tradition that drives all aspects of our operations,” says a top official with HSBC Bank “We are not bound by the government directives to lend a portion of our total lending to SMEs. While we do follow the principles set out by the government, we do it only if we have secured our lendings,” he adds.
How To Get A Business Loan? Despite all the talk about the issues and challenges in raising a bank loan, it is also a reality that banks are lend-
60% Banks are required to extend at least this portion of their advances to SMEs
ing in a big way and SMEs are lining up to raise money at lucrative interest rates. Here are a few points that banks look for and if a small business meets all or most of these, it stands a better chance of getting a loan.
Project Viability No one puts a bet on a weak horse, so do banks. Being a commercial entity themselves, they would want to rest assured that the project for which they are giving money has enough potential to generate returns. For this one has to present a viable business plan to convince the banker that his money would be in safe hands. Many banks have a team that evaluates the project thoroughly before recommending a line a credit. While for a startup, it is a business plan that makes or breaks a deal, in case of SMEs it is a detailed report that would spell out the roadmap for either the expansion of the existing unit or the setting up of a new one. According to a banker, normally the business model, demand-supply, competitors’ status, tie-ups, orders, team background, sustainability, breakeven horizon, product profile, quality controls, financial position and projections, technical-manageDARE.CO.IN | COVER STORY | JULY 2010 41
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Does SBI help SMEs in case of Currency Volatility? SBI offers varied products ranging from an OTC Forward Contract to exchange traded Currency Futures for hedging open positions. In times of currency volatility SME clients feel secure while banking with us as we offer minimum risk products.
Loan Gyaan Manas Kumar Nag CGM, SBI
What happens in case of defaults on business loans? The bank first assesses the reasons for such default and initiates corrective measures for regularizing the position. The default may be for a temporary irregularity in the account attributable to the genuine liquidity crunch of the borrower. The position is carefully studied and if required the bank extends further financial assistance on merit to overcome the position. The loans are often restructured and rescheduled to stretch the period of amortization, so that the a unit gets more time. Every opportunity is given to the units for a turn around and for profitable operations. And when all efforts fail we initiate recovery measures by issuing letters and legal notices recalling our advances. Bank starts recovery measures by issuing SARFAESI notices, filing cases at DRTs, other court for chronic defaulters.
hat does SBI look for while considering a business loan application from an SME? In addition to satisfying the mandatory KYC norms, the bank looks to the viability of the project which includes, among other things, the promoter’s back ground, management of the company, promoter’s experience, market, infrastructure availability and What are the initiatives taken by the Bank future plans. for assisting the units affected by the recent slow down? How does the credit rating affect the chances of To address the problem faced by the SME an SME in getting a Business loan? customers in the general economic slowdown, The bank assesses the unit based on the internal SBI has launched various initiatives for the units credit rating for loans above Rs.25 lakh and for adversely affected due to inventory pile-up, loans below Rs.25 lakh simple scoring models stretched credit / higher carry of receivables, are used. The unit's rating is assessed based on low or negative cash accruals which resulted in the financial, business, managerial and industry shortage of working capital / inability to service related risk parameters. The bank also factors interest / term loan installments, abandoning in the external credit rating of the unit in internal / postponing of modernization/ expansion assessment. programs, etc.
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rial expertise, execution risk, etc are taken into consideration.
with a private-sector bank. Banks insist on coming out clean on past track record, sales projections, etc.
Transparency This is the big bone of contention between the lender and the borrower. While banks insist a lot on transparency with respect to balance sheet, etc, the SMEs claim that it is the bank that needs to be transparent. “We find that SMEs are prone to cooking their project reports and balance sheets in order to get term loans. They do not even show discipline in handling overdraft facility,” says a top manager 42
Credit Rating The banking industry is now relying heavily on credit ratings. A good credit rating can definitely increase
5% MSMEs are covered by institutional funding
the chances of getting a bank loan faster. Banks are now digging into CIBIL data to extract the past track record of the borrowers. Their ratings reflect the credit-worthiness of the borrower. Besides helping banks get a better sense of the borrowers financial strength, the ratings helps the ratee company gain insight into its own strengths and weaknesses. Credit rating agencies such as ICRA, CRISIL and CARE are now focusing quite a lot on the SMEs which can make the most of this facility.
Promoter’s Competence It might look like it would be difficult for banks to judge this but it is not. “We have a number of ways of finding out as to how the promoter is viewed within his own community,” says a banker. Banks insist on checking the promoter’s understanding of his business and if his track record is clean. Needless to say, that the promoter’s reputation does affect the chances of getting a bank loan.
Repayment Capacity Banks would want to be sure that they would get their money back on time. So the personal repayment capacity of the promoter is also taken into consideration. As for the business, it is the cash flow projections that help the banks in deciding whether the business would generate enough cash that would cover repayment as well.
Collateral This is the security to cover risk. While collateral is an important element of the lending process, it is not the only element. In case of a manufacturing unit, it is the value of plants and machinery that is pledged by the borrower to raise loan. This is referred to as secured lending or asset-based lending. SMEs talk of high collateral. Often, collateral asked is much more than 100% of the loan, which may even include, personal property and corporate guarantee. R
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The Devil Called Collateral
Collateral security is a bane for all entrepreneurs seeking loans from banks and financial institutions. Are there alternatives available /Shinjini Ganguli
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hen D Kumar of Andaaz Collections, a Delhi-based readymade garment manufacturer, set about raising a loan from a nationalized bank, he ended up pledging a property, which was valued 13 times the loan amount, as security to his loan. His first attempt to pledge a property was turned down because the valuation was not high enough to cover the loan. Kumar had to pledge papers of a twin building valuing close to Rs 80 lakh for a Rs 6 lakh loan. While the secu-
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rity was way too high, Kumar had nothing else to offer as collateral and he was running out of time. In the end this collateral got him additional loan of Rs 15 lakh. Five years later, he has launched his exports business and has repaid most of his loan. Not everyone is as lucky as Kumar. Collateral is a dreaded ten-letter word amongst entrepreneurs. Despite the immense potential locked in small and medium enterprises (SMEs), which largely drive the growth in an
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economy, many go sick, die prematurely and worse sometimes even cease to exist. All from the lack of finance; caused as banks reject loan requests in the absence of hefty collateral. Raising finance is a big problem that possibly every SME struggles with before making it to the other side of the line of existence. In the microcosmic world of the SME, performance is not the benchmark assuring a loan but a collateral as security for the loan is. That is largely because lenders to SMEs find the industry too volatile and risky to handle. In India, collaterals form a very significant part of the lending process. "For banks the only criterion an entrepreneur must fulfill is collateral, other aspects like the economic viability and technical feasibility are not half as important, which is why projects often fail," says Apurv Relan of Apurv Relan & Company, a financial consultancy firm.
28% Chance of obtaining a loan for small firms without access to credit bureaus Determination and evaluation of collateral While the RBI has prescribed ceilings on collateral as a certain percentage of the loan amount for SMEs, banks follow their own way of determining it. "We fix the collateral after assessing the entrepreneur's credit rating, risk factor, infrastructure, knowledge, experience and many such factors," says R Satish Shenoy, AGM of Syndicate Bank. "No matter what, we always stress on 100 percent collateral," adds Shenoy. While on the other hand, not pinpointing the parameters, the AGM of Bank of Baroda JP Sharma said,
Unworthy alternative
GUARANTEE COVER Borrower Category
Maximum extent of Guarantee upto Rs.5 lakh
Micro Enterprises
Women entrepreneurs/ Units located in North East Region (including Sikkim) other than credit facility upto Rs.5 lakh to micro enterprises
85% of the amount in default subject to a maximum of Rs.4.25 lakh
above Rs.5 lakh above Rs.50 lakh upto Rs.50 lakh upto Rs.100 lakh 75% of the amount in default subject to maximum of Rs.37.50 lakh
Rs.37.50 lakh plus 50% of amount in default above Rs.50 lakh subject to overall ceiling of Rs.62.50 lakh
80% of the amount in default subject to a maximum of Rs.40 lakh
Rs.40 lakh plus 50% of amount in default above Rs.50 lakh subject to overall ceiling of Rs.65 lakh
75% of the amount in default subject to maximum of Rs.37.50 lakh
Rs.37.50 lakh plus 50% of amount in default above Rs.50 lakh subject to overall ceiling of Rs.62.50 lakh
All other category of borrowers
SOURCE: RBI
"We have a long list of about 50-odd parameters on which we assess the entrepreneur before deciding on the collateral amount." Upon submission of collateral by the borrower, banks evaluate the property. And in case they find it insufficient to sanction the entire amount of loan, they either bring down the loan amount or ask for more, which invariably is the case. For instance, D Kumar of Andaaz Collections had to offer hefty collateral after banks asked for more post evaluation of his property. "For a loan amount of Rs 6 lakh, I had to provide collateral worth Rs 80 lakh," he says. Criticizing the flawed approach of the banks, Ashok Jain says, "SMEs are mostly private limited, therefore, technically, the liability of the promoter should be limited as well. However, the bank wants him to take more liability. The bank asks for personal guarantee of the promoter and thereby puts his personal assets at stake."
In the absence of collaterals, SMEs often go for unsecured loans for which banks/financial institutions charge heavy interests. And while desperate entrepreneurs choose higher interest rates to secure funds in order to retain liquidity, they often end up with failed ventures as they struggle to make ends meet.
Collateral-free government schemes Taking note of the plight of the SMEs, which account for 40 percent of India's domestic production and 50 percent of total exports, the government has started offering collateral-free loans under the guarantee cover of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Under this scheme, banks can lend up to Rs 100 lakh to SMEs, without collateral security or third-party guarantee. The body guarantees up to 66 percent of the loss incurred by banks in case of a default by the borrower. DARE.CO.IN | COVER STORY | JULY 2010 45
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For this collateral-free loan, the body charges about 1 percent of the credit facility sanction for loans up to Rs 5 lakh and 1.5 percent for loans above Rs 5 lakh from the borrower. Apart from this there are other schemes too. Under the Credit Linked Capital Subsidy Scheme (CLCSS), borrowers are facilitated with 15 percent capital subsidy for upgradation of technology and under the Technology Upgradation Fund Scheme (TUFS) the borrower is reimbursed up to 5 percent of interest charged by financial institutions/banks for technology upgradation. However, these schemes hardly find any takers as they involve a lot of paperwork and take long to be processed. Putting it aptly, Apurv says, "The paperwork requirement for the schemes is such that it makes getting loans under them almost impossible." The other reason why SMEs, despite being refused collateral-free loans don't go for them is lack of awareness. Sudhir Kumar of Eastern Arts Pvt Ltd says, "Banks intentionally don't inform us about such schemes as it means a lot of work for
CGS - COST OF COVER Credit facility
Upfront one time guarantee fee North East Region (including Sikkim)
Others
Upto Rs. 5 lakh
0.75%
1.00%
0.50%
Above Rs.5 lakh to Rs.50 lakh
0.75%
1.50%
0.75%
Above Rs. 50 lakh to Rs. 100 lakh
1.50%
1.50%
0.75%
CGS – Credit Guarantee Scheme
46
SOURCE: RBI
them as well. And again, we entrepreneurs don't have the time to find out about such schemes."
In some countries, a high proportion of SMEs are serviced by guaranteed loans—38 percent in Japan, 20 percent in South Korea, and 20 percent in Taiwan
From report of the Working Group to review the credit guarantee scheme of the CGTMSE The Group recommends that : • the limit for collateral-free loans to the MSE sector be increased from the present level of Rs 5 lakh to Rs 10 lakh and it be made mandatory for banks. • guarantee cover up to 85 percent of the amount in default be made applicable to credit facilities to micro enterprises up to Rs 10 lakh. • the CGTMSE may charge composite guarantee fee of 1 percent per annum, which is almost the same as the composite annual fee now being charged by CGTMSE, and appropriately realign downwards the guarantee fees chargeable to women entrepreneurs, micro enterprises and units located in north-east region, including Sikkim. (Explanation: Currently, the trust also charges an annual service fee, ranging from 0.50 percent to 0.75 percent per annum, in addition to the normal one-time upfront guarantee fee of 1.0 percent to 1.5 percent of the amount of guaranteed MSE loans. Generally, the average period of cover is about five years and, therefore, the per annum guarantee fee for say, credit facility above Rs 5 lakh, works out to 0.30 percent (1.5 percent divided by 5), which gives a composite all-in-fee of roughly 1.05 percent per annum (0.30 percent plus 0.75 percent). This is very close to the more rigorously worked out annual guarantee fee of 1.14 percent per annum.) SOURCE: RBI
Annual Service Fee
In developed countries Providing collateral-free loans to SMEs is only possible when the risk associated with them is mitigated. Most developed countries have been able to do that with the help of their government. Governmentsponsored insurance programs, covering almost 90 percent of the loan value for smaller amounts, have helped maintain the liquidity of SMEs and this boosted the economy of the countries immensely. In some countries, a high proportion of SMEs are serviced by guaranteed loans—38 percent in Japan, 20 percent in South Korea, and 20 percent in Taiwan. Most national credit guarantee schemes internationally, however, have little impact on the SME sector (they service only 1-2 percent of SMEs). The schemes in existence internationally are organized in various corporate or legal forms, ranging from state-operated financial institutions, state-funded companies and government-guaranteed SME loan programs and in some cases independent private corporate entities, credit guarantee foundations or associations, mutual guarantee associations etc (ADB, 2007). One of the largest funds globally, the Korean Credit Guarantee Fund (KODIT) is
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I
OS Vinod, CEO, CGTMSE
n the last ten years, since the founding of CGTMSE, we have grown from covering a mere Rs 6 crore to over Rs 14,600 crore as of date. We can do wonders with our mandate and resources. We are taking steps to change this trend. Last year alone we did 425 programs of which 100 programs were in the North-East and Jammu and Kashmir. Though our reach is limited, we have made signiďŹ cant strides. Close to 16-17 lakh jobs have been created by CGTMSE's collateral-free loans. I have always believed that each bank manager is a change agent. Consider thisâ&#x20AC;&#x201D; there are 60-70 thousand banks in the country and if every manager gives one collateral-free loan, we can do wonders. There are obvious limitations we have to overcome. If a person requires Rs 100, the institutional system cannot provide him with the full amount. To bridge the gap he goes to the informal sector. We need to be a little more innovative in debt-equity ratio or promoter share rules while sanctioning loans and retain the customer within the formal sector. I always believe that credit guarantee is not a license to lend indiscriminately but to lend responsibly.
ness Guarantee & Finance Corp's (national fund) stakeholders are National Government 45%; 55% by 5 state banks & insurance company. In UK, the Small Firms Loan Guarantee Scheme (SFLG) - National fund is financed 100% by UK Govt. In case of France, SOFARIS (Societe Francaise de Garantie des Financements des petites et Moyennes Entreprises), BDPME Bank (French Development Bank) is the main equity holder and other stakeholders include CDC & French Government. It is also observed that almost all international major credit guarantee institutions and programs have been granted non-profit status and enjoy
exemptions from paying income tax and Value-Added Tax. Africa has devised a new way of mitigating the risk. Apart from providing financial support to SMEs, banks there also provide non-financial support to try and help them be successful in their businesses. The support program includes mentorship programs, regular free seminars, free budgeting software and more. Credit guarantee schemes (CGS) have been touted as the savior of the SME sector by governments across the world for decades now. Amongst the Asian countries, South Korea has stood apart in lending under CGS with least losses to the financial sector. R
Credit Guarantee can transform India owned 60% by the national government and 40% by the financial institutions. In Taiwan, the government owns 99% stake in the Small & Medium Enterprise Credit Fund (SMEG) and the remaining 1% is owned by the financial institutions. In the Philippines, however, the Small Busi-
40% Chance of obtaining a loan for small firms with access to credit bureaus
DARE.CO.IN | COVER STORY | JULY 2010 47
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Applying For A Loan An entrepreneur's guide tion duc o r P g or es turin terpris kh c a f n u E la n a o 5 M Micr han Rs.2 t Less
tion duc o r P g or es turin terpris rore c a f n u c E n l 5 a l . M Sma kh to Rs a l 5 Rs.2
LL A SM E? , M RIS U I ED ERP M T A N E U O O Y R C E I R A RM O
tion duc o r P g or ses turin nterpri crore c a f E u Man edium to Rs. 10 M crore Rs. 5
s ices Serv terprise re n r E co s. 5 ium Med rore to R c Rs. 2
ices Serv erprises re t o ll En .2 cr Sma kh to Rs 0 la Rs.1
ices Serv erprises h t o En 0 lak Micr han Rs.1 t Less
/Shradha Mohanty with inputs from Nimesh Sharma & Shinjini Ganguli
T
he driving force behind every successful entrepreneur has always been his/her desire to work independently and churn profits through innovative ideas. In order to materialize the ideas the entrepreneur should have a sound financial backing. Often, approaching a bank for a loan has been a tedious affair for a new entrepreneur. This article will throw light on some of the concepts related to applying for a loan.
Working capital loans are short term loans, utilized in the day to day business transactions. For example, it is used for purchasing stock for which the entrepreneur has to produce a stock statement every month. Term loans on the other hand are long term loans given out for a period of 3 to a maximum of 7 years. This type of loan is used for investing in fixed assets such as establishing units, buying equipments, acquiring infrastructure, etc.
Types of loans There are broadly two kinds of loans available for an entrepreneur: Term loan and Working Capital loan. 48
Evaluation After identifying the kind of loan he wants, he can approach the bank
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LIST OF DOCUMENTS REQUIRED BY BANKS
Feasibility/Project report on various aspects of the venture
If it is a Non-manufacturing unit
If it is a manufacturing unit
Road transport permit
License from the Government
Sales Tax number
Registration with the District Industries Centera
Pin number
Clearance from pollution control board Feasibility report from the electricity board Balance sheet certiďŹ ed by Chartered Accountant
NOC from local authority
Other documents required for security against loan (Land and Building, Plant and Machinery)
with the required set of documents. It is here where the entrepreneur needs to be prepared. Banks often reject loan applications from start-ups, on the grounds of inexperience on part of the entrepreneur, no collateral security, improper project report, etc. He needs to have a clear idea of the kind of business he wants to start and also take into consideration the market demand for his product in the particular location. "Usually in case of new projects it is difficult to assess their needs. The two main things we look for are skill and one's own stake in the company. Being a co-operative bank, we
ask for 100% collateral security," says Crijos Francis Barretto, General Manager, Bassein Catholic Co-operative Bank. A project report gives an overview of the business. It gives an introduction to the entrepreneur's project, justifying how it can be a profitable venture followed by process of manufacture and market potential surveys, etc. The project report submitted to the bank is a little more detailed and contains the feasibility report. This is also known as the Detailed Project Report (DPR) or Techno Economic Feasibility Report.
The Experienced Entrepreneur Generally, an entrepreneur with collateral finds it easy to get a loan. Loans secured against collateral come at lower interest rates. However, for entrepreneurs who do not have anything to offer as collateral, securing loan becomes heavily dependent on the project report. The bank makes a careful assessment of the report, analyzes demand and supply gap, verifies professional qualifications of the promoter, etc. "The thing with banks is, they lend money to persons who can prove that they do not need it. There is a different kind of relationship you need to develop with the banker. And DARE.CO.IN | COVER STORY | JULY 2010 49
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PRODUCTS & SERVICES BY BANKS Products
Benefits
Segment
Business Expansion Term Loan
Fixed tenor loans for business expansions
MSEs
To meet the complete working capital needs of the business
MSEs
Export Packing Credit
Finance is provided in Indian or foreign currency depending upon the need of the borrower.
Exporters
Post Shipment Credit
Exporters
Bill Discounting under LC
Bill discounting is available to bridge the short term finance requirements.
Exporters
OD/TL against credit card receivables.
Retailers, Hotels, Restaurants
Letter of Credit
Bank extend Domestic and Foreign LCs.
All MSEs
Bank Guarantee
Banks issue various types of guarantees - performance, financial, bid Suppliers/Service bond etc. Providers/Construction and others
Working Capital Facilities Cash Credit/Overdraft Foreign Trade Facilities
For Retail Outlets Merchant Enterprises Over draft/Term Loan Non Fund Facilities
Government Schemes/Subsidies Credit Guarantee Scheme
Collateral free loans under the Credit Guarantee Scheme of Credit Guarantee Trust are available for Micro and Small Enterprises.
MSEs
Technology upgrade scheme of MoFPI
Under this scheme the bank provides assistance to food processing units in processing their subsidy claims.
MSEs in Food Processing
Technology Up gradation Fund Scheme (TUFS)-Textiles
From Project Lending Institutions (PLI) for the TUFS scheme of Ministry of Textiles and all eligible customers availing loan from the bank can apply for the subsidy.
MSEs in Textile sector
While restructuring the loan repayment, interest is bundled into a separate term loan with its own compounding interest
MSEs
Misc Funded Interest Term Loans(FITL)
REPAYMENTS AND DEFAULT SCENARIOS - DEFAULTS AND REPAYMENTS Failure in payment of installments by the borrower as outlined by the banks results in loan defaults. In such cases, instead of running away, approaching the banks in a good idea. “If we see that it is not a willful default, after he furnishes proof showing that it was beyond his capacity to repay, we restructure the loan to extend it to a period of 1 year. This is according to RBI guidelines.” says RK Mohanty, Chief Manager, Canara Bank. He also adds that after the recession, banks have become wary of giving out loans to the SME sector and prefer giving out to the priority sector. Suresh Balasubramaniam, Head- Trade and Advances, Dhanlaxmi Bank, feels that the startups are actually doing well now. “Startups in the service sector are doing well. Usually if a start up can survive in the first two years then it can pick up well in the future,” says Balasubramaniam. The rescheduling of repayments is done taking into consideration the industry and the capability of the person to repay. “Since the last one year, we have seen defaults in 1-2% of the cases, which have become non-performing assets. We prevent this by being selective and by not giving so much credit” says Tessy Sebastian, Assistant General Manager, Catholic Syrian Bank. 50
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Illustration: Dr Satish Sringeri
LOAN PROCESS
the way banks look at start ups, it is more like they are certain that they are being approached with the intention that they are going to get cheated. There is no trust at all. And in most of the cases the banks are right." says RS Hiremath, MD, Flexitron Manufacturing. He also adds that, "it is a simple process and if the right documents are provided at the right time, the loan can be sanctioned in less than 10 days."
However, Mahesh Sharma, who runs Kryzliz, a web design company, says, "no start up can hope to acquire a loan without having collateral. Earlier, SIDBI used to ask for last two years' audit report, but now they ask for reports of last three years. They keep changing the terms. I had approached Reliance too, they rejected my loan application because the operations were
to be carried on rented premises," said Mr Sharma. Past work experience also helps the entrepreneur in getting the loan. "I started my business with the bank after having 20 years of work experience and I have never defaulted with the bank. My business has grown ever since," says K Channa Bassapa, Davengere Wire Rope Industries Pvt. Ltd. R DARE.CO.IN | COVER STORY | JULY 2010 51
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blogs/opinion
/Amit Nahar
How to get money to start a new business The co-relation of funding, financing, small business and franchising In India
W
hile we interact with 1000’s of entrepreneurs (franchise seeker) annually seeking new businesses and franchise opportunities, we are often confronted with the question of ‘how to fund the franchise?’ On the Other hand there are business owners (franchisors) who are looking at expanding their existing business and are seeking additional funds to take it to the next level. I would like to throw more light on how both of these could get the required financial resources and move on with franchising. With the entrepreneur, during the initial counselling sessions, we understand how much capital one already has (It is important to have initial capital), and based on the feedback; suggest opportunities on the types of business that could be taken up. The options given are based on their profiles and ability to be able to arrange the balance funding. Entrepreneurs quite often end up selecting a franchise they want, but then they don't have enough liquid capital to completely fund the start-up of the business. That’s when they start to think of getting a loan. They start to talk to friends, relatives, banks and the different sources on hand. Most Small and Medium Sized Business Owners and Franchisees look at the following options to fund their franchisees: 52
Franchisor Sources: From my experience, I would recommend any franchisee to first seek advice and help from the franchisor. Established Franchisors work with financial institutions to get a pre-approval of sorts, with minimum pre-set criterion for their franchisees. A franchisor with more than 25 successfully operational franchise partners will be more likely to get these approvals than the one’s who are just beginning to franchise. However, as a franchisor, if you have less than 25 franchisees, you could still have the above organized and ensure that you are able to recruit franchisees more effectively, and seek qualitative participation from the entrepreneur. It is always very prudent to be independent of wealthy franchises, who at times, do not bring anything more than just capital, and ask for so much more in return. Infact your franchise strategy, must revolve around getting much more from the franchise, than just their investments. While franchisees fund the initial growth of a lot of franchise business, it’s very important to merge this investment with other things the entrepreneurs bring in. A very relevant example would be the now 4000 Crores annual pre-school business in India, which depends heavily on funding from franchisees, for initial land and infrastructure and at the same time looks at them for managing the teachers and
quality of education imparted. The franchisors in this segment have used franchisees very effectively to scale up their businesses very quickly, over the last couple of years and are available in large numbers across every city of the country. Its always very critical to assist your franchisees with the initial funding, because, we’ve seen that you will have a large pool of franchisees willing to put their efforts into the business, once they are supported with the initial investments. We have also seen at times, the franchisors come forward with additional financial help from their own end, when they see that the franchisee profile is very suitable for their business and does not have the complete capital to get started. Hence the franchisors sources must be the first options that you must look for. Bank Funding and Govt Participation: Since franchising in India does not enjoy an industry status, banks treat franchising at par with business loans. Most banks offer business loans upto the tune of 10 -30 lakhs towards the working capital requirements and for the initial investments in interiors, computers or the infrastructure needed to get started with the business. They would want to understand your background, credit history, and off course will get to your net worth and based on that offer you a loan. They would also ask
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you for a complete business plan with projections for the franchise (your franchisor will be able to provide you with this), while trying to understand the repayment process and your capability to repay, and at most times, your approvals will be based on personal file and your credit worthiness. Our query to S.B.I. yielded responses of Interest rates varying from 10.75% to 12.5% PA depending upon nature of business and investments. Upto 75% of the working capital requirements are given while the intrest rate becomes lesser in cases where investments are more in interiors or equipments or other start up requisites. Funding From Friends, Relatives, Society, Chit Funds and Society: In India we have a very peculiar societal way of funding, which is very unique in itself. Lending within communities is very common and there is a fantastic system of low cost or at times no interest loans that these communities provide to its people. The growth of the trading communities within the Gujarati’s & Jain’s is predominantly due to the amazing internal funding system that they follow. There are many other communities that follow their own support system for its fellow people. Hence, it might not be a bad idea to consult with your elders or prominent personalities within your community on what are the services that are offered to start a new business and you will be surprised to see that there are options available, which are generally not known. A lot of chit fund companies also operate in the Indian context offering a monthly or a quarterly payment system against which money is spent to its members for their funding requirements. At times there are daily payment options for very small businesses that require micro-financing, from private financiers, but this is always a very expensive preposition and involves dealing with a lot of unruly elements. It’s always advisable to reach out to that rich relative or
The bank would ask for a complete business plan with projections for the franchise, while trying to understand the repayment process and your capability to repay
a friend for your business loan, provided, you convince them for lower interests and off-course they find you ‘reliable’. At times, people just have this option, if their Income Tax papers are not strong or they don’t have a demonstrable net worth to show to banks or other institutions. Credit Cards, Collaterals and Personal Loans: Another source of funding that entrepreneur’s use is by offering assets that they have against collaterals. We have gold collateral lending and loans against properties or deposits. Pawn Brokers exist across the length and width of the country to offer you immediate financing against security. Entrepreneurs have also used funding through their credit card limits, something that we strongly advise, against. High interest rate loans, generally set the business start itself on a high cost footing and at most times its seen that non regularity in payments against these loans add to high penalties and costs to the franchisees. This in turn brings in a lot of distractions resulting in poor performances in the day to day functioning of the business and at times the entire profitability goes away in paying the interest and other costs. Hence it’s very important for the franchisee to analyse the total cost of the franchise, include all elements like taxes, working capital and ensure there are no hidden costs, which they might not be able to afford, once they
commit to take a franchise. Interest Costs on funding must be added to the business expenses and only then must you evaluate venturing into a business once you are clear of the EBIDT (earnings before interest, depreciation and taxes).Once you get the EBIDT, you calculate the other net outgoings and arrive at the actual profitability after all provisions. Venture Funding: There are venture funding companies that fund specifically for franchise businesses. Team India Managers Limited, based at Mumbai, specialises in funding entrepreneurs who are keen to take up franchise businesses. A dedicated division ensures that they work closely with entrepreneurs seeking new business opportunities and help them with their funding requirements for specific opportunities. These platforms ensure that the lending company understands the dynamics of the industry and its returns better and are placed comfortably to extend their hands to entrepreneurs seeking funding. This only signals better funding sources for the franchise industry at large and for the common man seeking new opportunities in particular. I would like to conclude, that it is very important that you choose the right sources of funding to get started with your new business. Whether you are a franchisee or a franchisor, finding the best source that suits your financial requirements is as vital as any other decision that you take on starting and running a business and at times will form the most important catalyst to your success. Good luck on finding your loan and for the success of your new business. R
Amit Nahar is a franchising consultant & the CEO of Sparkleminds Franchise Catalysts. To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Amit Nahar'. DISCLAIMER: The views expressed here are that of the author and does not represent the magazine's.
DARE.CO.IN | COVER STORY | JULY 2010 53
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blogs/opinion
/Paranjoy Guha Thakurta
No Credit For MSME Even though they contribute significantly to India's GDP, most small enterprises find it very difficult to get credit
S
mall enterprises not only contribute a substantial portion to national income but also employ more people per unit of investment than big companies. Yet, banks and financial institutions provide step-motherly treatment to small firms when it comes to disbursement of loans. Denied access to cheap and easy finance, such enterprises— sometimes derided as mom-and-pop businesses—are unable to expand operations and create job opportunities. Whereas micro, small and medium enterprises (MSMEs) contribute around 8 percent to India’s gross domestic product and roughly 45 percent to the country’s total manufactured output and value of exports, such organizations are often starved of credit bearing low interest rates despite a host of official directives that have been put out from time to time. As the government’s latest Economic Survey for 2009-10 published in February pointed out about MSMEs: “… high labour to capital ratio, high growth and high (geographical) dispersion makes them crucial for achieving the objective of inclusive growth.” The quick results of the Fourth All-India Census of MSMEs indicate that there were roughly 26 million such enterprises in 2006-07 providing employment to around 60 million people. Another set of documents 54
put out by the National Commission for Enterprises in the Unorganized Sector (Arjun Sengupta committee) in November 2007, however, claims that in 2007, there were an estimated 58 million small enterprises in the country, with a total workforce of 104 million—after excluding “medium” enterprises. If the latter estimate is more accurate, it would imply that one out of ten Indians is employed by a small enterprise. Almost all these enterprises are in the non-farm sector and each has an investment of not more than Rs 5 lakh. The government has defined a “micro” and a “small” enterprise on the basis of original value of investment in plant and equipment—up to Rs 10 lakh and Rs 2 crore respectively. What the Sengupta committee claimed is that these 58 million enterprises received only 2 percent of the total quantum of credit disbursed by scheduled commercial banks. At the lowest segment of the unorganized sector, namely, cottage industries run by artisans, the proportion is even lower at 0.6 percent of gross bank credit. Data provided by the Reserve Bank of India (RBI) indicates that micro and small enterprises received a much higher 12 percent of the gross bank credit as on November 2009. Without quibbling about the figures, what is significant is that the
Sengupta Committee found that almost the entire credit that has gone to small and micro enterprises has been on account of governmentpromoted program. The panel urged the establishment of a separate fund for small enterprises because of the poor track record of the two existing development banks, namely, the National Bank for Agriculture and Rural Development (NABARD) under the RBI and the Small Industries’ Bank of India (SIDBI). Disbursing credit to enterprises in the unorganized sector is accorded the lowest priority by most banks and regional rural banks, which flout RBI guidelines that specify that loans up to Rs 5 lakh can be sanctioned and disbursed without collateral. In actual practice, just over a quarter of the loans disbursed to such enterprises are advanced without collateral. It is clearly in the interest of the country to ensure that small and micro enterprises not just survive but prosper as well, thereby creating more employment. R
The writer is an independent educator and a journalist with over 33 years of experience in various media – print, radio, television, the internet and documentary cinema. To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Paranjoy Guha Thakurta'. DISCLAIMER: The views expressed here are that of the author and do not represent the magazine's.
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blogs/opinion
/Srikala Bhashyam
The First Million Getting a loan from a bank is tough for an entrepreneur. Here are some tips to help you get the loan you need
D
Despite the business ability to generate monthly income of Rs 3.5-4 lakh, Shiv is left with a meagre surplus of Rs 20,000 at the end of month.
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rawing the first lakh from a loan account may be challenging for every entrepreneur. But isnâ&#x20AC;&#x2122;t a challenge what makes an entrepreneur chase his dream? Shiv Shankar is an entrepreneur engaged in the export of commodities. Having been in the business for over three decades, he has grown his enterprise to a size with the ability of generating regular returns on a monthly basis. While cash generation is good from the business, the worrying factor for Shiv Shankar is the outflow. Despite the business ability to generate monthly income of Rs 3.5-4 lakh, Shiv is left with a meagre surplus of Rs 20,000 at the end of month. The culprits? The huge component of EMIs that go towards his property loan, overdraft and hand loans. Shiv actually has three properties and all of them were financed through loans and the cumulative EMI component is as high as Rs 2 lakh. Having touched the age of 52 at the beginning of this year, our man is getting worried a bit. He wants to cut down on the loan component and reduce the monthly outgo towards EMI too. The question is why did he get into such huge loan
portfolio and invest in innumerable properties? If you ask the traditional entrepreneur he would tell you that for the self-employed fixed assets are a necessity as they come in handy while raising loans. This time-tested strategy, practiced by many for decades, surprisingly still holds good if you are an entrepreneur banking on borrowing for your business. Typically, the Indian banking system has followed the practice of medium risk while lending and as a result, loans are given out only on the basis of collaterals. While personal loans and overdraft facility strictly donâ&#x20AC;&#x2122;t adhere to this borrowing principle, the macro policies of banking in India continue to thrive on the concept of collateral. As a result, if you approach a banker for a loan, the first question you are asked is the list of assets that you can demonstrate for the bankerâ&#x20AC;&#x2122;s comfort. It can be frustrating but how does a young entrepreneur who wants to create enterprises purely with his ideas, survive in the collateral world? Here are some tips:
Sound business plan The success of a business thrives on the market potential and its ability
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to cash in on the market prospects. A banker too believes that an entrepreneur needs to put in place a sound business plan if he hopes for bank funding. After all, a banker has the job of deployment of funds to generate income and in the era of rising non-performing assets, he doesn’t want to be on the wrong side. So, the word of advice for budding entrepreneurs is, translate your dreams into numbers so that the banker on the other side can measure up to your dreams. Get your projections right on the market, company’s turnover over the first few years of operations, and more importantly, the breakeven point. Needless to say, earlier (break-even point) the better. It is not a bad idea to hire professional help for drawing up the business as conceptualising the idea and putting it for the outside world is a different story. Luckily, there are many professional agencies that offer this help for a fee.
Impressive past If the future has to be perfect for a lender, history is even more important. If individuals are expected to keep a clean track record for a loan, so is the case with the selfemployed. Hence, as a prospective borrower, make sure to project a healthy balance sheet of your personal wealth. A healthy cash balance, zero track records of negative banking habits such as loan defaults would surely help. In the current banking environment bad borrowers and their bad habits are in the public domain and hence will pull down your creditworthiness to a great extent. I would say, your first choice of lender should be your existing banker as he has the knowledge of your money management and financial health. After all, banking
A banker is bound to test your patience with your ability to generate business and cash-flow but you have chosen the path of entrepreneurship because you love challenges!
is all about relationships and a past good relationship will go a long way in increasing borrowing. Many of us can’t rewrite or plan our history but if you are an individual nurturing the ambitions of entrepreneurship, you can plan your finances more effectively. Keep in mind the fact that bankers love assets and the more illiquid the better! The properties need to be either in your name or in your spouse as they can act as collaterals. Now you know why entrepreneurs like Shiv Shankar bet on property for their investments. While property creation need not be at the cost of severe cash crunch, it is not a bad idea to allocate a portion of assets in property. In terms of value, commercial would get better recognition than residential but banks don’t attach much value to land. While land has the potential to offer higher returns, it does not have value as collateral. And finally, as an entrepreneur, should you rely on banks and borrowed funds or stick to own capital. A true entrepreneur creates wealth out of nothing and hence, make your enterprise works for you rather than the other way around. A banker is bound to test your patience with your ability to generate business and cash-flow but you have chosen the path of entrepreneurship because you love challenges! The initial years may be challenging but then every entrepreneur has had to go through the grind. Once you have business story in place, bankers will be chasing you with their money bags. R Srikala Bhashyam is an investment consultant and runs her own consulting firm in Bangalore. She has been a regular columnist for the print and internet media on personal finance. To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Srikala Bhashyam'. DISCLAIMER: The views expressed here are that of the author and do not represent the magazine's. DARE.CO.IN | COLUMN | JULY 2010 57
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SMEs On A Growth Path SMEs are leading the way for Indian economy and at DARE events it was time for quick grasp of finance and networking technology related issues
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s part of the SME Knowledge Forum, DARE organized events in Coimbatore, Chennai and Trivandrum that saw a wonderful participation of small and medium enterprises. Through these events, the effort was to try and address two major pain points of small businesses â&#x20AC;&#x201C; finance and technology. These events were organized in association with ICICI and Cisco. In Coimbatore, the focus was on engineering units. V. Lakshminarayanasamy, Vice-President of Southern Indian Engineering Asso-
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ciation (SIEA) talked of issues facing the industry. He said access to finance was a big challenge and felt that banks should do more to address the issues. He said the banks ought to be adopting a more soft approach to small units as giving high collateral would be a big issue for them. Satya Prasad M V, Joint General Manager, ICICI Bank said banks have to be vigilant for high NPAs that haunt them later in case of defaults. He, however, said to a certain extent, banks can offer collateral-free loans. He spelt out the various schemes of the banks and
the benefits that they could extend to SMEs. On the networking technology front, Premalakshmi of Cisco talked of how technology could help SMEs cut costs and save time. In Chennai, the focus was on IT and ITES companies. This is one sector that has been growing at a fast pace. Ganesh R, Deputy General Manager, ICICI stressed on the need for SMEs to be as transparent as possible when it came to applying for loans. P Ravikumar of Digitariti talked of issues facing the sector in Chennai. Philip M of Precision Techserve, and a representative of Cisco
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said technology was an enabler and SMEs could make use of it to grow their business. In Trivandrum, it was all about IT and ITES again. Saty Prasad M V of ICICI talked about how banks could help services companies in a big way. But it was up to the SMEs to furnish details and assure of timely repayments. Muraleedharan P G, CEO of SunSure Systems put forth the industryâ&#x20AC;&#x2122;s view and the issues facing them. Alex of DLE Tech, a representative of Cisco helped the audience get a better understanding of networking technologies. R
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blogs/opinion
/Dr Hrishikesh Damle
The Business of Healing Although most people are averse to relating healthcare with commerce, if a hospital is run efficiently as a business, it translates into better care and faster healing for the patient
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t a traffic junction a shabby man in his forties knocked on my car window begging for some money. The man was well built without any significant disability or disease, but a bandage wrapped around his knee, which looked like a small abrasion. The internal lawyer in my brain started arguing that this guy should work and should not indulge in begging. Requesting him to move ahead, I moved away from him and started glancing through the news paper only to hear a loud thud. As I looked back, the beggar was lying on the road with a classical epileptic
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seizure. Immediately there was commotion around, with gullible people looking for iron rods and water, both of which could spell disaster on the victim. I knelt down to ensure his breathing is facilitated. I could succeed in convincing others not to feed him water or push keys into his mouth to avoid him biting the tongue. Knowing that this would last few minutes and he would recover, I provided the possible comfort of my lap. He was up on his feet (for begging?) within ten minutes. By now the crowd had thinned down, my driver was anxiously waiting beside the road next to a no-parking sign. I offered him a drop to a hospital, which he promptly declined and showed me a prescription which looked apt for his condition. I pulled two hundred bucks off my wallet and placed on his grateful palms and moved on. Sitting in the car I thought for myself. Ten minutes back, I declined to give him even a single rupee, only to turn around and throw two hundred bucks later. What an incredible transformation! That’s the way the human mind works. Our actions and reactions become emotional when it comes to the life and health of people. And hence talking about the nittygritties of a hospital business could probably seem inappropriate. If I ask a layman, “In a hospital, should I suggest investments and facilities that are
good for patient care or those that are good for the business,” the obvious answer will be the former. It makes sense when we do not consider the externalities of such endeavors. Like any other business, if doctors do not chase wealth within the framework of ethical guidelines, we wouldn’t have seen advent in healthcare, improving our life expectancy from 30 to 45 during the dawn of the 20th century to current the 67+. According to a reliable report, we need to build close to 80,000 hospital beds (to make it simpler, more than 1000 nursing homes/hospitals) in India to cater to current demand. Currently we have around 1.5 hospital beds per 1000 people, compared to 3.5 in Brazil, 3.6 in USA and 4.3 in England. Bare minimum, we have to double our beds at the earliest. The right way to go would be to have smaller nursing homes with quality care in suburbs and smaller towns. It has to be noted that the opportunity should be good for an organized effort in smaller towns since the average beds there per 1000 people is only 0.3! Having said that at the current per capita rural incomes, it is also a challenge to run a profitable hospital business in smaller towns. Quality healthcare business can't be provided by cutting corners in healthcare delivery. Unlike other businesses, hospitals should adhere to
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prescribed standards and guidelines. Most of the successful facilities manage it by being intensive on volume rather than price. But for doctors, who need to learn to enjoy their endeavors over worldly pleasures, it wouldn’t have been possible for us to see current state of healthcare in India. One of the most common dialogues across the table among doctors is “are we paying the price for having secured high ranks in academics?” Most of them work all days of the week and hardly take long breaks, even during the vacations. This scenario is because most of the nursing homes and hospitals are built around a doctor who owns the place. Systems and services are built around his expertise, including management controls, which make his presence inevitable. With lack of checks on pilferage and lack of practice of delegation, they become dependent on him taking a toll on his lifestyle. You will be surprised at the statistics that show in India the top three corporate players in hospital business hold less than 3 percent market share! Not many talented doctors wish to take the risk of a capital investment of five crores and upwards in smaller towns. Only an organized effort by bigger investors (non-doctors), who can efficiently manage the show, can fulfill our dream of doubling the hospital beds for our needy poor. The existing models based on volumes suggest that it is viable to have quality healthcare delivery in nursing homes and hospitals in most of the smaller towns of India. Maybe it is time to explore a transparent and sustainable model in which the partial stake is held by local doctors who look into only medical aspects, while managers go about doing their job. The corporate organization that creates faith in doctors in this direction is likely to be highly successful. The medical business is very peculiar in many ways. Let's take a few examples. When we buy a soap from
As a rule of thumb, a monthly income of close to Rs 40 lakh should be the target to achieve at an operating cost of close to Rs 25 lakh by the third or fourth year of operation
a grocery shop, we almost know about the product and its use perhaps better than the shopkeeper. When we buy a television set or washing machine (consumer goods) we have a fair amount of idea about what we wish to buy, but get assistance from the seller and choose our product. When we buy a very fancy car that is available only in a few metros, probably we know everything about it. We take the trouble of traveling all the way to the showroom and buy it. In these circumstances we buy it on the advice from the seller or our family members. Contrary to this, our body is so complicated, almost every time we go to the doctor, we need to surrender to him. We have not the slightest idea of what is ideal for us. The other aspect of this transaction is the decisionmaker—the doctor usually only recommends the medicine but its sold by a third party. The consumer has to purely trust the doctor's advice and purchase the product or service or resort to another expert, in this case another doctor. This ambiguity leads to a lot of misconceptions and lack of faith. So, if a corporate organiza-
tion can create a strong image of faith by joining hands with local doctors, a successful business can be woven around smaller towns across India. The good thing about the hospital business for people is that though outpatient facilities don't yield any significant profits to the hospitals, they are inevitable. A strong outpatient department is the base for any successful hospital. The main source of revenue for hospitals is from procedures. The procedures could be diagnostic, surgical or rehabilitating. A monthly average of 400 procedures (in two or three operation theatres and a labor room) make the hospital highly profitable. As a rule of thumb, a monthly income of close to 40 lakh should be the target to achieve at an operating cost of close to 25 lakhs by the third or fourth year of operation. This is achievable if the center has an out patient inflow of around 200 patients everyday. Unlike the popular belief, a shorter stay for a patient in hospital is monetarily beneficial to both, the patient and the center. An average stay is around 3.5 days per patient. The goal should be to discharge the patients earlier with good management practices and prompt care. All the hospital equipment needs to be amortized in four to five years. A substantial amount needs to be earmarked as an amortization cost to fund equipments worth Rs 1 to 1.5 crores based on the facilities provided. If efficiently managed, the business can be still hugely profitable at 50:50 debt equity ratio. It is desirable to see more and more investors venturing into the hospital business with an organized, professional approach. They need to create a congenial atmosphere for doctors to enjoy their work. R Dr. Hrishikesh Damle is a first generation entrepreneur. He is CEO of Atrimed, a pharmaceutical company. To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Dr. Hrishikesh Damle'. DISCLAIMER: The views expressed here are that of the author and do not represent the magazine's. DARE.CO.IN | COLUMN | JULY 2010 61
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investor of the month
Dr Sridhar Mitta Founder & MD, NextWealth Entrepreneurs NextWealth Entrepreneurs, whose vision is social uplift through entrepreneurship, has been co-founded by Dr Mitta who has nearly four decades of experience in information technology R&D and related businesses in India and the United States. He joined Wipro at its inception in 1980 and served as its chief technology officer and head of global R&D. He played a critical role in helping Wipro achieve technology leadershipâ&#x20AC;&#x201D;the company became the highest valued company in India during his tenure. /Vimarsh Bajpai ow ripe is the entrepreneurial ecosystem in the country today? How can it be bolstered further? The entrepreneurial ecosystem in India is reasonably mature. For example, funding should not be a problem for deserving entrepreneurs with good business plans. We have angel investors, venture capitalists and private equity investors who can invest at different stages from half a million dollars to several hundred million dollars. However, we are yet to see substantial value-add from investors in terms of mentoring, business strategies and marketing. We also need to evangelize entrepreneurship at an early age so that young people can start thinking in terms of creating jobs rather
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than taking jobs. Here again, we see organizations like The Indus Entrepreneurs (TiE) and the National Entrepreneurship Network (NEN) doing a commendable job. Some of the premier management and engineering institutions like IITs, IIMs and IISc have started incubation centers, business plan competitions and seed investments. Recently, Peoples Education Society (PES) Institutions in Bangalore started a center for entrepreneurship with amazing results. How important are failures in the life of an entrepreneur? As all of us know that failure is a stepping stone for success. This is valid more so for entrepreneurs. In the Silicon Valley, there is premium for those
entrepreneurs who failed earlier compared to those who are attempting for the first time! Good entrepreneurs will learn how not to do things from such failures. In India, people tend to blacklist entrepreneurs who failed in their first attempt. But we expect that in near future, earlier failures will not deter investors. Can entrepreneurship be taught? Several traits of an entrepreneur, like the ability to take calculated risks, build a team, willingness to work hard against all odds, staying focused etc are more natural. One can be taught about things like tools required to manage, metrics to measure performance, business plan development and proper alignment between market and technology. But, Investor
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of the Month is no replacement for a good and experienced mentor.
nology applied to commercial applications etc.
Is the age of technology startups over or they are just getting overshadowed by those in other sectors? Technology is a key element of many startups. Even service startups have to use technology to move up the value chain and can't merely depend on wage arbitrage forever. Today, technology products or technology itself are offered as services. So, it is less likely that technology startups will be overshadowed by others. Earlier, technology startups were primarily in the area of information technology. However, currently we are witnessing ventures coming up in diverse segments like alternate energy sources, nanotech-
How important is social entrepreneurship for a country like ours? How good is the 'for-profit' model vis-a-vis the 'non-profit' model? Normally, non-governmental organizations (NGO's) and 'non-profits' try to do good. They are committed to a cause and driven by social objectives. But, they are dependent on grants and find it difficult to scale. Donors find NGOs and non-profits less accountable. On the other hand, corporate organizations and 'for-profits' try to do well. They are committed to the business and are driven by profit objectives. They are self-sustaining and emphasize on scalability. They are
accountable to investors, customers, government and other stakeholders. Social entrepreneurship blends in an equal percentage of social intent to do good to meet societal needs and do well by remaining commercially viable like any business. The idea of social entrepreneurship is gaining momentum globally and in India too. Time has come for all businesses to look at profit and social good as compatible, rather than conflicting, characteristics of modern businesses. Can you give one or two good examples of social entrepreneurship entities in India? The Aravind Eye Care System at Madurai is a sterling example of social entrepreneurship. Founded in 1976 by Dr G Venkataswamy, with the misDARE.CO.IN | BIO | JULY 2010 63
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Aravind's Eye Care services to the doorstep of rural India. Over 2.5 million out patients were treated and over 300,000 surgeries were performed during the last financial year
NextWealth: The entrepreneurial route to social upliftment NextWealth Entrepreneurs started with a simple vision of social upliftment through entrepreneurship. It is built as a social entrepreneurship venture that blends social intent with commercial acumen. It operates in the ITO/BPO industry space. To achieve its objectives, NextWealth has developed an innovative strategic model, a highly distributed delivery model that draws upon groundswell of graduates and entrepreneurs in non-metros and rural areas. At the same time, the model ushers in a great social value proposition. NextWealth’s model envisages a large number of small centers (each having 200-250 graduates) located in nonmetros in India more akin to the Internet or cloud model of computing. Business model A key element of its business model is to enlist participation by local entrepreneurs who have emotional attachment to the place, are financially strong, and are competent to manage the center. Unlike managers from cities deputed to non-metros, these entrepreneurs have a social agenda in addition to achieving business success. NextWealth selects these entrepreneurs very carefully and mentors them. Some of them even go through an entrepreneur-in-residence tenure before they start the center. They are responsible for recruiting and delivery of services and strive to make each unit a center of excellence for a specific process. Local entrepreneurs will provide a multiplier effect in enhancing values of the social and economic ecosystem in non-metros where NextWealth centers are located. A typical center achieves cash breakeven in 12 to 18 months and profits thereafter. NextWealth takes an equity stake in the centers to demonstrate its commitment to customers and entrepreneurs. NextWealth takes the responsibility of bringing together the right combination of customers, projects, entrepreneurs and skills. They undertake customer acquisition activities and get services delivered from various centers by providing technology, training, process management etc. The ideal processes that lend themselves are based on a technology platform that enables automation and needs some amount of customization, personalization and human intervention. Internet content monetization and chat-based support are some of the examples. Vision NextWealth plans to employ 10,000 engineering and other graduates from non-metros in the next three years by creating forty centers. At least 40 percent employees will be women and 15 percent persons with disabilities who hardly migrate to metros. The locations are selected based on the availability of talent from established engineering colleges and basic infrastructure like power backup, bandwidth etc. By remaining closer to their homes, the employees will have a better quality of life. This may even promote reverse brain drain from metros to non-metros. Currently, there are three centers located at Mallasamudram, Tamil Nadu; Chittoor, Andhra Pradesh and Amargol, Karnataka. Over 200 graduates are currently employed, delivering several pilot projects in the last six months. These projects demonstrate that graduates from non-metros can deliver same or better quality services at substantially lower price points compared to metro centers. As told by: Anand Talwai, Co-founder & Executive Director, NextWealth Entrepreneurs sion to eliminate needless blindness, Aravind is the largest and most productive eye care facility in the world. Taking its compassionate services to the doorstep of rural India, Aravind's stunningly effective strategies vaulted barriers of distance, poverty and ignorance to create a self-sustaining system. Nearly 50 percent of patients are treated free and the rest pay nominal charges. Yet, Aravind is a
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profitable and growing venture without external doles. Over 2.5 million out patients were treated and over 300,000 surgeries were performed during the last financial year. We have started NextWealth Entrepreneurs to provide decent jobs and careers to graduates from rural and non-metro areas to work close to home, with a business model that is scalable and self-sustaining. R
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Turning Abysses of Darkness into Islands of Light Husk Power Systems introduces electricity to the villages of Bihar who are rice-rich but power-poor /Meenakshi Rohatgi
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he name Tamkuha means "fog of darkness," and the Bihar village was just that before four enterprising people, with roots from Bihar, used the most abundant waste material from local areas to lighten up the homes of the villagers in August 2007. Today, they have managed to brighten almost 94,000 rural lives and 12,000 households. Three-year-old Husk Power Systems (HPS) uses biomass gasification to generate electricity from rice husk. The process saves hundreds of tons of carbon emissions, unlike power generation from coal or diesel. In the entire process they use the services of the local people, providing a livelihood to many. The company has received recognition from many institutions which include University of Texas, University of Virginia, and the Ministry of New and Renewable Energy in India. Founded by Gyanesh Pandey, Manoj Sinha, Charles Ransler, and Ratnesh Yadav in 2008, HPS utilizes discarded rice-husk that is collected after the milling process. Yadav recalls that when he returned to Patna after his father’s death in 2006, he was appalled by the state of the villages as he travelled through Bihar. “As the sun was set, the streets and village corners bore such a deserted and dark look that one would wonder if the area is inhabited or not,” he adds.
Lighting up - Biomass gasification plant of HPS.
Yadav and Pandey, now COO and CEO of HPS respectively, pledged to change the scenario by innovating in the field of water management or electricity production. They zeroed in on using rice husks to generate power for their electricity-producing generators as they realized that “the farmers were actually paying transporters to get rid of the leftover husk.” They then procured biomass gasification plants and fed the heaps of husks into them. A biomass gasification plant is a simple metal box with a furnace at the bottom where partial combustion of the raw material takes place, resulting in gas production. The rice husk has to be initially ignited. Owing to its high silica content it does not burn easily, and is left in the metal chamber of the gasification plant for partial combustion in the presence of very less or no air. The furnace temperature is maintained at 400 to 500°C and as a result gases are produced along with the byproduct called rice-char. The chamber mouth is attached with a venturi, which is a kind of a water fountain – which creates suction pressure and helps in the separation of the char, gas, and the dust particles from the gas. There are four filters attached at the end to help do the same. Initially the four co-founders did the entire work themselves, from educating the villagers to setting up the
gasification plants and digging holes to laying out the electricity wires. They set up the first plant in Tamkuha village which produced electricity at the rate of 32 kilo watt for every 50 kilograms of rice husk every hour. Their subsequent client was Dhanha village which lies in west Champaran district of Bihar. Some of the challenges included sourcing funds, educating villagers, and making them accept and believe that such a win-win situation is not a farce. As the company lacked funds and could not procure cement poles for putting up wires, they sourced bamboo poles from the area to do the job. Yadav calls it the local effect. “Local people, local resources, and local jugaad.” They used their own distribution network and double jacketed wires for the electricity to reach places. “This way we were fast and efficient, while maintaining the low cost,” says Yadav. After the set up was ready, HPS was able to provide electricity to the villagers at Rs 80 per 30 watts as against Rs 150 that they were earlier spending on kerosene lamps per month. With the help of companies such as Shell and Acumen Funds, HPS has been able to set up 26 plants in 104 villages. They have plans to add another bunch of 35 plants by June 2010 and another 100 by the end of 2010. R This article is sourced from: Technology Review India. DARE.CO.IN | INNOVATION | JULY 2010 65
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Innovations for the Common Man Indian corporates are fast producing goods which are affordable for the common man /Shyam PV
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ver the years it has been observed that many strategic plans of corporate companies to increase their businesses have resulted in the overall development of particular sectors. For example, the telecom sector in India totally changed owing to the fight for survival between the 14 telecom service providers. Now, many Indian corporates are aiming to reach the consumers at the bottom of the pyramid (BOP) to generate profit by producing goods and services which are affordable for the segment. In 2006, the common man residing in rural and urban areas of India couldn’t dream of owning a car, refrigerator, electricity, or even access to clean drinkable water. Come 2010 and almost all major corporates in India are coming up with a range of products which can meet the expectations and needs of the common man in all possible ways.
MASS APPEAL Social entrepreneurs are pursuing a prolonged endeavor of sustainability that better aligns societal and environmental needs with business values. Apparently, innovation runs right across the business model, delivery mechanisms, and resource mobility, and utilization. Interestingly, many social entrepreneurs are pursuing disruptive paths that, while focused on new markets, have potential implications for the mainstream. The Godrej Group has 66
developed the cheapest, environment-friendly refrigeration system, called Chotukool, mainly aimed at the rural Indian market. Unlike the normal refrigerators that run on the traditional compressor-based cooling system, the battery-powered Chotukool cools the raw food products with a specially-developed chip. Currently, the refrigerator is being test marketed in a few selected villages in Maharashtra. G. Sunderraman, vice president, corporate development, Godrej & Boyce, says, “All the manufacturers vie each other for meeting the demands of high-end users, but what many forget is that it is the segment of non-users that’s the biggest market in India. With Chotukool, we target the bottom of the pyramid customers who don’t even use refrigerators.” The Chotukool is a 43-liter cool box that weighs 7.8 kilograms and is loaded from the top. “Our refrigerator runs on a cooling chip and a fan similar to those used to cool computers. It also uses high-end insulation to stay cool for hours without power. It consumes less than half the power consumed by regular refrigerators,” explains Sunderraman, adding, “With Chotukool, Godrej Group is aiming for a unique position in the market in terms of pricing and features. At the same time, we also want to ensure the smiles on the faces of our customers.” The company has also found the right distribution channel before
rolling out the product. It has joined hands with non-governmental organizations, self-help groups, and micro-finance institutions to reach out to the customers in villages.
CHANGE FOR GOOD Tata Nano is the first major recent example of disruptive innovation in India. According to experts, Tata Nano, “the people’s car,” will change the dynamics of the automobile market and will result in a paradigm shift. The target consumers of the cheapest car in the world are the millions of Indian motorbike and scooter drivers. While each year 6.5 million motorbikes and scooters are sold in India, only 1.3 million cars are purchased every year. The conversion of motorbike and scooter drivers into car drivers, therefore, represents a huge market potential. It is estimated that of India’s present population of more than 1.1 billion, more than 400,000 qualify for the target group as potential buyers of the low-priced car. This disruptive innovation has already opened up the race between the motor companies to manufacture the cheapest car. Recently, Tata has unveiled another product for the masses. Its latest product called Swach is probably the cheapest compact water purifier to enter the market in January 2010. According to the company, Swach meets the U.S. Environmental Protection Agency standards. Swach does not require running water, power, or boiling once in-
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Chotukool - The refrigerator runs on a cooling chip and a fan similar to those used to cool computers. stalled. Each of its filters can produce 3,000 liters of purified water, enough to provide a family of five drinking water for a year. The filters use paddy husk ash as matrix, bound with microscopic particles of silver to kill the bacteria that cause 80 percent of waterborne diseases. Paddy husk ash has long been known for its cleansing properties, and India produces about 20 million ton of it every year. The purifier produces clean water without using electricity or running water, both of which are mostly unavailable in rural areas. Swach’s fuse has advanced dual function mechanism - pure-power indicator and advanced auto shut mechanism. The pure-power indicator indicates purifying power level and signals when to replace the bulb, while the auto shut mechanism stops the flow of water once the purifying power of the bulb is exhausted. The filter has been designed in a Tata Consultancy Services lab, while the silver nanotechnology was added by Tata Chemicals. Titan, Tata’s watch subsidiary, contributed the precision machine tools to manufacture the filter. “Safe drinking water is a basic human right. Tata Swach combines technology, performance, convenience, and above all affordability to serve this basic human right to millions of consumers. The company
has made affordability an important part of its innovation efforts. Tata Swach can play its part in the national efforts to reduce waterborne diseases,” says R. Gopalakrishnan, vice chairman, Tata Chemicals. Before launching Swach, Tata Chemicals had carried out pilot tests of the product in 600 households in Maharashtra, Uttar Pradesh, Orissa, and Tamil Nadu. Rallis India, Tata Group’s agrochemical firm, will distribute the two variants of the purifier in India at Rs 749 and Rs 999.
SUSTAINABILITY IS KEY Executing a BOP strategy with a new product isn’t easy. Even if you can come up with a product which would help improve the lives of the world’s poor, distribution can be difficult due to access barriers in highly segmented lower income markets. When creating innovative products for BOP markets, Sunderaman notes that cost alone is not the issue. “It’s not just about making consumer products cheaper,” he says. “You’ve got to come up with products that actually meet the specific needs at the bottom of the pyramid. How do you design products that people need? You have to actually go and find out, and so we send researchers to find out how people live – how they do their washing, their cleaning, and what their problems are,” he explains, adding, “You
have to always find a sustainable solution while catering to the BOP segment. From the demand side, socially responsible business can help inform consumption patterns. From the supply side, product innovation goes to the heart of social and environmental sustainability.” According to some experts, disruptive innovations are suitable for developing markets because they offer a product to people who would otherwise be left out entirely or poorly served by existing products. There is, however, also a subset of disruptive innovations called catalytic innovations which evolve from the primary objective of bringing a social change. The world id already looking at India as a source of value creation by virtue of its large market size and its ability to offer cost savings through its low cost, highly eddicient, English speaking skilled labor force. This is enough to record impressive economic growth, but to achieve leadership status, India must give the world "next practices" and be a source of disruptive innovations that are able to radically alter the compeitive landscape. Growth impetus can be created only by building up the country's systematic innovation capacity. R This article is sourced from: Technology Review India. DARE.CO.IN | INNOVATION | JULY 2010 67
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Saturday Up-start(ed) Perceptions about women entrepreneurs turned upside down at SSD Mumbai with 4 Lightening Pitches; Product mistakes, Strong networks emphasized at SSD Delhi tartup Saturday Mumbai
S
This Startup Saturday, the only word that fits to sum up the experience that the audience might have had is shirshasana (a yogic headstand, with your heads down and feet in the air). All the notions we had about women entrepreneurs were inverted on their heads. When you listen to the soft voice of a saree-clad woman just to realize that she is a top notch entrepreneur with a virtual team always online, or an investment banker quitting the rat race and now bathing a 50 kg dog as part of her business, you know you need to change your perceptions! So here’s what happened. The session started with a business showcase by Dr Shalini Ratan, who drives her company on the concept of a patient-centric approach. Founder of Nirvan Life Sciences, Dr Shalini explained that it is very important for a doctor to have good soft-skills and a marketing strategy of their own. When she found this gap in today’s MBBS generation, she took the onus of filling it on herself. She explained how today’s hospitals are no less in their service levels than in the hospitality industry. That gave her the idea of grooming people for medical services, which, she says, has inherent advantages, both for the patients and the doctors. Sindhu Nair from SMM-Art has been working in the field of training and consultancy for quite some years now and discussed the biggest challenges that entrepreneurs today have. SMM-Art develops customized training programs and AV products for corporate organizations as well as startups and help them identify and resolve the challenges that they face. 68
We all know actions speak louder than words and that’s exactly what the business showcase by Nidhi from Studio PluCap did. A freelance designer/animator turned entrepreneur, Nidhi spoke less and let her work do most of the talking (in the form of a presentation). A new cartoon series called Little Pandavas had left the audience amazed by the superb talent Nidhi has. What was really interesting was the reason behind why the company was called Studio PluCap. Following a very Steve Jobs-ish kind of approach to naming a company, Nidhi read during the early days of her startup that When PLUto enters CAPricon she will have really good time and that’s how Pluto and Capricorn added to PluCap. Cool name and yes, it fits well, doesn’t it? Next we had the open house hosted by Ruchika from youpid.in. She managed the complete open house on the topic of Freemium vs Premium approach in having an Internet business. A very insightful discussion, summed up well by Ruchika. Great job! There were four Lightening Pitches back-to-back from amazing women entrepreneurs: The first pitch was by entrepreneur Sannam Chopra who converted her love for fashion and art to a passionate venture called Archetype design. Next was an LP by Shivani Chokhani of PD Foundation. Shivani’s story was really exciting as she described how the venture started from nowhere with no big visionary strategies to where it has come today. The next LP was by Prita Agni from Dogaholics. With a media background and a good friend, Avril Lopez,
who was an investment banker, Prita decided to follow a passion. Prita and her friend started Dogaholics, a dog grooming parlor where they bathe and groom your faithful pets. The last LP was by Vanita the owner of HeadStartINC. Vanita, via her company, provides various competency development services to corporates and institutions. From soft skills to web analytics and SEO, the company delivers all with the help of a complete virtual team. Last in the list was a showcase by Kavita Mathur who heads Wellness Associates. Kavita utilized her experience as a gym professional and founded Wellness Associates with her partner. It is a compact studio where the trainer knows the importance of your time and health and ensures that wellness is delivered.
Startup Saturday Delhi Ashish from Pluggd.in started the June edition of Startup Saturday, Delhi. He started with ‘top product mistakes that startups commit’. He pointed out that companies building Internet-based businesses do not test their product and services on the Internet Explorer, whereas most of the end-users they target use Internet Explorer. Ashish also talked about how an organization should know that there is often a disconnect between customer requirements and new product features. He cited the example of Firefox, where too many similar features were added through add-ons that don't contribute towards improving Firefox as product for consumers. Any feature addition should be based on a thorough research of the end-users’ usage pat-
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For those who don't know, Startup Saturday is a concept started by HeadStart Network. HeadStart is a group of volunteers (with day jobs) passionate about entrepreneurship. The group got together in Jan 2008 and started a non-profit organization – HeadStart Network. It is a collaborative platform for entrepreneurs and startup enthusiasts where people can come together to share, network and innovate. Startup Saturday brings a more localized flavor to the pan-Indian HeadStart Network. It happens on the second Saturday of every month across six cities – Bangalore, Mumbai, Hyderabad, Pune, Kolkata and Delhi. Please visit www.headstart.in or www. startupsaturday.in to learn more.
terns, the percentage of people demanding/beta-using it, and so on. Feature addition should always be in line with the soul of your product, says Ashish. He supported his presentation with the example of redbus. in and Nokia, saying that customers are always vocal about their problems and the entrepreneurs should have ability to listening to them. Since we had Vivek Wadhwa in the house we asked him to share his experience and advise the new-age entrepreneurs. Vivek Wadhwa is currently a senior research associate at Harvard Law school, professor at University of Duke, a scholar at the University of Berkeley and a contributor to Tech Crunch, a technology blog. His style of writing made him equally notorious among certain US and Indian sections. While comparing startup
ecosystems, he mentioned that the Silicon Valley’s secret is its giant social network, and India, or any other region that wants to be a technology hub, needs to build strong networks. India also needs a big product success to be visible in the startup space at a global level. Gradually Indians have openly started helping each other in the entrepreneurial space and he was glad Vinod Khosla and Kanwal Rekhi had helped him during his second venture. While answering a question Vivek said that the Chinese have customized their offerings to the needs within China, building a strong locally based business, which is equally applicable in the Indian context. With the world’s second biggest consumer chunk, India has a huge potential to grow local businesses targeting local markets. R DARE.CO.IN | EVENT | JULY 2010 69
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Ask the Investor
/Pavan Krishnamurthy
Do investors favour service startups? While some investors may favor service startups, in general most VCs would rather invest in a product startup. This is because unlike a service startup where the revenue potential is linear and headcount dependant, a product startup has the potential for non-linear growth
H
For the co-investment model to work, it is important to ensure that all investors speak a common language and share the overall vision and direction of the company 70
ow does the deal work out when two or three investors come together to fund one startup? Co-investment or syndication is normally done if the amount of funding required by the startup is too large for the appetite of a single investor or an investor wants to spread the risks associated with an early stage startup or there is expectation that the other investors bring in significant strategic business value. In a co-investment scenario, typically one investor takes the lead and is called a â&#x20AC;&#x153;lead investor.â&#x20AC;? In general, the lead investor is the one who sources the deal and sets the deal terms (for example deal structure, valuation etc). However, in some cases, co-investors may jointly negotiate the deal with the founders and share the investment amount and responsibilities equally. Depending on the structure of the co-investment model and number of participants in
the round, board representation and certain other investor rights such as information rights etc would be negotiated with the startup. Again depending on the model, there may be board representation only for the lead investor with observer status to other investors. In such a case, the lead investor on the board will be representing all the investors in that round. For the co-investment model to work, it is important to ensure that all investors speak a common language and share the overall vision and direction of the company. How does a VC make money by investing in a new business? VCs who invest in early stage businesses normally make money by unlocking the value built in the business over a period of time. During an early-stage investment, risks are fairly high and therefore the valuation at which the VC enters the business is low. Businesses who take in VC
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money are expected to build/create value in the business over a defined period of time. This value built in the business over a period of time is unlocked through an exit event whether in the form of IPO or sale of business or buyback of shares. VCs make money through this exit mechanism by selling their shares at a higher price compared to their initial purchase price. This is the reason why exit or potential of exit becomes very critical for a VC.
VCs normally execute a term sheet with the startup. Post investment, VCs enter into a share-purchase-cumshareholders agreement
•
• •
• What legal agreements does one have to sign with the VC? Legal documents that need to be executed with VC can be split into two stages, i.e. pre-investment stage and investment stage. During the pre-investment stage, VCs normally execute a term sheet with the startup. Post investment, VCs enter into a sharepurchase-cum-shareholders agreement. The nature of agreements also depends on the practices followed by each investor. While some enter into a single-share-purchase-cum-shareholder agreement, some may split the agreements into multiple agreements such as share subscription agreement, investor rights agreement, voting rights agreement etc. What are some tips for a business plan presentation to a VC? Communicating the right message is very critical and at a minimum any business plan to a VC should talk about/provide evidence about the following: • Pain or need is felt by a large number of customers and the market timing is right. • Enabling mechanism/ecosystem in place. Product does not require multiple influencers or does not have multiple path dependencies. • Macro trends/customer confidence is positive. • Potential to reach out to a large number of customers/users. • Absence of large, established,
•
•
•
well-funded incumbents in the space and consequently the startup operates in a competitive vacuum. Product/service provides real and measurable value and is not trivial. There are identified budgets/buying cycles for the product. Product is well differentiated from the competition and competitive advantage can be sustained for at least 18 to 24 months. If the product is very easy to build and technically not challenging and is a pure execution play, and the team has demonstrated execution capabilities and has the right ecosystem relationships in place. If the company’s product is solving a well-defined problem in a mature industry, it has significant cost/performance benefits and has found a unique way of solving the problem as compared to existing established players. Business is capital efficient and does not require significant infusions of capital. Business has the potential to create value and wealth for all stakeholders. R
Pavan has over 15 years experience across various industries such as early stage investing, consulting, venture advisory, research etc. In the recent past, he has worked with Nadathur Holdings and Investments (an early stage venture capital firm focused on technology and life sciences ventures), SRW Advisors (an advisory and mentor capital firm that worked with entrepreneurial ventures in areas such as strategy, business model/plan development, finance, mentoring etc) and Syndicated Research Group (a US-based research advisory firm that provided research advisory services to senior executives of Fortune 500 companies in the domains of human capital strategies and corporate finance strategies). To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Ask the Investor'. DISCLAIMER: The views expressed here are that of the author and do not represent the magazine's. DARE.CO.IN | ASK THE INVESTOR | JULY 2010 71
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Statistics Private Equity /Venture Capital in May 2010
PE investments (Trailing four months) Amount (US$M)
No. of Deals
1400
PE investments
35
1200
No. of Deals
Amount ($ M)
May 2010
19
607
May 2009
18
280
US$ Millions
Year
40 36
30
27
1000
25 800
1191
600
19
15
20
878
SOURCE: Venture Intelligence PE/VC Deal Database
15 607
400
10
529 200
5 0
0 FEBUARY
MARCH
APRIL
MAY
VC investments (Trailing four months) Amount (US$M)
70
VC investments May 2010 May 2009
14
No. of Deals
Amount ($ M)
6
35
8
28
12
50
8
40
72
44
Value($M) 55 144 228 328 580 497 657 1359
6 4
35
2
19 FEBUARY 15
0 MARCH
APRIL
MAY
30 25
No. of Deals
No. of Deals 27 23 21 17 17 8 5 5
8
4
10
Distribution of PE investments by deal size in 2010 (YTD)
6
30
0
10
65
20
Size (US$M) 0-5 5-10 10-15 15-25 25-50 50-100 100-200 200+
16
15
60
US$ Millions
Year
No. of Deals
20 15
27 23
10
21
17
17
5
8
5
5
100-200
200+
0 0-5
5-10
10-15
15-25
25-30
50-100
Size (US$M)
JULY 2010 | STATISTICS | DARE.CO.IN
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PRIVATE EQUITY
Top PE investments in May 2010 Company
Industry
Investors
Amount ( $ M )
National Stock Exchange
BFSI
Temasek
175
Avnija Properties
Manufacturing
KKR
167
TRIL Roads
Engg. & Construction
Actis
78
Max Healthcare Institute
Healthcare & Life Sciences
IFC
25
VENTURE CAPITAL
Top PE investments in May 2010
Top VC investments in May 2010 Company
Industry
Investors
Amount ( $ M )
Cloud.com
IT & ITES
Nexus Ventures , Others
Tree House Education
Education
Matrix Partners India, Foundation Capital
8.50
Aspire Human Capital Management
Education
Foundation Capital, Others
4.50
Vistaar Livelihood
BFSI
SVB, Unitus
3.20
11
Top PE investments in May 2010
14
Distribution of VC investments by deal size in 2010 (YTD) No. of Deals 8 8 13 8 1
Value($M) 7 23 78 87 15
SOURCE: Venture Intelligence PE/VC Deal Database
10
No. of Deals
Size (US$M) 0-5 2-5 5-10 10-15 15+
12 13 8 6 8
8
8
4 2 1
0 0-5
5-10
10-15
15-25
25-30
50-100
100-200
200+
Size (US$M)
Errata (Statistics page, DARE June 2010): In the table "Top VC investments in April 2010", there are two transactions i.e. Famy Care and Jagran Media Network which have been wrongly added to the table.
DATA SOURCE: DARE.CO.IN | STATISTICS | JULY 2010 73
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blogs/opinion
/Prashant Bhojwani
Direct Taxes Code: Revised discussion paper clears the air MAT concerns put to rest for now and DTC proposes a new anti tax avoidance plan
T
he Government of India released the much awaited revised discussion paper on the Direct Taxes Code (DTC) on 15 June 2010 for public comments. The revised discussion paper has given due consideration to the concerns expressed by the business communities and has addressed 11 major issues.
MAT – book profit ‘IN’ gross assets ‘OUT’ One of the major areas of concern expressed was the Minimum Alternate Tax (MAT) for corporates based on gross assets rather than on book profits, with no eligibility to carry forward such tax credit. In an attempt to expand the tax base, the original DTC (of August 2009) proposed to introduce a new form of MAT on gross assets. However, in light of the
Only specified unproductive assets would be subject to wealth tax while the threshold limit and the tax rate would be suitably modified 74
concerns raised by the business community, the revised discussion paper proposes that the current approach of levying MAT, with reference to book profits, would continue. This would have the corporates breath a huge sigh of relief. Levying of MAT based on gross assets would have largely impacted, among others, loss making companies, non-banking financial companies, insurance companies, capital intensive companies and companies with a long gestation period. Importantly, this would remove the anomaly between the services sector and the manufacturing sector, as the services sector tends to use much lesser assets, in contrast to the manufacturing and infrastructure sectors. The rate for MAT has not been announced. Hopefully, the MAT rate would be calibrated accordingly and reduced from the present rate of 18 percent (plus surcharge and education cess).
Wealth tax – back on track The original DTC proposed to levy wealth tax on the net wealth (all assets less debt owned in respect of such assets) of individuals, hindu undivided families and private discretionary trusts. The assets part of net wealth would include financial assets (investment in shares, fixed deposits) and productive assets (business assets). Wealth tax would be levied on
net wealth in excess of INR 50 crores at 0.25 percent. Now, the revised discussion paper proposes to levy wealth tax broadly on the same lines as in the present regime rather than as proposed in the original DTC. In light of the above, only the specified unproductive assets would be subject to wealth tax while the threshold limit and the tax rate would be suitably modified in the context of overall tax rates. Further, the levy of wealth tax has been extended to all taxpayers (except non-profit organisations). Accordingly, the corporates would continue to be subject to wealth tax on certain assets such as motor cars.
Good and Bad for SEZs The current Income-tax law provides for certain area-based tax incentives. A tax holiday for 15 years is available to units set-up in a Special Economic Zone (SEZ) subject to fulfiling of prescribed conditions. The original DTC provided for grandfathering of tax incentives (i.e. protection for the unexpired period of tax holiday) for a SEZ developer, while they were silent for the SEZ units. In the revised discussion draft, the interests of SEZ units have been protected. The tax holiday would be available to SEZ units, which are set-up prior to coming into force of the DTC, which should be 1 April 2011. Further, there were some expectations that the Government
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would re-think on its earlier proposal of discontinuing tax holiday for new SEZs set-up under the DTC. However, the government has reiterated its earlier position and such SEZs would not be eligible for a tax holiday. This could adversely impact the level of activity in SEZs.
GAAR to continue, but some relief provided The DTC proposes to introduce for the first time in India General Anti Avoidance Rules (GAAR) to serve as an effective deterrent and compliance tool against tax avoidance. GAAR has the effect of invalidating an arrangement that has been entered into by a taxpayer with the main objective of obtaining a tax benefit and subject to certain conditions. In framing such a legislation, which is sufficiently allembracing to deter tax avoidance, there is always a danger of penalising those who have entered into a bonafide transaction. The revised discussion paper proposes to bring in legislative and administrative safeguards to avoid arbitrary application of GAAR. A threshold limit of tax amount would be prescribed for cases wherein GAAR could be invoked. Further, guidelines would be issued to outline circumstances in which GAAR may be invoked. It would be appropriate for the guidelines to broadly be in line with the settled law based on judicial precedents with regard to tax avoidance. Additionally, in case GAAR provisions are invoked, the taxpayer has been granted the liberty to approach the Dispute Resolution Panel which would speed-up the dispute resolution process for the taxpayer.
Residency rule revisited For determination of the residential status of a foreign company, the original DTC provided that a foreign company shall be treated as resident in India if partial control and management is in India for even part of a
GAAR has the effect of invalidating an arrangement that has been entered into by a taxpayer with the main objective of obtaining a tax benefit and subject to certain conditions
year. This is an extremely low threshold and if triggered would lead to taxation of the global income of such foreign company in India. In the revised discussion paper, as a welcome step, this threshold has been raised and the internationally accepted principle of place of effective management has been adopted as the criteria for determination of the residential status of foreign companies.
CFC rule comes into play A significant proposal, which was not part of the DTC released in August 2009 is the introduction of Controlled Foreign Corporation (CFC) regulations. Such legislation is prevalent in certain developed economies and these regulations would have implications for the Indian companies having operations/ presence in overseas jurisdictions. CFC regulations impact the taxability of passive income (royalty, interest, dividend) and typically, such regulations propose to tax passive income of a foreign company, which is controlled by a resident in India, as dividend received in the hands of the resident shareholder in cases where such income is not distributed to its shareholders. Accordingly, the CFC regulations eliminate deferral of taxes till the stage of ac-
tual distribution of dividend. The Indian corporates would need to evaluate the impact of the CFC regulations once the fine print is available, which should also throw light on availability of tax credit. In an important proposal potentially impacting all non-residents doing business in/ with India, the government has decided to continue with the current position of Double Taxation Avoidance Agreements (DTAA) having preferential status over the domestic tax laws. However, in the following situations, the DTAAs would not enjoy such preferential status: â&#x20AC;˘ When GAAR is invoked. â&#x20AC;˘ When CFC regulations is invoked. â&#x20AC;˘ When branch profits tax is levied. This is certainly a positive move by the government for the foreign investors, as the certainty and stability that DTAAs bring to international taxation get disturbed and to some extent undermined, if domestic legislation introduces a blanket treaty override provisions. A blanket treaty override provision would have dampened the sentiment of foreign investors and would have adversely impacted foreign direct investment into India. Even though the government has indicated that the tax slabs, tax rates, will be suitably calibrated, the efforts of the government has been commendable and encouraging and the revised discussion paper addresses certain major concerns raised. In light of the revised discussion paper, the businesses would need to assess the impact of the above proposals on their current structures and business models. R
Prashant Bhojwani is a Senior Tax Professional with Ernst & Young. To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Prashant Bhojwani'. DISCLAIMER: The views expressed here are that of the author and do not represent the magazine's. DARE.CO.IN | COLUMN | JULY 2010 75
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Making Music and More There are plenty of people like you out there who are passionate about music and have thought of getting into the music business at least once in their lifetime. But while many have backed out because it does not look like a lucrative career option, the concept of 'music entrepreneurship' is slowly gaining ground in India. Various people in the music industry discuss the challenges of this business /Shradha Mohanty Nitin Malik, Parikrama
B
ecoming a music entrepreneur does not mean that you need to be an artist only. The domain comprises producers, composers, songwriters, internet marketers and more. With some contacts, a home studio and a personal website, you have taken your first step into the music business. Setting up a studio also gives you plenty of time to experiment with your work and be creative. However, in a market where there are hundreds of other talented people like you, making your mark becomes the ultimate challenge. This is why it is necessary to understand the business side of it all. There are plenty of schools that have music entrepreneurship programs outside India, but as of now, there are no schools that give such training in the country. Nitin Malik, lead vocalist, Parikrama feels that it is necessary to start such courses as it would help sev-
76
eral startups in getting their concepts clear and hence make successful music careers. “Ninety-nine percent of the artists do not know what they are getting into. An upcoming band, not only has to work on PR, but should also be aware of their rights as musicians. A music entrepreneurship program can help a lot of people. There are plenty of schools all over Europe, but the concept hasn't picked up yet in Asia.” Some of the schools and universities that provide such courses are Berklee College of Music, Manhattan School of Music, The Eastman School of Music, University of Colorado and University of South Carolina.
ternational heavy metal band, Lamb of God's performance in Bangalore, says practical knowledge is what will help anyone in this business. He also adds that a music entrepreneur in the Bollywood industry is likely to be more successful than those entrepreneurs who are in or are dealing with independent bands. “It is difficult to convince people in case of independent labels. If you were to promote a death metal band, they would discard it as noisy music. It is the mindset that does not change. Even five to ten years down the line, I cannot really speak for independent music makers.”
Changing times Training or knowledge? The debate on whether someone needs a formal degree in music education to get the competitive edge is also another thing to consider. Arpan Peter, who was a part of organizing in-
However, Gaurav Vaz, bassist from The Raghu Dixit Project, says there is plenty of scope for the music entrepreneur today. “The recording industry in India is in a state of flux now, no one can say what will happen. But there has been a
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Parikrama performs
Venkatesh Nayak fondly known as 'Venky'
boom in the live music industry since the past few years. Five years ago, there was no such thing as live music. We were restricted to college fests and corporate events.” Now, there are plenty of places to showcase music all over the country like Hardrock Cafes, Kyra in Bangalore, High Spirits in Kolkata, Curve in Pune etc. This opens up many opportunities for artist managers, booking agents, and also gets you in touch with music entrepreneurs who are interested in starting up production. “The whole culture of attending live music shows is opening up in India. It's something like going to the movies! Previously music was more Bollywood-centric. A lot of bands have come up in the recent years,” he adds. Although he agrees it is necessary to educate people on music entrepreneurship he adds, “There is no formula to it. A music entrepreneurship program can only teach you up to a certain extent and not go beyond
Bangalore-based band, Illuminati
Venkatesh Nayak, lead vocalist, Illuminati
that. How do you justify the price of a performance?”
Power of the Internet Venkatesh Nayak, lead vocalist, of Bangalore-based band Illuminati, has been looking forward to study music abroad. He says the programs are very expensive and there is no such scope here. “If you are clever enough, you can start your website and use social networking sites as much as possible. And nowadays, who pays for music? Nobody! The Internet has made everything easy and difficult at the same time. But that is okay, it has so much reach, so that way more people come for your show and you get more gigs!” he exudes. He also adds that record labels need to shrug their capitalist attitude and recognize the talent of various independent bands that are coming up every day. “Once the concept of Indie labels is absorbed, it is going to be insane," he says.
As of now the biggest challenge to the music business is piracy. “It is the people's mindset here. They don't realize that by downloading their favorite artists' album they are hampering his sales. It is not like abroad, where a fan would buy the original music,” says Nitin. This is what makes incorporation of such a course necessary in schools and colleges. Now the music industry basically runs via word-of-mouth, more and more music entrepreneurs with a formal course who are well-versed in the ethics of the business can bring about a significant change in how the industry runs today. “I think that in the next five years, the music business is going to be a really exciting place. It is in a nascent stage right now. Right now, I would say our competitors are movies! We need to be as compelling,” says Gaurav. R DARE.CO.IN | SOCIETY | JULY 2010 77
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On The Bookshelf /Prasheila Lookhar Delivering Happiness: A Path to Profits, Passion, and Purpose The inspiring story of Tony Hsieh is a must-read for all entrepreneurs. In this book, Hsieh, the CEO of Zappos.com, shares his journey from a Harvard geek to selling his company to Amazon.com for over a billion dollars. He writes about his darkest hours when investments were dwindling and the startup seemed doomed, and how he got it back up by reducing expenses, liquidating his assets, taking a last-minute loan and making the company customer-centric. Author: Tony Hsieh Publisher: Business Plus Price: Rs 995
The Art of Choosing Our lives are filled with choices everyday—from simple decisions like what to wear to more complex ones like where to invest money. In The Art of Choosing, Sheena Iyengar tries to answer the “how” and “why” of choice, based on her award-winning research. A Columbia University professor and an expert on choice, Sheena explores the social, cultural, political and technological factors influencing us and how in today’s world our choices have unexpected, often far-reaching outcomes. Author: Sheena Iyengar Publisher: Twelve Price: Rs 499
The Checklist Manifesto: How to Get Things Right Atul Gawande’s latest book tells us that a simple to-do list can go a long way in simplifying complex processes, including those used by surgeons. A doctor himself, Gawande uses examples from all over the world and across all verticals—healthcare, construction, investment banking, businesses—to show how checklists can bring about immediate improvements in our way of working. Best-selling author Malcolm Gladwell describes the book as, “powerful and thought-provoking.” Author: Atul Gawande Publisher: Metropolitan Books Price: Rs 1018
Marketing 3.0: From Products to Customers to the Human Spirit In Marketing 3.0, the authors move beyond product-based and consumer-based marketing to a more complete and well-rounded approach, where the customer is not only the king, but also a possible collaborator. With customers getting more aware and active, a company needs to market, and also manufacture products that satisfy more than a basic need of the customer. Author: Philip Kotler, Hermawan Kartajaya, Iwan Setiawan Publisher: Wiley Price: Rs 495 80
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Gadget Shop
Top Three Hot games to play in 2010
Halo: Reach Genre: First-person shooter Developer: Bungie Publisher: Microsoft Game Studios Release date: September 2010 Platforms: Xbox 360
Black or White? On June 7, 2010, Steve Jobs finally unveiled the much-awaited iPhone 4. Within a single day of opening, 600,000 pre-orders had been placed, resulting in many order and approval system malfunctions! Rumors about this latest offering from Apple had been abound ever since the technology website Gizmodo claimed to have laid their hands on a lost prototype model at a bar in the San Francisco Bay area. So what’s different about this new, shiny iPhone? A lot… Available in black and white, the iPhone 4 is made in aluminosilicate glass, which according to Apple is “chemically strengthened to be 20 times stiffer and 30 times harder than plastic.” The display, called Retina Display, has four times as many pixels as previous models, with 326 pixel per inch resolution. Smaller and thinner, though 3 grams heavier than the 3GS, this model has a stainless steel rim that works as an antenna for 3G, WiFi, GPS, Bluetooth and communications. The processor is similar to that of the iPad, with an Apple A4 chip, and the battery is claimed to give 40 percent more talk-time than previous models. The camera is 5MP and comes with a bigger sensor and higher ISO, and this time fortunately with a LED flash. The video conferencing camera in the front is standard VGA resolution. The phone can record videos in HD and uses the new micro-SIM. The iPhone 4 is available exclusively with AT&T in America. And though you might have heard about “no-contract” iPhones being sold, the fine print, as taken from the AT&T press release, says, “No commitment pricing does not require a two-year term commitment, but does require both voice and data service.” The question we are all asking is, when will India get the iPhone 4, and more importantly, at what price. The downside: Telecom providers in India do not provide micro-SIMs yet. Will we be forced to hand-cut standard SIMs, or will micro-SIMs be available in India once the iPhone 4 arrives on our shores?
Splinter Cell: Conviction Genre: Stealth action Developer: Ubisoft Montreal Publisher: Ubisoft Release date: May 2010 Platforms: PC, Xbox 360, iPhone OS, Java ME
God of War III Genre: Hack and slash Developer: Santa Monica Studio Publisher: Sony Computer Entertainment Released: March 2010 Platforms: PlayStation 3 DARE.CO.IN | BACK OF THE BOOK | JULY 2010 81
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Travel Bug The Royal Treatment Be treated like kings and queens at these exotic destinations in India...
Umaid Bhawan Palace, Jodhpur With striking beauty, this golden sandstone structure is amongst the largest residences in the world. The 347-room palace, set in 16 acres of verdant gardens, took 15 years to construct, and became the chief residence of the Jodhpur royal family in 1943. Declared the tenth most romantic retreat in the world by Conde Nast Traveler in 2008, the palace is now a 64-room luxury hotel, complete with indoor and outdoor, temperature-controlled swimming pools, a luxury spa, lavish Art Deco interiors, murals by Polish artist Stefan Noblin and a regal 105-foot copula.
Rambagh Palace, Jaipur Originally the 19th century residence of the queenâ&#x20AC;&#x2122;s favored handmaiden, Kesar Badaran, and later a hunting lodge and guesthouse, the Rambagh Palace was converted into a luxury hotel by Maharaja Sawai Man Singh II in 1957. One of the most well-known palaces in India, it was featured in Conde Nast Travelerâ&#x20AC;&#x2122;s Gold List 2009 as one of the best hotels in Asia for ambience and design. Guests are offered a taste of royal life with elegant rooms, marbled corridors and opulent gardens, each with its own story to tell. 82
Udaivilas, Udaipur Built on a 30-acre expanse on the banks of Lake Pichola, Udaivilas was designed to boast the art and architecture of the Mewar region. You are greeted with sprawling courtyards, lush gardens, resplendent fountains; all inspired by palaces of a bygone era. You are welcomed into the royal world with an enthralling boat ride across the lake, while the splendid interiors enchant you with handpainted frescoes, high-ceilinged domes and elaborate mirror work.
JULY 2010 | BACK OF THE BOOK | DARE.CO.IN
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blogs/opinion
Startup hiccups /Rajaram Rajendran
“L
When you are starting up, there are several small and big decisions to make. It is important to think of all aspects and understand what works best for you
et’s quit jobs, start ze business. O yeah!” Just seem to hear this a lot these days. Good idea. A couple of computers, maybe more. Passion, goals. Lots and lots of inspiring people, success stories, books, videos and what not. Cool name. Cooler logo. Website (lively, engaging, informative, entertaining, all-in-one). Brochures, e-mailers, Facebook page, Youtube virals, Twitter account—all done and ready. Ah, lovely. Now what? Office space required. Can’t believe the rates! We’ve already spent all the money. We need employees as well. but hiring is expensive too! We didn’t know that when we were looking for jobs. And people don’t want to join startup companies. Even after we hire people, how to get them to work as a team? Why is it so hard for people to get along? Meanwhile, we have to identify and meet clients, work hands-on, deliver products, take responsibilities, handle finances and between all this, try to lead a life. What if we don’t get any work in the first month? What if it gets worse and goes dry for two months? People will leave, we’ll need to spend again to hire, HR, managers, good lord! Let’s go get whatever projects we can get, let’s get the expenses under control, and think about choosing projects and focus later. Boom! There. This’s turning out to be a bit different from what we dreamt of. The general questions are do we set up a company first and look for work,
which involves marketing as a major task, and which also includes the pressure of the investment already made. Or, do we start off with one project, and slowly build the company while finishing more and more projects. We chose the second one, and it worked for us. Some business cards, one laptop and internet, and one project. The next project got us a workstation, the next couple of projects got us an office space, some more equipment, and our first employee. Some more projects, couple of more recruitments. Functioning office. There’s no huge investment and no break-even point here, but it’s slow. Annoyingly, painfully, slow. But the good part is that the initial projects, which are much, much more important than we actually think they are, can be chosen. This makes a lot of difference. So that’s just one side of startups. That’s not what this article’s all about. This is. After you’ve set your start-up in place, the processes. Being a startup company (I’m sticking to the service industry), with, say, around ten people, the processes that you need might be a bit different that those in a large company, which is most likely to be like the one you’ve just quit from, to start the business. Then, making small divisions inside your already small team—for client servicing, project management, marketing, implementation or support—might not really be a good idea. These work just fine as departments, and in projects and organizations of larger nature. The more
the hierarchies and processes you push into a small team, the longer it takes to get a project out. In simpler words, do not have processes for the sake of having processes. Be open to experiment. You might end up being unique, which usually is a good thing. So then what do we do? I’ll go with what we did. We let the people who work on the particular project, talk to the client. The client talks to them. This just goes without two more layers of filtering of information. This even proved to be more efficient, since the same conversation isn’t repeated inside the company twice or thrice, and then from the company to the client, back, and down the two layers again. What this does is, it eliminates the need for someone who has no idea about the project, to learn about the project and talk to the client. Also, it avoids the need for him to get back to the implementation team, to answer the clients’ questions. Overall, less time wasted in getting matters across. If you grow above a particular number of people, this model does not and will not work. Again, these might not apply to your company, but there sure will be something that does. Identifying that is the key. All the best with your startup! R The writer is an entrepreneur, designer, digital artist, wannabe musician and a jack of all, who thinks black & white photography is very cool. To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Rajaram Rajendran'. DISCLAIMER: The views expressed here are that of the author and do not represent the magazine's. DARE.CO.IN | COLUMN | JULY 2010 83
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Organizations DARE.CO.IN
covered in this issue, in alphabetic order; first appearance
ADB .................................................46
Fabknit India ....................................38
MRF .................................................20
AIM ..................................................28
Facebook .........................................28
MSN.................................................28
Andaaz Collections ..........................44
Firefox ..............................................68
MySpace..........................................28
Sparkleminds Franchise Catalysts ..........................................53
Apple ...............................................81
Flexitron Manufacturing ...................51
SRM University ................................89
Apurv Relan & Company .................45
Gizmodo ..........................................81
Nadathur Holdings and Investments ..............................71
Aravind Eye Care System................63
Go Heritage India Journeys .............25
Archetype design .............................68
Godrej & Boyce ...............................66
AT&T ................................................81
Godrej Group ...................................66
Atrimed ............................................61
Government of India ........................74
Bank of Baroda ................................45
Hardrock Cafe..................................77
Bassein Catholic Co-operative Bank ...........................49
Harvard ............................................80
BDPME Bank...................................47 Berklee College of Music .................76 Business Plus ..................................80 Canara Bank....................................50 CARE...............................................42
National Commission for Enterprises .................................54
Studio PluCap..................................68
National Entrepreneurship Network ...........................................88
SunSure Systems ............................58 Syndicate Bank................................45
National Entrepreneurship Network (NEN) ................................62
Syndicated Research Group ...........71
HPS .................................................65
NextWealth Entrepreneurs ..............62
Tech Crunch ....................................69
HSBC Bank .....................................41
Nirvan Life Sciences ........................68
Technology Review India .................67
Orkut ................................................28
TEDIndia..........................................20
Parikrama ........................................76
The Eastman School of Music .........76
PD Foundation.................................68
The Indus Entrepreneurs (TiE) ........62
Peoples Education Society (PES) ...62
The Raghu Dixit Project...................76
Philip M ............................................58
Twitter ..............................................83
Pluggd.in..........................................68
U.S. Environmental Protection Agency ...........................66
Husk Power Systems.......................65 ICICI Bank .......................................58
IDBI..................................................40
Center for Innovation, Incubation and Entrepreneurship ....89
IIT ....................................................19 IIT ....................................................19 Illuminati ..........................................77 India Innovation Labs ......................20
Precision Techserve.........................58 Progressive Engineering .................37 Proto.in ............................................19
Cisco................................................58
Indian Institute of Management (IIM), Ahmedabad ......89
Columbia University.........................80
Infosys Technologies .......................29
Reality Gives ...................................26
CRISIL .............................................42
Institute of Management Technology ......................................88
Reality Tours and Travel ...................24
Curve ...............................................77
Sunflower Studios............................30
High Spirits ......................................77
CDC .................................................47
CII ....................................................41
Startup Saturday..............................68
Tata Consultancy Services ..............67
ICRA ................................................42
CIBIL................................................42
SRW Advisors .................................71
National Institute of Open Schooling (NIOS).............................26
HeadStartINC ..................................68
Catholic Syrian Bank .......................50
CGTMSE .........................................40
National Bank for Agriculture and Rural Development (NABARD)........54
Southern Indian Engineering Association (SIEA) ......58
RBI...................................................38
Team India Managers Limited .........53
Ubisoft .............................................81 UNESCO .........................................20 UNICEF ...........................................26 University of Berkeley ......................69 University of Colorado .....................76 University of Duke............................69
Sahrdaya College of Engineering and Technology ...........29
University of South Carolina ............76
Salaam Baalak Trust ........................26
University of Texas ...........................65
DARE ...............................................58
International Management Institute (IMI)....................................89
Davengere Wire Rope Industries Pvt. Ltd ............................51
ISRO ................................................28
Santa Monica Studio .......................81
University of Virginia ........................65
Dhanlaxmi Bank ..............................50
Korean Credit Guarantee Fund (KODIT) ..................................46
Scott Clark .......................................26
V Mart Retail....................................32
Dharavi Redevelopment Project (DRP) ..................................26
Kyra .................................................77
SIDBI ...............................................51
Digitariti............................................58
Lotus Natural Health & Rejuvenation Clinic ..........................30
Small & Medium Enterprise Credit Fund (SMEG) ........................47
Manhattan School of Music .............76
Small Industriesâ&#x20AC;&#x2122; Bank of India (SIDBI) ................................54
DLE Tech .........................................58 Dogaholics .......................................68 Eastern Arts Pvt Ltd ........................46
Metropolitan Books ..........................80 Microsoft Game Studios ..................81
SMM-Art ..........................................68
Vijay Vittala Temple..........................22 Vishal Retail.....................................32 Wadhwani Foundation .....................88 Wellness Associates........................68 Wiley ................................................80 Wipro ...............................................62
Ernst & Young ..................................75
Ministry of New and Renewable Energy ..........................65
Societe Francaise de Garantie des Financements des petites et Moyennes Entreprises .................47
Essel Shyam Communications ........37
MistyShop ........................................30
SOFARIS .........................................47
Youtube............................................83
ET ....................................................28
MM Project Consultants Pvt Ltd ......26
Sony Computer Entertainment ........81
Zappos.com .....................................80
Era Infra Engineering.......................42
84
Yahoo...............................................28 youpid.in ..........................................68
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People DARE.CO.IN
covered in this issue, in alphabetic order; first appearance
AK Tiwari .........................................26
Muraleedharan P G .........................58
Amit Nahar.......................................52
Nilima Chaubey ...............................29
Anand Talwai ...................................64
Nitin Malik ........................................76
Anuradha Parashar..........................89
NR Narayana Murthy .......................29
Anurag Batra ...................................27
P Ravikumar ....................................58
APJ Abdul Kalam.............................22
Pankaj Jain ......................................42
Apurv Relan.....................................45
Paranjoy Guha Thakurta..................54
Arjun Sengupta ................................54
PavanKrishnamurthy .......................70
Ashok Jain .......................................45
Philip Kotler......................................80
Atul Gawande ..................................80
Philip M ............................................58
Avril Lopez .......................................68
Pranab Roy ......................................37
Brijesh Pandey.................................26
Prashant Bhojwani...........................74
Charles Ransler ...............................65
Prita Agni .........................................68
Christopher Way ..............................24
Prof Rakesh Basant.........................89
Crijos Francis Barretto .....................49
R Satish Shenoy ..............................45
D Kumar ..........................................44
Rajaram Rajendran .........................83
Danny Boyle ....................................25
Ramachandra Budihal .....................20
Debbie Ridpath ................................28
Ratnesh Yadav .................................65
Dr Mukesh Chaturvedi .....................88
RC Agarwal .....................................32
Dr Shalini Ratan ..............................68
RK Mohanty .....................................50
Dr Somayajulu Garimella .................89
RS Hiremath ....................................51
G. Sunderraman ..............................66
Sanjeev Goel ...................................37
Ganesh R ........................................58
Sannam Chopra ..............................68
Gaurav Vaz ......................................76
Satya Prasad M V ............................58
Gautam Chatterjee ..........................26
Sheena Iyengar ...............................80
Gyanesh Pandey .............................65
Shiv Shankar ...................................56
Hermawan Kartajaya .......................80
Shivani Chokhani.............................68
Hrishikesh Damle ............................61
Sindhu Nair ......................................68
Iwan Setiawan .................................80
Sridhar Mitta ....................................62
Jerry Pinto .......................................26
Steve Jobs .......................................81
Joginder Singh.................................38
Subrata Mukherjee ..........................25
JP Sharma.......................................45
Sudhir Khurana................................40
K Channa Bassapa..........................51
Sudhir Kumar...................................46
Kanwal Rekhi...................................69
Sunita Singh ....................................88
Kavita Mathur ..................................68
Suresh Balasubramaniam ...............50
Kesar Badaran .................................82
T.R. Bajalia.......................................40
Krishna Poojari ................................24
Tessy Sebastian ..............................50
Lalit Agarwal ....................................32
Thomas Jefferson ............................19
Laura Parkin ....................................89
Thomas Jefferson ............................19
Mahesh Sharma ..............................51
Tony Hsieh .......................................80
Malcolm Gladwell ............................80
V. Lakshminarayanasamy ................58
Manoj Sinha.....................................65
Venkatesh Nayak .............................77
Mohd Haroon ...................................37
Vijay Anand .....................................18
Mukesh Mehta .................................26
Vinod Khosla ...................................69
Mukesh Miglani................................38
Vivek Wadhwa .................................69
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
SMS â&#x20AC;&#x153;DARE <your comments, questions or suggestions>â&#x20AC;? to
56677 dare@cybermedia.co.in
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The Tipping Point India’s academic institutes are emerging as the strongest supporters of entrepreneurship, in more ways than one THE ‘E’ EFFECT Institutes with faculty trained to teach entrepreneurship
390
Institutes with Entrepreneurship Cells
380
Institutes directly working with entrepreneurs
123
Institutes with campus companies
33
Institutes with incubation centres
22
(Based on National Entrepreneurship Network records)
D
r Mukesh Chaturvedi, Dean of Academics at Delhi’s premier management institute, Institute of Management Technology, Ghaziabad, was used to a standard answer from his students on their five-year plans. They all wanted to be in high-paying, globe-trotting, senior managerial jobs. However, lately, he has been getting startling replies. “Many don’t want to take these jobs anymore. Instead, they tell me they want to be the ones creating such jobs,” he says. It is a feedback Dr Chaturvedi and the institute has taken seriously. IMT
88
is opening an incubation center in August to support aspiring entrepreneurs with their startup ideas. “There is undoubtedly a strong pressure on business schools like ours to facilitate entrepreneurship,” he says. This pressure is also being felt by several member institutes of the National Entrepreneurship Network (NEN), a Wadhwani Foundation initiative that inspires and supports new and future entrepreneurs, and they are gearing up to meet it with an assortment of courses, activities and initiatives on entrepreneurship, of a kind never witnessed before.
Three-hundred-ninety institutes have trained their faculty in entrepreneurship education, and 380 institutes have established entrepreneurship cells (E-cells) to engage students in entrepreneurship activities. One-hundred-twenty-three institutes are working directly with entrepreneurs, while 33 campus run companies, providing a hands-on experience to students in running startups. Twenty-two institutes have opened incubation centers that provide infrastructure and mentoring support to startups. Explains Sunita Singh, Senior Director and Co-founder, NEN, “When NEN was launched in 2003, there were barely five institutes engaged in entrepreneurship. Today, this has reached a tipping point. Among the 515 member institutes in the NEN community, over 230 are running programs that go beyond creating awareness about entrepreneurship, providing direct
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support to new and aspiring entrepreneurs, often reaching out beyond their campus walls.” Support comes in the form of courses, workshops, mentoring help, connection to experts, concept testing, refining business plans and networking with potential investors and customers.
Pressure points Students are the prime drivers fuelling the demand for such initiatives. Exposure to entrepreneurial thinking through their E-cell activities has contributed significantly, finds Anuradha Parashar, Director of Corporate Affairs and Student Mentoring and NEN Faculty Leader at SRM University, Chennai. By involving themselves in their E-cells, participating in workshops, interacting with entrepreneurs and working in campus companies, students gain the essential knowledge and skills and are confident to explore opportunities on their own by the time they graduate. “In fact, this is when they need even more help and support, for which they look to us,” says Anuradha, who was instrumental in setting up the incubator at SRM University in 2009. Growing interest in ‘intrapreneurship’ among students is another trigger, notes Prof Rakesh Basant, Chairperson, Center for Innovation, Incubation and Entrepreneurship at Indian Institute of Management (IIM), Ahmedabad. Entrepreneurial thinking is turning out to be not just beneficial to entrepreneurs—it is also helpful for those seeking good placement, especially with more and more companies demanding entrepreneurially-inclined professionals. “Students too are choosing jobs that
give them the flexibility and space of being entrepreneurial,” he says. On a macro level, Dr Somayajulu Garimella, Professor and NEN Faculty Leader at International Management Institute (IMI), Delhi points to the job market in India. Students are beginning to realize that there are not enough jobs, and going forward, the scarcity will only increase. “They have discovered entrepreneurship as a way to not only cope with the competitiveness in the job market, but also expand it by creating more jobs,” he explains.
The way ahead While institutional support to entrepreneurship is gaining strength, it is necessary for institutes to collaborate with each other to sustain the momentum, believes Prof Basant. With infrastructure and resources be-
ing limited, active networking across institutes and leveraging each other’s mentoring and funding resources will be the most effective way to scale up, he recommends. Laura Parkin, CEO and Co-founder of NEN, finds the trend ‘positive and promising’. “As far as institutional commitment to entrepreneurship is concerned, what we are seeing is not the end of a bell curve, but the bulk. The crowds are coming in. We have 75,000 students in our NEN community today who are actively engaging in entrepreneurship activities—gaining knowledge, skills and confidence while doing so. What they will bring to the Indian economy once they graduate will be exciting to see!” R More articles on www.nenonline.org. Content provided by NEN DARE.CO.IN | NEN | JULY 2010 89
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