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India, private equity and more ...

Sunday, October 02, 2005

Straddling two worlds

US-India. Silicon Valley-Bangalore. New economy-old economy. Cutting-edge technology-basic necessities. High-speed internet-cheap mobile phones. Self actualization-food&shelter. Nariman Point-Dharavi. Dream-reality. Future-present.

My work and life straddle two worlds. I work for a US VC called Bessemer Venture Partners, looking to invest in India (along with my colleagues – Dinesh Vaswani and Rob Chandra). On one side, I see the latest technologies, web 2.0, new media, billion-$ exits, people who have made millions of dollars from stock, options or carry. On the other hand, I live and work in a $500 annual-per-capita-income country, trying to identify the most interesting and lucrative investment opportunities for Bessemer. I’ve seen equally-deserving business plans of both analog chip-design and road construction companies. I use the latest video-conferencing over IP technology to join our weekly conference calls, and commute by Mumbai’s suburban trains for under $8/month. I’ve studied and worked in both US and India. I’ve been inside both semiconductor fabs and steel mills. You get the idea. One of these worlds reflects the reality of where we are today. The other offers promise – jobs, money, technology, markets.

For more good than bad, both worlds are irrevocably intertwined. And not just in my life. Technology advances have enabled prosperous, high-wage economies to build/buy code, medicines, auto parts, chemicals, customer service and operations support from poorer, low-wage economies. Seamless capital flows fund those Indian companies that deliver these products/services and in-turn boost the purchasing power of their direct and indirect employees. This in-turn drives consumer demand, enhances quality-of-life and stimulates a new set of companies/products/services to cater to this demand. These effects are accelerated by global media exposure, favorable demographics, changing aspirations & mindsets, supportive government policy and cheap financing. As a result, we see tremendous change and growth all around us, right from the way we shop to what kinds of jobs are available for the next generation.

India is at the confluence of these worlds and is hence (at least, for me) the most exciting place to be in. While there is rapid change all around us, no one fully understands its pace, direction and implications. I see both the opportunity to help create the next generation of successful Indian businesses, and the intellectual challenge of figuring out where and how.

This challenge is significant and cannot be understated. Here are some real questions that get thrown up, as we go after this opportunity:

  • Is PC/internet penetration about to take off the way mobile phones have?
  • Once 300 million Indians have cell phones, what else (other than communication) will they use it for?
  • There have been half-a-dozen occasions over the last 20 years when the mood in India was similarly optimistic. How is this time different?
  • How much risk do poor infrastructure and coalition politics pose to growth?
  • So many techies, but so few technology innovations! Will we remain a technology-services country or will products finally reach scale? When will Bangalore become Silicon Valley?
  • Is the Indian consumer getting any less price-sensitive? Will low-cost, low-price be the only strategy that will scale in India?
  • How large is this middle-class really? Is it really 300 million? How to segment it further?
  • Is India 5 years behind China? Should I simply look at what’s taking off in China today and bet on similar things in India?

I don’t know the answers to any of these questions. I wish I did. The most important step is to know that these challenges exist and acknowledge that there are no easy or readymade answers. This knowledge (or, awareness of ignorance really) should allow each investment and business decision to be viewed specific to the Indian context. More often than not, Indian businesses will look substantially different from their counterparts in the US or China. I intend to talk about some of these challenges and questions in future posts. I will not have answers then either, but hope to trigger interesting discussions.

Let me end with one of these questions we faced at Bessemer. As we entered India, over the last 12 months, we had to figure out our own India strategy. The easy answer would have been to continue doing what we do in the US – invest in early-stage, IP-led, technology companies. As we spent time on the ground, we realized that the ecosystem for such companies – seed funding, mentors, a thriving domestic tech market, critical mass of people with product-lifecycle experience – doesn’t yet exist. At the same time, domestic demand growth is fueling several successful companies in a range of non-tech sectors. These aren’t necessarily IP-led companies, but are certainly built on strong execution and process capabilities.

Our approach – a broader investment focus in India. We are looking at both venture capital and growth capital opportunities. While we remain committed to help create and be a part of the high-tech ecosystem in India, we are also actively looking at later stage, sector-agnostic investment opportunities. The only constant is our basic philosophy of backing strong entrepreneurs addressing large markets. We believe that this broader investment focus best reflects the reality of where India is today.

Naturally, our unique structure (we have only one Limited Partner, who had been with us since 1911) gave us the flexibility to make this decision!

11 Comments:

At 3:14 AM, Blogger dinesh said...

Regarding business in China and how India is behind, some food for thought here and here.

 
At 4:02 PM, Blogger Rajan said...

Very thoughtful questions.

Rajan
http://rajan.wordpress.com

 
At 1:08 AM, Blogger santosh said...

on your question...Is PC/internet penetration about to take off the way mobile phones have? ... inter alia, I think people's mentality has to change towards the side/bad effects of owning a computer - that their kids get spoiled, they'll only play games, etc. I've heard this argument 'n' number of times now - from relatives, friend's relatives and even my landlord in Bangalore. None of the 'n' number of people mentioned had any affordibility issues. I am sure there'll be thousands (if not millions) of people who've had similar experience. Let's calculate hypothetically and consider 'n' to be 15 and the number of people, who've experienced similar things as I have, to be 200,000 (I think it is modest). So we get 3 million potential comp. buyers who are who are, without being aware of, actually hindering their child's development. Currently, about 4 million comps are sold in the country(if I've not mistaken).

 
At 5:41 AM, Anonymous Animesh said...

I can identify with what you feel like. From corporate headquarters of Bank of America, Charlotte to a rural retail chain in Chibbramau, UP - its similar feelings here. And the mind plays it most.

I am looking at the web2.0 collaborative mapping cos in US, and seeing firsthand candle making factories here in central UP. On one hand I'm seeing ppl getting streaming news feeds on their on-the-go devices, and on other hand I am seeing people still waiting for an affordable cable TV connection. I'm seeing people giving away millions of dollars every month to play in the virtual World of Warcraft, and ppl craving for money to finance their microstartups. And often paying exorbitant interest rates to local moneylenders.

Education, technology, infrastructure and finance - they hold the promise of a bright future.

Animesh.
http://animesh.wordpress.com

 
At 8:40 AM, Anonymous Gnarls Barkley said...

Interesting thoughts from you...but just curious what does "TamBram" mean?

Any particular qualification or achievement?

 
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this was associated with manufacturing firms, such as Coca Cola that outsourced
large segments of its supply chain.In the contemporary context, it is primarily
used to refer to the outsourcing of services.
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