Hunger for money brings them together

It was the hunger for money that was all pervasive at the VC for IT 1999 two-day meet held here on November 22 and 23. With 200-odd entrepreneurs and venture capitalists (VCs) present, the forum which was conceived, produced and organized by the Trade Fairs & Conferences International, it was a place for checking out the funds and listening to talks on entreprenuership.

The tax collector was the favorite whipping boy. The comparison between the tax collector and the entrepreneur was drawn to highlight the psyche of the Indian entrepreneur. Delivering the keynote address on the inaugural day, Jerry Rao, founder of Mphasis, said the entrepreneur was the exact opposite of the tax collector. Speaking on entreprenuership, he drew comparisons between the classic entrepreneur and the modern one. Jerry said the man who took risk was the classic entrepreneur, while the one who was willing to be open and nimble was the modern entrepreneur. He said wealth in the historical perspective was always connected with ethnic group and there was a social, hierarchical way of looking at wealth. He said the issue was not of evaluation, but instinct and gut feeling in the entrepreneurial world. "Evaluation leads to postponement. The rule of the thumb is to capture the market share and those who act faster need not be cleverer," he told the entrepreneurs. Jerry said the entrepreneurs should not be worried about the control of the company or with financial markets, IPO or what plays best with the analysts, but the passion for technology, products and ideas. "It is the passion to do the business as well as to be open and nimble. Today there is no stigma of failure. The downside risk of failure should be confronted from the psychological side of the entrepreneur rather from the financial side," he said speaking about the Indian entrepreneurs’ psyche. Adding on to it, he said the entrepreneurs should not be worried about the control, because in today’s scenario the venture capitalists or the angel investors needed the entrepreneurs more than they needed them.

Speaking on the VCs mode of work, Sudhir Sethi of Walden Nikko said it was very important on the part of the VC to work backwards with the entrepreneurs. "We as VCs cannot survive, if our reputation is bad. Hence, working backwards is important. It is important to discuss it as part of the business strategy," he said. Regarding the time when the VCs should take the exit route, Sethi said the VCs should stay around for more than one round of financing. It would lend more credibility to the company and the VCs who are coming for other rounds of financing. On whether one VC was averse to co-investing with other VCs in the same company, Sethi said it all depended on how the other VC would bring in value addition. "Walden is strong in the US and Asia and if we are investing in a company and if some other VC is interesting in co-investing with us, we will look at a VC, which is strong in the European market. This will bring in a lot of value addition to the company," he said.

Sounding a warning to the entrepreneurs, Ashok Wadhwa of Ambit Corporate Finance said there has been a phenomenal change in the psyche of the Indian entrepreneur. "However," he said, "we in India live in palaces. Despite the best talent and intellect, we do not understand valuations. There is no point in building castles in the air, if they are to be shot down. It is unfortunate that more and more Indian entrepreneurs are missing the business plan." But he had some good news for the entrepreneur and the VC community. "The entrepreneur today is ready to give out more than 51 percent of the stake in the company. We are creating wealth in innumerable hands and the credit goes to the VCs," he said. Wadhwa, however, had a completely different notion about the booming stock markets and the over-valuation of the IT stocks. "The bubble is too small and there is a lot of space. The sky is the limit," he said.

An eagle sight, a largesse heart and lady’s hand in touching the IT industry is the recipe given by the SIDBI Chairman, S Narain, while delivering his keynote address on the second of the meet. Speaking on SIDBI’s venture capital strategy, he said SIDBI had already set up a subsidiary, SIDBI Venture Capital, to manage the funds. He said it was a three-tier structure that SIDBI had formulated as part of its strategy. The first-tier was the regional funds, with 50 percent of the corpus being put by the SIDBI. He said SIDBI was operating 10 such funds in different states. The second-tier was the National Fund for Software and IT Industry (NFSIT), which had a corpus of Rs100 crore. SIDBI had put in Rs50 crore, with the newly formed IT Ministry of the Government of India, putting in Rs30 crore and IDBI putting in the rest. Narain said the fund had already been set up and it would become functional soon. The third-tier, SIDBI Chairman said, was the proposed international fund, a dollar denominated overseas fund with a corpus of $50 million, which he hoped would become functional by the end of the year.

The fund squeeze for early stage with limited support for deals to be taken to the threshold level has given rise to incubators in the country, according to Rajesh Jog of e-Ventures. However, he said, today everybody was an incubator and the day would not be far off when even lawyers and accountants become incubators. Jog said the IITs and the IIMs share the opportunity to become incubators. "The IITs can graduate entrepreneurs and the IIMs eMBAs," he said. He said the incubators should not be confused with the VCs and they are not VCs. Incubators prepare the business plan, bring in the partners and invest in the company till it reaches the ‘hatch-moment’. He said a company reached the ‘hatch-moment’ when it could raise resources on its own. "The Net fever has caught up here. The Internet is like an amoeba and it will grow into huge dimensions," he said, commenting on the beeline for Net-driven start-ups in the country.