Technology, Venture Capital, Private Equity

Perspectives from an Indian VC

If Columbus were an entrepreneur…

Posted by Arun Uday on November 19, 2009

…and had pitched to a VC, he would’t have been funded….because the VC would have asked the following:

Where are you going?
With whom?
Why you?
How are you going?
To discover what?
What is the market for discovering India?
If if is really so lucrative to discover India, why is Microsoft not trying to discover it?
What if Microsoft also tries to discover India, how will you beat them to it?
What if you reach India first and Microsoft follows you and throws you out of there?
Show me the route you’ll take…
No no… I want the entire route… along with the exact days between each stop…
I think this is a very aggressive route… you should budget more number of days in Portugal…
Who will accompany you on the boat?
But Joe doesn’t have experience in steering small boats… he has only been on big ships…
Ok, who’s the cook?
You mean you don’t even have a cook on board? So, what will you eat?
What if you run out of pasta on your voyage?
But, you said the same last time when you were trying to discover China and abandoned it half way…
I still don’t understand what else is balance to be discovered…
Ok, I am willing to fund you if you give me half the loot from India if you get there, or allow me to sell your boat if you come back emptyhanded…


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“Creatives”- the rogue traders of the ad world?

Posted by Arun Uday on June 5, 2009

Had gone into a slumber for long (as far as blogging goes i.e.) partially due to increased work loads and partially because of laziness. Had a few ideas I was contemplating on to blog about. But, thought I will resume with a post on the “creative” world of advertising. Was watching an interview on a business channel recently of one of the most prominent creative directors of a leading ad agency. The journo asked him on whether he thought that having an understanding of business or domain knowledge of the client’s industry was a requisite for being a good advertising professional, to which the expert’s answer was an emphatic “no”. He said in as many words that he viewed an ad agency as a “factory of ideas” and that just as an IT company produces s/w code or an auto company makes cars, ad agencies “made ideas”. Therefore, it was not expected of them to really have too much understanding of specific industries or companies. I have to admit that I was almost petrified by that answer. I have had the chance of working with media companies in the past as a consultant servicing them. And coming from the IT industry at that point in time, it was some kind of a culture shock to me. Every industry has its idiosyncrasies. If pinstripe decked, tiepin adorned “suits” typify the now much maligned investment banking industry, then the pony tailed, floater flaunting “creatives” are their professional cousins in the media world. And any professional manager working in the media industry will probably admit in private that keeping reins on them is as unenviable a chore as managing a bunch of unruly kindergarten brats.
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Top banks – then and now

Posted by Arun Uday on February 15, 2009

This is a graphic depiction of what has happened to the market values of the top banks over the world. RBS, Barclays and Citi in particular make for an “interesting” sight. (Click on image to enlarge).



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Financial meltdown – an “outlier event”

Posted by Arun Uday on January 28, 2009

Just finished reading Malcom Gladwell’s “Outliers”, where he describes the role that unaccounted events/circumstances play in bringing about extraordinary results. He uses this mostly to elaborate on the achievements of exceptionally talented individuals, but what was also interesting is some of these examples that he uses to describe the causes for human accidents such as airplane crashes and industrial disasters. For example, he analyses the Three Mile Island nuclear accident in Pennsylvania in 1979. He states –

No single big event went wrong at Three Mile Island. Rather, five completely unrelated events occurred in sequence, each of which, had it happened in isolation, would have caused no more than a hiccup in the plant’s ordinary operation. The first minor problem was a blockage in the plant’s polisher (a giant water filter of sorts). This blockage caused moisture to enter the plant’s ventilation system which tripped closed two valves thus preventing cold water from entering the plant’s steam generator to control its temperature. These two problems by themselves would not have caused a problem since the plant had a backup cooling system set to activate in such a situation. However, for some unexplained reason, the valves of the backup system were closed that day. But this too should not have caused a problem since there was a light on the engineer’s control panel that illuminated indicating that the backup system’s valves were closed. Unfortunately, the warning light was blocked by a repair tag hanging from the switch above it. But there was still another backup system in place that should have cooled the reactor when it started heating up. But, as luck would have it, the relief valve wasn’t working properly that day either. It stuck open when it was supposed to close, and, to make matters even worse, a gauge in the control room that should have told the operators that the relief valve wasn’t working was itself not working. By the time Three Mile Island’s engineers realized what was happening, the reactor had come dangerously close to a meltdown.
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Outlook for India: Cautiously Optimistic

Posted by Arun Uday on November 14, 2008

At the outset, I have to say that this post is not motivated by any patriotic fervor. In fact, I have been extremely skeptical about the exaggerated claims of India’s emergence as an economic superpower. On many parameters, (share of world trade or per capita GDP for instance) we remain an economic minnow. However, like a prominent PE investor remarked in a conference that I recently attended – for India, God seems to be planning in lieu of the government (in his words, how else can you explain the fact that China and India both launched their family planning programs at the same time. They got it right, we got it wrong and we are left with one of the best demographic profiles in the world). Its in this context that I am inclined to say that the current global economic malaise may actually be a blessing in disguise for India.
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Short equities, long commodities

Posted by Arun Uday on September 22, 2008

Like everyone else in the finance world (and actually elsewhere as well), I have been watching with obvious interest, the unfolding of events in the past few weeks. And needless to say, they have been quite discomforting. While I don’t have anything particularly positive or negative to say about the actions that the US Fed or other central bankers have been undertaking to mitigate the crisis (most of them were actually Hobson’s choices), I do however feel that this may be a case of postponing rather than solving the issues unless we are favored with some generous doses of luck.
Ever since the financial crisis began to unfurl, a few things have been happening. To begin with, there has been a flight of capital to safe assets, which has squeezed out all liquidity and credit in the system. This has led to a bizzare situation where from the threat of inflation a few weeks ago, the US is now staring at a sudden deflation in the economy. So, what has the fed done? – it has started pumping up money supply and inflating the economy to maintain the liquidity and keep the economic wheels turning. But there are a few things which will really work against this strategy in the long run.
First is the overhang of credit that the US carries from the past. The credit expansion in the recent past has been unprecedented and the total estimated debt in the US, which includes national and private debt is $53 trillion (thats nearly four times its GDP). With all the bad debts that the financial institutions are burdened with and with economic prospects looking dimmer and not brighter (which in turn will affect the repayment capacity of borrowers), banks and financial institutions are not going to start lending in a hurry. So, the credit unwinding process would be a long and gradual one and its not clear how the central banks can continue to shore up liquidity till then.
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Media content industry – bleak future ahead

Posted by Arun Uday on September 8, 2008

Some time back, I had posted about the shift in power in the media industry from content generators to content aggergators. That trend seems to be picking up steam and the content generation part of the value chain seems to be dying a death through thousand cuts. Nowhere else is this starker than the newspaper industry in the US, which is quickly sliding down the path to obscurity as it registered the supposedly sharpest ever fall in history during the first half of this year. I believe that other content industries such as the movie industry will also face some serious challenges going ahead on account of the following:
a. Surfeit of supply: According to this recent article just reported on WSJ, Hollywood has been hit by a glut of movies this year. In India as well, while there has been widespread welcoming of the institutionalization of the movie industry, one of the “negative” fallouts of this has been the huge quantums of capital being planned towards movie production including those by such large corporate houses as M&M and Reliance. One only hopes that the money and efforts will be judiciously utilized as much for better quality as an increased quantity of content and not just for the latter. Else, we could very well see supply far outstripping demand. Increased participation (in content production) of individuals/indie producers/ smaller media houses has also been another important factor in adding to the supply of content.
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Entrepreneurship, venture capital and quantum mechanics

Posted by Arun Uday on July 30, 2008

Okay, that (I mean the title) was a ploy to catch your attention! Actually, this is the second part of my drivel on successful investing. Amongst the six factors for successful investing listed in my previous post, “insight” stands out from everything else in a distinct way in that it is “non procedural” as against the rest, which are “procedural”. Let me explain that.
In the study of logic, there are two approaches – deductive approach and inductive approach. In the former, there are tenets or premises, which are accepted as a given and conclusions are drawn on that basis. An inductive approach, on the other hand is the process of building a coherent thesis based on numerous observations (akin to a bottoms up analysis). For example, the reasoning – “All men are mortal. Joe is a man. Therefore, Joe is mortal” is a deductive line of reasoning since it is based on the *irreducible* premise that “All men are mortal”. On the other hand “I have only observed black crows and never observed a crow of any other colour. Therefore, all crows are black” is an inductive line of reasoning since the conclusion is drawn from a set of verifiable observations.
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What it takes to be a successful investor (Part 1)

Posted by Arun Uday on July 17, 2008

Taking off on my previous post on some ideas for industry specific funds, wanted to share my $0.02 of learning gathered in my (very) short history in the investment profession about some key success factors for successful investing.  Though these will be mostly applicable to PE investing, it could also be relevant to other forms of investing such as the public markets. In my next post, I will link these with some interesting concepts in human cognition and other ideas from pure science (which may come as a surprise to most readers).
1. Insight: This is perhaps the hardest skill to acquire (if it can ever be “acquired” at all) or even measure. Ultimately, it is also what differentiates a John Doerr or a Warren Buffet from other ordinary investors. Insight – the ability to visualize a reality that other mortals don’t normally possess. And it is distinct from all other success factors in a fundamental way, which will be further elaborated on in my next post.
2. Social capital: By this I refer to your people networks. It begins with something as basic as being connected with investment bankers and other agents, who will show you “deals” and opportunities. To make an investment, you need to learn about the opportunity in the first place – as simple as that. It could also extend to your ability to make relevant introductions to your portfolio companies (to potential employees, partners, customers etc.) post investment.
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Ideas on industry specific PE funds

Posted by Arun Uday on June 26, 2008

For a long time (in fact even before I joined the PE industry), I used to think about what’s the ideal strategy for making investments (especially PE/VC ones) to earn superior returns, and I had vaguely concluded that deep domain expertise in specific industries was perhaps the only way to beat the market. And a recently released study by BCG reaches the same conclusion. The report concludes that domain expertise and industry networks rather than financial engineering or fund structure is what differentiates top funds from the rest. Frankly, I am quite surprised that almost all funds define their investment criteria by stage and deal size and we haven’t witnessed that many “experiments” with industry specific funds which invest across stages and deal sizes.

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