Issuu on Google+


Vol 1 / Issue 01 / OCT 07

BOARD OF ADVISORS C K Prahalad

University of Michigan

N R Narayanamurthy

Chief Mentor, Infosys

Kanwal Rekhi

Chairman, TiE

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

Chairman, Sycamore Networks

Saurabh Srivastava Chairman, Indian Venture Capital Association Kiran Mazumdar Shaw

Chairman & MD, Biocon

R Gopalakrishnan Philip Anderson

Executive Director, Tata Sons Professor of Entrepreneurship, INSEAD

Shyam Malhotra Editor-in-Chief Krishna Kumar Group Editor WRITERS/ANALYSTS Arunjana Das Binesh Kutty Vimarsh Bajpai

/icon

You can be the next Narayana Murthy

54

OPERATIONS Ajay Dhoundiyal Product Manager Mahesh Sharma Design Anil John Photography SALES & MARKETING MA Jaideep Associate VP Mario Gabriel West Chandan North Himanshu Bakshi North Raghavendra South Naveen Barsainya South-East Asia PRINT & CIRCULATION SERVICES NC George Associate VP T Srirengan GM, Print Services Sudhir Arora Circulation Services Manager Dipesh Kothari Reader Services Manager Pooja Bharadwaj Assistant Manager, Reader Service Sarita Sridhar Assistant Manager, Reader Service Printed and published by Pradeep Gupta. Owner, CyberMedia (India) Ltd. Printed at Rajhans Enterprises, th 134, 4 Main, Industrial Town, Rajajinagar, Bangalore 560010. 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: 22861511 CHENNAI 5B, 6th Floor, Gemini Parsn Apts, 599 Mount Road, Tel: 28221712 KOLKATA 307, 3rd Floor, Ballygunj A.C. Market, 46/31/1 Gariahat Road Tel: 65250117 MUMBAI Road No 16, D 7/1 MIDC, Andheri (East) Tel: 28387271 DELHI D-74 Panchsheel Enclave Tel: 41751234 PUNE D/4 Sukhwani Park North Main Road, Koregaon Tel: 64004065 SECUNDERABAD #5,6 1st Floor, Srinath Commercial Complex, SD Road. Tel: 27841970 SINGAPORE 1, North Bridge Road, # 24-09 High Street Center Tel: +65-63369142 CORPORATE OFFICE Cyber House, B-35, Sec 32, Gurgaon, NCR Delhi-122001. Tel: 0124-4031234, Fax: 2380694.

DARE.CO.IN 4

OCTOBER 2007

How to get Private Equity

40

What is private equity? Who can get it? Who are the players? Should you go for it? How do you get it? How does the system work? What happens afterwards?


DARE.CO.IN

opportunity/idea

78

policy/ 15 min. guide to Trade marks .......... 64 Registering your trade mark ensures that Infringement can be easily dealt with

opportunity/

Exporters’ Benefits ............................... 77

The Business of better environment

What type of business should you register as

enterpreneur of the month

VSS Mani of Just Dial

Dream, dream big. Work hard to follow your dreams. Analyse your actions, change

32

What legal status? Your biz............. 66

Should you register as a star trading house? What is the process? What are the benefits?

case study/INSEAD

58

Growing concern for the environment throws up many opportunities

This case study traces the growth of Hidesign and highlights the opportunities and challenges faced by Dilip Kapur

brands/ How many brands should you launch? . 51 blogs/columns Pradeep Gupta ......... 06

Businesses keep adding brand names. Is that really a good strategy?

62

Philip Anderson ........ 16

campus/

Anurag Batra................ 27

An Incubator in every Campus Building a national ecosystem for startups does not take all that much at the individual campus level. But together, it will work out to a Rs 1,500 Cr. ecosystem for nurturing startups

coming soon

DARE.CO.IN interactive business models,

wiki profiles, business

graph of the day, idea

pic of

the day, sector spotlight, blogs, news, discussion fora, keyword based alerts, rss feeds, contacts,

mentoring, market trends, webinars,

coming up /november

Going global

Challenges in taking your business global

newsletters, live chat,

opinion polls,

leads, slideshows,

professional guidance,

search, on demand,

archives, event calendar, research,

Healthcare

Opportunities in the business of wellness and healthcare

opportunity / Caviar farming ..............................14 Corporate aircraft ..........................22 Probiotics .....................................38 Radio cabs....................................82

strategy /IT

Web 2.0 ........................................86 Digital signatures ..........................94

law /

Pharma generics & patents ...........89

directories, faqs OCTOBER 2007 5


DARE.CO.IN

blogs/edit

Y

ou hold in your hands the first issue of DARE, a publication that celebrates the spirit of entrepreneurship. It is yet another pioneering move from CyberMedia, a company synonymous with innovation. Over the last few years, I have been a witness to the changing entrepreneurship scenario in the country. I remember when I started the company 25 years back, the choice of the middle class was a job with the government, an MNC, a public sector company, a private sector company, in that order. Business was the last resort. But that has metamorphosed. We are once again rediscovering the spirit of entrepreneurship. I use the word rediscovering, because India has a long global history of successful entrepreneurship. History is a witness that in South East Asia, Africa, and Middle East, it was Indian businessmen who established early ventures. Another pointer came from my interaction with students. Whenever I speak at an educational institution, I always ask students to raise their hands if they want to become an entrepreneur. 15 years back, very few hands would be raised. Today half the students raise their hands. The entrepreneur DNA in our society was dormant somewhere. It is once again rearing its head.

work has further reinforced the thought. It started as a group of about 10 people, but within a year it has grown to 60 angels. Many institutions have also joined the Network. Every month 15 to 20 new projects come up seeking funds from Angels. But clearly the ecosystem was incomplete. Yes, today we have education, incubation, angel funding, mentoring, private equity, VCs, capital markets, consultants, etc. But is the ecosystem complete? It cannot be, unless there is a strong media playing the role of development and linking. It is with this resolve and determination that we have launched DARE. We will do what we have done for various industries earlier. When CyberMedia was founded in 1982, India’s Knowledge Industry was just taking shape. Recognizing the emergence of this new segment, we decided to publish India’s first Information Technology magazine, Dataquest, at a time when the IT industry’s annual revenues were less than Rs 100 crores! Dataquest nurtured, promoted, chronicled, critiqued and influenced the industry and has been a catalyst in the industry’s growth. CyberMedia has continued the same pioneering spirit by launching Voice&Data for the Telecom industry; PCQuest for small & medi-

The entrepreneur DNA in our society was dormant somewhere. It is once again rearing its head I have seen the enthusiasm amongst members of TiE (The Indus Entrepreneurs). Conferences that used to have 200 people are today attended by 1500 aspirants. Entrepreneurs who have succeeded are willing to mentor these young aspirants. The energy level is high. And VCs & private equity players eagerly look for these aspirants at the various TiE conferences. My role as a founder of the Indian Angel Net6

OCTOBER 2007

um businesses and BioSpectrum to service the nascent biotech industry. Our journey over the last 25 years has been synonymous with the evolution of India’s technology journalism as well as B2B media. CyberMedia is the first media house to have ventured outside the country to a global audience — publishing two magazines, BioSpectrum Asia from Singapore and Global


DARE.CO.IN

blogs/edit

Services from the USA, the first Indian magazine titles to be published from outside the country for a global audience. In fact each of our 15 magazines and 12 websites have played yeoman role for the communities that they have served in various industries. It is in the same spirit that DARE is conceived and conceptualized. We will nurture, promote, chronicle, critique and influence the entrepreneurial ecosystem and be a catalyst to the growth of entrepreneurship. We will do this by inspiring you, by sharing with you the spark that triggered today’s role models. We will provide you with ideas so that you can take an informed decision on the opportunities. We will empower you with knowledge by equipping you with the tools that you need to address different aspects of entrepreneurship. Entrepreneurship is where India’s future lies. We need to create lakhs of new businesses in urban, semi-urban and rural areas in order to provide opportunities to the large number of Indian youth who today are charged with a new energy, and have the confidence to build a stronger future for themselves and for India. And together we will build that future. We DARE to take up the challenge.

We will nurture, promote, chronicle, critique and influence the entrepreneurial ecosystem and be a catalyst to the growth of entreprenership

/Pradeep Gupta

OCTOBER 2007 7


DARE.CO.IN

blogs/edit

Because Entrepreneurs Do DARE will be the media platform for Indian entrepreneurs, large and small. In our lexicon, entrepreneurs are not just those who venture off on their own, but also those, who within large organisations run their operations in entrepreneurial style

6

0 years after independence, India is no longer a superpower in waiting. We are a country on the move, fast and sure, towards our tryst with destiny. The flame of enterprise and of can-do has never burnt stronger and the thirst to conquer the unknown has never been higher. We are the new India. It is in this context that we are launching DARE. True to its name, DARE proposes to be different. DARE will be the media platform for Indian entrepreneurs, large and small, covering the entire entrepreneurial ecosystem and geared towards creating and realising value. In our lexicon, entrepreneurs are not just those who venture off on their own, but also those, who within large organisations run their operations in entrepreneurial style. We also realise that in today’s opportunity filled world, an entrepreneur need not start small. DARE shall seek to unlock and channel the spirit of enterprise in businesses large and small. Online, at dare.co.in we would be assembling a number of tools to help generate ideas, analyse opportunities and seek advice from those more experienced than us. We would also be building an online community of entrepreneurs to share these ideas, experiences and expertise. The tools that we build will be geared towards opening up the collective wisdom of our community to the individual, such that the collective wisdom and thought can enrich individual thinking. We have set for ourselves a very simple yardstick of success. If even one entrepreneur will be able to say that what we have carried, what we have done has made him think differently, has a positive difference to his business ambitions, then we have achieved our objective. We dedicate this platform to all of us who DARE to be different. Let’s welcome ourselves to a daring new world. Because we can make the difference to ourselves; because we can do it; because we are doing it.

/Krishna Kumar

OCTOBER 2007 9


DARE.CO.IN

news

/news $1.6 trillion needed to improve US infrastructure American Society of Civil Engineers (ASCE) estimates that $1.6 trillion is needed over a five-year period to bring the US infrastructure to a good condition. Establishing a long-term development and maintenance plan must become a national priority. “With each passing day, aging and overburdened infrastructure threatens the economy and quality of life in every state, city and town in the nation,” ASCE said. The US Senate in August passed the National Infrastructure Improvement Act to establish a national commission to assess the physical condition of America’s infrastructure and recommend ways to improve it. In June, the US Transportation and Infrastructure Committee approved a bill that would provide $66 billion over the next four years to help rebuild US airports and modernise the aviation system. This includes $15.8 billion in new funding for the Airport Improvement Program (AIP) and $13 billion for the FAA facilities and equipment program.

Biotech sector grows 30%

Timond launches collection of exclusive watches Timond has announced the launch of a spectrum of new collection ranging from automatic watches, ceramic watches, gold steel watches, gold steel diamond watches and the much touted limited edition Tourbillion gold diamond range of watches. The announcement comes close to the appointment of Karan Johar as its worldwide brand ambassador. 10

OCTOBER 2007

With revenues touching around Rs 8,500 crore (over $2 billion), the country’s biotechnology sector registered a 30% growth in 2006-07 over the previous year (2005-06). The initiatives taken by the government include streamlining regulatory procedures; exemption of biotech sector from compulsory licensing; permitting 100% FDI; reducing the area of SEZ to bring it at par with IT sector; providing fiscal incentives to recognised in-house R&D of industries in terms of exemption of custom duty on capital goods, reduction in import duty and 150% weighted deduction against expenditure incurred on R&D.

Boost for plantation sector Commerce Minister Kamal Nath has spelled out some big policy initiatives to help the 20 million people engaged in the country’s plantation sector. At the annual conference of the United Plantations Association of Southern India (UPASI), Nath said the Eleventh Plan outlay on the plantation sector would be more than doubled to Rs 3,000 crore from the Tenth Plan allocation of Rs 1,200 crore. He said a committee will soon be set up to work out a revival package for India’s 127,366 small tea growers, 67,998 of them


DARE.CO.IN

based in the southern part of the country. He also announced the setting up of a special purpose vehicle (SPV) involving all stakeholders, including the commodity boards, to determine whether and how carbon credits could be allocated to India’s plantations despite the Kyoto Protocol’s denial of such credits to this sector.

Exports hit by rising rupee The rise in rupee has hurt the country’s exports badly, which grew only 18.52% in July 2007 compared to 40.67% in the corresponding month of 2006. However, exports grew marginally compared 14.05% in June 2007. Exports during the month under review increased to $12.49 billion from $10.54 billion in the same month last year, while imports grew by 20.40% to $17.50 billion as against $14.54 billion. However, in rupee terms exports improved only 3.10%, while imports were up 4.74%. Trade deficit widened to $5.14 billion from $4 billion due to higher imports.

India, Australia to study FTA possibilities India and Australia have agreed to undertake a joint feasibility study into the benefits of a free trade agreement (FTA) between both countries. Trade and investment links between Australia and India have grown rapidly in recent years. The study will examine the potential benefits of FTA for both countries. In particular, the study will focus on the impact a FTA could have on promoting economic growth in both countries, bilateral trade in good and services, as well as investment and other commercial linkages. Two-way trade in goods and services between Australia and India reached $7.76 billion in 2006-07.

Exports from MSMEs touch $50 billion in 2006-07 Exports from Indian micro, small and medium enterprises (MSMEs) is estimated to have reached a record level of $50 billion during 2006-07, amounting to 40 % of India’s total merchandise exports. There are 12.5 million MSMEs in India, providing employment to 30 million people, and contributing around 50 % of the country’s industrial production. The major MSME export products include readymade garments, chemicals and pharmaceuticals, engineering goods, processed foods, leather products, and marine products. DARE 12

OCTOBER 2007

/news Reap benefits of Credit Guarantee Scheme: PM Prime Minister Manmohan Singh has asked small and medium enterprises to avail the benefits of the Credit Guarantee Fund Scheme, which provides relief to those entrepreneurs who are unable to pledge collateral security. The scheme has been in existence since May 2000. Addressing an award function organised by the Ministry of Micro, Small and Medium Enterprises (MSME) on August 30, he urged banks and financial institutions to come forward and support the small and medium enterprises, especially through risk and venture capital. The prime minister also cited skill development as a high priority area. A total of 111 entrepreneurs were awarded in various categories. A new website of the ministry (www.msme.gov.in ) was also launched.

SMS “DARE <your comments, questions or suggestions>” to

56677 dare@cybermedia.co.in


DARE.CO.IN

opportunity/agri

Farming for Caviar Russia does it, Japan does it. So do Greece, Uruguay and the US. The UAE is trying to do it; so is China. Can we replicate it? Captive sturgeon farms for caviar could earn millions /Shilpi Kumar

A

mouth-watering delicacy; an aphrodisiac, even an anti-aging facial cream. These are but a few uses of caviar, one of the most exotic and expensive foods in the world. You can get these black pearls elegantly served on your plate in a variety of ways. Want an appetiser? You can have smoked salmon canapés with caviar on top. Looking for lunch? Go for spaghettini with caviar and champagne sauce. And if you are craving for some dessert, you definitely don’t want to miss caviar parfaits! In five star hotels, caviar is served with an exorbitant price tag of Rs 3,0005,000 per 30 gms. But price is hardly a criterion for people indulging in it. Caviar is not only perking up restaurant menus but is also enticing people to visit spas for luxurious massages with the stuff. So, where does caviar come from? It is the ripened eggs of female sturgeon fish. Almas, also known as golden caviar is the egg of an albino sturgeon. It is so

DARE/view Sector: Captive farming Initial Investment: Rs 16 Cr ($2-4 m) Running Costs: Rs 3.3 Cr ($400-800k) per year Annual Revenues: Rs 11.5 Cr ($2.45-2.85m) per 5 tons of caviar and 75 tonnes of fish meat Limitations: Long start up period of 5-8 years. Regulations by CITES Competition: Fish farms producing cheaper alternatives to caviar like white fish & salmon (trout) roe DISCLAIMER: This data and analysis are indicative and Cybermedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture.

annually. Poaching and pollution in the Caspian Sea has resulted in scarcity of sturgeon, causing Russia and Iran to produce only 300 tonnes. Moreover, the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) has regulated the exports on caviar, permitting it only if the exporting country can prove that the trade is not detrimental to the survival of the species, cutting down the supply further.

will be required to set up the sturgeon farm. The production cost, excluding the capital cost ranges from $400-800k per year. Once in full production, the farm should house 250-300 tonnes of sturgeon, targeting around 5 tonnes of caviar production and 75 tonnes of fish for meat, swim bladder and leather. The viability of the project largely depends on the environmental conditions. Advanced farm equipment and high quality management is required to capitalise on the production and to prevent culture risks. Fish should be housed in tanks in fresh or salty water with culture temperatures in the range of 18-26 ºC. The current practice of surgically removing eggs from the fish ensures a long survival period for the sturgeon (sturgeon species are known to live for more than a hundred years). Starting 2006, caviar farms have been reported to have their order books full, thanks to better processes, burgeoning demand and low supply of the natural

BIG IDEA/CAVIAR, THE EGGS OF STURGEON, ONE OF THE COSTLIEST FOOD ITEMS IS IN SHORT SUPPLY. STURGEON CAN BE FARMED AND THE EGGS SURGICALLY REMOVED rare that it can cost you up to Rs 5-10 lakh per kg. Beluga, the biggest of all sturgeons, is the next in line, with its caviar costing as high as Rs 1,50,000 per kg. Most Indians, however, prefer caviar coming from Sevruga sturgeon. With a price of around Rs 50,000 per kg, it is the cheapest option. The international demand for caviar is estimated to be more than 400 tonnes 14

OCTOBER 2007

Supply of caviar never being at par with its popularity is bad news for consumers. For entrepreneurs, however, there lies an opportunity that is worth being explored. Imagine setting up a farm to produce caviar! The fish is being raised for caviar and meat in Russia, Iran, France, Italy and the United States. To start such a venture, an initial investment of $2-4 million (Rs 16 crore)

stuff. Industry estimates say that revenues from the meat of the male fish start coming in about 2-3 years from the initial set up. Caviar, which is the major source of income, however, takes 6 to 8 years to start production. It is widely estimated that once production stabilises, annual revenues of around $2.45-2.85 million (Rs 11.5 crore) can be generated from a farm of this size. DARE


TH EY

guide/legal

C HANGED

T HE

W AY

W E

DO

B U SI N ES S

DARE.CO.IN

Dhirubhai Ambani As we were writing this, the Sensex crossed the 16 k mark and surprise surprise, it actually did not create a big splash! Today we take the stock market and public issues for granted. We forget that this is a fairly recent phenomenon. The man who introduced the masses to the stock culture and created a virtual revolution of public participation in corporate equity is better known for the business empire he created. Without Dhirubhai Ambaniâ&#x20AC;&#x2122;s pioneering efforts in public share issues, perhaps the great Indian growth story would have taken a completely different turn. continued on page 21 AUGUST 2007 15


DARE.CO.IN

blogs/INSEAD

Apprentice yourself to an entrepreneur There are many ways to experience entrepreneurship before you start off on your own /Philip Anderson

W

hen journalists interview me in my role as the head of INSEAD’s Entrepreneurship and Family Enterprise department, they almost always ask two questions: why do students take entrepreneurship courses and what makes us think we can actually teach people how to be entrepreneurs? The answer to the first question is easy: more than 85% of our MBA’s take at least one entrepreneurship course because they want to have the option later in their careers of starting or joining a growth venture. They don’t believe they can count on lifetime employment in a big company. They also realize that a great track record in a large organization won’t necessarily help them get a job in a young, fast-expanding enterprise. Many entrepreneurs are wary of people whose resumés show a consistent record of achievement in a larger firm but who have no experience in a startup or fast-growth setting. Too many have hired people who performed well in an established company but fail miserably in an entrepreneurial setting. “Talent” depends on the context, and it often doesn’t translate from the corporate world to a startup venture. Some corporate veterans fail because their performance depends on having a business card from a famous company. For example, selling or negotiating partnerships is much easier if you represent a well-known brand than if you act for a small company no one has heard of. Others fail because they are too specialized. In a venture, everyone wears multiple hats and job descriptions usually don’t count for much.

You have to make your own photocopies and you have to lend a hand wherever it’s needed. Consequently, MBA students take entrepreneurship courses to learn how to translate to a startup venture the skills they have developed in larger companies. Our job is to teach them how to hit the ground running in a young, fast-growing enterprise. We show them what issues arise in these settings and how successful entrepreneurs overcome them. For example, any MBA learns a lot about working capital, but finance courses usually teach them how CFOs and financial services providers operate, not how entrepreneurs squeeze every drop of blood out of their cash. If you understand why MBA’s take entrepreneurship courses, you also understand my answer to the question “What makes you think you can train people to be entrepreneurs?” I reply, “We don’t.” Our courses can’t turn anybody into a successful entrepreneur, but they’re still worthwhile. Why? The best way to learn how to be a successful entrepreneur is to work at the right hand of a successful entrepreneur. Entrepreneurship is passed on through apprenticeship. When you work with an entrepreneur, you see all the problems that arise in venture settings and how they are overcome. For example, a serial entrepreneur in Bangalore told me once, “In my first venture, we spent months deciding on a stock option plan. In my second venture, that took twenty minutes because the management team had all been through it before.” If you seek funding from a venture capitalist, the single strongest asset you can have in your background is significant responsibility in a successful venture. Even experience in an unsuccessful venture is better than no startup experience. As one venture

Unfortunately, if you want to gain entrepreneural experience, you face a classic chicken-and-egg problem. The best way to prepare yourself to head your own venture is to work closely in a venture with a successful entrepreneur. But why should he or she hire you if you don’t already have that kind of experience?

16

OCTOBER 2007


DARE.CO.IN

blogs/INSEAD capitalist based in Mumbai told me, “I don’t back people who are learning on my nickel how to start a company.” Unfortunately, if you want to gain such experience, you face a classic chicken-and-egg problem. The best way to prepare yourself to head your own venture is to work closely in a venture with a successful entrepreneur. But why should he or she hire you if you don’t already have that kind of experience? Your prospective boss would prefer to hire people who have a track record of performing in a young, fast-expanding company. Entrepreneurship courses in a business school like INSEAD aim to overcome this chicken-and-egg situation. We write original cases about the problems that real entrepreneurs are wrestling with right now, and bring these entrepreneurs to class so the students can think through with them what to do. [For example, Dilip Kapur joined my students in Bangalore to co-teach with me the HiDesign case you’ll find in this issue of DARE.] A few students have been hired by entrepreneurs who were particularly impressed by what they heard in class or read in a written analysis of their case. We also have a clearinghouse that allows entrepreneurs who need help to match up with students who want to work with real companies on their course projects. At the end of the engagement, the entrepreneur gets a useful result while the students get a reference letter explaining what great work they did in a venture setting. So how do you overcome this problem if you’re not getting an MBA in a school with a top entrepreneurship program? You do the same thing, but you have to work a little harder. Find a way to apprentice yourself to an entrepreneur. Even if you initially have to work for free during your spare time, never pass up an opportunity to work directly with an entrepreneur who has a track record of success. Do

a short project for someone that yields a clear result, and then ask him or her for a reference letter. You’ll be amazed how many opportunities will come your way once you have proven your worth to an entrepreneur. Most of them have friends who are also running growth ventures, and every entrepreneurial CEO is always looking for people who can get things done in this unique setting. Journalists usually think that MBA’s take entrepreneurship courses in order to write a business plan, win a competition, and start a company. Some do and some succeed, but we advise the overwhelming majority of our students not to launch their own venture until they have significant experience in someone else’s. There is no substitute for working at the right hand of a successful entrepreneur. If you are reading DARE and dreaming of starting a company some day, the best way forward right now is to find the right role model, do something for him or her, and prove that you can be a great asset in an entrepreneurial environment. INSEAD deals with entrepreneurs from all over the world, and in my experience, it’s easier to meet venture CEO in India than it is in most other parts of the world. TiE (The Indus Entrepreneurs) events are especially useful for making contacts, but I find it remarkable how many Indian CEO’s will meet with someone unknown to them if they are approached in a sincere way by a person who wants to help while s/he is learning. In this and its future issues, DARE will expose you to the stories of some of India’s most fascinating entrepreneurs. It’s up to you to take the next step by meeting them, finding a way to create value for them, and building a name for yourself as someone who can hit the ground running in a young, fast-growing company. DARE

I find it remarkable how many Indian CEO’s will meet with someone unknown to them if they are approached in a sincere way by a person who wants to help while s/he is learning

INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab

SMS “DARE <your comments, questions or suggestions>” to

56677 OCTOBER 2007 17


TH EY

guide/legal

C HANGED

T HE

W AY

W E

DO

B U SI N ES S

DARE.CO.IN

Capt. G R Gopinath It is one of the ironies of life that it took a retired army man turned sericulturist to make flying affordable to the masses and thus rewrite the rules of the commercial airline business in the country. And it is yet another irony that while he was able to change the industry’s landscape beyond recognition, he has had to sell a majority stake in the airline he created to keep it afloat. continued on page 65

AUGUST 2007 21


DARE.CO.IN

opportunity/travel

Business is in the air

As corporate India lines up to buy aircraft, Rs 1,500 crore every year is in the wings waiting to be made. Are you game to catch this wave? /Krishna Kumar and Vimarsh Bajpai

I

f it was not for a friend who sought his help in buying a personal jet four years ago, Karan Singh would still have been a pilot on commercial aircraft. “He wanted me either do it for him or get it done through someone else. I chose the former,” says Singh, CEO of Kubase Aviation, the company he started four years ago to help his friend buy that plane. Kubase has subsequently diversified into aircraft management and maintenance. And Singh is currently negotiating a JV with a global major. Walk into any airport in the country and the roar of an industry on the upward curve is unmistakable. And if you look carefully, you will see that it is not just the commercial aircraft, an increasing number of private aircraft are also jostling for landing slots and space at every airport.

22

OCTOBER 2007

DARE/view Segment: Corporate Aviation Size: Rs 1,550 Cr ($30 million) per year What’s in it?: From buying to management and maintenance, there is many an opportunity for entrepreneurs in the country’s sunshine sector Limitations: Stringent regulations, manpower shortage, poor infrastructure

Corporate India has taken to flying in its own aircraft in a big way. Mukesh Ambani and Vijay Mallya own fleets, but the others, including the smaller corporates are in no way behind. Bizjet owners include GMR Group, Punj Lloyd, Hindustan Construction, Venkateshwara Hatcheries, and Jaiprakash Associates. NDTV has helicopters. An increasing number of corporates across the country are queuing up to

buy their own aircraft. A wide variety of aircraft, ranging from helicopters to small and medium range propeller driven craft like the Beachcraft King Air to business jets like the Cessna Citation to full-fledged Boeings are all there in this shopping list. Buying and maintaining an aircraft is no easy task. First of all you need to identify the right type of aircraft that fits your needs and budget. Then you need to find one that is on sale. Unlike with, say cars, aircraft have very high resale value and it is more likely that someone buys a used aircraft rather than a new one. You also need to ensure that the aircraft you are purchasing has a clean record—that it has not been used for drug-running or arms-smuggling. As you can see, buying an aircraft is not only costly but also not easy for the uninitiated.


DARE.CO.IN

opportunity/travel Once a corporate house decides to buy an aircraft for its use, the deal could translate into a number of business opportunities for an entrepreneur to explore. Buying and selling alone could mean big business as an aircraft may cost anywhere between $1 million (over Rs 4 crore) and $70 million (Rs 300 crore). An industry average of 2.5% brokerage means that even one deal per year can be good business. Add to this manpower provisioning, catering, fuelling, maintenance, certification, etc. and you can figure out how big the business can get! Aircraft maintenance again is a very specialised area, requiring very high -level skills, certification and investments. The big daddy in maintenance in the country is Airworks International. Established in 1951 out of Mumbai, the company also operates in Pune, Chennai and Delhi. Operating out of 50,000 square feet of hangar space, Airworks offers both maintenance and modification services besides training in aeronautical engineering. Now capture this. There are 271 corporate aircraft in the country and experts believe the figure would treble in the next five years. According to industry sources, 50 per cent of these are owned by non-scheduled airline operators (charter service providers) and the rest is with corporate houses, govern-

DARE/industry size Current strength (no.) Expected increase in 5 years (times) Number to be purchased Average cost per aircraft (Rs Cr) Total value of purchases (Rs Cr) Brokerage (%) Total value of brokerage (Rs Cr)

271 3 813 20 16,000 2.5 400

Monthly expenses per aricraft (Rs L) Crew

6

Management

4

Maintenance

2

Other Misc.

3

Sum Total

15

Annual/aircraft

180

For 813 aircraft

1,46,340

Annual size (Rs Cr)

1500

DISCLAIMER: This data and analysis are indicative and Cybermedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture.

Many of US companies, which are in the business of buying and selling corporate aircraft, are themselves looking for inventory. If these figures are to be believed, the exponential growth of demand for corporate aircraft would lead to a rise in demand for experts who can broker deals and carry out due-diligence. It would also lead to a growth in the requirement for management and maintenance of aircraft besides trained manpower. According to Koshi Vergese of K-Air

alised the opportunity early on. Singh, formerly a commercial pilot on Boeing 727 by his own right, saw that while more and more corporates were queuing up to buy, they lacked the information to choose and also faced problems in management and maintenance. Thus he started off with a business model that aimed at providing end-to-end solutions for corporates buying aircraft. Starting off two-and-a-half years ago, Kubase now owns 10 aircraft which are leased out to corporate houses. Kubase also helps buy, manage and maintain private aircraft. K-Air Charters has also diversified into providing end-to-end solutions. KAir provides two types of solutions. According to Vergese, the first is the total turnkey package (selecting, identifying, purchasing, importing and operation of aircraft) and the other one is just the operation and maintenance or just identifying or purchasing the aircraft.

Buying Like we said before, buying an aircraft is not easy. Singh says “the procedures of buying a plane are cumbersome. It may take anywhere between 2-6 months, presuming that you have ready cash. This is because import procedures are difficult to deal with, and operational requirements are quite stringent.” The process of buying begins with evaluating

BIG IDEA/THE NUMBER OF CORPORATE AIRCRAFT IS LIKELY TO TREBLE IN THE NEXT FIVE YEARS; MEANING HUGE DOWNSTREAM OPPORTUNITIES ment and high net worth individuals (HNIs). According to K-Air Charters, there are 203 corporate aircraft in the country while some others put the figure at 150 aircraft and an equal number of choppers. Now, not only is the demand growing but also, there is a shortfall in the supply of available aircraft. Some believe the demand supply gap is 5:1. The gap, to some extent, is a reflection of the situation in the West.

Charters, “over the last three years, we have seen a sudden spurt in purchase of aircraft, especially by corporates, resulting in our Indian office renewing its focus on the market.” “There is a huge opportunity in the corporate aviation sector but lack of proper infrastructure acts as a deterent,” says L Morris, Operations Manager of Ventours Aviation, based out of Delhi. Karan Singh of Kubase Aviation re-

the mission profile. It involves identifying requirements and budget. Requirements include the comfort level and the size of aircraft depending upon its use. After detailed evaluation, Kubase, for example, shortlists 3 to 5 aircraft that closely meet client requirements. A performance analysis of the shortlisted aircraft is required to help choose between them. A detailed pre-purchase inspection becomes an absolute must. A team OCTOBER 2007 23


DARE.CO.IN

opportunity/travel

Karan Singh, Kubase Aviation Singh, who holds a Bachelors degree in Aeronautics Engineering from Embry-Riddle Aeronautical University, says that he wanted to fly ever since he was 2 years old. He grew up to become a pilot flying the Boeing 737 NG and accumulating over 5,000 hours of flying experience. Beginning with acquisition consulting, it took Singh “two years before we could get everything in place.” “There was very little customer awareness and government regulations were tight.” “Manpower is another area of concern. You need trained crew and it is difficult to come by,” he says. Like a good entrepreneur, Singh has spotted the business potential here as well. He has tied-up with the Spartan College of Aeronautics and Training to plug the gap. “Lack of sufficient landing strips is a big problem for corporate fliers. In a population of 1.2 billion in our country, you have only 125 operational airports, out of which half are full to capacity. In the US, you have 19,000 airports, out of which 6,000 can handle commercial flights,” he says. To push the case for the industry, Singh recently founded the Business Aviation Association of India.

of technicians is needed to go through all maintenance records for each and every part, check the aircraft history for previous accidents/incidents or any damage. Once you purchase abroad, you have to fly it here. This long haul flight (particularly for smaller aircraft) is the job of specialised pilots.

DARE/players Aerotech Aviation Airworks Air Charter Services

employing their own crew. Management includes selection and training of aircrew and technical staff, technical maintenance, operational procedures involving flight safety, rules and regulations, certification and licensing and financial aspects.

ClubOne Air

Maintenance

Operations

Indus Aviation

Once the aircraft has been bought, the big question is its management. This includes the entire gamut of operations of the aircraft right from providing cabin crew to catering and fuelling to landing permissions, local accommodation for crew and the like. There is a huge shortage of pilots and cabin crew and if someone has just one aircraft, then they are better off tying up with a management agency rather than

Interavion

Aircraft maintenance is specialised business and involves technical expertise. This too is a great business opportunity. According to industry sources, there are only three major (but not major as per international standards) private maintenance agencies in India. So there is a long queue of aircraft awaiting inspections/overhauls. Aircraft undergo two types of maintenance— scheduled and unscheduled; light and heavy. Scheduled maintenance has to

24

OCTOBER 2007

K-Air Charters Kubase Aviation Subha Aviation Tag Aviation a global major in charter solutions, aircraft management, aircraft maintenance and aircraft sale-purchase is said to be planning to enter India.


DARE.CO.IN

opportunity/travel

CHUCK MULLE, PRESIDENT, BUSINESS AIRCRAFT LEASING/“WE HAVE WORKED WITH ABOUT 7 LARGE INDIAN CLIENTS AND HAVE PLACED 4 CORPORATE JETS AND 3 HELICOPTERS IN INDIA OVER THE PAST 12 MONTHS” be done on a regular basis to keep the aircraft in good condition. Unscheduled maintenance is exactly what the name implies and could be caused by something like a burst tyre. For most heavy maintenance, the current option is to fly the craft abroad. So, that’s yet another opportunity.

Fractional ownership Fractional ownership offers individuals and companies the benefits of a privately owned jet or helicopter at a fraction of the cost. As the name implies, the parties do not own a full aircraft, but pool in to share one. Let’s say someone buys 1/4th share of an aircraft. The cost of acquiring that share of the aircraft would gener-

ally be 1/4th of the cost of the entire aircraft, including the induction costs. Depending on the percentage of their share, they would be entitled to a certain number of hours of flying each year. They would own financial and

legal interests in the aircraft to the extent of their share. The aircraft would be managed and maintained by a third party. Club One Air, which claims to be Asia’s first fractional ownership firm, operates in this segment. DARE

How else to make money

Lufthansa Ambient Media 2007

When the going gets tough, the tough get going. Right? There is no better example of this than the options available for advertising with Lufthansa. The menu on the right, reproduced from their website is self explanatory

Please select Lufthansa City Center Timetables Palm / Pocket PC Internet (www.lufthansa.com) Ticket sleeves Ticket stuffers Exclusive Magazine address cover ad Exclusive Magazine cover ad Check-in kiosks Boarding cards Newspaper stands in lounge Lounge Promotions Newspaper stands at the gate Gate cups Seat pockets Business Class refreshing tissues Mini-flyers Business Class chocolate candies Hot drink cups Cocktail snacks First Class refreshing tissues Inflight entertainment Media World program magazine Lufthansa magazines

26

OCTOBER 2007


DARE.CO.IN

blogs/opinion

Enterprisingly yours Entrepreneurship is about venturing to where the ordinary would not go /Anurag Batra

I

f you are wondering whether I am talking of Emotional Quotient (EQ) and suggesting that to have a good EQ you have to have a good Glamour Quotient (GQ) and Fashion Quotient (FQ) then you need to read on because that ain’t what I am evangelizing. Let me let the cat out of the bag. EQ is Entrepreneurial Quotient and is the sum total of the GREED Quotient and the FEAR Quotient of an entrepreneur. Higher the EQ, the more successful is the entrepreneur. But wait a minute. Isn’t entrepreneurship about creating Positive Icons? Then why am I using negative emotions like GREED and FEAR to connote creation of an enterprise and wealth creation. Let me just say that I use GREED as a positive emotion and FEAR as a catalyst. GREED is the size of the ambition of the entrepreneur and FEAR is the level of paranoia that makes one to stretch himself or herself. I meet a lot of budding as well as established entrepreneurs and these are the two attributes I try to size up in them. I guess VC and PE firms also try and ascertain the GQ and FQ apart from the team and competency of would be entrepreneurs. In simple terms, it’s one’s ability to think big and execute big. Are you capable of dreaming in the global scale? Remember that entrepreneurship is about taking calculated risks and venturing to where the ordinary would not go. Perhaps we should name this Entrepreneurial quotient as the DARE QUOTIENT! Every entrepreneur knows or

will learn the hard way that success has many fathers while failure is an orphan. The question is whether you can take this in your stride. Do you have it in you to be a successful entrepreneur? To dare yourself beyond the ordinary? I have friends who having working abroad, come back and try to do business in India in the same way as they do in US. Obviously, many of them are bound to fail. The success of an entrepreneur is dependent on how he or she adapts to the environment. India is all about execution and execution in India is not easy. It takes a special set of skills. And relationships play a big role here. An entrepreneur also has to make things happen; you have to walk the talk. I am reminded in this context of the philosopher Marcus Aurelius “ Waste no more time arguing what a good man should be. Be one.” Today the same can be said of an entrepreneur. You also need to be an eternal optimist. Like Abraham Lincoln, who had a string of failures in business and politics before he was elected the President of USA, entrepreneurs should never give up. Failures should make you wiser and more determined than ever to succeed. In fact failure should teach you more than success does! First generation entrepreneurs are likely to chart uncharted and unfamiliar territory, and their being unprejudiced and being a rank outsider bolsters their chance of success. So all of you dreamers! Dare and venture out as this land of opportunity beckons you. Dare to Dream and succeed. An entrepreneur’s motto is best mirrored by Ralph Waldo Emerson “The reward of thing well done is to have done it.” DARE

I have friends who having working abroad, come back and try to do business in India in the same way as they do in US. Obviously, many of them are bound to fail. The success of an entrepreneur is dependent on how he or she adapts to the environment. India is all about execution and execution in India is not easy. It takes a special set of skills. And relationships play a big role here. An entrepreneur also has to make things happen; you have to walk the talk

Anurag Batra is real life first generation entrepreneur who is Much Below Average (MBA) when he is not busy writing such columns and can be reached at anuragbatrayo@gmail.com. ed: Anurag is the founder of exchange4media.com. OCTOBER 2007 27


DARE.CO.IN

/unique idea of the month

PALACE ON EIGHT WHEELS Luxury tourism in Delhi gets a new name — The Royal Time Machine. Other cities are waiting

/Arunjana Das

I

s this India’s terrestrial answer to the Venetian Gondolas? A luxury bus fitted out in an early Mughal setting, 19 people sitting under crystal chandeliers, drinking from tinkling silver designer glasses, enjoying period snacks served by liveried attendants. Add four LCD screens, multi-lingual voice-overs and chemical restrooms to this mix and you get the Royal Time Machine —a new venture from TRTM Tourism and promoted by Suparna Chopra and Shivani Chopra. How much does all this cost? The basic bus comes for Rs 55 lakh ($140k) and a ticket is at $160 (Rs 6,400) for a halfday trip. Royal Time Machine has been started by TRTM Tourism, a privatelyowned luxury travel and hospitality company, with an initial investment of around Rs 7 crore ($1.75 million). Having started off with two buses, the company plans to pump in a further Rs 40 crore ($10 million) over the next five years into the venture. Well into its fifth month, it’s filling up its posh seats rapidly, thanks to the value for money that it offers to the well-heeled thirsty traveler. At $160, it works out pretty cheap for foreign tourists. The ticket covers the entry charges of all significant monuments of the city in addition to the modernized Mughal luxury. With average seat occupancy hovering around 60-70%, it can rise upto 85-100% during festivals or the peak tourist season. This means that there remains an exploitable market for more such ventures, 28

OCTOBER 2007

DARE/facts Sector: Tourism Big idea: Conducted tours in the city of Delhi, enveloped in luxury, at a price Target Audience: The well-heeled foreign tourist Entrepreneurs: Suparna Chopra and Shivani Chopra Investment: Initial: Rs 7 Cr ($1.75 m) Further: Rs 40 Cr ($10 m) Company: TRTM Tourism (www.theroyaltimemachine.com)

especially during the peak season. The major challenge faced by TRTM in starting the Royal Time Machine was the lack of a benchmark since it is the first of its kind in the country. “India is coming out of the image of being a lowcost destination and has become the 3rd most preferred destination in the world. Premium segment tourists have special requirements which are not limited to just sight-seeing. They want to have an unforgettable experience,” says Suparna Chopra.


DARE.CO.IN

/unique idea of the month SUPARNA CHOPRA/”INDIA IS COMING OUT OF THE IMAGE OF BEING A LOW-COST DESTINATION AND HAS BECOME THE 3RD MOST PREFERRED DESTINATION IN THE WORLD. PREMIUM SEGMENT TOURISTS HAVE SPECIAL REQUIREMENTS WHICH ARE NOT LIMITED TO JUST SIGHT-SEEING. THEY WANT TO HAVE AN UNFORGETTABLE EXPERIENCE”

Now that the Royal Time Machine has been launched and has gained popularity amongst the tourist circuit of the city, it would not be difficult to initiate businesses based on similar ideas. So how would the opportunity look like to an entrepreneur planning to venture ot into these waters? Considering the tourist inflow and the average market size, there is space for around 40 to 50 more such buses in Delhi. The initial investment will be around Rs 5-6 crore, including cost of

Suparna Chopra (right) & Shivani Chopra

OCTOBER 2007 29


DARE.CO.IN

the bus, luxury arrangements and related staff and infrastructure. Annual operational and maintenance costs will set you back by not more than Rs 4050 lakh per bus. Assuming you start off with an average occupancy of around 60%, you still earn Rs 87k every day, that is, annual earnings of Rs 1.75-2 crore! Counting in your annual expenses, you still end up with a figure in crores! Your return on investment would be strongly dependent on intrinsic factors such as your service and extrinsic factors such as regional or national events on the lines of the upcoming commonwealth games of 2010. Unfortunate events such as a terrorist attack or an outbreak of bird flu could hamper tourist inflow and impact the business. The average seat occupancy is not likely to fall below 60%, thanks to an increasing number of affluent resident middle class as well as the affluent domestic and NRI tourists, which would adding further volumes. Since this is a niche offering, previous experience in the tourism or transport industries would be an advantage. Competition for this and similar services will come from cheaper sightseeing 30

OCTOBER 2007

/unique idea of the month

DARE/estimates This is how the opportunity looks like All India data for 2006 Annual foreign tourist arrivals: 40 lakh Annual growth rate: 13% Annual forex inflow from tourism: Rs 24,000 Cr ($6 bn) Growth in forex inflow: 18% DELHI Annual foreign tourist arrivals: 19,36,749 (48% of total tourist arrivals for the country) Assuming 10% as target market: 1,93,675 Target market size per day: 968 Market size: 42 buses FINANCES PER BUS Basic cost of bus: Rs 55 lakh Seating capacity per day (2 trips): 38 Occupancy per day (60%): 23 Realization per ticket: Rs 3,840 Income per day: Rs 8,7552 Annual revenue per bus@200 days: Rs 1.75 crore Assumptions: 10% of tourist arrivals form target market 40% commission on tickets sold 60% occupancy per trip Season=200 days of service=400 trips per year DISCLAIMER: This data and analysis are indicative and Cybermedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture.

tours and from the Palace on Wheels trains of the Indian Railways. Brandbuilding is an important part of the deal since you would need to differentiate

yourself from the cheaper local sightseeing tours. To achieve the same, you would need to recognize appropriate marketing channels. The basic problem faced while launching the Royal Time Machine, as mentioned by Suparna Chopra, was in zeroing in on the right marketing channels since there were no other comparable ventures in the country. Although somewhat similar models exist in the form of the Palace on Wheels trains, she and her team had no way of knowing whether a luxury city tour would be sought after or not. Do similar opportunities exist elsewhere? Yes. The obvious choices are the other metros. However, lack of aviation infrastructure across the country would limit tourist inflow beyond metros. Well-frequented tourist circuits are the other likely contenders. Inter-city tours like Delhi-Jaipur-Agra, Bangalore-Mysore, Chennai-Mahabalipuram, and pilgrimage tours like Chennai-Tirupathi are sure to be great hits. There could be a playing around with themes as well. Whereas a heritage theme works well in Delhi considering its historical significance, certain other themes inspired by local tastes can also be explored. DARE


DARE.CO.IN

opportunity/environment

The Business of Better Environment Call it concern for environment or plain economics, many a businesses around the world are striking gold in ‘green’ pastures /Vimarsh Bajpai

W

hen the United Nations Environment Programme (UNEP) released its report on the global flow of capital into the sustainable energy sector, a few months ago in Paris, the figures established firmly the grow-

32

OCTOBER 2007


DARE.CO.IN

opportunity/environment ing clout of a new breed of businesses. Fast depleting natural resources, particularly oil and coal, rising crude petroleum prices and dramatic climate changes have been instrumental in the sharp growth of a new category of commercial activity called environmental business. According to the UNEP’s Global Trends in Sustainable Energy Investment 2007 report, global investment capital flowing into sustainable energy rose from $80 billion in 2005 to a record $100.4 billion in 2006. This breaks up into $70.9 billion invested into companies and new sector opportunities in 2006, a 43% jump from 2005 and 158% over the last two years, the report said, and added that an additional about $29.5 billion entered the sector in 2006 through mergers and acquisitions, leveraged buyouts and asset refinancing. Renewable energy is just one of the various business opportunities that have grown around all the hue and cry over energy security, global warming and pollution. Others tapping the huge market for environmental goods are automakers with their electric and hybrid car models and consumer electronics companies with their energy-efficient home appliances. If US is the role-model for business trends the world over, then the recent figures by the American

DARE/sunrise businesses Green sectors / opportunities Wind power: Wind turbines, supply of components, spares, accessories, consultancy Solar power: Solar photovoltaics (PV), solar thermal systems such as solar heaters Hydro power: Small hydro-power plants Nuclear power: May open soon for private participation Biofuels: Large scale production of ethanol for petrol, and jathropha for bio-diesel Biomass: Power plants based on fuel wood, crop residues and bagasse Rural energy technologies: Biogas burners, lamps, engines Waste management: Power generation from urban and industrial waste New energy technologies: Fuel (chemical) cells, hydrogen energy, ocean energy Auto: Electric cars and three-wheelers, hybrid cars, two-wheelers run on CNG Consumer durables: Fluorescent lightbulbs, energy-efficient home appliances Industrial products: Water treatment plants, air pollution control equipment etc Construction: Design, construction of energy- and water-efficient buildings Consulting & engineering: Assessment, project management, O&M, monitoring etc

Solar Energy Society (ASES) are heartening and could be seen as an indication of things to come in developing countries such as India. According to ASES, renewable energy and energy-efficiency industries generated $1 trillion in revenue in 2006 in the US, and the figure could reach $4.5 trillion by 2030. US-based Environmental Business International, the publisher of Environmental Business Journal, has coined a new term – Healthy Products, Healthy Planet Sectors (HP2) – those consumer goods and services that are offered in the name of environmental sustainability. It even includes services like eco-tourism in its list of businesses that have grown around the concern for climate change.

Renewable energy The hottest sector in environmental business today, renewable energy refers to the optimum utilization of natural resources such as water, wind, sunlight and biomass. The sector is bound to witness exceptional growth given the government’s efforts to reduce the country’s dependence on crude oil (India imports 70% of its crude oil requirements and pays one of the highest prices in terms of purchasing power parity) and meet its growing energy needs. According to estimates, renewable

Global Capital Flow in Sustainable Energy* in 2006

Total inflow: $100.4 billion All figures in $billion Source: UNEP Global Trends In Sustainable Energy Investment 2007 * Includes biofuels

OCTOBER 2007 33


DARE.CO.IN

opportunity/environment Sustainable Energy Investment in India (2004-2006)

$ million

sources contribute only 7.7% of the country’s total power generation, as against the world average of 13%. This leaves scope for massive growth of the solar and wind energy sector. Currently 11,000 MW of power is being produced from renewable sources. During the 11th Five Year Plan, 15,000 MW of capacity addition is being targeted by the Plan panel. A renewable energy SEZ is also in the offing. No wonder then, the wind power sector has seen some good action lately. It began with the completion of Suzlon Energy’s acquisition of Germany’s REpower Systems in June this year. Pune-based Suzlon now has the global market share of 6% in the wind power sector. Kalyani Group, parent of the world’s second-largest forging company, Bharat Forge, has grown its presence in the sector by recently acquiring Germany’s wind turbine maker RSBconsult GmbH. NTPC and leading developer DLF are also said to be exploring the possibility of entering the lucrative wind power business. Tata Power is setting up a 100 MW wind power project in Maharashtra with financial assistance from Asian Development Bank and Indian Renewable Energy Development Agency (IREDA). ONGC has taken up a 100 MW wind project of 50 MW each in Gujarat and Karnataka. Reliance Energy

Source: UNEP Global Trends In Sustainable Energy Investment 2007

has commissioned a 8.37 MW project in Karnataka besides other projects. All this action comes in the backdrop of India being the world’s fourth largest wind energy producer with an installed capacity of over 7,000 MW. However, there is potential for 45,000 MW, according to government. Worldwide, the installed capacity of wind power is 78,728 MW as on March 31, 2007. A National Renewable Energy Policy, now under consideration, envisages 10% of total installed capacity through renewables.

Renewable Energy Potential 2,700 MWe 5,000 MWe

16,881 MWe

45,195 MWe

15,000 MWe

Biofuels MWe: Mega Watt Equivalent Source: Planning Commission

34

OCTOBER 2007

Thanks to the plenty of solar energy that India gets, this is one segment of renewable energy that is high on both the government’s and private sector’s agenda. This can be gauged by the recent statement of Minister for New and Renewable Energy Vilas Muttemwar, who said the government was contemplating providing solar energy to 25,000 unelectrified villages by 2012. Reliance Industries is also mulling foraying into solar power generation and is likey to start some pilot projects in Maharshtra. Opportunities in the solar energy sector are in the development of Solar PV (photovoltaic) and solar heating systems. SPV systems have found applications in households, agriculture, telecommunications, defence and railways among others. In the last two decades, the cost of manufacturing of PV has gone down significantly, increasing affordability for dispersed rural applications. Non-grid solar thermal technologies include water heating systems, solar cookers, solar drying applications and solar thermal building designs. These technologies on the other hand help conserve energy in heating and cooling applications, especially in urban and semi-urban environment.

Rising prices of both petrol and diesel have been rattling consumers and indus-


DARE.CO.IN

opportunity/environment DARE/facts Ethanol Produced from: sugarcane, molasses Big players: Shree Renuka Sugars, Bajaj Hindustan, Ballarpur Chini Group etc Demand from oil marketing firms (for 5% blending with petrol): 550 million litres annually Current production capacity: 1,500 million litres approx Bio-diesel Produced from: Jatropha, Pongamia, Karanja plants Big players: Reliance Life Science, Mohan Bio Oils Ltd, Southern Biotechnologies etc Market projection: Growing at CAGR of more than 33% from the year 2007, world biodiesel production is likely to touch the mark of 12 billion litres by the end of 2010

try alike for a long time now. To reduce the country’s dependence on imported petroleum, the government decided to promote biodiesel and blending of ethanol in petrol. In 2003, the Ministry of Petroleum and Natural Gas introduced the scheme of supplying 5% ethanol blended petrol in nine major sugar producing states and four Union Territories. It was further extended to ten states. Later, in November last year, the programme was approved for pan-country implementation. The government is now considering raising doping level to 10% in 2008. Thus, according to reports, the three state-owned oil marketing companies had agreed to lift a total 1,700 million litres of ethanol from sugar mills over a three-year period from last November. In India, ethanol is mainly produced from sugarcane and molasses, a byproduct of sugar. However, it can also be produced from wheat, corn, beet and sweet sorghum. India is the fourth largest ethanol producer after Brazil, the US and China, its average annual ethanol output amounting to 1,500 million litres. For a 5 per cent ethanol blend in petrol nationally, the ethanol required is 550-640 million litres annually. The sugar industry wants the government to also approve ethanol blending with diesel, as due to higher production

Climate change and carbon credits None of the concerns about global warming and oil crisis are misplaced. Experts believe that average global temperature is likely to witness an increase of 0.6-2.5°C in the next fifty years, thanks to a host of factors including a sharp rise in greenhouse gases (GHG) such as CO2. Although the US has been the biggest emitter of GHG, growing economic activities in India and China are also blamed for the rise in GHG. Generation of electricity from coal-fired power plants, emissions from automobiles and booming industrial activity results in the release of heat-trapping gases into the atmosphere. “Global atmospheric concentrations of CO2, methane and nitrous oxide have increased markedly as a result of human activities since 1750 and now far exceed pre-industrial values,” according to the Intergovernmental Panel on Climate Change (IPCC). On the energy front, the situation is equally dismal. Supply disruptions and rising demand from China, the US and India, the main guzzlers of energy, has caused crude oil prices to touch record levels this year. It is believed that the Organization of the Petroleum Exporting Countries (OPEC), which produces more than a third of the world’s oil, has been pumping less oil this year compared to 2006, putting additional pressure on supplies. Thus the need for reducing energy consumption while preserving the climate has led to the rise in development of sustainable and environment-friendly products, services and technologies.

Carbon credits The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) imposes mandatory limitations on emission of greenhouse gases (GHG) for the signatory countries. As of December last year, a total of 169 countries and other governmental entities have ratified the agreement, with the exception of the US and China. From this Protocol germinates the idea of carbon credit trading. This mechanism is aimed at making developed countries, which are the biggest emitters of GHG, shell out money which in turn is passed on to countries cutting down on harmful gases.

World-wide share of CDM projects

Total Number of Projects: 788, as on September 17, 2007 Source: United Nations Framework Convention on Climate Change

For example, if an Indian company cuts down or prevents the emission of certain amount of carbon in the atmosphere, it can sell that amount (called carbon trading points) to a company in the developed world. This process is called Clean Development Mechanism (CDM). This is turning out to be a huge opportunity for Indian companies who get paid for adopting clean technology. Carbon credits or Certified Emission Reduction Certificates (CERs) are awarded by the CDM executive board, an arm of the United Nations, to projects in developing countries. These credits are traded like stocks in the international market. JSW Steel received 5.4 million carbon credits in June this year for reducing greenhouse gas emissions between 2001 and 2006. The global carbon credit market is expected to grow to $100 billion by 2010. As of September 17, India has the largest number of registered CDM projects in the world, accounting for over 35.28% of 788 projects, followed by China (14.34%), Brazil (13.58%) and Mexico (11.42%).

OCTOBER 2007 35


DARE.CO.IN

opportunity/environment

Toyota Prius is the world’s largest selling hybrid car there is a glut in the market. This would quadruple the demand for ethanol, and could cause supply side constraints. As for bio-diesel, Jatropha cultivation is gaining pace because its seeds are used to make the fuel. Other non-edible oil seeds such as Karanja and Pongamia are also used. It is estimated that India will produce 2 million tonnes of biodiesel in the next five years. For this to happen, huge swathes of land will be needed for Jatropha plantation. Since plantation of Jatropha has been taken up only in recent years, the situation may improve in another 3-5 years. According to estimates 0.4 million hectare of land is under jatropha cultivation. An Accenture study, which examined the key factors that will shape the emerging biofuels industry said, com-

ing nations such as China, India and Japan do – are most likely to succeed in the biofuels industry by 2012. The International Energy Agency (IEA) estimates that the share of biofuels in road transport globally will increase from 1% in 2004 to 7% in 2030.

Electric & Hybrid Vehicles Vehicular emission has become a major concern in developing countries, particularly India and China that are witnessing a surge in the number of automobiles every year. This has raised the need for electric and hybrid vehicles in India. The Maini Group owned Reva Electric Car company took the lead by launching the country’s first electric car in 2001. It manufactures two-door

trants. Electric two-wheelers have been launched by Hero Group and TVS. Electric vehicles are zero emission vehicles, almost noiseless, easy to charge, service and maintain due to the absence of spark plugs, clutch and gears. Meanwhile, hybrid cars, for which the US is the biggest market, may hit Indian roads soon. Mahindra & Mahindra is mulling the launch of its hybrid SUV Scorpio while Honda Siel, Toyota and Ford are exploring the Indian market. Hybrid vehicles, as the name suggests, have internal combustion engines and electric motors. Experts believe that hybrid vehicles cut air emissions of smogforming pollutants by up to 90% and reduce CO2 emissions by half. Hybrid car sales in the US jumped 49% in the first seven months of 2007. Toyota

BIG IDEA/ IT IS TIME NOW TO MAKE MONEY AS YOU TREAD THE ROAD TO A GREENER ENVIRONMENT panies who can navigate the patchwork of local regulation and are flexible enough to deal with a broad range of unknowns – including the emergence of second-generation technologies, the development of the hybrid automobile market, and what key energy consum36

OCTOBER 2007

hatchback and can accommodate two adults and two minors. The company sells its cars in the UK, Italy, Norway, Spain and Ireland among others. The market is bound to grow in leaps and bounds as there is a dearth of players and the segment is open for new en-

Prius is the world’s most successful hybrid car. The US government provides tax benefits to hybrid vehicle buyers. However, in India, the government is yet to plan out subsidies for this sector. Probably this is keeping Toyota and Ford from getting their models in India. DARE


guide/legal

DARE.CO.IN

Special Booklet on

Microsoft IT guide for emerging business with the next issue

AUGUST 2007 23


DARE.CO.IN

opportunity/foods

Playing with Bacteria There is money to be made doling out ‘healthy’ bacteria. Probiotics is the name of the game /Vimarsh Bajpai

I

t could not have been a coincidence that both Nestle and Mother Dairy announced their foray into the market with huge ads in the capital on the same day. While Nestle India has introduced Nesvita dahi(curd), Mother Dairy, the wholly-owned subsidiary of National Dairy Development Board, has rolled out its ‘b-active’ curd in the national capital region (NCR). Meanwhile, Yakult-Danone, a 50:50 joint venture between Yakult Hoshma of Japan and Groupe Danone of France, is gearing up to launch its probiotic health drink under the brand name Yakult in the Indian market. Amul, the major player in this segment, has already registered its intentions with the national launch of its probiotic ice-cream Prolife in January and the launch of probiotic lassi in Ahmedabad. Yakult-Danone India is setting up a manufacturing facility in Haryana with

DARE/global players 1 Arla 2 BioGaia Biologics 3 Chr Hansen 4 ConAgra Functional Foods 5 Danisco 6 Groupe Danone 7 Nestle 8 Yakult

an investment of Rs 136 crore and targets to sell 1 million bottles of Yakult per day in 3 to 5 years. Mother Dairy, before the launch of its probiotic curd, unleashed a huge media campaign with the tag-line “happy tummy to you”, and even engaged doctors to talk about the usefulness of consuming probiotic products. These companies are leading the all

out race to target the growing breed of health-conscious urban consumers, who do not mind shelling out a few rupees more in return for better health.

Friendly bacteria? Probiotic refers to dietary supplements or foods that contain beneficial or good bacteria normally found in your body. These microorganisms may assist with digestion or help protect against some harmful bacteria. There is increasing scientific interest in this, with researchers studying whether probiotic products taken as foods or supplements can help treat or prevent certain illnesses. “Probiotic refers to food products which carry friendly bacteria primarily Lactobacilli, which are considered healthy for our digestive system,” says Ishi Khosla, a Delhi-based dietician. Probiotics forms part of the larger segment of functional food or medicinal food, which according to the Wikipedia, is any fresh or processed food claimed to have a health-promoting and/or disease-preventing property beyond the basic nutritional function of supplying nutrients, although there is no consensus on an exact definition of the term. An interesting study carried out in Sweden examined its ability to improve work-place healthiness by reducing short-term sick-leave caused by respiratory or gastrointestinal infections. The study showed that prophylactic use of the probiotic lactobacillus reuteri could reduce the number of sick days at work.

Only for the rich? You don’t have to be a big multinational to create probiotic products. Take the example of Karnal-based Indian Dairy Research Institute (IDRI), 38

OCTOBER 2007


DARE.CO.IN

opportunity/foods which has tried out the production of probiotic curd, which is sold at a small outlet in the institute. “We all know that curd contains good bacteria and it is prepared using culture. Probiotics is just about certain special bacterial cultures….isolated and preserved under certain conditions. After entering the body, these bacteria colonise in the stomach and intestines and help curb acidity,” says S J Goswami, Joint Director (Research) at IDRI. According to another senior person in the dairy industry, probiotics is just a value-addition to our traditional method of making curd. Certain bacterial strains of lactobacilli fermented under specific conditions leads to the preparation of probiotic products. He claimed that he had been consuming probiotic curd for the last two years while his unit was experimenting, “and it solved my acidity problem.” Meanwhile, some people in the dairy industry view the “probiotic” campaign as a marketing gimmick, only targeted at the rich urban population. However, dietician Khosla does not believe that the sudden spurt in the launch of Probiotic products is just plain marketing. “There are studies to support the fact that probiotic products are useful to the human body,” she says. “Today’s lifestyle, loaded with stress and coupled with the use of alcohol, irregular

DARE/facts (Rs Cr) Size of the Indian dairy sector

2,27,340

Khoa/chena/paneer

1,24,100

Milk powder

4,680

Table Butter

770

Cheese/edible casein

975

Ethnic sweets/ice-cream

9,100

Projected size by 2011

5,20,780

Source: Dairy India 2007

DARE/Indian major Amul

ProLife ice-cream

Mother Dairy

b-Active curd

Nestle

NesVita Curd

Yakult-Danone

Yakult health drink (to be launched)

cept in India, it is one of the fastest growing functional food markets worldwide. Globally, the market for probiotic products is estimated at $14

said the offtake of probiotic dahi has been 25 per cent in Delhi. In India, probiotics has made its appearance in dairy products. However, in the US, the “good” effects of the friendly bacteria have been extended to granola, candy bars, frozen yogurt, cereals and cookies. It is believed that probiotic bacteria can survive only in fermented and refrigerated conditions as it gets destroyed by heat and other processing conditions. Yet if properly stored, the bacteria can remain viable in dried

BIG IDEA/PROBIOTICS REFERS TO DIETARY SUPPLEMENTS OR FOODS THAT CONTAIN BENEFICIAL BACTERIA NORMALLY FOUND IN YOUR BODY. THE MARKET FOR PROBIOTIC FOODS HAS JUST BEGUN TO OPEN UP eating and sleeping habits, heavy use of allopathic medicines and antibiotics, leads to growth of unfriendly organisms in our bodies. This has increased the need for healthy food such as probiotic dairy products.”

Market potential Although probiotics is a new con-

billion. In the US alone, more than 100 companies market probiotic products in supplement forms. The US market is forecast to touch $394 million in 2010 while the European market may reach $137 million, according to estimates by Frost & Sullivan. A source in the dairy industry, who spoke on the condition of anonymity,

form and reach the intestine alive when consumed. Thus the bacteria can be introduced in cereals and candy bars as well. Kashi, a food products company, last year announced the launch of Kashi Vive Probiotic Digestive Wellness Cereal, which the company claimed was the only shelf-stable probiotic food in the US market. DARE OCTOBER 2007 39


DARE.CO.IN

40

OCTOBER 2007

funding/equity


DARE.CO.IN

funding/equity

How to get private equity When Valiyil Korath Mathews signed the ďŹ nal contract closure in Trivandrum, it brought in Rs 242 crore of private equity into IBS, a travel logistics software company relatively invisible on the national radar. More importantly, it signaled that the long arms of private equity had reached the farthest corners of the country. OCTOBER 2007 41


DARE.CO.IN Not a day passes without newspapers screaming their heads off about yet another multimillion dollar private equity investment being made into a virtually unknown Indian company by an even more unknown PE fund. The numbers are mindboggling to say the least. What do these investments mean? Are they for real, or are they gold at the end of the rainbow? Where do they come from? How can the company you have built get a share? And more important, is there a catch hidden in the proverbial pot of gold? These are the questions we will answer in this piece as we go behind the scenes to unravel the wonder world of private equity.

What is Private Equity? So, what exactly is private equity? As the words denote, it is equity investment into a privately held company. Typically these are investments by organisations rather than by individuals. While the investor is looking for higher than market returns in quick time, the company is looking for large amounts of capital to fund expansion and growth. The fund requirements would typically be too large and the risks may be high to take the loan route. The company may also not yet be ready to go public. Private equity investments are typically against a minority stake (and a seat on the board). It is rare for PE to take a majority stake in a company. But there have been instances on the contrary as well as of PE firms taking a public listed company private. The PE fund can be considered to be a serial investor, who is making a short-term investment in an established company.

PE FUNDS LOOK FOR

funding/equity Angel, Venture or PE? Private investment into the equity of a company can come from three routes, Angel investment, venture capital and private equity. Each of these come at different stages of growth of an enterprise and differs in scale of funds, type of investor and involvement and role of the investor. Angel investment comes first, in the earliest stages of the formation of a company. Angel investments are typically low in value and come from individuals rather than investing organisations. The angel investor also plays the role of the mentor for the budding entrepreneur and his newly formed enterprise. An Angel typically finances the gap in startup capital; the gap between what an entrepreneur can organise on his own and what is required to start off. Since the Angel comes in at the earliest stages, the investments are the lowest while the risks are the highest. The next stage in third party equity capital is venture capital. There is a significant convergence between Angel funding and venture capital, with both coming at the early stages of the company. Venture capital typically associated with higher levels of investments in startups, could come from individuals or from funds. More likely they are from venture funds. Private equity comes once a company has established itself and is looking to fund rapid expansion. This means that PE funds look for companies that are older, may be even ones that have passed through generations and have higher valuations. PE funds pay a higher value for a minority share in the company. In a growth market, the dividing line

the promoter’s track record midsized businesses with major expansion plans a niche or growing segment openess to corporate governance and compliance an exit option – IPO or acquisition– in 3-5 years 42

OCTOBER 2007

Y

ou started a company to do transportation software, which was not a mass interest area, and two – you started in Trivandrum, which was not well-known for software; what was it like to start with two things which were not common? I actually wanted to be in the solutions space, rather than just the services space. Somebody has to tell you what services they want. Solutions is more proactive. Solutions is all about problems, meaning architecting a solution is easy as long as you know the problem. In other words, discovering the problem is actually discovering the solution. I could only be in the line I knew. The only business that I knew quite well was air transportation or travel business. When you think about it, even though it is seemingly small – I hope that you know that one out of every 12 dollars spent in this world, is on travel and transportation. It is a very big business. Why Trivandrum? I was actually a non-resident Indian when I was setting up the company. It was very clear to me that I wanted to base the company in India. I wanted to grow inside out rather than outside in. Meaning, set up the business here and go on to acquire businesses outside. Between when you finally decided PE was the route you wanted to go, and getting the deal done, how long was it? Once we decided, and put the team in place, we were able to get the deal in about six months. The team included finance, corporate development and legal. As the CEO, what were the key decisions you had to take? One was of course, whom to go with and what are the valuations; other than that …. We actually wanted to have a financial investor, who could give a strategic value. We did not want, in that respect, a strategic investor. What I mean by strategic investor is an entity which would like to leverage the respective strengths of both the organisations, to maximize the overall benefit. There were many big companies who were interested to partner with IBS, we did not want to. Because I thought it could be limiting. We really wanted to go in for a financial partner, like General Atlantic (GA), who is mostly a financial investor, and their only interest is in ensuring that IBS is growing, developing, and increasing in value. At the same time, since they are in the technology sector, we could also get the opportunity of utilizing them for


DARE.CO.IN

funding/equity

VK MATHEWS, IBS SOFTWARE SERVICE I come from a remote village in central Kerala. I studied in Kerala up to my engineering, and did my masters from IIT Kanpur. After that I did my aeronautical engineering and moved on to IT because I did a lot of IT at that time. I worked for the Indian Defense Service as a faculty and then moved to Air India for about two-and-a-half years. Most of my career as an employee was with Emirates Airlines. I was heading the Emirates IT department when I quit. Actually, I was with Dubai National Air Travel Agency, the company which founded Emirates. They used to manage Dubai airports. In 1985, under the instructions from His Highness Sheikh Mohammed bin Rashid Al Maktoum who is now the prime minister, we had to start an airline within six months. I was fortunate to be a part of that team. When I left, I was the director of a joint venture, providing IT services and solutions for air transportation. I set up IBS in 1996.

mergers and acquisitions, and to get openings into some of their portfolio companies, and contacts. One of the questions that come up is the promoter ceding control, whether notionally or otherwise – sharing with someone else. The term we got to hear was “It is bit like giving you daughter in marriage”… (Laughs) No, this is a very small shareholding, with one person on the board. I did not feel that way at all. In fact, there is very little interference whatsoever. Actually speaking, in this kind of arrangement, there is hardly any negative interaction from them. Any kind of input that is

coming is in the interest of the company. This is where the difference is. They have only one interest, that of the company, because they have invested money. Can you give us a sense of what are your plans for the future? We want to grow aggressively. by 2009-10, we should have a billion-dollar valuation. We will be growing and expanding in three different ways. One is M&A, we certainly would be acquiring a company this year, and a couple of more companies may be next year. Being a solutions company, we need to acquire business competence, and

“WE DID A ROAD SHOW, WHERE WE HAD MEETINGS WITH AT LEAST TEN WORLD LEADING PEs. WE HAD FIRM PROPOSALS FROM FIVE OF THEM.”

business competence is generally acquired by acquiring companies. We will be expanding our business consulting, sales and marketing worldwide. We are at the moment present in ten places globally. We also will significantly expand our infrastructural capabilities in India. Once the deal was announced, was there any difference in the way people reacted to you and your company’s name? Are they seeing IBS in a different light? As you know, India does not produce IT products. Products are very different, It is quite equivalent, the task is as difficult as selling an Ambassador car in Germany, competing with BMW and Mercedes. In services, our country was in services for the last 200 years. Why? Because we have our nurses, engineers, doctors, even drivers working in different parts of the world. This has been the largest private equity investment coming to Kerala. This may also be one of the major PE investments going into an IT products company. There was a huge positive feeling. I think they see us differently.

OCTOBER 2007 43


DARE.CO.IN between venture and PE gets blurred. Now, that raises the question: Should you look for venture funding or should you opt for private equity? According to Alok Mittal of Canaan Partners, there are various ways to look at it. One way is to look at what kinds of risks are taken by the investor. “When you see a lot of concept and market risks that tends to be more venture. When you see growth or finance risk, it tends to be more towards PE.” According to him, another way to look at it is the stage of the company. “Early stage investments are more venture. Then there is the time horizon. Venture tends to be more 4-6 years time horizon of investments. PE tends to be more short time. Size of investments could also be an indicator. PE funds tend to do larger investments, because they are investing in late stage companies. Venture tends to make smaller ones”. Like we said before, PE typically is a minority stake. But there are variations. In the real estate industry, we found that the preferred model is to set up a joint venture or a special purpose vehicle (SPV ) for a specific project rather than to invest in the mother company. Om Choudhry, whose FIRE capital deals exclusively in real estate PE, prefers project-specific joint ventures with equal share for FIRE and the promoter, and a more active involvement, particularly in the early stages of the project.

Who can get PE? The blasé answer is that any established company with a viable plan for major growth can get private equity

funding/equity funding. If you happen to be in one of the growth sectors of the economy, then the going just got better. But in reality it is slightly more complex. Each fund has its preferred sectors, and within the sectors, they would have identified growth areas or areas that they have specific expertise in. Within these segments, they look for companies that can outperform the market in the short term. Subbu Subramaniam of Baring Private Equity explains the process, “We actually run through a top-down analysis, as we call it. If the economy grows at 8%, which sectors will grow faster than the others? If these sectors are projected to grow at say 10-12%, which companies in that sector will grow faster than that? For instance, if you take automotive over a long term, it grows at about 1.5 times GDP. However, if you take the leader in automobiles, it can grow almost 1.5 times of the sector itself, which means 2.25 times the GDP. We try to identify companies for investment in this manner” The business of private equity is highly unorganised and often secretive, with no one willing to discuss deals in the pipeline or exact terms of a deal. So, the industry works largely through contacts and networking. All three things work: companies approach funds for investment, funds identify companies for potential investment and then there are middle men like investment bankers who organise the hand shake. Many promoters prefer the email route of sending in an investment proposal. But this has the lowest scoring rate. According to one fund manager we spoke to, out of the last 600 odd propos-

“WE HAVE FIVE MAJOR CRITERIA. FIRST IS PROMOTER – BACKGROUND, INTENTION, ABILITY, MINDSET ETC. SECOND IS PROMOTER. THIRD IS PROMOTER. FOURTH IS PROJECT. LAST IS PRICE. IT IS PROMOTER, PROMOTER, PROMOTER, PROJECT AND PRICE. IF YOU ARE GOOD PROMOTER, BUT YOU ARE DOING A BAD PROJECT – THAT IS WHEN WE STOP THE DISCUSSION. BEFORE THAT WE HAVE TO BE SURE THAT IT IS A GOOD PROMOTER. AFTER YOU PASS THE PROMOTER TEST, AND THE PROJECT TEST IS ALSO PASSED, WE DON’T MAKE MONEY AT THE WRONG PRICE”

YOU SHOULD LOOK FOR

a meeting of minds – they are going to be on your board their portfolio and how the portfolio complements you what else they bring to the table what else are they asking for – reports, approvals… the fine print – the devil could be in the detail 44

OCTOBER 2007

SUBBU SUBRAMANIAM, BARING PRIVATE EQUITY


DARE.CO.IN

“WE ENGAGE IN SPECIFIC PROJECTS WITH A DEVELOPER AS A JOINT VENTURE PARTNER. THE PARTNER BRINGS IN LAND AND LOCAL KNOWLEDGE. WE ARE HAPPIER DEALING WITH PARTNERS WHO ARE NOT BIG DEVELOPERS, BUT ARE FUNDAMENTALLY MORE SOLID. THEY MANAGE THE SHOW, BUT ARE ACTIVELY INVOLVED IN THE INITIAL STAGES OF THESE PROJECTS.... OUR APPROACH IS TO ENSURE THAT THE WORK IS SUBCONTRACTED TO EXPERTS IN PLANNING, ARCHITECTURE, MANAGEMENT...”

funding/equity als he received by email, two were selected for further processing! Obviously, a lot of home work and investment of management time, energy and money is required to land the best deal. IBS for example, did a global road show and invited bids from prospective investors. “If you really want to raise private equity, you should follow a process” says Mathews of IBS. He says the process involves developing an investment memorandum or prospectus for presentation to the investor. This should answer questions like: What do you do? What is the state you are at? What is your business plan? Why do you think your business plan is going to deliver? “You certainly need to have a merchant banker, or an investment banker. In our case, they were really helpful, and they had actually contacted a number of private equity players. We met some of these players, some in the US, some in Singapore, and some in India,” he says, adding “we had five competitive proposals coming down.” “In the next stage, you look at what are these companies looking at, what is their kind of governance model? We also looked at chances for a close and the time that they will take to close. I met with the Group CEO and partner of General Atlantic; it was very comfortable. The team is exceptionally good. Among all the PE companies that we were considering, GA had maximum footprint in India. They have about fivesix people in India, which also was a high degree of comfort,” Mathews says.

How does the system work?

OM CHOUDHRY, FIRE CAPITAL

46

OCTOBER 2007

The PE ritual is much like a courtship and takes time to reach communion. Do not expect results overnight. While the general expectation was that it takes around six months to finalise a deal, the sense we got was that regulatory and compliance issues along with the time spent by the company preparing to go out and woo the prospective PE investor put together, it could be anywhere from six months to up to a year or even more. Industry sources point out to deals that went bad in the final stages because of changing promoter expectations (read

escalation in price demanded), or simply because the promoters were not able to present their case well in the last stages. Sign off on a deal has two stages. The first is the term sheet, which the investor issues, outlining their interest in investing in the company and then there is the final contract. So, a PE deal can be clearly divided into the pre-term sheet and the post–term sheet phases. For Mittal, “pre-term sheet is essentially our business evaluation – all the informal diligence that we do around the business, talk to customers… this would typically be a 4-6 weeks exercise. At the end of it, if we are still interested, we would issue a term sheet, which is basically our broad intent to invest, under a given set of terms. After that, we do a lot of confirmatory diligence,” Mittal makes sure that all the financials that were reported are true and all the legal aspects of the company are accurately represented. The legal documentation of the agreement (which elaborates on the term sheet) is also done. “The whole cycle, at the lower end, would be about three months and at the upper end, it could be 4-5 months. It might take slightly lesser on the initial diligence part because there is data. But it might take longer on the tail, because we have to verify more stuff,” he says.

PE or IPO? Very clearly, the PE route is the option when you have a well established company, particularly in a niche but growing market and you want capital for aggressive growth. Now, the question is, should you opt for PE or should you take the IPO route? Most of the companies that take the PE route are too small for listing, and the inherent risks of the expansion plan are too high for the rigors of daily trading in the stock exchanges. Exponential growth does not happen overnight and the share market is not a very forgiving mistress when it comes to perceived slack in returns. The PE investor also helps you in leveraging his portfolio and his contacts to help reach the right markets; something that the stock exchange cannot do.


DARE.CO.IN

funding/equity

For Mathews, the choice was clearly not IPO. “In both IPO as well as PE, you are raising capital. When you go IPO, the public is more interested in how his share value is increasing, and is not interested in what you do. The valuation of the company, in the eyes of the market, depends purely on how materially you are performing. Now that is best when quarter by quarter, you are able to bring in very predictable results. In the case of private equity, they understand that they are involved in the business. They know the business more than the public” He says private equity players are looking at a slightly longer term, because they are looking at a three to five years timeframe to see the results. IBS has come to a stage where “we still need to invest in many of our lines of business. We really need to build up the business, before we can say that we will deliver the quarter by quarter results.” Hanuman Tripathi of Infrasofttech also chose the PE route with investment from Baring because “we have grown on a very small initial capital of $1.4 million and internal accruals over the last 12 years. For growing rapidly, we needed investments in three areas — international sales organisation & branding, infrastructure & training and inorganic growth.”

Once the deal is done… In the euphoria surrounding the mega deals, not much has been talked about what happens after the deal is signed and the paper work is over.

One needs to remember that the PE fund is a short term investor, but with a board seat! In order to get it right, it is important that both sides have a clear understanding of expectations as well as capabilities of the other party. Some PE funds like to be more involved while some others take a hands-off approach unless asked for help. It is very important for the promoters to understand and more importantly is comfortable with the investors approach. According to Subramaniam, each fund will have its own investment philosophy. “We have our own philosophy. We are more involved than others. It is completely on a need to basis. The promoters respect our ability to help them, and they will ask us for help. It is completely driven by the need, and by the level of equation, communication and openness that is set in the first six months of the relationship,” he says. Baring as a team is more involved than the others, which means “we have more than board meeting interactions. We request for monthly reports to track sales activities, operations, recruitment, attrition, etc,” he says. “In each company, it is different – sometimes it is production, sometimes it is raw material cost. We create a format the companies send us every month, and then we discuss it with them. We think it is no fun to wait for the quarter to end and then find out something that we could have corrected two months ago. So, we have monthly interactions at the least. And

I

s there a cycle to PE and venture investments? In share markets, you see cycles happening; is there a similar cycle? Yes. The returns on PE investment tend to be very cyclical. There are phases where PE firms make a lot of money because they were there at the right time, in terms of coming into an industry, in terms of their exit horizon and so on. And there are times when they don’t make a lot of money. If you have been in the venture space, for example, during 1993-96, your investments would have generated quite a bit of returns in the US. 1999-2000 hasn’t generated the same kind of returns. People believe that we are now again on an upward cycle in terms of 2003-24, funds making reasonable returns across industries. So venture and PE returns tend to be cyclical. The cycle might arise because of different reasons. Once you invest in an organisation, what happens? Other than the seat on the board that everybody talks about, what happens? Are there a lot of inputs that go from your side to the organisation? Again there are many models within the industry. We tend to be fairly active in our investment approach. All our partners have 10-15 years of operating-entrepreneurial experience, before they came into investing – it helps if you have done that (operating-entrepreneurial experience) before. So there are a few areas where we involve ourselves more strongly than others. It depends on the stage of the business. For very early stage businesses, everything from strategy to recruiment to business relationships are areas where we get involved. As the business gets slightly more mature, control systems would become important, sustainability of the growth and strategy in that context becomes important, future fund raising becomes important – those are the key areas where we would involve

“OUR OBJECTIVES ARE TO UTILIZE OUR PARTNER’S GLOBAL RELATIONSHIPS TO SECURE NEW CLIENTS, TO CREATE SYMBIOTIC RELATIONSHIPS WITH THEIR OTHER INVESTEE COMPANIES, TO MAKE THE PE PARTNER THE CENTRAL POINT FOR OUR M&A STRATEGY, TO GET THEIR EXPERTISE IN BUILDING MIS AND PROCESSES AND TO LEND THE CREDIBILITY OF THEIR BRAND TO OURS” HANUMAN TRIPATHI, INFRASOFTTECH 48

OCTOBER 2007


DARE.CO.IN

funding/equity

ALOK MITTAL, CANAAN PARTNERS We tend to be in the high-risk high-returns business. We get into early stage businesses because we feel comfortable with some of the risks that exist there, and we want higher returns than what the public markets offer.

ourselves. For a company which is ready for an exit, there are many options. Again, strategic issues around that, helping the company go public if that is the route that they want to follow, those become important. So it varies with the state of the company also. What are the typical exit triggers? Is it a certain share value, market share… I don’t think we define exit triggers in those terms. One is that there is a typical time cycle – four to six years. We reach that and we are seeing that the company is doing well; exit options are available, do we think we are getting a good price for what we had put in? This factors not just what they are today; but also the growth options that we have created for the company. I think if we are getting a good price, we will consider that option. So time has something to do with it, the value that we can realise, the future growth potential has something to do with it. Even if we are sitting at six years, and we think that the value is not yet at what we believe is the potential, we might decide to hold two more years. So time is not strict in that sense, but you know, it is one of the parameters– every fund has a lifecycle. It has to do with time, it has to do with our future view of the business, and what the potential of the business is – whether we think it will continue to generate venture style returns, or will it be steady on lower returns at lower risks. The price could come from a public market, an acquirer… When you say venture style returns …. If a number were to be put to it, it would be somewhere in the 30% or northwards of that, depends on what stage we get in. A seed deal that we are doing will definitely have much higher than a 30%

target. If we are going into a mid-stage company, then we might look at that kind of return. When you said it is high return high-risk, how do the risks lay out…? It is hard to quantify risk. While we can put a number to the kind of return that we are looking at; assessment of risk is only subjective and based on the experience. The second part to understand is that we do not try to take risk, which we do not understand. We try to understand what risk we are taking and hence value that before we get in. We try to get our heads together on what we believe is going to be the case, what is the downside scenario, what is the upside scenario, and hence understand what is the band of variation that is there. We take management risks typically; teams are not fully built-up when we get into startups, so our ability to bring those people to the table is something we have to make an assessment of. We take a competitive risk. How many other people are trying to do the same thing? How is the company positionED? All these are risks, but we try and understand those risks upfront, and our ability to mitigate some of those risks. To be able

to say this is something I want to do or something I do not want to do. That is where you will see a lot of variation between venture investors themselves. The same deal one investor might be very happy to invest in, because they think they can navigate those risks. Another investor might not be comfortable doing that because they do not think they have a foothold on those risk factors. Hard to quantify, but with experience you can kind of get some band of saying this is high risk, mid risk, low risk, and hence what should be my target returns from this kind of an investment. Going back to the beginning, an entrepreneur identifies a set of parties from whom to seek investments, what should he look for? What should he avoid? How to select the right partner? There are two or three aspects, which are important. Again, that has softer aspects that have hard parameters. One of the parameters is the partner. Does the fund you are seeking to partner have experience in this area? Experience means insights on the industry, it also means connections in the industry, and hence recruitments, business

OCTOBER 2007 49


DARE.CO.IN

development and those kinds of relationships. So what do they bring to the table apart from the money they are going to bring in? That is one part. The other part, which is important, is their ability to work as partners, and help build the business. He should be sitting on the same side of the table, rather than be hands off, or worse, actually not have the same vision as the rest of the stakeholders. There is also a question: Are you ready for venture or PE investment? We see entrepreneurs who see this purely as money. Once it comes in they want to run the business. I do not believe that works well, particularly in venture. The entrepreneur will have to understand that what we are bringing in is important. With the partner you will hopefully have a lot of agreements on issues, but there will also be lots of disagreements. The ability and willingness to manage this process is critical. Then, we want to exit at some point of time. They have to appreciate that. It does not make sense for us to make investments in businesses which we will not exit. And hence the company’s ability to support that exit is important, especially if things are going well! If things are not going well and exit is not available, then there is nothing much we can do about it. Ability to support an exit. Does it mean the company’s plans to go public… Yes, or it could be an acquisition. We are purely an investor. Our objective is to maximize the value of that investment in a given period. Given that most of these companies are in niche sectors, not necessarily having good systems to trace, how difficult is the due diligence process? Not from your side, but from their side; on one side you are asking them for a lot of things which maybe they do not want to give, maybe they do not know themselves… We expect entrepreneurs to be willing to share information. If they genuinely do not have information, we will find a way around it. They do not have the revenue projections, that is fine, but if there is a CEO who comes in says that he does not know what their cost is today, I would even question whether that is the

50

OCTOBER 2007

funding/equity right deal for us to invest in. If there is a third order parameter that he is not aware of, we will try and get a sense of it, by looking at the business, other parameters, what he thinks is happening in the business. And then if we decide to invest. After we invest, we put those parameters in place that we think are critical in understanding what the business model is. Because we do not need it for our initial evaluation, the company probably needs it on a long run basis to see whether it is going in the right direction or not. There are different sources of funds (e.g. Dubai-based funds, Singapore-based funds, etc); from an entrepreneur’s perspective is there a difference in those funds? It depends on what the entrepreneur thinks the value to the business is. It veries from company to company, as to what they are looking for. If someone was doing real estate business in India, I think they could get more value from a local partner. The current buzz in the market, how long do you think it will continue? It is hard to say. There are two or three factors, which drive it. One is the fundamental growth in the economy; we are not seeing the window shut there in the next 12 months or 24 months. We think it is a fairly robust trend, the way the economy is growing at a certain pace, internet is growing at a certain pace, consumer spending is at a certain pace… our belief is that it is a long-term trend. Then there is this whole issue of how the markets behave. If you look at venture investors, they tend to be more stable in their investment than some of the late stage private players, for the simple reason that our investment horizons are longer. So when we invest for a four-six years time frame, in some sense, I don’t really care about what public markets are going to look like tomorrow. I am more interested in whether there is a good business to build here. On the late stage private equity, hedge fund sides you might see volatility, depending on how the market does, interest rate fluctuation, global equity environment responses… that will tend to be a little more volatile than the venture space.

yes sometimes we do recommend significant changes in the strategies of companies we have invested in,” adds Subramaniam. The PE investor also plays an interventionist role, getting senior people to join in or even getting portfolio companies to merge, particularly when things don’t work out as planned. Mittal has this to say: “The fact that we take risks means that we are accepting that some of the companies will go out of the system. We would then like to look at something that would give a soft landing to the business, the customers, and the employees of the company.” The role that Baring played in Mphasis is a case in point. Says Subramaniam, “the Mphasis engagement was very deep. We were the VC who did the first round of investment along with the founders. Then when it was growing at a rate at which they could not fund, we gave it additional financing. To leverage and sustain their model, we actually merged it with BFL, which is another portfolio company. BFL had off shoring capabilities, Mphasis had sales capabilities. So we drove the merger as the single largest common share holder.”

The exit One of the features of the PE business is that the investor will exit. And the promoters have to be ready and willing to create this exit so that the investor realises the value of the investment. Typically, for PE, this is in the form of an IPO or a buyout. Selling back to the original promoters is not something that the PE funds think is the best option, since it does not often get them the best valuations. DARE


DARE.CO.IN

strategy/brands

How many brands should you launch? The lure to keep launching new brands is strong for any business. Often, this could prove to be counter productive. Businesses that own some of the most valuable brands have focused on building one core brand instead of spreading themselves thin on many equal ones /Rupin Jayal

B

rands and branding have come a long way from the time when branding was simply an identifying mark burned on the rump of a cow to indicate the ranch to which it belonged. Today the same word has myriad levels of meaning with sophisticated models to exactly delineate it; has a value that often runs into crores of rupees and even a personality to match. Some schools of thought believe that brands are owned by those who actually purchase them—their customers, and some believe that they are beacons for people to follow, identify with or to signal status. Whatever their role might be and however we may evaluate them, there is one thing that marketers agree on unanimously—brands must have meaning. However, this is the one fact that many miss when they set about branding their products or services.

Thus each new product or service gets its own name or set of letters. Then new versions or extensions get their own names or special sets of letters. These in turn give birth to even more names and/or letters—so much so that every new marketing initiative has to have its own set of letters and/or names. So you have the Ford Ikon, the Ford Ikon NXT, the Ford Ikon Flair and so on. You have various washing machine brands with confusing sets of letters and a fan with “PSPO” where the advertising actually tried to leverage the fact that this cluster of letters would be meaningless to most customers! The branding bug then begins to infect the organisation’s internal activities too, which get swanky new names. Soon there are “brand” names all over the place and in this fog, what each means gets lost. The greater danger is that the seriousness of brands and

branding tends to get lost and then the main brands begin to get treated with the same cavalier attitude. The value of branding begins to diminish. When starting a business the first and most important brand is the name of your company. That is what evolves to become a storehouse of value. All your triumphs, initiatives, customer engagement activities, innovations and your company’s performance, enrich and are encapsulated by your brand. Hence Citibank is not just a place to do transactions, it has through innovation become a brand that enables people to realise dreams, buy gifts on impulse, possess that car they were ogling at, feel secure that their hard earned investments are earning a decent return—in other words your personal CFO. Over a period of time the people you want to reach out to, be they your customers, investors or potential employees, see that name and give it value either by preferring it to other names, by investing in that name or by choosing to be loyal to it and contributing to its further enrichment. The name has become more than a name—it has become a brand. This is especially so with luxury brands. How is a Rolex different (functionally) from any other premium brand? Yet there are those who will be willing to spend upwards of a lakh for one. Within it is captured the feeling of ultimate excellence and success. Wearing indicates that the wearer is someone who is not just successful but someone who believes in outperforming all those around him and indeed setting new benchmarks. The Omega Speedmaster has all the excitement and adventure of being the first watch to be worn on the moon. Each owner OCTOBER 2007 51


DARE.CO.IN

“owns” a part of that amazing endeavour by owning one. Before choosing to come out with yet another brand, consider that some of the world’s leading and most valuable brands choose to just focus on the core brand and rarely clutter their customers’ minds with a plethora of names. So a Mercedes Benz is what you buy, not an E class, S class or M class. Similarly with Porsche, Peugeot or BMW! How many of you are even aware of the 911, the 205, 406, 3 series, 5 series and 7 series? Think about the brands you can vision clearly in your mind—do you remember each and every sub-brand? And do they really have any value for you? Many companies put in significant investments in all sub names. Yet all that you remember is the main brand.

strategy/brands

2. How much will you invest in this brand? 3. What will the relationship be between this brand and the parent brand? 4. How many brands do you already have in your portfolio—how distinct from each other are they? 5. Will it help build the core parent brand or could it vampire it?

A proper audit of your portfolio shows either you have brands or just a collection of names

Role of the brand There are many possibilities—it could be a distinctly new product or service that marks a significant departure for your company. This could be either in terms of addressing a completely new audience (e.g. Toyota launched Lexus as a stand-alone brand because it felt that the Toyota brand could not compete against the likes of Mercedes Benz and BMW). It could

new brand is very expensive and the rate of brand extinction is increasing. It is far better to use that investment in building a strong core brand than allowing scarce capital to be consumed for brand proliferation.

How much will you invest? Investment here does not only re-

BIG IDEA/IT IS BETTER TO BUILD A STRONG CORE BRAND RATHER THAN ALLOW SCARCE CAPITAL TO BE CONSUMED FOR BRAND PROLIFERATION That investment has gone to waste, and sadly the opportunity cost of promoting the mother brand is even greater than the monetary cost. To prevent this sort of diffusion and wastage, here are some simple questions to ask before you create a new brand. These are by no means comprehensive but are a useful starting point. 1. What role will this proposed brand play? 52

OCTOBER 2007

mark an upgrade opportunity for existing customers or act as a recruiter for those who cannot afford the main brand. It could also mark a distinct target audience or mindset (e.g. Mini speaks to an audience with a mindset different from BMW). Whatever the assigned role be, it is important to decide that role before launching a new brand. Given the clutter faced by brands today, creating a

fer to money. Creating, developing and managing a brand takes up a lot of resources. Often the best human resources of a company are assigned to the new brand. This may take away that resource from existing brands thereby potentially making them more susceptible. Alternately because it is a new brand you migh t not be willing to invest too much time, people and money on it thereby hobbling it in what is usu-


DARE.CO.IN

strategy/brands ally a very competitive environment. Extensions of core brands in successful companies or new brands in struggling companies often suffer from this. This lack of or over investment gets reflected in the brand’s distribution, publicity and other activities. Hence the investment in a new brand is more than just financial and all the aspects of investment must be factored in.

as possible the transition of consumers from the former main brand to the new brand must be managed rather than be left to market forces alone.

Name change

Brand-parent relationship What is the desired brand architecture? How the proposed brand will “fit in” with the portfolio is a crucial question. If the brand is seeking to attract a new audience how will that affect the core brand’s value? If the brand is opening up a new market, how will the parent brand help or hinder it? Should the parent brand be visible or not? All these and many other factors need to be considered. Often the issue of just how close or far from the main brand a new brand needs to be and the resultant impact or lack of it on the main brand is an issue that is not debated enough. Once the brand is launched it is often too late to consider these issues and sometimes the impact on the parent could be potentially dangerous. For example when a value option of a brand is launched, it could wean some clients away from the main brand. This could particularly be so if the category is one in which downgrading does not carry a significant image cost for the customer. Hence the proposed brand’s place in the overall portfolio is a crucial issue to decide before deciding to launch a new brand.

Your portfolio Doing an audit of the number of brands in your portfolio and an evaluation of how much incremental value they are actually adding can often be very illuminating. This also shows you whether you have a portfolio of brands or just a collection of “names.” Even large multinationals such as Unilever have had to go in for a fairly drastic pruning after evaluating the value added by the various brands in their portfolio.

CREATING A NEW BRAND IS VERY EXPENSIVE AND THE RATE OF BRAND EXTINCTION IS HIGH

The number of brands in your portfolio viewed in terms of the category in which you operate is important. In many categories customers simply are not involved enough to differentiate between a plethora of brands. In such categories it is difficult enough for the parent brand to be recalled in a manner in which it impacts consumer behaviour. Using anything other than simple descriptors can be counterproductive to the parent brand itself in such cases.

Will it vampire the parent brand? This is critical. The danger is that a new brand could divert attention from the parent brand. This could be because its appeal is not very different from the parent’s or it could offer a better value package or be technically superior. The impact of a new brand on the existing portfolio is very important. Sometimes new brands are launched so as to avert the threat of competitive launches or the new brand may be launched to take over from the key brand in the portfolio. If the latter, then it must be treated accordingly and as far

Given the high level of noise due to advertising in a wide range of media, consumers today do seek to edit messages. To that extent brands do play a role in helping the consumer by encapsulating the core proposition without getting into too much detail. Because people do use brands to help in their decision making they could be influenced in a way that manages their process of immigration from one brand to another. However it is fraught with dangers because rather than get into the complexity of moving from one brand to another, many new customers might well prefer a brand that is stable, established and easily recalled. One has to be very careful to not fall between the chasm between the previous brand and the new one. Also while the original brand is likely to be rich with meaning it is extremely difficult to transfer this onto the new one. What is gained and what will be lost is crucial when migrating from an established brand to a new one. “Change the name” is often recommended or ordered without evaluating the consequences particularly when you are no longer dealing with just a name but with a valuable brand. As one of the gurus of brands and branding, Stephen King said, “A product is something that is made in a factory; a brand is something that is bought by a consumer. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless.” Brands today command far more value than the facilities that house them or the products on which they are placed. However, to actually acquire that piece of “mind real estate” takes a lot. Without thought and careful management, all that one gets are signboard names without depth or value. Brands require investment, names are just an expense. DARE The author is Director-Strategic Planning at M&C Saatchi OCTOBER 2007 53


DARE.CO.IN

/icon

You can be the Narayana Murt N R Narayana Murthy

T

o somebody who is starting off right now, what would be your advice? First of all, he or she must have an idea whose value to the market can be expressed in a simple sense. Not a complex sentence, not a compound sentence. In other words, it has to be something like reduce cost or reduce cycle time or improve productivity or improve customer comfort or improve customer base etc. That is the first requirement. Second, the market must be ready for the idea, which means, you have to do some test marketing. Or at least hold some dialogue with the relevant community. I know several ideas which were wonderful but the market was not ready and they did not succeed. The third is—you need to put together a team of people that have complementary strengths. You need people who understand technology, marketing, sales, finance, human resources etc. Generally what happens is that technology people come together, or marketing people come together, or finance people only. Such projects generally don’t succeed. Fourth, you need a good common value system. In the journey of entrepreneurship, the initial years are always going to be very tough. Pradeep (publisher of DARE) knows it, I have gone through it… You have to sacrifice a lot, you have to be away from your family; the monetary benefits are very very low; the friction in the business is high. So you need a common good value system. The team should have the same, wonderful common value system. And, I would say, finally finance. Finance generally comes if you have the first four that I talked about.

54

OCTOBER 2007

For somebody who is starting today, which sectors would you recommend that they look at? Which are the hot sectors in your opinion? See, in a country like India, there is opportunity in every area. For example, how to consume less water? How to consume less petrol? How to keep your vegetables and fruits fresh for a longer period? How to deliver healthcare at a lower cost? So you look around, there are zillions of areas where a difference can be made. However, what is needed is – you have to pick up such ideas, which are aimed at people with reasonable disposable income, in the beginning. If the idea is aimed at people who have no money, it is no value, however good your idea is. So it is very important in India that the ideas are focused on the market segment which has reasonably good disposable income. It could be nanotechnology, it could be biotechnology… for example, there is a lot that we could do to improve our agricultural productivity. There is a lot that we could do to improve our healthcare systems. You said, “reasonable disposable income…” Yes. The important thing is you should come out with such products and services that people with a reasonable disposable income in India should be able to use it. It cannot be the disposable income in the US. That cannot be the benchmark. It has to be Indian. It is well documented that you had a very small capital base to start with. You went on to build one of the biggest brands in global IT. For somebody starting today, can they do something


DARE.CO.IN

/icon

e next thy

â&#x20AC;&#x2DC;

The name of the game is to create a niche market, in a specialized area

OCTOBER 2007 55


DARE.CO.IN DAR ARE.CO.IN

/icon

You must have an idea whose value to the market can be expressed in a simple sense. The market must be ready for the idea You need to put together a team of people that have complementary strengths. You need a good common value system You should come out with such products and services that people with a reasonable disposable income in India should be able to use In services, two principles are very important. Have an idea which is so good that the customer is willing to pay advances. Secondly, create milestones every month so that there is a steady cash ďŹ&#x201A;ow. If it is a product idea, then obviously you need venture capital

Brands are created by doing unusual things. You sustain them with advertising 56

OCTOBER 2007


/icon similar and what is the key to building of that big brand? First of all, the market is difficult for a general expertise company – a startup company which focuses on some kind of a generalized expertise like project management, software development, etc. On the other hand, if a startup was to focus on a niche area like embedded systems for automobiles, or let us say, systems for improving the quality of water, or designing software for handling risks in derivatives… any of these. In other words, it has to be a focused niche area. There they will be able to perform better than an Infosys. Because they have something tangible that we did not have, they can establish credibility with customers more easily than we could. In addition, they can provide other services. The name of the game is to create a niche market, in a specialized area. Second, my belief is that brands are created by doing unusual things. . For example, when Pradeep created Dataquest, there was no such magazine in India. And he became the leader. Everybody noticed him, everybody wrote about him. The way you build brands is to do something unusual and get written by other people, get noticed by other people easily – because you are doing unusual stuff. Then you sustain them with some advertising. Can you start on a small base today or do you need a large capital base? No, as long as you are in the service business, as long as you have a wonderful idea, it is possible to go to the customer and because of the idea get an advance from the customer. That is exactly what we did. We got advances from our first customer and that sustained us. We also made sure that there was a milestone every month. Once you define milestones every month, and you raise invoices when you complete these milestones, there is a steady inflow of cash. So these two principles are very important. One – have an idea which is so good that the customer is willing to pay advances. Second - create milestones every month so that there is a steady cash flow. This is for services. However, if it is a product idea, then obviously you need venture capital. You mentioned ‘common value system’ for the team that starts off… you had a great team of entrepreneurs starting off Infosys. Any tips on how critical is that there be partnership instead of an individual? One man show versus a team of partners, what is the big difference? Nothing can be done by a single individual. In fact, if a leader has to succeed there will have to be followers. I don’t think anybody can succeed individually. You need a team that has complementary strengths. I believe that in today’s context, an entrepreneurial team, rather than an entrepreneur will succeed better. That is where you can bring complementary strengths. That is where you can bring people with expertise in human resources, sales and marketing, finance, technology, etc. I believe in a team, rather than an individual. At what point should an entrepreneur hand over operational

DARE.CO.IN management to professionals? How do you prepare for a management transition? Right from day one, an entrepreneur should conduct himself in a manner that professionals would appreciate, professionals would feel happier about. Doing that requires not bringing in non-merit based family members into the picture, making sure that all decisions are taken objectively based on data and making sure that there is no asymmetry of roles between the founders and the non-founders. Now when should you bring professionals – you should bring in professionals from day one. Because, as long as you can conduct yourself in a manner that raises the confidence, the hope, the enthusiasm and the energy levels of professionals, then why not? The only difference would be somebody may not be able to take the risk saying that ‘Look, I don’t want to take the risk, I want a decent salary, because that is what I am comfortable with’. So you have to pay that professional a lot more than what you get as an entrepreneur. The only difference between a professional and an entrepreneur is that an entrepreneur is willing to take risk and accepts deferred gratifications whereas a professional does not want to take the risk, and wants to be rewarded immediately. If you were to start afresh today as an entrepreneur; what would you do differently? First of all, I would use the same people – perhaps with a few more people that have worked with me in Infosys, the same cofounders, plus a few more in the senior management. I would do the same thing. Differently, I don’t know, because we are an enlightened democracy. Here, every issue is discussed and debated quite a lot. The good thing about a democracy is that you avoid major disasters. It may not be as efficient as you would like, but you avoid disaster. So, I am not very sure I would do many things differently. Can there be another Narayana Murthy? How would you inspire a person to emulate you? Oh I am sure there will be thousands more. What I believe is required for an entrepreneur is first – he has to have a vision, wherein the entire team finds value. One which is seen as a rainbow by everybody else, and they must be sure that they can catch a part of that rainbow. That is extremely important. Second, because the initial journey requires lot of sacrifice, the leader has to lead by example. The leader creates trust in other people, saying that ‘look if this guy is willing to sacrifice all of this, I too will do that’. Third, the leader must be impartial. Because the team is small, the team is making tremendous sacrifices; the leader cannot create cliques or groups. He has to be seen as impartial and fair. Fourth, the leader has to be confident. Because at the end of the day when there are so many problems, to continue on that marathon they need somebody who will infuse confidence every morning. They should feel an inch taller than they are in your presence. The leader should also be optimistic. There will be many inputs that keep coming in saying, ‘no no, there is this problem, that problem’ etc. To fight all those and still persist, you need optimism. DARE OCTOBER 2007 57


DARE.CO.IN

case/INSEAD

Hidesign: to expand the brand /Philip Anderson

B

ally, Bottega Veneta, Coach, Fendi, Gucci, Lancel, Longchamp—one famous name after another swept into Dilip Kapur’s view as he strolled through the Hong Kong International Airport’s SkyMart. Kapur could already see in his mind’s eye what would soon be the newest addition to this shopper’s paradise—the exclusive fashion store that his leather goods firm Hidesign planned to open in mid-2006. Sixteen years earlier when he went into the business full time, Kapur did not dream that his company would one day bid to become one of the first brands from India to succeed in the global fashion marketplace. Now Hidesign’s international expansion was picking up momentum, and its president and founder Kapur wondered how best to move forward in building a truly scalable brand with global reach.

58

OCTOBER 2007

The growth of Hidesign Dilip Kapur was born in New Delhi, where his Hindu parents had fled from what would become Pakistan in the mass movement of people following the end of the British Raj in 1947. From the age of five he lived in Pondicherry, a former French colony on India’s southeast coast, before moving to the United States at the age of fifteen. After graduating from the elite Phillips Academy in Andover, Massachusetts, one of America’s top private secondary schools, he attended Princeton University. Majoring in international affairs and economics at Princeton’s Woodrow Wilson School of Public and International Affairs, he earned a bachelor’s and master’s degree, then went on to pursue a Ph.D. at the Social Science Foundation, part of Denver University in the US state of Colorado. After four years in Denver, Kapur’s fellowship money ran

out, and he spent a year working for an American company that made and sold hand bags. Meanwhile, however, his thoughts returned to India, specifically to the experiment in international living at Auroville , not far from Pondicherry. Mirra Alfassa, born in Paris in 1878 to an Egyptian mother and a Turkish father, was deeply influenced by Sri Aurobindo, a prominent Indian nationalist who became a spiritual leader in Pondicherry in the early twentieth century. Alfassa joined him there in 1920, organized his followers into an ashram in 1926, and in 1968 founded an international township project at Auroville. Set up as a collective dedicated to human unity and international understanding, Auroville was established as a city where people from all over the world would live and work together to foster peace and harmony. Kapur, who had grown up near the ashram, returned to India in 1978 to live in and help build Auroville, serving on its development and planning council. Auroville’s atmosphere was meant to encourage culture and the arts, and Kapur began making leather bags as a hobby, drawing upon what he had learned in the United States. However, Kapur did not like the look of normal leather, which seemed to slick to him. He saw some samples of leather that had been tanned using traditional methods of soaking the hides in vegetable extracts, and liked


DARE.CO.IN

case/INSEAD the different look this gave the material. Kapur visited East India Tanning, a center for vegetable tanning about 300 kilometers from Auroville, learned the art, and began producing a line of leather bags with a distinctive look that people liked. By 1986, several hundred people in Auroville were working with him to make and sell bags using vegetable-tanned leather. The activity expanded gradually to the point where in 1990 Kapur established a bag factory in Pondicherry and became a full-time businessman. “It slowly grew up from a hobby, and when it became a serious thing, it was a total surprise to me, because I was completely anti-business,” he recalls. “When I started, I had to learn what a bag was; I had no business background and knew nothing about them. I talked to people and learned from them, and it became a more interesting business. Originally, I designed and produced bags. Once I started Hidesign in 1990, I had to conceptualize who I am producing for, why they are buying bags, and how to communicate that to people.” Most of Hidesign’s initial customers were foreigners who spotted the bags while traveling in India. Says Kapur, “The first order I got from from a German organization in India that had a catalog; their manager saw my product, loved it, and bought it. Smaller buyers kept coming through, amateurs who liked the product, began buying it, and sold it in their countries. The story was always the same; someone liked the bags, bought them, and sold them to stores in their territory.”

Kapur chose to emphasize workmanship and design, making beautiful, affordable bags. 70% of the manufacturing was done by hand; craftsmen carried out labor-intensive steps such as double-stitching of pressure points that had been abandoned our automated in the West. Hidesign set up two wholly-owned tanning establishments near Chennai to maintain control over the quality of its leather. Where most other bags used plated-metal fittings, Kapur insisted on solid brass. Low Indian labor costs meant that in foreign markets, the bags could be sold in the upper-middle price range despite their emphasis on fine, hand-made details. Hidesign bags were typically sold overseas in a price range between $125 and $200 (in 2006 prices). This represented a markup of 550-600% over factory cost. Typically, the wholesale price for a bag was 85% over the landed costs in a foreign country, and a standard retail markup was in the vicinity of 240-250%. Hidesign was viewed as a product out of the mainstream in its export markets, carried by exclusive distributors who built something of a cult following within each of their geographies. Leather and luggage shops were wary of carrying an Indian brand, so Hidesign products were typically sold in stores with more of a fashion emphasis. A Hidesign bag won the ‘Accessory of the Year” award from a British magazine, which gained the firm much visibility, and department stores began picking Hidesign as a supplier. Such famous merchants as

Selfridge’s, the House of Fraser, and John Lewis started carrying a range of Hidesign bags, which significantly increased the Indian manufacturer’s sales while building much more awareness overseas of its style and quality. During the 1990s, the product mix changed from 45% of sales from branded goods to 95% of sales. In 2000, Kapur decided to begin opening its own chain of exclusive boutiques across India. Says Kapur, “We looked for a distributor but we couldn’t find one that was appropriate. Modern retailing was just starting in India, so we decided to open our own store in Pondicherry. It was successful, so we opened stores in Bangalore and Mumbai and kept growing.” Hidesign bags were also offered at premium Indian retailers such as Shoppers Stop, The Bombay Store, and Westside, though the highest-volume outlet was a national chain of book stores. “In India, we are the most expensive leather bags in the country,” Kapur says, even though the average markup from the factory gate was about 220% and prices were about half of those for the same bags sold outside India. “If foreigners come in, however, we will become an upper middle class brand, instead of an upper-upper class brand as we are now.” Kapur was pleasantly surprised how well

OCTOBER 2007 59


DARE.CO.IN Hidesign’s bags sold in India, despite their positioning at the high end of the market. By 2006, the firm owned 35 stores in India and had announced plans for 17 more . Diversifying into retail changed the nature of the business, much as moving into foreign department stores years before had signaled a new era for Hidesign. Kapur explains: The nature of the business changed; we had to become more planned. We had to achieve real clarity on who we are and what we want to do, and we learned afterward that is what brand equity really means. Our product was a reflection of who I was, someone who had grown up independent-minded and environmentally conscious. The bag rebelled against the slick, formal offerings that were then in the market. It also reflected the culture I had grown up in. The best adjectives to describe us are natural, pure, and individualistic. A typical Hidesign retail customer was well-educated and typically was a service industry executive. 53% were age 25-35, 30% 35-45, and 10% over the age of 45. 54-55% of customers were women, and handbags were the biggest-selling single item. Hidesign drove traffic to its

case/INSEAD stores via advertisements in higher-end print media and extensive public relations efforts. The eight fashion shows it sponsored each year generated extensive publicity. 60-100 articles about Hidesign appeared in Indian print publications and the company was frequently mentioned on television as well. Hidesign as an international brand With the new stores in India a burgeoning success, Kapur decided toward the end of 2000 that the next logical growth path for Hidesign would be building an international brand. He explains: We don’t want the number of stores to grow much more than 30% beyond what we now have or are building, so we would like to grow across countries. We can only afford to build our brand abroad via exclusive stores, not more advertising. Our existing distributors are not concerned because the prime targets for our retail stores are not in their territories. Our biggest sales through distributors presently are in the UK, Australia, South Africa and the US. We chose as prime targets locations such as Russia, Hong Kong, China and the Middle East, because they are regions with high growth, room for a new brand to break in, relatively reasonable

rental costs, and distribution costs that are manageable in comparison to the final price of the goods. Kapur was approached by a UK firm with experience in franchising, and in 2003 announced the formation of a joint venture with them called Hidesign Global, aimed at developing an international franchising model. Hidesign Global produced a brochure and an international concept store for an exclusive Hidesign outlet, aiming to form a series of joint ventures where the local partner would own 51% of each store and Hidesign Global the rest. However, franchising did not take off. Says Kapur, “We have not been very successful with that model because the brand is not well-known.” The first exclusive Hidesign boutique outside India opened in August, 2004 in a 400-square-foot space in Dubai’s newlyopened Souq Madinat Jumeirah shopping mall. This first step abroad brought home to Kapur how challenging international growth can be. He explains: This was the easiest to do of several joint venture possibilities we had. We were often approached by people who were interested in opening Hidesign stores overseas, but a person who was

“When I started, I had to learn what a bag was; I had no business background and knew nothing about them. I talked to people and learned from them, and it became a more interesting business. Originally, I designed and produced bags. Once I started Hidesign in 1990, I had to conceptualize who I am producing for, why they are buying bags, and how to communicate that to people” Dilip Kapur, Hidesign 60

OCTOBER 2007


DARE.CO.IN

case/INSEAD already working in a company in Dubai approached us right after we had decided to open our own stores outside India, and we made the mistake of going ahead with him. He was doing local retail there and seemed to have local knowhow. We didn’t want to send someone from India to run the store because we lacked local management capabilities and knowledge. We gave our partner 15% of the business but he didn’t put in his own money. He was very unprofessional and we ended up trying to control the store from headquarters in India, which we learned we cannot do. Hidesign had better luck when working with firms it already knew well. It bought 30% of the shares of its Russian distributor in order to strengthen their finances and drive the business faster, and by 2006, Hidesign had five exclusive boutiques in Moscow and one in St. Petersburg. Its South African distributor ran into some financial problems, so Hidesign bought 40% of its equity, and with renewed financial strength there its sales grew rapidly. A distributor in Sweden opened a store at the Gothenburg airport in early 2006 that showed strong initial results. In 2006, Hidesign also signed agreements to open new stores at the airports in Copenhagen and in Hong Kong. The Hong Kong store would be opened by a new joint venture for China established with Ray Chan, the former

account manager for Hidesign at the firm’s Chinese distributor. In June, 2006, Hidesign restructured its operations in the Middle East by bringing in a new partner for its joint venture there. Dubai-based retailer Jashanmal National Company, which operated stores in several parts of the United Arab Emirates, bought a 51% stake in a joint venture targeted at building sales in the Gulf area, Hidesign Middle East, with the Indian firm holding the remaining 49%. Kapur hoped that Jashanmal’s experience distributing brands such as Dior and Burberry would accelerate the growth of the brand. By mid-2006, there were two Hidesign stores in Dubai, with a third store planned for Dubai and a fourth in Abu Dhabi. In addition, Jashanmal intended to open exclusive Hidesign shops within its existing department stores. Hidesign was present in 18 countries, but Kapur thought the firm had yet to settle on a model for international expansion that would scale well. He comments: Every country is an individual case. We sell 8000 bags per month in the United Kingdom, but in Paris nobody knows us. It is not easy for brands to cross over cultural lines. If you are successful in Australia, that doesn’t mean you’ll be successful in Indonesia. Since our brand is not known internationally, each country is a separate independent exercise in brand building. Because we grew internationally through distributors, we sell under the Hidesign name but there are no brand-building activi-

ties like advertising and public relations, which drive our sales in India. Right now I don’t know how many countries we will have to be in before we start being recognized as an international brand. It will be interesting to see when we start realizing synergy between countries. Being able to find the right joint venture partner was an important barrier to scaling Hidesign’s boutiques outside India. Says Kapur: We have only had success with people we have already known. If I knew how to find and assess prospective partners, it would really help. In South Africa and Russia, the distributors were doing a good job and we knew them; we have never looked systematically and professionally for joint venture partners. We look for commitment and capability; I don’t think the financial angle is very important, because this is not a capitalintensive business. With our lack of experience, we need a strong joint venture partner who can work independently with us to build the brand. We can’t micro-manage from India; we tried that at first in Dubai because we figured that was close enough to India, but it was a disaster. We can manage things centrally within India, but not internationally.

Conclusion By mid-2006, Hidesign’s revenues were reported as being in the vicinity of 84,000 crores , growing at 25% per year. Within a few years, Hidesign would have penetrated all the likely locations it wished to occupy in India, so international expansion would remain the key to growing this business. Kapur and his German-born wife Jacqueline had opened two boutique hotels in Pondicherry in 2004 and 2005, and Kapur had mused in the press that Hidesign’s joint venture in China might provide the right vehicle for the firm to diversify into apparel. However, it was clear to the Hidesign president that accelerating the pace at which the firm opened stores abroad and establishing a truly international brand stood at the top of his leadership agenda. DARE INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab OCTOBER 2007 61


DARE.CO.IN

campus/startup

An Incubator in every Campus The campus is the new powerhouse of ideas. Make yours too. It doesn’t cost all that much to set up a business incubator /Arunjana Das

C

ampus incubators are, simply put, launch-pads for business ideas of students staff and alumni. They provide a mentoring environment and easy access to college faculty and facilities. The basic infrastructure comprising space, electricity and internet connectivity can be set up at the cost of just under Rs 11 lakh. Additional funds would be needed for faculty, support staff, research equipment and the like. Where there are well equipped college laboratories and workshops, this component could be reduced by sharing these.

A number of reputed institutes of the country have taken the lead in establishing campus incubators. TeNet group IIT Madras, Technology Business Incubation Unit (TBIU) IIT Delhi, Society for Innovation and Entrepreneurship (SINE) IIT Bombay, TREC-STEP Business Incubator NIT Tiruchirapalli, Center for Innovation, Incubation and

DARE/estimates Total no. of colleges in India:

13,000

Assumption: 1/4th of this number open incubators in their campuses. Estimated No. of campus incubators

3,250

Assumption: Each incubates on an average 3 projects for a gestation period of 2 years. Each project on an average consists of 3 student entrepreneurs Estimated No. of projects under incubation every year

4,875

Estimated No. of incubatee entrepreneurs every year

14,625

No. of successful start-ups for varying success rates 10%

487

20%

975

40%

1,950

60%

2,925

DISCLAIMER: This data and analysis are indicative and Cybermedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture.

Entrepreneurship (CIIE) IIM Ahmedabad and NS Raghavan Entrepreneurial Academy IIM Bangalore, etc. are a few examples. These incubators are still in their nascent stages with most of them being established around five to six years back. Considering how little time they have been in business, they have a good track record, churning out on an average of 3 successful new companies every 2 years. Most of these campus incubators are joint endeavors by alumni and the college. Assume each of the 13,000 colleges in India invests Rs 11 lakh for establishing a basic incubator in its campus. You will end up creating an ecosystem worth Rs 1,500 crore, built exclusively for nurturing start-ups in the country! Assuming even one-fourth of these 13,000 colleges decide to set up incubators in their campuses, the impact would be humungous! An incubator needn’t be a huge infrastructure equipped with the latest R&D and other state-of-the-art facilities. You can start off your campus incubator with a small spare room. Call that an incubator. As long as it can provide easy access to college faculty and facilities, it is an incubator for all aims and purposes. The investment for an incubator can be raised through government grants or alumni donations. IIT Delhi, for exam-

ASHOK JHUNJHUNWALA/“BUILDING A CAMPUS INCUBATOR DOESN’T REQUIRE MONEY. IT REQUIRES A PERSON WHO UNDERSTANDS THE MARKET, HAS THE ABILITY TO CONVERT TECHNOLOGY INTO MARKETABLE PRODUCTS AND HAS THE CAPABILITY OF NURTURING A COMPANY.”

62

OCTOBER 2007


DARE.CO.IN

campus/startup

IIT Delhi, Technology Business Incubation Unit (TBIU) KritiKal Solutions, which works in networking technologies and embedded systems space, was the first company incubated successfully from TBIU. Started off in Aug 2002 by seven students in collaboration with five faculty members, Kritikal was supported with a seed-funding of Rs 10 lakh for equipment, infrastructure, working capital and technology specific assignments for development as project sub-contracts. Last year, the company received equity investment of $20 million from the Nucleus Group. Its clientele comprises DRDO, Xerox, Genesys, Realtime Systems among others. Founded in 2000 by the Foundation for Innovation and Technology Transfer (FITT) the industry interface unit of IIT Delhi, TBIU’s mandate is to promote and commercialize academic research through spin-offs—particularly those promoted by student-faculty groups. It was started with the idea of upscaling promising research projects and making them commercially viable through the incubator route. The incubator has built up office modules of 2,400 sq ft capable of accommodating upto eight startups. The modules are equipped with ple, secured around Rs 95 lakh through government grants for supporting the activities. The government has now formulated a scheme to set up around 100 incubators in the country to encourage

electricity, power lines, telephone and internet facilities provided at concessional rates, along with a conference room and a separate reception and business center. Access to institute labs and R&D facilities is provided through the faculty at institutional rates. R&D support includes computing equipment, software, etc. Financial assistance is also provided to selected entrepreneurs through research assistantships and fellowships for a period of six months to a year. A TBIU nursery fund has also been started, which is operated out of the operational surpluses of FITT. The nursery fund provides seed loans of upto Rs 15 lakh to the startups to initiate and sustain the incubation. The government of India has also provided grants of Rs 80 lakh and Rs 15 lakh for supporting IT/ITES projects and technology-based startups respectively. FITT also interacts with VC funds and angel investors in order to build a network to facilitate successful commercialization of the ventures. Collaboration with institute faculty is a pre-requisite for getting selected as an incubatee. Only technology-centric ventures Indian Institute of Entrepreneurship (IIE) and the Entrepreneurial Development Institute (EDI) which hold special workshops and mentorship programs for entrepreneurs. The National Entre-

with homology in the institute are admitted. First preference is given to ideas by faculty or students of the institute or students from similar institutes, followed by technology based startups and technology or R&D units of SMEs, industrial or R&D organizations. TBIU has so far had four companies operating after incubation, two companies having relocated operations elsewhere. Three companies had closed shop due to varied reasons. TBIU is currently in the process of incubating eight more companies. KritiKal Solutions, INRM Consultants, a solution provider in geographical systems and natural resource management, and VirtualWire Technologies, a wireless communication solutions provider, are some of the successful incubatee companies. The average gestation period for an idea here is about two-and-a-half years. TBIU went into active operation in 2002 with two incubation positions. More infrastructure and facilities have since been added. Says K K Roy, a manager at TBIU, “the objective of TBIU is to sensitize students and graduates to be entrepreneurs rather than job seekers.” than a decade ago. Started on an informal basis, TeNet has produced over 20 successful companies till date and is currently helping 10 more. Jhunjhunwala has been working in the field of

FUNDING/THE GOVT HAS EARMARKED RS 1.13 CRORE FOR 2007-08 FOR GRANTS TO 50 UNIVERSITIES AND TRAINING INSTITUTES FOR SETTING UP INCUBATORS the development of new businesses. It has earmarked a budget of Rs 1.13 crore for 2007-08 for providing grants to 50 universities and training institutes for setting up these incubators! Many banks and private equity firms now realize the crucial role incubators play in developing new businesses and have come forward to fund them. For logistical information and support, you can approach institutions such as the

preneurs Network, an initiative by Wadhwani Foundation, provides an extensive support system for entrepreneurs. Ashok Jhunjhunwala of IIT Madras has a track record in this area that goes back before entrepreneurship and venture funding and incubation became fashionable terms. Jhunjhunwala, an alumnus-turned-professor of IIT Madras, built TeNet group, an incubator in IIT Madras, with zero investment more

rural telecom and networking for over two decades. He also uses his immense experience to mentor startups at TeNet. Thus, in addition to being a provider, he’s also doubling up as a mentor. He has done all this at surprisingly low investments. Says Jhunjhunwala, “building a campus incubator doesn’t require a lot of money, but it does require commitment, understanding and passion.” DARE OCTOBER 2007 63


DARE.CO.IN

law/companies

15 min. guide to Trade Marks Registering your trade mark ensures that Infringement can be easily dealt with /Binesh Kutty with Manhar Kapoor

What is a trade mark? A trademark is a unique identifier of recognisable elements of your business. A trade mark helps to uniquely link certain names, ideas and designs to your business and prevents others from misusing them. For instance, the name of your company, the brand name of your product and their logos could be your trade marks. Besides other things, the mark should be capable of graphical representation on paper. You can start using the symbol TM even before you apply for a trade mark, as it is used to indicate that the said mark is aimed at being registered as trade mark. The symbol ® is applicable to a registered trade mark.

Why should I register? Registration of a trade mark is not mandatory. However, there are several legal benefits of getting a trade mark registered. Let us say you have not registered your marks, and some other person starts using them. In this case, you can only appeal for a “passing off” suit, which means that you would need to prove that they are passing off goods or services under your business name or brand. Among other things, you need to prove that your business name or brand has been in existence well before the other one sarted. If you have a registered trade mark, you simply need to show the registration certificate, for infringement action against the offender, including stopping other businesses from using your trade mark or some mark deceptively similar. You can sue for damages, and also secure destruction of the conflicting goods and/or its labels. A registered trade mark is a symbol of authenticity of identity of your company, brand, goods or services. Therefore it 64

OCTOBER 2007

DARE/facts Applicable fees New applications – Rs 2,500 Renewal of a registered trade mark – Rs 5,000 Restoration of a removed mark – Rs 5,000 Official search request – Rs 500 Preliminary advise on registrability – Rs 500

is recommended that you register your trade marks.

What is the process? You have to file an application with the Trade Mark Registrar. They screen your application, and if accepted, such acceptance is publicly advertised. After this, there is a waiting period of three months for opposition. In case there is no opposition, a registered trade mark certificate is issued. If your application faces opposition, a hearing is held to decide the matter. If the opposition is allowed, you can apply for a review. Objection(s) could be raised by the Registrar during screening. In this case, you would have to go through a show cause hearing, to prove your case. Your application can also be refused after screening. Here, your option is to appeal to the Intellectual Property Appellate Board. A trade mark registration could take anywhere between 12 to 24 months.

Where do I register? You apply at the relevant trade mark registry in Delhi, Kolkata, Chennai, Ahmedabad and Mumbai. The registry you apply to depends on the location of your business.

How to get it done? After examination of your application, typically a number of objections

are raised by the Registrar. Handling these requires a lot of legal paper work. Hence, it is highly recommended that you use the services of a competent trade mark lawyer.

Any tips to get it right? Even before you start a business, brand, or any new commercial activity, you should run a check for all relevant marks, at the national or regional trade mark Registrar’s office. Alternatively, you can apply for an official search request at the office. You can also do a market search to ensure that there is no existing business using a mark similar to the one that you intend to use. Use distinctive terms (say, green telephony), instead of descriptive ones(say, green cellphones). Register the words as well as the logos (graphics). Preferably, keep your company name separate from the brand name or service. In case of any dispute over a particular line of business, the trade mark will not affect the corporate entity’s branding.

Do I have to renew? A trade mark is registered for ten years (from the date of the application), during which you can renew it. You do receive a notification about the expiry date. If you fail to renew, a grace period of six months is allowed (with late payment charges). After the grace period, the Registrar may remove the mark from the register. The “may” means that it is the discretion of the Registrar. Nevertheless, in case of removal, the registrant can still apply for restoration within one year of the expiry of the last registration. This restoration is the discretion of the Registrar, who may renew it with or without conditions and/or limitations. DARE


TH EY

guide/legal

C HANGED

T HE

W AY

W E

DO

B U SI N ES S

DARE.CO.IN

Dhirubhai Ambani As we were writing this, the Sensex crossed the 16 k mark and surprise surprise, it actually did not create a big splash! Today we take the stock market and public issues for granted. Verghese Kurien We forget that this is a fairly recent phenomenon. The man introduced the masses to thethe stock culture and created The originalwho social entrepreneur, long before term became a virtual revolution of public participation in corporate fashionable. Kurien came from Kerala, went to the US, worked his equity is better for the business empire he created. Without magic in Gujarat andknown gave farmers all over the country the power Dhirubhai efforts in public share to negotiate the bestAmbani’s price for pioneering their produce. In the process, he issues, the great growth storyaid would have taken a pitch forkedperhaps India from being Indian a recipient of milk to becoming completely different turn. the world’s largest producer of milk and milk products. He also built the first pan Indian, Indian brand, Amul. continued on page 73

AUGUST 2007 65 Photo: Ramesh Baria


DARE.CO.IN

strategy/startup

What legal status? Your Biz What type of business should you register as /Rodney D Ryder

Y

ou can set up your business entity under different legal types. Each has its own use, advantage and disadvantage. This piece briefly examines the different legal classifications and where they are best suited. While selecting an entity for setting up your business, one has to keep in mind the size and liability of the business and relevant commercial issues, such as funding. The business can be organised on the lines of: Sole proprietorship: This is ideal for a commercial enterprise intended to be run and managed by an individual. ‘Incorporation’ is simple; there are no mandatory formalities with any government authority. The proprietorship has the comfort, in some respects, of being an extension of the individual. In law, there is no distinction between the ‘individual’ and the proprietorship. In relation to taxes, for example, this works well because the filing is kept simple. On the flip side, the liability for the commercial enterprise is with the individual. Partnership firm: Like the sole proprietorship, the partnership, where two or more persons come together for commercial gain, is fairly simple to set up. The partnership deed, which should encompass the details, including the functions and management and sharing of profits should be registered with the relevant authority. A partnership deed can be ‘registered’ by stamping it with the appropriate stamp duty [Rs 100 for most states in India; remember that stamp duty varies from state to state] and submitting it to the local Registrar of Firms. The partnership could structure a time-frame and clear mode of dissolution or be ‘at-will’; where any partner can collect his/her earnings and walk out of the partnership. It is important to remember that with respect to liability, the partnership laws are clear that all liability for the partnership 66

OCTOBER 2007

is with those individuals who constitute the partnership. Private limited company: A company, since its historical founding in early modern Europe, has been the most popular modern commercial entity. The corporation as a legal entity began as an institution ‘chartered’ by governments to carry out specific public functions. In our times, companies have a legal ‘persona’ and are entitled to some of the legal rights of a living person. It must be noted that a company is a distinct legal entity in law; distinct from its shareholders, members or directors, in contrast to a proprietorship or partnership. The company is capable of ‘being an individual’ and subject to some exceptions taking on commercial and legal risk which need not be transferred to the shareholders or director. In fact, the modern corporation is a very special kind of person, unlike the human persona, solely concerned with generating maximum profit possible for its owners. For private limited companies, regulatory compliance issues are demanding though fairly uncomplicated to perceive. A company’s functions must conform to the ‘list’ specified in the Memorandum of Association filed with the Registrar of Companies at inception. A private limited company is allowed a great deal of flexibility in management and is permitted a flexible structure in their Articles of Association, which govern internal management. Unlike a partnership where there is a limit to the number of partners [limited to twenty under the Indian Partnership Act, 1932]; there is no limit to the number of shareholders in a company. Also, the liability of a shareholder is ‘limited’ to the value of the share he or she has paid up for. This allows a possible funding entity to become a stakeholder without incurring extra legal risk.

This limited liability and independent persona makes the company a popular choice for business. A public company is generally one which is permitted by law to offer or sell its shares to the public through stock exchanges. Public companies are required to report to the Securities and Exchange Board of India [SEBI]; have to comply with additional regulations aimed at safeguarding investor money. In India [and the United States]; a public company can also refer to a governmentowned or controlled company which is funded by ‘public money’ or that which belongs to the people. I do not see the entrepreneur worried about this, unless he or she opts for public funding at a later stage through a stock offering at a stock exchange [Initial and Subsequent Public Offers]. Incorporating abroad: This is advantageous primarily for tax reasons. If one incorporates in a jurisdiction with a milder tax regime. Though, it must be said that our [Indian] tax authorities are viewing investments from Mauritius and elsewhere as particularly ‘suspicious’. Shell Company: It is a term used to refer to companies that exist in name but have ceased to do business. Shell companies are at their most interesting when they are listed on a stock exchange, because they provide a cheap way for another company to acquire a listing by ‘reversing’ into the shell. Usually, the term has a sinister connotation referring, for example, to the companies set up by Nathan Myhrvold [Intellectual Ventures, formerly Chief Technology Officer, Microsoft] and Peter Detkin [former General Counsel, Intel] to buy and own patents with a view to extracting royalties from unsuspecting tech companies. DARE The author is a practising commercial lawyer and partner with FoxMandal Little. <rodney.ryder@foxmandallittle.com>


DARE.CO.IN

fund/INSEAD

Is Angel Investing in India Ready for Takeoff? Although angel investing is yet to reach critical mass in India, the Indian angel is increasingly becoming more risk-taking /Philip Anderson and Aparna Dogra

P

rivate equity and venture capital investing has boomed in India the past two years, rising from $2.2 billion in 2005 to $7.5 billion in 2006 and $5.6 billion the first six months of 2007, according to the India Venture Capital Association. Private companies looking for growth capital are spoilt for choice, say both entrepreneurs and venture capitalists. However, a significant hole still exists in Inda at the first rung of the ladder—seed capital. In the classic venture capital investing model, startups raise a “seed” round of capital, typically under $1 million in the West and considerably less in India, in order to take their business far enough along to attract professional in-

vestors. Investors who provide the first round of professional funding (usually called “series A”) are willing to assume high risks to earn high rewards. As a venture proves itself and raises further rounds of capital (“series B” then “series C” and so on), later backers typically pay higher multiples for an ownership stake because they are taking on lower risks. Few Indian venture investing partnerships specialize in series A funding, and only a handful are willing to provide the initial seed capital that launches a company. The rewards to early investors can be high, but professional investors can’t put enough money to work to justify the amount of time and help that a new enterprise needs.

If it’s difficult for entrepreneurs to find an initial source of funding, how will they ever develop their companies to the point where they are attractive to series A investors? Without a ready supply of capital at the incubation stage, India’s entrepreneurial boom could be throttled—if an inadequate number of firms get off the ground, there will be too few prospects for professional investors to put to work the capital they have raised, let alone put more money into India. Indeed, one reason why so many bright Indians have started their companies in places like Silicon Valley instead of India is that seed capital is much easier to raise in the US. Even in North America and Europe, OCTOBER 2007 67


DARE.CO.IN

fund/INSEAD

however, few professional investors provide seed funding for ventures. They enjoy nonetheless a steady supply of prospective A-round deals because entrepreneurs are able to tap into their personal wealth or that of their family and friends. Quite a few entrepreneurs in the West have even financed their companies via credit cards or by mortgaging their homes. In addition, a significant number of fast-growing ventures have received their initial funding from “angel” investors. An angel is usually a wealthy individual who invests part of his or her personal fortune in private ventures. Most angels were once successful entrepre-

leading Internet companies. He says, “While venture capital funding is growing with billions of dollars entering the country, there is not enough seed stage capital. High net worth individuals are happy investing in real estate and stocks, and there is no real infrastructure for investors to find the right startups. India has no real ‘hot bed’ for startups, like MIT and Stanford in the US. 80% of IIT graduates are happy taking up plum jobs with great salaries, so it’s harder for investors to find quality growth ventures.” Adds Gandhi, “Even though networks like the Band of Angels exist, they are not very well-organized and investing in startups is not necessarily their mem-

MAHESH MURTHY/”TODAY THERE ARE MANY FIRST-GENERATION ENTREPRENEURS WHO REALIZE THAT THEY CAN DO BETTER BY NOT NECESSARILY INVESTING IN THEIR OWN FLESH AND BLOOD.” neurs themselves, so they bring not only cash but also advice, connections, and even temporary management help to a startup. Accordingly, such investors are eagerly sought after even when a company founder could raise money from other sources. Some experts have estimated that more people worth at least $1 million live in Mumbai than reside in the entire west coast of the US. Western academics often study how certain ethnic communities in India such as the Marwaris or Jains efficiently fund businesses through networks of trust. So why do entrepreneurs and venture capitalists both say that a lack of seed funding, especially from angel investors, is the biggest constraint today on India’s entrepreneurial expansion? Vishal Gondal, the successful founder of Indiagames, launched his venture in 1999 when he was just 23, with funds from early-stage investor Pravin Gandhi, among others. In 2004, he sold an 80% stake to TOM Online, one of China’s 68

OCTOBERS 2007

bers’ first priority. Most investors would rather invest through private equity funds and not get involved operationally.” Many entrepreneurs contend that wealthy Indian investors tend to have a short-term mentality and look for returns within 18 months, so they prefer to put their money into stocks, bonds and real estate instead of startups. Mahesh Murthy, the Mumbai-based serial entrepreneur who founded and leads the search engine marketing company Pinstorm, comments, “Perhaps it’s a cultural thing.” He argues, “In India, we’re very happy to propagate dynastic rule, and most businessmen have been brought up to believe that it’s better to give money to your son or daughter— even if they are incompetent—than to a competent outsider. That is changing; today there are many first-generation entrepreneurs who realize that they can do better by not necessarily investing in their own flesh and blood.” Veterans like Murthy and Gondal say that angel investing requires a critical

mass of success stories to take off. Comments Gondal, “In countries like Israel, people think that their best bet to become rich is to start their own ventures. In India, people have not seen enough success stories. Very few people are willing to invest in innovation and disruptive ideas.” Adds Murthy, “Very few angels know how to make an investment. Once more people hear success stories of angels, more will follow. Soon I hope to see hundreds, perhaps thousands of angels coming up all around India.” Will India reach a take-off point any time soon, where the success of some high-profile angel investors brings others into the market and links India’s wealthy individuals with the ventures that will build the nation’s future? Most who are familiar with the scene see slow but hopeful progress and counsel that it will take time for a healthy angel financing scene to take root. No reliable statistics report how many active angel investors there are in India or how much money they have put to work seeding ventures, but the number appears to be growing. In other countries, angel investors typically have made money from a venture and decide to invest in other entrepreneurs because their experience gives them comfort managing the risks involved. Mahesh Murthy typifies such a path. After stints with several high-profile advertising agencies, he achieved financial independence by heading up marketing for iCat, a Seattle-based software company that was acquired by Intel in 1998. After running Channel [v] for a year, he started his own angel investment firm, Passionfund, along with friend and partner Arun Pai. “In marketing, you have ownership but not a variety of brands to work on, while in advertising you have the opposite,” Murthy says. “I figured I needed both, and I slowly realized that investing in startups would give me that. In 2000, direct investment was complex and there were no tax benefits, so we needed a fund as a vehicle.” Over the next few years, Passionfund seeded 14 companies in Internet-related or technologyenabled businesses.


DARE.CO.IN

Murthy comments, “When we started investing, we were perhaps the first angel fund in India and you could count India’s angels on the fingers of one hand. Today apart from Passionfund, there are Mumbai Angels, the Indian Angel Network, India Angels, and many more individuals. You have organized true early-stage funding through Seedfund, Erasmic and others, so the number of angels investors has tripled or quadrupled in the last six years. It’s much better, but it’s still not where we need to be. If there are 100 venture capital and 20 private equity funds in India, there should be at least 1000 angels, and there aren’t.” Pravin Gandhi, now the president of the TiE (The Indus Entrepreneurs) Mumbai chapter, followed a similar path a generation earlier. After cofounding the Hinditron group of companies in 1972, which merged with Digital Equipment Corporation in 1988, 70

OCTOBERS 2007

fund/INSEAD

Gandhi co-founded early-stage venture capital fund Infinity Ventures in 2000. In 2006, he started Seedfund with Mahesh Murthy and Bharati Jacob to specialize in early-stage deals, including some seed-stage investments. Gandhi notes, “In the last year, things have improved. Organizations like the Band of Angels (now the Indian Angel Network) and even the Bangalore and Chennai chapters of TiE have started investing in early stage companies. High net worth individuals who want to give back to society are coming together via these networks to mentor and invest.” Still, the sector remains challenging for prospective financiers, according to Gandhi. “Finding the right entrepreneurs for angel investors is a challenge. People are increasingly well-paid in India and often get generous stock options. The motivation to leave and start a growth venture is still not very com-

mon. And sectors like retail or pharmaceuticals that are seeing a huge boom don’t really qualify for angel investing because of the huge capital investment needed in early stages.” Additionally, angel investing requires a degree of savvy and commitment that makes it difficult for wealthy but inexperienced investors to participate. Notes Gandhi, “Many investors and entrepreneurs who burnt their hands in 2000 during the Internet boom are still reluctant to invest in risky ventures. Angels need to mentor as well as invest. They need to deploy both time and money, and not too many people want to do that. They would rather invest in stocks.” Alok Mittal, another successful entrepreneur who used his experience to get into angel investing, agrees. Mittal cofounded an internet portal that turned into Jobsahead, which was sold to Mon-


DARE.CO.IN

fund/INSEAD ster.com in 2004. In 2005, he and some friends started an angel investing group called the Band of Angels, a name made famous in Silicon Valley by a group of high-profile seed stage investors. “We were not affiliated with the Band of Angels in Silicon Valley, but we borrowed a lot of ideas by observing how they function,” Mittal relates. “The US has forty or fifty angel funding groups, and we thought this common structure would work well in India because when venture capitalists come to town, they don’t want to fund seed-stage ventures. We decided we would rather create a group than start a fund.” The Band of Angels fostered its first investment in November, 2005 and remains active today, renamed the Indian Angel Network. The group

time, making angel investment a very different proposition than passively allocating resources to profit-making opportunities. Says Passionfund’s Murthy, “At the early stage of a company, entrepreneurs need more time and counsel from investors than money. I set aside time every week with every company to meet face to face with every entrepreneur I mentor in the early stages, and then as the company matures, the frequency reduces to once a month. I’m always available on email, phone or SMS, and I usually help set up meetings for the entrepreneurs with potential customers, hires, and other sources of strategic help.” The need for personal involvement means it will take time for India’s angel sector to mature, Mittal contends. “Ac-

PRAVEEN GANDHI/”IN THE LAST YEAR, THINGS HAVE IMPROVED. ORGANIZATIONS LIKE THE BAND OF ANGELS HAVE STARTED INVESTING IN EARLY STAGE COMPANIES. ” shares the processes of finding deals and performing due diligence, while individuals decide whether to invest or not in any particular deal. Once an investment is made, one person from the group represents the network and provides assistance. “Our thesis is that you need more than money; you need help to join the company,” Mittal says. “I personally feel that angels need to be involved with the companies they choose to invest in.” Indiagames’ Vishal Gondal agrees, based on his experience as a recipient of seed funding. He comments, “The key elements that angel investors have to bring are an ability to make personal gut calls and a binocular approach to seeing the future. When I was cashstrapped, Pravin Gandhi stood by me because he believed in my conviction. We changed business plans and adapted ourselves to changing market needs. He bet on me and my venture, and it paid off eventually.” Such mentoring takes considerable

tivity in angel investing is still slow because investors need experience across the investment cycle, which is about 4-5 years in India,” he suggests. “The situation is much better than it was three years ago, but there is a paucity of experienced people who are willing to mentor and invest.” One of those experienced people is Vishal Gondal himself, who benefited from the help of Gandhi and Murthy when launching his venture. While continuing as an entrepreneur, Gondal is in the process of advising and investing in two startups. “I would like to support startups that aren’t afraid to think big and are ready to experience with that one big, innovative idea,” he says. What should Indian entrepreneurs do while waiting for more entrepreneurs-turned-angels like Gondal, Murthy, Gandhi and Mittal to enter the sector? Says Murthy, “Part of the innovativeness that entrepreneurs need to display is in fund-raising himself. I know one very successful Indian entre-

preneur who raised money by asking his business school classmates’ parents for help. Another asked his future fatherin-law. A third told his boss that he was leaving, and while doing so convinced his boss to be the angel investor in his new venture. There is money around you—you just have to be creative in digging it out.” The key lesson, Murthy says, is the same whether dealing with a veteran angel or someone who is backing an entrepreneurial venture for the first time—find people who can provide advice and connections, not just money. “The best money comes from someone who can be strategic to your company, open doors, and show you the way,” he asserts. “Want to start an automotive ancillary company? Ask a senior executive in a car company whether he wants to invest. Starting a financial dot com? Then ask a senior banker.” Although India’s bottleneck at the seed stage of funding entrepreneurs is less severe than it was a year or two ago, it will take time for the country to breed a cadre of successful founders who choose to recycle their wealth into other ventures. The good news is that India’s stock market boom has created unprecedented reserves of capital that will eventually be used to finance the next wave of entrepreneurial growth. The accompanying danger, however, is that in the near future, a group of wellheeled but inexperienced investors may repeat the highly-publicized wave of losses India witnessed in 2000 and 2001. To achieve take-off, India’s angel investment community will need more people with savvy, strong networks and the time to help out, not just more people who are willing to risk their money in a startup. It will be some years yet before a critical mass of such individuals arises to ensure that a steady flow of properly seeded startups is ready for expansion capital provided by professional investors. DARE Philip Anderson is INSEAD Alumni Fund Professor of Entrepreneurship at INSEAD and director of the 3i Venturelab. He is also director of INSEAD’s Rudolf and Valeria Maag International Center for Entrepreneurship, where Aparna Dogra is head of research projects. OCTOBER 2007 71


TH EY

guide/legal

C HANGED

T HE

W AY

W E

DO

B U SI N ES S

DARE.CO.IN

Raman Roy The father of outsourcing, Roy was instrumental trying out outsourcing while in American Express and GE. His success there changed the way American and European companies did business ; employed a full generation of young Indians and contributed signiďŹ cantly to the great Indian success story that we are currently living through. continued in November

AUGUST 2007 73


DARE.CO.IN

policy/funds

Understanding Monetary Policy A beginner’s guide to language of the RBI monetary policy review and how it impacts your business /Vimarsh Bajpai

I

t is with much anticipation that the business community awaits the Reserve Bank of India’s annual statement on monetary policy, and the quarterly and mid-term reviews of the impact of the policy. The RBI’s decisions on key policy rates—bank rate, repo rate and reverse repo rate—and cash reserve ratio (CRR) affect both corporate houses and big and small businesses alike. But how many do actually understand the impact of RBI’s policy announcements on interest rates and inflation? This year, the central bank announced its annual statement for 2007-08 on April 24, followed by its first quarter review on July 31, 2007. The mid-term review will be announced on October 30, 2007. As RBI formulates and implements the monetary policy with the objective of maintaining price stability and

ensuring adequate flow of credit to productive sectors, its outlook on the country’s GDP and inflation are closely watched by industry.

The review When RBI Governor Y V Reddy announced the first quarter review of its annual monetary policy for 2007-08 on July 31, he made it clear that the central bank’s first priority was to keep inflation under check rather than take measures to boost growth. The rate of inflation is presently be-

Highlights of first quarter review CRR hiked 0.5% to 7% Repo rate remains unchanged at 7.75% No change in reverse repo rate at 6% Bank rate remains unchanged at 6% Daily reverse repo cap of Rs 3,000 Cr. withdrawn GDP projection at 8.5% Inflation projection at around 5%

low 4% after having risen to a high of 6.5% in March this year. “There is still a fear of high inflation in the minds of the public. We have to realize that inflation expectations have to be well-anchored in the country,” he said, releasing the policy. The RBI hiked the CRR by 0.5% (50 basis points) to 7% while keeping repo rates and reverse repo rates unchanged.

Taming inflation? According to T G Keswani of PHD Chamber of Commerce and Industry (PHDCCI), “the cut in CRR will help ease inflationary pressures.” The hike in CRR and the removal of cap on reverse repo transactions will remove excess money from the system, and is a clear indication that RBI is serious about fol-

BIG PICTURE/THE HIKE IN CASH RESERVE RATIO WILL KEEP INFLATION UNDER CHECK AND GIVE INDUSTRY THE NECESSARY EDGE IN TERMS OF PRODUCTION COSTS

74

OCTOBER 2007


policy/funds DARE/

DARE.CO.IN

key terms

Cash Reserve Ratio (CRR) This is the minimum deposit that banks have to set aside as cash with RBI. That is for every Rs 100 that the bank has to lend, it has to mandatorily keep Rs 7 with RBI. CRR currently stands at 7% after the recent hike of 0.5%. The hike in CRR results in money getting pulled out from the economy. Bank Rate This is the rate at which RBI lends money to other banks or the rate at which banks lend money to each other. The rate currently stands at 6%. This is a tool that the central bank uses to give indications on the interest rate regime. If the bank rate goes up, it is a clear sign that long-term interest rates will rise because banks will have to pay more money for borrowing. They pass on the effect to their borrowers. This may also lead to higher inflation. Prime Lending Rate (PLR) This is the rate at which banks lend money to their prime borrowers (companies with superb credit ratings). Each bank is free to set its own PLR. PLR is usually lower than the rate at which banks lend money to their ordinary customers. “A lot depends on the borrower’s profile. If a company has a good credit rating, which means the risk perception is low, banks can lend money to such companies at rates less than the PLR. This is called sub-PLR. On the contrary, if the credit rating of a company is poor and the risk perception is high, banks lend money to such companies at rates higher than the PLR,” says Keswani. PLR is linked to bank rates. If bank rates are hiked by the RBI, PLR also rises. But some banks like SBI do not change their PLR all that often simply because of the huge downstream effect on the entire economy.Floating rate loans are linked to the PLR (example, PLR +

1.5%) and the interest rate keeps changing as the bank changes its PLR. Repo Rate This is the rate at which RBI lends money to banks or the rate at which banks borrow money from the central bank. Repo rate currently stands at 7.75% after RBI raised it by 25 basis points in March this year. Why do banks borrow from RBI? This is done to meet their demand-supply gap—if there is more demand from borrowers and less money available with banks, they approach RBI for money. If repo rate is hiked, banks will have to pay more money to RBI as interest. This again results in pressure on their margins. In such a case, they pass on the hike to their customers in the form of higher interest rates. So any hike in repo rate means more borrowing costs for companies. The central bank has kept the repo rate unchanged in the current credit policy review. Reverse Repo Rate This is the rate at which RBI borrows money from banks. This is done by RBI to suck out excess liquidity from the market. Reverse repo rate currently stands at 6%. If the central banks feels that there is excess money taking the rounds in a particular sector for eg. infrastructure, where the credit offtake is too high, it asks banks to lend money to it at a lucrative interest rate (higher than the rate at which they are lending money to their borrowers). This reduces the amount of money that remains with banks for lending, thus the flow of money in the market goes down. If RBI increases reverse repo rate, banks will find it lucrative to park money with RBI, and thus will have less money to lend. This leads to hike in interest rates for borrowers.

OCTOBER 2007 75


DARE.CO.IN lowing a tighter monetary policy. “Such a policy helps ease demand pressures and puts a check on credit growth and rising asset prices. This would help tame inflation,” says Keswani. According to an impact analysis report by Crisil Research, “although the supply side inflationary pressure has eased in recent months, manufacturing inflation remains over 5%.” It goes on to say that a tighter policy stance, if successful, will check demand pressures, keeping a lid on credit growth and elevated asset price in the economy. Lower inflation would provide industry the necessary competitive edge and may lead to lower production costs. Contrary to this, volatility in inflation derails long-term planning for businesses and budgeting becomes difficult leading to uncertainty about costs. Higher inflation also renders exports uncompetitive.

No rise in interest rates? Although the central bank has raised CRR, analysts believe that businesses may rest assured that the net effect will not be a hike in interest rates. There are three reasons for this optimism: (a) the interest rates are already on the higher side, and according to some experts, they have already peaked out (b) though the hike in CRR drags out excess liquidity from the system, yet there is enough money floating with the banks. This may not prod banks to raise interest rates, and (c) the RBI has left the crucial bank rate unchanged at 6%. This will encour-

policy/funds DARE/rates Bank

Wef PLR (%)

ABN Amro

2/4/2007

15.25

13/4/2007

13.25

Bank of Baroda

5/4/2007

13.25

Centurion Bank of Punjab

10/4/2007

15.00

Citibank

26/2/2007

13.75

HDFC Bank

3/4/2007

15.00

ICICI Bank

31/3/2007

15.00

Indian Overseas Bank 16/2/2007

12.50

Syndicate Bank

16/2/2007

12.25

Union Bank of India

19/2/2007

12.25

Bank of India

Source: Respective websites

age banks not to alter their prime lending rates (PLR) In the usual course, RBI’s decision to hike CRR would result in commercial banks depositing more money with the central bank. This is turn sucks out excess liquidity from the market, which is at present close to Rs 1 lakh crore. The 0.5% hike in CRR will suck out around Rs 15,000 crore from the system. If a bank has Rs 100 to lend, it has to currently keep Rs 7 with RBI. Out of this, only Rs 3 (3% of the total) will earn an interest of 6% while the remaining Rs 4 (4% of the total) will be interest free. This puts pressure on profit margins of banks. To negate this effect on margins, banks resort to either or both of the following two things: (a) They increase interest rates on loans (hike lending rates), and/or

External Commercial Borrowing (ECB) norms As twin measures to check rising rupee and to contain excess liquidity in the system, the government, on recommendations of RBI, has imposed restrictions on external commercial borrowings. As a result, corporates borrowing more than $20 million from abroad will be allowed to use the money only for foreign currency expenditures. Also, they will have to keep the money parked outside India. The central bank’s prior nod will now be mandatory for use of overseas borrowings for rupee expenditure. The move will restrict conversion of ECBs into rupee assets. This will help contain the rising rupee and will act in favour of exporters, who have been losing their competitive edge in international markets. However, analysts say the move may affect interest costs for companies, which might jump by 75-100 basis points, because ECBs usually come at lower interest rates than domestic borrowings. Net ECB inflows in 2006-07 have been pegged at $16.08 billion. 76

OCTOBER 2007

(b) Lower interest payment on deposits (reduce deposit rates) Under the present circumstances, interest rates are already at peak levels and any rise in lending rates can hurt the country’s growth rate and lead to rise in inflation, which neither the central government nor RBI would want to see. Interest rates on home loans are also unlikely to be raised, as over the past two years, rates have increased by 400 basis points from 7.5-8% to 11.5-12%. According to Keswani, “usually the hike in CRR decreases liquidity with banks and depletes their lendable resource. If there is more demand for loans, banks resort to hike in interest rates. But if there is enough liquidity in the system, which presently is, it is unlikely that banks will increase lending rates.”

Will the rupee weaken? Exporters have been crying hoarse since the rupee began to strengthen against the dollar last year. In the last 12 months, the rupee has appreciated 11% against the dollar even as the government has set an export target of $160 billion for 2007-08. Leather, textile and handicraft industries are the worst hit. Software companies are facing an adverse effect on their net income due to the rising rupee. Some software firms are now talking of increasing their focus on the domestic market while depending less on their international clients particularly in the US. Will RBI’s credit policy announcements have any effect on the rupee? According to Crisil Research, “The CRR hike and changes in the reverse repo mechanism are not expected to have a direct impact on the exchange rate in the near term.” However, some experts believe that the hike in CRR and the removal of the Rs 3,000 crore cap on reverse repo will lead to rise in domestic interest rates. This in turn, they say, will result in greater inflow of foreign funds into India, and the rupee will be further strengthened. This could adversely impact the thinking process of those enterprises who are planning to start manufacturing in India for export purposes. DARE


DARE.CO.IN

policy/exim

Exporters’ Benefits /Binesh Kutty

T

/

dustry, who hardly have the wherewithal he grant of Export and Trading House DARE fact to market their products overseas on status is one of the many promotional Under the scheme, the applicants are granted their own. The recognition is given upon schemes in place by the Government the status depending on the total FOB / FOR achieving prescribed minimum level of of India. According to this scheme, merexport performance during the current plus export performance. chandising and manufacturing companies previous three years as follows: fulfilling certain criteria can apply for such Status Export performance What are the benefits? recognition. What is in it for an entrepreneur (Rs Cr) As a status holder, you will be eligible for qualified for a status? Well, a lot actually. For Export House 20 a number of privileges under the Foreign one, it strengthens the company’s negotiatStar Export House 100 Trade Policy, such as automatic customs ing capacity for sales abroad, and build up clearances on self-declaration, priority on a more enduring relationship with the supTrading House 500 fixation in yield ratio for export and import, porting manufacturers. Besides this, the Star Trading House 2,500 direct negotiation of export documents, status calls for grant of additional import liPremier Trading House 10,000 repatriations of export proceeds in 360 censes, that ensures availability of imported days, exemption from furnishing of BG in raw materials in advance for the supporting Source: Department of Commerce, Government of India manufacturers. The status holder becomes eligible for many schemes under the policy, overseas warehouses, etc. such privileges under the Foreign Trade Policy of India. The application process is simple, says Ganesh Kumar Once I get this status, what are my responsibilities? There is always an expectation that a status holder will conGupta, President, Federation of Indian Exporters Organizations. Moreover, there is no fee payable for grant of recognition status. tinue to achieve higher growth in export performance. Besides this, the status holder should attain internationally accepted To understand more, we spoke to him. Excerpts: standards of quality, identify new product and new markets for exports and give thrust to generate employment. What is the essence of this scheme in the first place? The essence is to give recognition to established exporters for promoting India’s exports and to build up the marketing When exactly can I apply? You can apply on achievement of the export performance infrastructure and expertise required for export promotion. This is particularly for small and medium segment of in- criterion prescribed in the Foreign Trade Policy.

What is the process? At present, there is no fee payable for grant of recognition. As for the process, it is quite simple. It does not call for any specialized help to carry out the application process. However, it is up to the individual to decide on this. For an application for grant of status, you would need to file in ANF 3A of Aayaat Niryaat Form. This, along with the prescribed documents, needs to be filed in at the Regional Authority’s office. There are 32 such offices across the country in total (comprehensive list: http:// snipurl.com/1q41t). Besides these, the DGFT headquarters in Delhi has territorial jurisdiction throughout India.

For how long is this recognition valid? Ganesh Kumar Gupta, President of the Federation of Indian Export Organizations (FIEO). FIEO is an apex body of Indian export promotion organizations.

As per the policy in force, the recognition of status will be valid up to 31 March 2009. After this, an application of renewal may be filed at the office of the regional authority.

What if my exports dip? Is the status still valid? This actually would directly affect your status renewal in future. You have to keep in mind that renewal of the existing status will be granted only if the eligibility criterion is fulfilled. DARE OCTOBER 2007 77


DARE.CO.IN

78

OCTOBER 2007

/bio


DARE.CO.IN

/bio

VSS MANI Starting with just Rs 50k, VSS Mani has built a business with an annual turnover of Rs 100 crore and a valuation in excess of Rs 500 crore. Just Dial is a case of getting it right the second time around. Not giving up after having to wind up Ask Me, VSS has taken his phone-based business model to print, online and SMS. He is now busy executing an international rollout

here did the idea come from?

W

Ok, so I have to go back to my early days. I was actually doing CA articleship along with graduation. But somewhere down the line, I had to drop my CA exams because I had to contribute to the family income. So I took up a sales job with a yellow pages company called United Database India (UDI) in 1987. I worked with the company for about two years. While working there, I thought – why not have something like this over the phone? In 1989, I got some like-minded people to join me and we started a company called Ask Me. This was before the telecom boom. Very few people owned telephones in those days. The idea was good, well appreciated, and we tried to grow as fast as possible. But with the downward turn in the economy, we were easy victims. Also, since it was a new project with three different partners working on it, there were three different ideas. In early 1992, I walked out; it was not going in any direction. But I promised myself that one day I will start the service again and make it a huge success. I come from a middle class family, where, if there is no (other) family income, you could set back to zero and sometimes even minus. I needed more capital. From 1992 to 1996, I worked on different ideas to survive, and to save some money to start Just Dial. This included a concept called Wedding Planner, which was in tie-up with The Times of India. I just used to dream of numbers, and millions of people using my services. In 1996, I came to

entrepreneur of the month know of a number – 888 8888. When I checked, the number was from Kandivili Exchange in Mumbai. The exchange was coming out with its 888 series. I approached the general manager and told him about my idea, and also what I intended to do with the number. He liked the presentation and thought that it was a very useful thing and gave me the number. It was a difficult thing to do in those days. But it happened. I don’t know what the reason was. Sometimes when you dream and you are really desperate to get something, you get it. We got this number in 1995 but for one year, I could not start the service because I didn’t have enough capital. In those days, a phone line used to cost Rs 15,000 under OYT or else one had to wait for a few years. I did not have Rs 15,000 for a phone. We applied by paying Rs 3k, and it actually came a year later! Finally, we started Just Dial, with the number 888 8888, some borrowed furniture, rented PCs, and a small 3x5 feet garage on hire. This company was started with a capital of Rs 50,000!

Chasing a dream with Rs 50k in your pocket... If you are passionate about something, you will surely find the means and ways to do it. It is not necessary that if there is no capital, you can’t do business. We found various creative ways to overcome such issues. My goal was to see a day- to-day improvement in my business — small improvements every day. There is no clear-cut way of saying that I faced this challenge and I solved it this way. The fact that I was so passionate about OCTOBER 2007 79


DARE.CO.IN

/bio

it, worked for me. With Ask Me, we were truly passionate and we did work hard – but there were other reasons; the environment was not ready for it. In 1989, Mumbai had hardly 4,00,000 telephone connections. When I started again in 1996—thanks to the telecom liberalisation policy —there was a large number of landline connections across the country. The mobile revolution was slowly taking off.

from that, if you are talking about those days, actually there were more naysayers than people who were really encouraging me to do it. There were people telling me ‘This won’t work in India’, ‘It won’t work’, ‘Why would people call you?’. There were more of those. But yes, in recent times, we have got a couple of rounds of investments, those I regard as real acts of faith, that people have trusted me, and they want to see me go to the next level.

What was your first biggest challenge?

Your biggest critics? How did you handle them?

There is always the timing issue but sometimes that gives you the advantage of being an early player. I guess the challenge was more in terms of “it could have grown faster if I had some capital”. Of course, I did face the challenges that other businesses face. We could overcome those things by intelligent strategies

Friends and family were the biggest critics because they had seen me run the earlier company. They generally told me, obviously meaning well, that I was doing a blunder again. But I had my dreams. I could see millions of people using my services. I could see the need, nothing could deter me. Other business

MANTRA/DREAM, DREAM BIG. WORK HARD TO FOLLOW YOUR DREAMS. ANALYZE YOUR ACTIONS, CHANGE. and creative ideas. Sometimes when you look back, you don’t see many of those things as challenges anymore. At that particular time, if you would have asked me this question, I would have mentioned a whole list of things as challenges.

people would generally come and say ‘Ye kya business hai? Do some major change. Do some selling, some other product or something’. Those were always there.

Telephone, SMS, web, print. What next? Where did you get early support from? Fifty-odd thousand rupees was all the money that I had. I had to find a house and an office, and had to support a family of four. There was some help which came from my cousin, who gave me about a lakh, and that did help. Apart from that, there was practically no other help. It (Just Dial) was, you could say, pretty much built on Rs 50,000.

Your first big success? Every day was a success. I would not call anything a very big success. I would say that every day, every decision we took, every effort we put in, had its share of successes. We were successful in some while we were unsuccessful in others. Personally, you can say that there were opportunities for me to raise money for the company or to unlock the value. Those I would not deem as anything to do with the business. Yes, I would say that getting the first number, 888 8888, has been the biggest success—that led to getting numbers effortlessly in the rest of the country.

How many of those who were at the start still remain? When we started, we were about four people. We are currently employing 2,850 people. All of them from the original team are still with me. Not just that, out of the team of 20-25 people who joined us first, probably 70% are still with me.

What was the biggest act of faith you received? I guess the help from my cousin was one big act of faith. Apart 80

OCTOBER 2007

Maybe a concierge service at a pretty high level — voice based. On the web, you will see a lot of modifications, lots of verticals coming up very soon. You will see the content getting richer and richer every day. We will surely be the number one player as far as local search is concerned. We have taken a lead with an extensive user base. On the web alone, we have around 26,000 visitors coming to our site every day. Ours is just local search, there is no entertainment; no timepass. We are expecting the number of people visiting our site to more than double by next year, same time. We are expanding the business to the US. We have 1-800-JUST-DIAL already in place. We will start in many other English-speaking countries as well.

How much was luck, how much hard work? It was 99% hard work and 1% could have been luck — that too because you stay put, you continue. They say that every dog has his day. So if it is one of those days that you make big money with big opportunities coming your way, otherwise 99% is hard work. Of course, one has to dream. I feel you got to be passionate about what you do. You got to keep thinking. You have to take action and not just think. Many people just think and don’t take action. If they take action, they don’t analyse it, and they don’t change their path. I am definite about the field. If one particular strategy does not work, I switch over. I am not like ‘I have thought about it, how will it not work’. So I guess, those things also helped me. That (dream) was one big reason why I could build a company without capital. DARE


DARE.CO.IN

opportunity/travel

Drive into Rs 7,210 Crore Call-taxi services or radio cabs have had a low profile entry and are now on the take off phase. Quality of service, comfort and security is what are making customers willing to pay higher /Binesh Kutty

N

o one wants to be ‘taken for a ride’ when it comes to hiring a cab. This is what most of us wish: doorstep pick-up at the scheduled time, a decent chauffeur with a helpful attitude and an inclination for safe driving, to pay only for the distance travelled without any shortchanging on the pretext of time of the day and part of the city, and easy payment options including that through a credit card. In a nutshell, we look for convenience, safety, security and comfort. And this customer requirement translates into the big business opportunity of Radio Cabs.

82

OCTOBER 2007

It has not been long since the Radio Cab business took off, and it is doing quite well. What’s more, there is a lot of room for new players all over the country. For instance, in Delhi alone, around 1,000 Radio Cabs are already criss-crossing the city. But by 2010, this number can rise to 20,000! Based upon that, we did the math. Across the country, in the next 3 years, we are looking at a total market value of nothing less than Rs 7,210 Crore. And that is a conservative estimate! The profile of customers using Radio Cabs is diverse. According to operators, a

good part of their customers is in the 2235 year age group. This includes those who are either just married, just started earning big or even those with multiple cars at home but hire cabs to avoid the hassle of parking and traffic. Others want a reliable service to take them to the airport at odd hours or a drop-back after late night parties. Then there are the corporate customers who fly in and out of cities on a regular basis. So, right outside Delhi airport, you can see a row of taxis waiting for the call, from a kiosk inside the arrival terminal. Even rail commuters have started calling on radio cabs of late.


DARE.CO.IN

opportunity/travel

DARE/estimate Delhi - Current Status Total radio cabs out on the road

“This business is like a low-cost airline. Unless you reach critical mass, there is no great money.” Rajiv K Vij, Easycabs

1,000

Charge per kilometer (Rs)

15

Average paid run per day, per cab (Km)

90

Occupancy per day (%)

70

Daily Fare Collection (Rs lakh)

9

Running days per year

300

Total running revenue p.a. (Rs Cr)

28

Delhi - 2010 Projection Estimated number of cabs

20,000

Charge per kilometer (Rs)

18

Average paid run per day, per cab (Km) Occupancy per day (%)

120 70

Daily Fare Collection (Rs lakh)

302

Running days per year

300

Total running revenue p.a. (Rs Cr)

907

Advertisements (Rs Cr)

120

Total revenues (Rs Cr)

1,027

DISCLAIMER: This data and analysis are indicative and Cybermedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture.

Back end It begins with a simple call from a customer that comes into the operations centre. The operator, who takes the call, feeds in the information of the caller into the software. Typically, cabs are located at multiple stands across the city. These are the hubs from where the cabs start and spread across the city as the day progresses. The tracking system monitors every cab in the fleet, and continually updates this on a screen. This is done using the GPRS based GPS system. Once the operator feeds in the information, the system takes over. It determines which free cabs is closest to the caller and calculates the time it would take to reach the caller. If you are scheduling pickup for later, the system only calculates the availability of a

cab in the closest vicinity, and the operator does the scheduling. After this, either the system or the operator informs the caller the details of the cab – license plate number, driver’s name, wait time etc. At the chauffeur’s end, a hire request flashes on the screen of a device called MBT. All he needs is to do is press a button to confirm his availability, and inform the hub the time he would take to make it to the customer’s location. There is a panic button inside the cab (below the dashboard), that the customer can hit it in case of any emergency or problem. As soon as this button is hit, the call center gets the information immediately. The call centre executive calls up the chauffeur of the cab at once, and insists on talking to the customer. This ensures

safety. Some operators have geo-fencing – a technology that ensures the cab does not go off-route, and that the cab takes the customer to his destination via the correct route(s). This again ensures safety and fair routing. On reaching the destination, the customer is given a printed bill. The customer can choose to pay either by cash or credit card. The operations centre keeps recording the details of the whole process, right from pick-up to billing.

Starting up Rajiv K Vij of Easycabs, believes that the taxi business in India will follow the same pattern of development, as it did in cities like Singapore, London, Paris, Toronto and New York. That is it will OCTOBER 2007 83


DARE.CO.IN

opportunity/travel

take some time for the service to get established in a city and then there will be exponential growth. This seems true, given that Megacab has been around since 2002 but it was only in December 2006 that it really took off in a big way. Kunal Lalani of Mega Group says that “it took quite some time to hold talks with the government to put policies in place. More time was taken for people to realise the value of Radio Cabs.” The beginning of 2007 saw the market open up for Radio Cabs in Delhi. Easycabs did its trial run in June 2006 in Chandigarh with a small fleet of 50 cabs. It tested the backend sys-

DARE/estimate All India projections for 2010 Metros Number of cabs per city Total Cabs Charge per kilometer (Rs)

DISCLAIMER: This data and analysis are indicative and Cybermedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture.

Average run per day, per cab (Km)

84

5 20,000 100,000 18 120

Occupancy per day (%)

70

Daily Fare Collection (Rs Cr)

15

Running days per year Running revenue per annum (Rs Cr) Advertisements (Rs Cr) Total metro revenue (Rs Cr) Other cities Cabs per city Total Cabs Charge per kilometer (Rs)

300 4,536 600 5,136 12 6,000 72,000 15

Average run per day, per cab (Km)

80

Occupancy per day (%)

70

Daily Fare Collection (Rs Cr) Running days per year Running revenue per annum (Rs Cr) Advertisements (Rs Cr) Total other city revenue (Rs Cr)

Market size p.a. (Rs Cr)

OCTOBER 2007

6 300 1,814 259 2,074

7,210

“Delhi alone has the potential of Rs 1,400 crore in the next five years” Kunal Lalani, Megacab

tem, sourced from Singapore, and the overall business model before it got clearance for Delhi. Easycabs started with a fleet of 250 cabs in Delhi on January 1, 2007. They also have an affiliation with Hertz. Megacab did not really do a test run. Lalani opted for the live trail model, starting off in a small way. Megacab has around 300 cabs in its Delhi fleet currently. Revathi Roy, who owns Forsche in Mumbai, has a different tale to tell. Forsche (homophonous to Porsche, pronounced ‘For She’), is a rather unique player in this business, launched on International Women’s Day in March 2007. It is a ladies-only cab service with lady-chauffeurs – a niche carved within a niche. Roy started the business with a single cab. Even that single cab came on lease, after a lot of persuasion

and shooting down by several companies she approached. “It was only when media started talking about my business that several companies approached me with a good number of cars” says Roy. Luckily for her, the cars that she got had pre-installed GPRS trackers. With no automated backend, she has 18 cabs in her fleet– all on lease. She plans to buy her first lot of cars soon, and start operations in Delhi from October.

Workforce Radio Cabs are not mass transportation vehicles. It costs much more to the commuter and is also more personal. Therefore, offering


DARE.CO.IN

opportunity/travel

bad, Jaipur, Kolkata, Mangalore, Mumbai, Mysore, New Delhi, Noida, Pune, and Secunderabad.

Advertising income

“I started with a single leased cab. Now I have a fleet of 18, and plan to start operations in Delhi. I am looking for investments.” Revathi Roy, Forsche

quality services becomes top priority. The chauffeur is the ambassador of the brand, it is crucial to select the best ones for the fleet. Chauffeurs are typically taken through a number of training programmes These include driving skills as well as soft skills, like manners, hygiene, etiquette etc, For a fleet of say 350 cabs out on the road, there are about 400 chauffeurs working in shifts. They are on fixed salary plus normal incentives. As the utilization of the fleet goes up, this count will also have to be upped. As for the operators (at operations centers), trained workforce is easily available. Currently, the number of operators managing the backend of each operator in Delhi is about eight.

Technology For the tech that runs at the backend, the approach has been diverse. Easycabs chose to get the best one already up and running successfully elsewhere in the world. “While we went looking in various parts of Europe, North America, and the Middle East; we found that technology used in Singapore was by far the best. That is what we picked up in the end”, says Vij. The current system can scale to handle a fleet of 5,000 cabs. Megacab took the route of developing a custom backend solution. Lalani emphasises, “Technology is not that simple, as in you cannot transplant it. We did go through various international systems, took good ideas from each,

and got them custom developed in a joint venture with an external agency, with a focus on the Indian situation.” The key to success is in maximizing the reach and utilization of the fleet. Vij of Easycabs is exploring ways to bring down the waiting time after a call from the 30 minutes at present to 5 minutes, which is the international standard. Each cab at Megacab, like most other players, currently runs 80-100 km daily. Lalani aims to increase this to around 140 km in the near future. Vij believes that he needs about 5,000 cabs in his fleet to cater to Delhi. He is exploring the possibility of making Easycabs available at special stands across the city. “We are working with the Delhi government and the municipal corporation to create sites all across the city, just like bus stands. This way, anyone who wants to hire a cab can directly walk to the closest stand and hire one”.

Future perfect! According to Lalani, Delhi alone has the potential for generating Rs 1,400 crores, five years from now. Megacab already has its business running in Chandigarh and plans to start the service in Mumbai in October 2007. Further, Megacab already has a license for operations in Goa, and is close to getting one for Hyderabad. IRCTC has online booking of cabs for passengers in 16 cities i.e. Ahmedabad, Bangalore, Chandigarh, Chennai, Faridabad, Gurgaon, Hydera-

Passenger fare is not the only source of revenue for the operators. Advertisements on the cars are also a good source. On an average this works out to Rs 3,0004,000 per cab per month. The government is trying to frame a policy for ads on Radio Cabs. According to reports, government estimates puts the earnings from these ads at Rs 245 Crore during the Commonwealth Games in Delhi in 2010. Our feel is that this is the card rate and the revenue to the operators would be in the range of 120 Crore in Delhi alone.

Social benefits too Each of the operators are doing their bit for the social cause too. Megacab has a scheme called “Chalak se Malak”, which enables high-performing chauffeurs to own the cars driven by them in a span of about 3-4 years. It is a pay-as-you-earn scheme, which lets chauffeurs take home their minimum requirement of Rs 6,0007000 after deduction of installments. This in turn helps buy Megacab their loyalty, and provides a huge incentive for service and maintenance. When the chauffeurs do end up owning the vehicle, the assumption is that they would want to remain in the fleet, leasing the cars back to the company. About 50 cabs have already been transferred to the chauffeurs already, and about 200 more are scheduled to be transferred in the near future. Lalani says, “After sometime, he finds himself sitting on an asset worth nothing less than Rs 1-1.5 Lakh. This might encourage them to get other members of their family into this business, and if all goes well, each one might be able to make a monthly income of about Rs 15,000-20,000”. Even Roy talks about employment for women in Forsche. She is roping in women who can drive. “Right now, Forsche has about 18 women chauffeurs. All are above the age of 40 years. Giving an employment opportunity to women of that age is something good! Not that we have any fixed age norm, but this is how it has been until now.” DARE OCTOBER 2007 85


DARE.CO.IN

strategy/IT

The Road to Web 2.0 These technologies can make brand ambassadors off employees, customers and business partners by opening various marketing and advertising routes /Binesh Kutty

S

imply put, Web 2.0 is all about people and collective wisdom on faster and more interactive and impressive web pages. The internet used to be a medium to serve information; Web 2.0 exploits it as a source for opinions. For businesses, this means reaching out to and involving with the whole ecosystem, particularly your users, at a high order of magnitude. Not just that, it also enables collaboration for improved productivity within the organizations. Take Sun Microsystems, for instance. At their website, they have a whole section called Communities and Personals. It includes a regularly updated blog by CEO Jonathan Schwartz, along with blogs by thousands of Sun employees. The tag cloud (visual outlining of most talked about topics tagged under the same category) on the blog page gives a fair idea as to what they are talking about. It is a platform not only for them to communicate amongst themselves, but also to include customers and others interested in the conversation. This

86

OCTOBER 2007

is also a great place to ďŹ nd networking opportunities as well as to do some soft marketing. We can see similar things at Accenture, where they have blogs, podcasts, and RSS. How are these websites different from many others? Clearly, these are enabling collaboration not just amongst insiders, but also with outsiders to create content, rather than just serving as a one-way information source. According to McKinsey Global Survey on how businesses are using Web 2.0 (January 2007), it turns out that the interest level for investing in these technologies is highest in India. Further, the plans for such investments in an industry wise breakup has retail in the lead, followed by IT, telecommunication, ďŹ nancial services, and Pharmaceuticals. What are the technologies that make this collaboration possible? These include some rather overwhelming terms such as Ajax, mashups and folksonomies, blogs, social networking, podcast, RSS, et al to name a few. These technologies are changing the way we organize and control content, create communi-

ties, execute searches, and create applications.

It is about communities Web 2.0 is all about content, ideas, opinions, and such from the community. That means, along with a website, you also build a community. Now to build a community, there are various technologies under the umbrella of Web 2.0, which are easily implementable. Wiki is one such element. In simple words, a wiki is a web application that allows users to add and edit content, directly from the web browser. The best example of a wiki is that of Wikipedia â&#x20AC;&#x201C; a wiki that is a self-evolving encyclopedia like no other. Wikis can create a positive shift by having a constantly updated knowledge base. Since it is such a collaborative publishing mechanism, discussions can span across hierarchical and functional boundaries. This leads to a phenomenal degree of knowledge getting accumulated. It works as a quick, upto date and evolving reference point for everyone.


DARE.CO.IN

strategy/IT

DARE/technologies Then there are blogs – the platform for self-expression. The term blog has evolved from web-log; dairies maintained online. Since they are maintained online and are accessible by others, dialogue is possible between the author and the readers, leading to exchange of ideas, debates, dissemination and correction of viewpoints and much more. Many such technologies lead to build a strong community – community forums, peer-to-peer networking, social bookmarking, podcasts… the list is endless. Businesses can use these platforms to interact with the entire ecosystem (partners, suppliers, customers, etc). They increase the level of interactivity, which can help garner new customers, provide better customer services, gather feedback etc.

Interactive, involving pages Search has been one of the strong drivers of the evolution of the Web 2.0 phenomenon. With technologies like Ajax, search has become smarter and more responsive as well as intuitive. They are searching for content like never before. Ajax is a web development technique used for creating interactive applications that make web pages feel

Ajax: Web development technique used for creating interactive web applications that make web pages feel more responsive. By only refreshing the areas on the web page where a change occurs, and not the entire webpage, the interactivity, speed, functionality, and usability increases. Blog: Website where personal opinions and comments are posted regularly. Typically, the software posts these entries in reverse-chronology, latest entry first.

commonly used to classify and retrieve web content such as web pages, photographs and web links RSS Feeds: Also known as syndication feeds, these contain a summary of content from a web site or the full text. RSS feeds allow the user to have the convenience of automatically aggregating

Folksonomies: Collaborative categorization using keywords or tags,

more responsive. By refreshing only the areas where a change occurs on a web page, and not the entire page, speed, and usability increases manifold. Similarly, widgets drive only the specific results from a web site to the user.

Scheduling, aggregation and customization Not long back, activity on the inter-

updated content from multiple locations to a single web-based or desktop application, as opposed to visiting the sites individually. Podcast: A recorded voice-audio file created and posted by the podcaster, voicing his thoughts. This uploaded file is distributed online using syndication feeds

for playback on portable media players and personal computers. Social networking: Also variations such as community networking, business networking etc; this focuses on building networks online for communities of people who share interests and activities, or who are interested in exploring the interests and activities of others Wiki: Web application that allows users with access to add and edit content collectively, simply using a web browser

net used to start with the user going to the well-known portals and there on to web pages of their interest. That is passé. Thanks to Web 2.0, the web is flooded with user-driven content, with a few hundred thousand blog entries posted on a daily basis. These blogs are linking to other blogs and websites having similar interests. This has resulted in OCTOBER 2007 87


DARE.CO.IN

fragmentation as well as the explosion of content across millions of niche segments. Name it, and there are hundreds of web sites that cater to that specific area. Even the social networking scene is raging wild. There are hundreds of thousands of communities discussing and sharing about, well, everything in the world. Given this explosion, the user wants what he is interested in to come to him, rather than have him go out seeking updates. The demand is “I want my content at my place when I want it and exactly the way I want it”. RSS is a pull-mechanism that meets this very need. Actually, as far as web

strategy/IT

What can it do for you? Web 2.0 can make brand ambassadors of employees, customers, business partners, etc, simply by opening up channels for communication and expression. On the advertising front, gone are the days when static image banners served as ads. With Web 2.0, contextual ads (text links, word links, etc) within the content are much in vogue. Displaying of catchy fast loading videos is common these days. Blogs have become hotbeds of advertising experiments, including of placed content. Web 2.0 has enabled content commercialization using mediums such as feed marketing and viral marketing. It is also about soft selling

and more. Businesses, instead of being silent spectators to all this, have also started participating in these discussions, or even initiating them.

There are negatives too The internet has always been about information; however, with Web 2.0 coming into picture, there is a content onslaught, both for the audience as well as the provider. Now look at the challenge of filtering the content for authenticity and relevance, and you have the single largest question with Web 2.0 – authenticity. There are no checks and measures in place to ensure that a wild allegation or a misrepresented piece of information

BIG IDEA/VIRTUAL WORLD IS NOW PEOPLE DRIVEN, AND WEB 2.0 CAN HELP YOU STEER IN THE FAST LANE technologies are concerned RSS is quite old. RSS feeds are packets of information that move from the website to the user. These contain a summary or full text. So while users had to previously visit each website individually, RSS feeds allow him to pull information from these websites to his desktop, when he wants it. 88

OCTOBER 2007

exploiting these technologies. Employees and loyal users serve as vociferous brand ambassadors. It can also enable market research of a different kind. With the explosion of blogs, social networking, and the likes of these, the internet is now a world full of user opinions – what they like, what they dislike, what more do they expect,

will not lead to a veritable riot, if not a huge backlash on a product or a service. From the user perspective, there is only so much that a user can do to locate better sources and actually read through this sea of content coming in by the minute. Web 2.0 is about yielding some of the control to the user. This can be a signifiDARE cant issue for many.


DARE.CO.IN

law/pharma

Pharma Generics and Patents The recent ruling by the Madras High Court upholding section 3(d) of the Patents Act is not going to be the end of the running battle between patent holders and generics manufacturers /Krishna Kumar

A

bit of history first. On July 17,1998, Novartis AG of Switzerland filed a routine patent application in Chennai (1602/ MAS/98). The invention for which they filed the application related to a new crystalline form of a salt that already existed and was being used in Glivec, a blockbuster drug for the treatment of a form of Leukemia and Gastro-Intestinal Stronlal Tumours. At that time no one would have thought that this patent application would become the touchstone for testing India’s new patent regime. Acting on the application, on November 10 2003, the Controller General of Patents & Trademarks granted exclusive marketing rights (EMR) to Novartis for Glivec for five years. This was the first ever EMR granted in India under the Patents Act (amended to conform to WTO and TRIPs requirements) and was promptly challenged in various courts by generic drug manufacturers. Novartis also ap-

DARE/law

proached the courts to enforce the EMR against nine generic manufacturers. In September 2004, the Controller General of Patents, S N Maiti was removed from his position by the government, apparently for among other things, the grant of this EMR.

DARE/the protagonists Novartis AG, Switzerland Novartis India Ltd Vs Union of India through the Secretary, Department of Industry Controller General of Patents & Designs Natco Pharma Cipla Hetro Drugs Cancer Patient Aid Association Ranbaxy Indian Pharmaceutical Alliance Sun Pharmaceutical Industries

Article 14 of the Indian constitution Equality before law: The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.

Section 3(d) as amended by the Patents (Amendment) Act, 2005 (from 1.1.2005) The mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs atleast one new reactant. Explanation: For the purposes of this clause, salts, esters, ethers, polymorphs, metabolites, pureform, particle size isomers, mixtures of

On January 25, 2005, the Asst. Controller of Patents and Designs, Chennai rejected the patent application citing section 3(d) of the Patents Act (Amendment) of 2005, and in August, Novartis filed suit in the Chennai High Court asking that section 3(d) be declared unconstitutional, violating Article 14 of the Indian constitution and article 27 of the TRIPS agreement under WTO. Section 3(d) defines what are not inventions. Let’s take a break from this recitation of history and law and understand what the issue at stake was. More than what is patentable and what is not, at the heart of the legal push and pull was the very future of the generics drugs industry in India. According to the US Food and Drug Administration (FDA), a generic is “identical, or bioequivalent to a brand name drug in dosage form, safety, strength, route of administration, qual-

isomers, complexes, combinations and other derivatives of known substance shall be considered to be the same substance, unless they differ significantly in properties with regard to efficacy.”

Article 27 of TRIPS agreement 1.

2.

3.

…patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application… Members may exclude from patentability inventions, ……provided that such exclusion is not made merely because the exploitation is prohibited by their law. Members may also exclude from patentability diagnostic, therapeutic and surgical methods for the treatment of humans or animals.

OCTOBER 2007 89


DARE.CO.IN

law/pharma DARE/talk

Brian W. Tempest Chief Mentor & Executive Vice Chairman, Ranbaxy talks about the impact

of the

ruling and the prospects in the industry What is going to be the long term impact of this ruling on the global pharmaceutical industry? India has now got TRIPS WTO compliant IP laws. As a developing country, there is no reason why TRIPS PLUS (extra IP Coverage like evergreening) should be introduced. The focus in India should be on the enforcement of existing laws and not on expanding the current IP laws. India continues to be centre stage for both the generic industry and the discovery pharma industry owing to many reasons which are well documented. The case is not finished yet. And there are other similar patent cases in various stages of litigation. Is the story of generics going to be one of continuous litigation? In all countries where IP laws have been introduced there have been arguments about the pipeline products caught in the changing legislation. However it eventually settles down as this period passes. In general terms, most generic companies are involved in some IP litigation. Talking specifically about the generics pharma market, how do you see the market evolving over the next decade? I continue to see the pharma industry growing in the next 5 years. After this period the Chinese pharma industry will be a greater challenge than it is today.

ity, performance characteristics and intended use. Although generic drugs are chemically identical to their branded counterparts, they are typically sold at substantial discounts from the branded price. When patents or other periods of exclusivity for a drug expire, manufacturers can apply to the FDA to sell generic versions.” Generics can be produced when the original drug was not patented, the patent has expired, the producer of the generic certifies that the patents are invalid, unenforceable or will not be infringed, or in countries where the specific patents are not in force. Generics are present not only in human medicines, but also in a host other areas involving chemicals like fertilizers and agrochemicals. The global business in pharma generics is huge. The US market for prescription generics alone was estimated to be $18 billion in 2004. Major European markets added another $11 billions. The market for hospital orders is over and above this. Africa and Asia are also huge markets for generic drugs. India is the leading manufacturer of generics in the world. While a manufacturer wanting to get a new drug certified by the US FDA goes through the new drug application (NDA) process, a generics manufacturer goes through the NADA, the Abbreviated New Drug Application. It is termed “abbreviated” because generic applicants are generally not required to include To gain US FDA approval, a generic drug must: l

l

You have been making the case for India as “a global strategic asset for developed world market businesses”. How would you rate the chances of an entrepreneur wanting to start fresh in the pharma business? What challenges would he/she face? And what would your advice for success be? An entrepreneur could start in the generic industry by acquiring a generic company somewhere in the world but they would not be competitive unless they generate an Indian base for R&D and manufacturing within their acquired company.

90

OCTOBER 2007

l l l

l

contain the same active ingredients as the innovator drug(inactive ingredients may vary) be identical in strength, dosage form, and route of administration have the same use indications be bioequivalent meet the same batch requirements for identity, strength, purity, and quality be manufactured under the same strict standards of FDA’s good manufacturing practice regulations required for innovator products Source: fda.gov/cder/ogd


DARE.CO.IN

law/pharma

Applicant

ANDA

No

Acceptable and Complete

Refuse to file -letter issued

Yes Review by OGD/CDER Bioeq uivalence Review

Chemistry/Micro Review

Request for Plant Inspection

Labeling Review

Bioequiv alence Review Acceptable?

animal (preclinical) and human (clinical) data . Instead, they must scientifically demonstrate that their product is bioequivalent (performs in the same manner). One way for this is to measure the time taken by the generic drug to reach the bloodstream in 24 to 36 healthy volunteers. This gives the rate of absorption or bioavailability of the generic, which is compare to that of the original. The generic must deliver the same amount of active ingredients into the bloodstream in the same amount of time.

Under TRIPS, the duration of a patent is 20 years. Most generics enter the market immediately at the end of the patent period. Patent holders may attempt to increase the duration of the patent when it is about to expire. Such attempts to extend the duration of a patent beyond the initial patent period are collectively called evergreening. Section 3(d) is aimed at preventing evergreening. It specifically states that there has to be an enhancement of efficacy for a patent to be granted for an existing product, and this was at the core of the Novartis writ. Novartis claimed that the decision on whether efficacy was improved by the patent office was likely to be subjective and liable to be misused. The two Novartis entities had filed separate suits, which were similar, with the Novartis Switzerland suit also ask-

Chemistry/Micro Review

Yes

MÉDECINS SANS FRONTIÈRES/”IN THE NEW uiv alence ency Letter

The FDA process for generics approval

Preapproval Inspection Acceptable?

Yes

ANDA Approved

No Approv able Letter

No Approvaldeferred pending satisfactory results

POST-2005 TRIPS CONTEXT, IT IS CRUCIAL THAT INDIA CONTINUES TO DEVELOP POLICIES THAT PROMOTE ACCESS TO MEDICINES, NOT JUST OUT OF RESPONSIBILITY TO ITS OWN PEOPLE, BUT AS A LIFELINE TO PATIENTS IN OTHER DEVELOPING COUNTRIES.” OCTOBER 2007 91


DARE.CO.IN

law/pharma

QUESTION/IS SECTION 3(D) OF THE INDIAN PATENTS ACT, AS AMENDED IN 2005 IN VIOLATION OF THE INDIAN CONSTITUTION AND OF THE TRIPS AGREEMENT UNDER WTO?

JUDGEMENT/WRIT PETITIONS DISMISSED. SECTION 3 (D) IS NOT IN VIOLATION OF THE CONSTITUTION. IF IT IS IN VIOLATION OF TRIPS, THEN THE MECHANISM TO ADDRESS IT IS NOT THE INDIAN COURTS BUT THE DISPUTE SETTLEMENT BOARD SET UP UNDER TRIPS. “THE EFFICACY OF A KNOWN SUBSTANCE IS WELL-KNOWN AND IT IS DEFINITELY KNOWN TO EVERYONE IN THE PHARMACEUTICAL FIELD. WHEN THE EFFICACY OF THAT SUBSTANCE WOULD STAND ENHANCED COULD ALSO BE CLINICALLY FOUND BY THOSE IN THE FIELD. THE PETITIONER IS NOT A COMMON MAN BUT IT IS HAVING THE EXPERTISE BEHIND IT.” ing for the patent to be granted. Later on, the plea for granting the patent was dropped and the court treated both suits as the same. The single bench directed the case to be heard by a division bench, as it involved substantial points of law. Meanwhile public opinion across the world was being rallied by both sides in favour of their respective positions. Medecins Sans Frontiers, a voluntary medical agency was at the forefront of the campaign against the writ while the Max Foundation which is Novartis’ main partner in administering the Glivec International Patient Assistance Program 92

OCTOBER 2007

(GIPAP) under which most patients receive Glivec for free, was on the other side. Politicians who pitched in on the case included a former Swiss president. While the writ has been dismissed, this is not the end of the case. The refusal of the patent application was challenged before the Intellectual Property Appellate Board (IPAB), Chennai. Novartis has challenged the constitution of the IPAB as a technical member on the board is S. Chandrasekaran, who was given charge as the Controller General of Patents when SN Maiti was replaced. That challenge is yet to be ruled upon,

and the high court has stayed proceedings before the IPAB. Facing public pressure, Novartis has said that it will not challenge the ruling on section 3(d), but the narrower question of patentability of Glivec in India is yet to be settled, the appeal being before the IPAB, and the constitution of the IPAB being challenged in court. The arguments for and against generics and patenting continue, with both sides marshalling economic and emotional arguments to put forth their case and are unlikely to end with this one case. DARE


DARE.CO.IN

society/project

Entrepreneurship of the poor Kudumbashree is a government sponsored program that focuses on women and empowers them to take up gainful enterprise. It has already brought in 37 lakh families below the poverty line under its fold. We spoke to T K Jose, currently Secretary, Local Self-Governance, Govt of Kerala and the man behind the idea

W

hat is the key element that determines the success of a neighborhood group? Correct identifying poor families through an objective and rational Poverty-Index, mobilization of women from all such families to the Community Based Organization (CBO), regular participation of members (minimum 90%) in weekly meetings and informed discussions are the key elements of success of a neighborhood group. A process of gathering information, creating awareness and making use of existing and emerging opportunities are required to help the poor get out of the vicious cycle of poverty. An enabling and facilitating organization is needed as a platform to support these activities. Of the various activities taken up by the neighbourhood groups, which is the most common? Thrift & credit operations, internal-lending, bank-linkage, bala-sabha and health-related activities are the most common activities. Health related activities include immunization drives and health campaigns. Future activities include micro-enterprise development, leased-land farming and micro-housing. ‘Ashraya’- a destitute rehabilitation programme has also been started. Other new activities include geriatric care, caring for disabled children and HIV/ AIDS related activities and campaign. This project has seen governments and Directors change. How has it managed to continue without faltering? A committed Kudumbashree team of people from 19 government departments with experience in governance and the efficiency and empathy of the private sector and NGOs working in the spirit of innovation and creativity in a flexible organizational set up are the key to the constant momentum. As a social entrepreneurship initiative, can the model be adapted to the rest of India and the rest of the world? I strongly feel so, at least in the Indian context, in spite of the di-

versity present. In a general sense, all poor families face similar risks and vulnerabilities. Of course, there are location-specific issues that need to be tackled in reducing poverty. However, the concepts, strategies and approaches in Kudumbashree are universal. State-specific variations and location-specific strategies can be developed within this approach. Please understand that Kudumbashree is not a single project, nor a set of programmes. It can be taken as an approach and a process. What is the most significant challenge that the program faces today? Taking Kudumbashree to the next level would be the biggest challenge. Tackling poverty by pin-pointing it precisely at a micro-level, coming up with special packages for the most vulnerable and marginalized amongst the poor - a concept known as S3 (read as S-cube) CDS and creating new organizations to suit emerging scenarios are other challenges. What is the one abiding image you have associated with the Kudumbashree project? Aspirations of poor families can be inspired and ignited to help them achieve decent and honorable living. Convergent Community Action can help to achieve this. When will the project reach a stage when the government can withdraw and it will run on its own? CDSs of Kudumbashree are in various stages of development and maturity. There are already a few CDSs where the government can withdraw support. Many others can be taken to that level shortly; a few of them will need more time, say 2-3 years. A few others will need still more. It is an organic and growing process. We cannot mechanically withdraw all of a sudden. We are experimenting with models of the best CDSs where the government can slowly withdraw. We may even have an apex organization of CDSs which can take on the role of the State Mission. DARE

OCTOBER 2007 93


DARE.CO.IN

strategy/IT

Digital Signatures for your Business It is mandatory for directors of companies, bank managers and exporters to have digital signatures. They could soon become mandatory for sole proprietorships and partnerships as well as for everyone doing business with government /Binesh Kutty

D

igital signatures are the online equivalent of the physical signature that you use to authenticate communication, transactions, agreements, etc. In its pure form, a digital signature is software residing on your personal computer, notebook, or email-capable handheld. What it does is to encrypt and identify electronic documents on your behalf; deeming it secured, authentic and legally valid. A Digital Signature Certificate, like hand written signature, establishes the identity of the sender filing the documents through the internet, which the sender cannot revoke or deny. It is a set of encrypted data used with the same validity of a paper signature, but on emails, electronic documents and online transactions. It ensures that no alterations are made to the data once the document has been digitally signed. A digital signature, unlike a physical signature, being software has to be purchased and is valid for 1 or 2 years, after which it can be renewed. The IT Act has given legal recognition to digital signature meaning that legally it has the same value as handwritten or signed signatures affixed to a document.

Is it mandatory to have one? Yes, digital signatures are manda94

OCTOBER 2007

DARE/facts Charges: Rs 2,000 onwards Validity: 1-2 years Mandatory for: Directors of companies, bank managers, exporters, vendors dealing with e-tendering PSUs Could get mandatory for: Sole proprietorship & partnership firms, with Rs 40 Lakh plus annual turnover Certifying Authorities • Safescrypt • MTNL • NIC • Customs & Central Excise • IDRBT • (n)Code Solutions CA • TCS Controller for Certifying Authorities: www.cca.gov.in

tory for certain groups of people. Directors of companies: Since 15 September 2006, the Registrar of companies made it mandatory for companies to file all annual returns online. Hence, it has become mandatory for directors of companies to have digital signatures. Bank managers: RBI has made digital signatures mandatory for online submission and vetting of documents by the bank managers. Exporters: Directorate General of Foreign Trade (DGFT) had enabled online application for export benefits, duty drawbacks, and the likes. Export-

ers use a particular form of digital signature called Safe Exim, for filing returns online. Online tenders: Increasingly tenders both from government and private firms are being filled online and a digital signature may be mandated to authenticate your bid. Proprietorship and Partnerships: There is a recommendation by the Income Tax department on online filing and hence digital signatures are mandatory for sole proprietorship with an annual turnover of more than Rs 40 lakh. India is moving into a system where an increasing number of electronic transactions will go under the mandatory e-filing system requiring a digital signature. The private sector, too, is embracing this. It is estimated that there are 5,50,000 digital signature holders in the country currently.

Who can get it? Any individual can apply for a digital signature after submitting documents of verification such as identity proof, address proof, employment history and credit history. Digital signatures are issuable to an individual as a person, as well as to an individual as associated with a company. For instance, an employee of


DARE.CO.IN

strategy/IT your company can get a digital signature saying Mohan, who is a purchase officer of Acme Ltd is the legal user of this digital signature. When Mohan quits or is transferred, this certificate is easily revocable, as the digital signature was issued because of he was a purchase officer at the company. Then, there is the digital signature without association with any company that one can pick off the shelf. This is usable by the user no matter which company he/she works in. Currently, digital signatures are issued under two classes—Class-2 & Class-3. Class-2 is for individuals like directors to file their MCA forms. Class-3 signatures are for government transactions. Class-3 is a higher form of validation, for which verification is done more stringently. The technology in encryption is the same across all the classes. The government has licensed seven Certifying Authorities (CA) to issue digital signatures. A CA not only issues the digital certificate, but also certifies all online transactions to establish an unbroken path of virtual trust. There are different forms for applications of a digital signature depending upon the type, class, etc that you are applying for. You should contact one of the CA appointed dealers to know which one should you use. You also need to give in documents for verification of identity. There is no fee

for the dealer. There are hundreds of dealers appointed by the CAs across the country. The lists of dealers are available on the websites of the CAs. The CA does validations (much like passport verification) after which a digital signature is issued and dispatched to you to the email address specified in your application. Note that this signature reaches you directly, without going through the dealer.

tion and usage on a variety of email clients. You can use them with most free web mail services as well. Usage of digital signatures on email-capable handhelds has not really taken off. According to S R Kannan, Head, Security Services at Safescrypt, all the leading mobile phone makers, Nokia, Sony Ericsson et al have made their web-enabled handsets compatible with digital signatures.

How exactly does it work? On receipt of the signature on your email, all you have to do is to click on the icon provided for signature installation and activation. After this, you can start using the certificate right away to encrypt and sign emails, using the private key of your digital signature. When the person receives the email, a message pops up on his screen, saying that this is an encrypted message sent by you, and does he want to acknowledge his acceptance to view the message. On yes, the public key is automatically accessed, which decrypts the message to open it. This means that the recipient has to be connected to the internet to read the message. When he clicks on yes, you get an acknowledgement mail as proof. Digital signatures are compatible with most popular email clients. At the website of the CA, you will find detailed instructions about installa-

This story contains inputs from S R KANNAN Head, Security Services, Safescrypt

How to keep it safe? It is very important to keep a backup of your digital signature. This is to avoid losing it to a system crash at your end, reinstallation of operating system or mailing software, and such incidents. Instructions for creating a backup of digital signature are put up at the CA’s website. You can also use a cryptographic USB key to store your digital signature. In case of loss or compromise, you have to revoke it and apply for a new digital signature. Note that no duplicate digital signature is issued. DARE

SMS “DARE <your comments, questions or suggestions>” to

56677 OCTOBER 2007 95


DARE.CO.IN

/tietalk

Fire in the belly The TiE event witnessed the gathering of some of the best entrepreneurial minds right from start-up veterans to top-of-the class investors and an enthusiastic audience

I

/Vimarsh Bajpai

f risk was the name of the game the youth with content on fashion and for the jobsahead team was flexibility, then most certainly there was no the like. But we soon found out that our cost management, raising capital early dearth of players ready to go off business model was flawed. The youth and a good senior management team the conveyor belt and carve a niche for of our country was looking for jobs and in place. A successful entrepreneur and themselves at the event organised by not fashion,” said Mittal candidly. So founding member of a group of venture The Indus Entrepreneurs (TiE) in New his team decided to move to a job por- capitalists, Band of Angels, Mittal beDelhi on September 14. The partici- tal. But all this was not easy. “We had to lieves it is “execution” of the plan that pants, young and energetic with a lot prove that the services that we offered makes all the difference. Another speaker Michael Jansen, of fire in the belly, were a reflection of actually worked. So we went about ofIndia’s growing prowess in the world of fering 3,000 trials in 3 months,” he said. President and CEO of Satellier, had a difbusiness opportunities unleashed by There was a time in 2001 when “we ferent set of challenges to face when he globalisation and nurtured by a boom- had only 3 months of cash left. So we ventured into the architectural design ing economy with sound fundamen- had to cut down costs.” What worked outsourcing business in 2000. Satellier provides value-added design tals. Their queries ranged from support solutions evolving “what makes for a successful TiE is a global not-for-profit organization focused on profrom outsourcing of compustart-up” to “where the funds ter aided design (CAD) docwill come from”. The speakers moting entrepreneurship. TiE helps budding entrepreneurs umentation, 3D modeling were a good mix of experienced through advice, guidance and assistance from successful and Building Information risk-takers, serial entrepreneurs and experienced entrepreneurs and professionals. TiE’s Modeling (BIM) services to and investors who have ‘been architectural, engineering, there done that’. greatest strength is its network through 45 cities in 10 counand construction firms. “It The issues that came up for tries that consists of many participants in the entrepreneurwas a new and unproven indiscussion almost covered the ial ecosystem successful and experienced as well as budding dustry,” said Jansen and he entire entrepreneurial ecohad to convince his customsystem relating to challenges, entrepreneurs, venture capital firms, angel investors, service ers that he could meet their competition, technology, manproviders etc. TiE makes continuous efforts to interconnect quality standards. “I did not power, intellectual property this network in a way that allows it to deliver real value to take salary for one-and-arights, value proposition, marhalf years.” In the beginning, keting and investment. all its constituents. Jansen didn’t know how the “Never build a business beTiE’s membership categories include charter members who outsourcing business worked cause its fashionable and don’t are accomplished business people and professionals with “so we got some experienced decide on a business based on people who knew the inside the funding that is available,” a willingness to help budding entrepreneurs. This category out of the BPO business.” said Sanjeev Aggarwal, Managof membership is by invitation only. General/associate Jansen believes that change ing Director, Helion Ventures members include all those with an entrepreneurial spirit. management helps as one who set the ball rolling. has to keep the innovation Alok Mittal, Executive DiMembers also get opportunities to network with peers in tempo high by offering valrector, Canaan Partners, bethe global business eco-system. All members have access ue-added services, employgan by sharing his experience to mentoring, which is a key value proposition of TiE and ing updated technology and of the days when he started keeping the business comjobsahead.com in 1999. The is a one-on-one interaction between a senior entrepreneur petitive. successful job portal was later or professional and a entrepreneur who needs guidance When it comes to imporsold to Monster for $9 million. Corporate members are organizations. tance of applying the right “We had initially started as zitools and technology pracpahead, which was targeted at 96

OCTOBER 2007


/tietalk

DARE.CO.IN

tices, one cannot help but notice how well Abhishek Sharma, Director, Qsquare Technologies has been putting tech to use. When he started the business of providing testing services, “we had limited resources and the big question was whether to invest in office space, people or technology.” After managing office space with the help of a friend, Sharma looked at technology in two aspects – as an enabler and as an accelerator. With this in mind, he utilised all that was available either free of cost or at little cost. He used Google Spreadsheet as a project monitoring tool, slimtimer.com as a time sheet, and a free tool – IP Messenger – for internal communication. “We transfer files through IP Messenger, so that we don’t consume additional bandwidth,” he said. “We use Skype and Open Office, both free of cost,” he said gleefully. Sun Microsystems’ James Seymour, Senior Director, Market Development, pitched in to elaborate what his company had to offer to start-ups. “We have tremendous expertise and technology, which we can bring to entrepreneurs,” he said. The IT major plans to expand the scope of its Sun Start-up Essentials Programme across India. The programme, launched in August, is aimed at providing the start-up community access to key technologies and services by offering discounts on a range of Sun products. Ranjit Shastri, Director, Smart Analyst, had this to offer on the issue of creating a niche value proposition: “When you enter an industry….you should think whether you are going to increase the size of the pie or just eat into the existing pie.” Ajit Sirohi, Managing Director, SW Applications India said “value proposition is the value as perceived by customers and investors. The only way to survive is to create niche.” In a lighter vein, he said, if you already have shaadi.com, a niche would be secondshaadi.com or thirdshaadi.com. Supreme Court advocate Pawan Duggal stressed the importance of protecting intellectual property rights in the form of copyright, trademark and product innovation. When it came to discussion on cost-effective and innovative marketing, Rohit Aggarwal, CEO, Tehctribe said “marketing and branding is about name and identity. Select the name for your company that is simple and easy to spell and communicate.” Aggarwal said that getting effective PR does not mean spending a lot of money, as he stressed the importance of blogs and targeted community marketing. Pradeep Chopra, Co-founder, OMLogic said the Internet had created a level playing field, and online marketing could work very well for a start-up. On the issue of investment ecosystem for entrepreneurs, Ajoy Khanderia of ORG Informatics said that when it comes to putting money, “what we look for is the team. Does the entrepreneurial set up has a good team and does it understand the competition in the space they are venturing.” Rahul Bhasin, Managing Director, Baring Private Equity Partners stressed the importance of customer insight while Saandeep Sinha, Managing Partner, Lumis Partners stressed on the “execution” of plans rather than just a good plan in place. DARE OCTOBER 2007 97


DARE.CO.IN

opportunity/geo

Entrepreneurship Doesn’t Wait 50 rupees, 3 days - student entrepreneurs make upto Rs 3,186

E

ntrepreneurship no longer waits until graduation. Students from Mount Carmel College, Bangalore; Institute of Bioinformatics and Applied Biotechnology, Bangalore; and Welingkar Institute of Management, Mumbai all rolled up their sleeves and started their businesses! The young entrepreneurs labored under tight restrictions: maximum investment per venture? Rs 50. Total time to do business? Three days. The results were staggering. Taken as a whole, the return on investment was over 1600% — enviable even by Sensex standards.

ship education programs at their institutes. At top institutes across India, entrepreneurship is becoming part of life, even a part of the classroom experience. These programs aim to build creativity, resourcefulness, communication skills, and the ability to leverage resources and build value. The game is known as the Rs 50 Game. Developed at Stanford University’s School of Engineering, it was introduced to India via the StanfordIIMB-NEN Entrepreneurship Educators Course.

Real World Learning

The businesses the students started were as varied as the students themselves. The winners at Mount Carmel,

The students started the businesses as part of a game by the entrepreneur-

Infinite Opportunities

The National Entrepreneurship Network, NEN, is India’s leader in entrepreneurship education. A non-profit organization, NEN works with over 250 of India’s top academic institutes, reaching more than 300,000 young people. NEN helps member institutes develop and run world-class entrepreneurship programs on their campuses. In addition, through NEN Online, NEN provides practical information, access to experts, events, and community for India’s new and future entrepreneurs. NEN is an initiative of the Wadhwani Foundation and was co-founded in 2003 with IIT-Bombay, IIM-Ahmedabad, SPJIMR, BITS-Pilani and IBAB, Bangalore. www.nenonline.org

98

OCTOBER 2007

NEN: upcoming event What Navonmesh 2008: Entrepreneurship Convention When October 27 & 28, 2007 Where IIT Bombay, SJSOM School of Management Who

Open to all new and future entrepreneurs including working professionals, students and faculty

Event focus What challenges do startups face? How can you overcome them? How do you build a global venture? Learn and connect through panel discussions with experts; hands-on experience with Baazi, an international strategy and venture capital challenge, with prizes of up to Rs 1.2 lakh; an inside look at SINE, IIT-Bombay’s technology incubator; and networking sessions. Speakers include P Chidambaram, Union Finance Minister C K Prahalad, Author & Professor, University of Michigan Ross School of Business Ashank Desai, Founder & Non- Executive Director, Mastek J M Lyngdoh, Former CEC Avnish Bajaj, Founding Managing Director, Matrix Partners India More info at www.nenonline.org


DARE.CO.IN

opportunity/geo Kannika Bharath Iyengar and her team, earned a profit of Rs 3,186. They baked and sold cakes within and outside their campus. “We made proper cakes with wonderful icing and sold them at Rs 250. This was fast money,” says Kannika. Other Mount Carmel students, Sri Vidya and her team traded in T-shirts. “We bought two T-shirts from a dealer in Tirupur at Rs 25 each and sold them for Rs 250 and Rs 300 each,” she explained. “With the money we earned, we bought more shirts to sell.” Their teams profit totaled Rs. 1675. Debasis Panda and his team, all bioinformatics students at IBAB, sold tea on-campus. Welingkar students had to start with zero investment. Undaunted, Prateek Lal found an opportunity in South Mumbai, “I took a tourist couple around Colaba. The three-hour tour left them happy and me richer by $10”, he beams.

Practical Fun Science students started appreciating the difficulties in not controlling one’s product “We outsourced the process of tea-making,” Debasis says. “And when someone wanted tea with less sugar, it was unavailable and we lost customers.” Vidya’s team learned one of the keys to retail: “The first day we put up our stall in the wrong place where there were not many students walking about. The next day we realized this and changed our location,” explains Vidya. Team building, pricing, customerfocus, opportunity recognition: important lessons, but perhaps not the most important. “Fear, worry – even panic would best describe the students’ reaction when I first gave them this assignment,” explained Gayatri Saberwal of IBAB. But after the game’s conclusion, one of Saberwal’s students shared his perspective: “I have begun to believe that it’s actually possible for one to start up an enterprise of one’s own. And these programs sow the seeds of hope that we should not discard such an idea as something inconceivable.” DARE

NEN Straight Talk

Would you back a 1st time entrepreneur? NEN asked its VC Experts. Under what circumstances? It turns out there’s good news out there for first-timers. Alok Mittal, Canaan Partners Yes. 40% of our business in the US comes from repeat entrepreneurs, people who have worked with us before like the experience. That implies that the larger part comes from people who are first time entrepreneurs. We’re very open to backing first time entrepreneurs in the Indian context. Here you see more first time entrepreneurs than in the West because the whole model of building a fast-growing enterprise and then exiting is fairly new. Balaji Srinivas, Aureos Capital I would back a first time entrepreneur. But today my first time entrepreneurs are different: they have substantial experience. Today they are not figuring out their businesses; they are figuring out whether their company will succeed, but they know their business. I’m not willing to live with the other option, which is: I don’t know what I’m doing but I will figure out. Today what is acceptable to me is: You know your business and have done it for X number of years. Now you have this idea which is the extension of this business. You don’t know whether it will work or not, but you know the big picture, and that you have all the elements. This is what I will back today. Avnish Bajaj, Matrix Partners I was a first time entrepreneur when I got funded by ChrysCapital. I don’t think the issue is first time entrepreneurs. In fact, if you look at some of the world’s most successful entrepreneurs, they are all first time entrepreneurs: Bill Gates, Steve Jobs, Larry Ellison. So yes, absolutely we would look to back first time entrepreneurs. I think it comes back to whether they have a track record of achievement in their lives. It doesn’t have to be as an entrepreneur. For more straight talk from experts, see www.nenonline.org

The Rs 50 Game may have ended, but the students have just gotten started. “We got seven more orders for cakes within a week after the game,” says Kannika Bharath Iyengar of Mount Carmel College. She plans to invest the team’s profits and build the business. Vidya, another Mount Carmel student, and her team sold T-shirts and have even more elaborate plans for building on their success: “For the game we got shirts from a dealer from Thirupur,” she says. “Now we are planning to get shirts from Bangkok and sell them here!” Debasis Panda, final year student at IBAB, has plans for an entirely new entrepreneurial venture. “I want to buy vegetables, clean them, cut them to pieces, package them well and sell it to retail stores and hotels,” he says. “I wanted to start a restaurant, but that requires too much capital and there is a demand for this working people and restaurants need ready-to-cook vegetables on a daily basis.”

Content provided by NEN OCTOBER 2007 99


DARE.CO.IN

100

AUGUST 2007

opportunity/geo


DARE.CO.IN

/index

People Abhishek Sharma .............................. 96 Abrahan Lincoln................................. 27 Ajit Strohi ........................................... 96 Ajoy Kanderia .................................... 97 Alok Mittal .......................................... 99 Arun Pai ............................................. 68 Arundhati Roy .................................. 104 Ashank Desai .................................... 98 Ashok Jhunjhunwala.......................... 62 Avnish Bajaj ....................................... 98 Balaji Srinivas .................................... 99 Bharati Jacob..................................... 70 Bill Gates ........................................... 99 C.K. Prahalad .................................... 98 Capt. G.R Gopinath ........................... 21 Chuck Mulle ....................................... 26 Debasis Panda .................................. 99 Dhirubhai Ambani .............................. 15 Dilip Kapur ......................................... 58 Dr. Brian W. Tempest ......................... 90 Dr. S.J. Goswami ............................... 39 Ernest Hemingway .......................... 104 Ganesh Kumar Gupta........................ 77 Hanuman Tripathi .............................. 48 Ishi Khosla ......................................... 38 J.M. Lyngdoh ..................................... 98 James Seymour................................. 96 Jonathan Schwartz ............................ 86 K.K. Roy ............................................ 63 Kamal Nath ........................................ 10 Kannika Bharath Iyengar ................... 99 Karan Singh ....................................... 23 Koshi Vergese ................................... 23 Kunal Lalani ....................................... 83 L. Morris............................................. 23 Larry Ellison ....................................... 99 Mahesh Murthy .................................. 68 Manmohan Singh .............................. 12 Marcus Aurelius ................................. 27 Michael Jansen.................................. 96 Mirra Alfassa ...................................... 58

covered in this issue, in alphabetic order; first appearance Mukesh Ambani ................................. 22 Narayana Murthy ............................... 54 Nathan Myhrvold ............................... 66 Om Choudhry .................................... 44 P. Chidambaram ................................ 98 Pawan Duggal ................................... 97 Peter Detkin ....................................... 66 Pradeep Chopra ................................ 97 Pradeep Gupta .................................. 54 Prateek Lal ........................................ 99 Pravin Gandhi .................................... 68 Prof. Gayatri Saberwal ...................... 99 Rahul Bhasin ..................................... 97 Rajiv K. Vij ......................................... 82 Ralph Waldo Emerson ....................... 27 Raman Roy........................................ 73 Ranjit Shastri ..................................... 96 Revathi Roy ....................................... 84 Rohit Agarwal .................................... 97 S. Chandrasekaran............................ 92 S.N. Maiti ........................................... 89 S.R. Kannan ...................................... 95 Saandeep Sinha ................................ 97 Sanjeev Agarwal ................................ 96 Sheikh Mohammed bin Rashid Al Maktoum ............................................ 43 Shivani Chopra .................................. 29 Sri Aurobindo ..................................... 58 Sri Vidya ............................................ 99 Stephen King ..................................... 53 Steve Jobs ......................................... 99 Subbu Subramanium ......................... 44 Suparna Chopra ................................ 29 T.G. Keswani ..................................... 74 T.K. Jose ............................................ 93 V.K. Mathews ..................................... 41 V.S.S. Mani ........................................ 78 Verghese Kurien ................................ 65 Vijay Mallya ....................................... 22 Vishal Gondal .................................... 68 Y.V. Reddy ......................................... 74

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 “DARE <your comments, questions or suggestions>” to

56677 dare@cybermedia.co.in OCTOBER 2007 101


DARE.CO.IN

/index

Organizations (n)code Solutions............................... 94 ABC Press ....................................... 105 ABN Amro .......................................... 76 Accenture .......................................... 36 Aerotech Aviation............................... 24 Air Charter Services .......................... 24 Air India ............................................. 43 Airworks International ........................ 22 American Express ............................. 73 American Society of Civil Engineers.. 10 Arla .................................................... 38 Asian Developmental Bank ............... 34 AuthorHouse.................................... 105 Bajaj Hindustan ................................. 35 Ballarpur Chini Group ........................ 35 Bank of Baroda .................................. 76 Bank of India...................................... 76 Baring Private Equity Partners .......... 44 Beachcraft ......................................... 22 Bennett Coleman & Co. Ltd ............... 79 Bharat Forge...................................... 34 BioGaia Biologics .............................. 38 BITS-Pilani......................................... 98 BMW .................................................. 43 Boeing ............................................... 22 Business Aircraft Leasing .................. 26 Canaan Partners ............................... 44 Cancer Patient Aid Association.......... 89 Carzonrent ......................................... 83 Central Board of Excise and Customs94 Centurion Bank of Punjab.................. 76 Cessna .............................................. 22 Channel [V] ........................................ 68 Chr Hansen ....................................... 38 ChrysCapital ...................................... 99 Cinnamon Teal................................. 105 Cipla .................................................. 89 Citibank.............................................. 51 ClubOne Air ....................................... 24 ConAgra Functional Foods ................ 38 Controller for Certifying Authorities .... 94 Crisil Economic Research Service .... 76 Danisco.............................................. 38 Denver University .............................. 58 DGFT ................................................. 77 Digital Equipment Corporation........... 70 DLF .................................................... 34 DRDO ................................................ 63 Dubai National Air Travel Agency ...... 43 East India Tanning ............................. 59 Emirates Airlines ................................ 43 Entrepreneurial Development Institute . ........................................................... 63 Environmental Business International 33 Erasmic Ventures .............................. 70 FIEO .................................................. 77 102

OCTOBER 2007

FIRE Capital ...................................... 44 Ford ................................................... 51 Forsche.............................................. 84 Frost & Sullivan ................................. 39 GCMMF ............................................. 38 GE ..................................................... 73 General Atlantic ................................. 42 Genesys ............................................ 63 GMR Group ....................................... 22 Groupe Danone ................................. 38 HDFC Bank ....................................... 76 Helion Ventures ................................. 96 Hero Group ........................................ 36 Hetro Drugs ....................................... 89 Hinditron Group ................................. 70 Hindustan Construction ..................... 22 Honda ................................................ 36 IBS Software Service......................... 41 iCat .................................................... 68 ICICI Bank ......................................... 76 IIM Ahmedabad ................................. 98 IIM Ahmedabad ................................. 62 IIM Bangalore .................................... 62 IIT Bombay ........................................ 98 IIT Delhi ............................................. 62 IIT Madras ......................................... 62 India Venture Capital Association ...... 67 Indiagames ........................................ 68 Indian Angel Network......................... 70 Indian Angels ..................................... 70 Indian Dairy Research Institute (IDRI)38 Indian Institute of Entrepreneurship (IIE) 63 Indian Overseas Bank ....................... 76 Indian Pharmaceutical Alliance.......... 89 Indian Railways ................................. 29 Indus Aviation .................................... 24 Infinty Ventures .................................. 70 Infosys ............................................... 54 Infrasofttech ....................................... 48 INRM Consultants ............................. 63 IDRBT ................................................ 94 Institute of Bioinformatics and Applied Biotechnology .................................... 98 Intel .................................................... 66 Intellectual Ventures .......................... 66 Interavion ........................................... 24 Intergovernmental Panel on Climate Change (IPCC) .................................. 36 International Energy Agency (IEA) .... 36 IREDA................................................ 34 Jaiprakash Associates ....................... 22 Jashanmal National Company........... 61 Jobsahead ......................................... 71 JSW Steel .......................................... 36 Just Dial ............................................. 79

covered in this issue, in alphabetic order; first appearance K-Air Charters .................................... 22 Kalyani Group .................................... 34 Kashi.................................................. 39 KritiKal Solutions ............................... 63 Kubase Aviation ................................. 22 Lulu .................................................. 105 Lumis Partners .................................. 97 MTNL ................................................. 94 Mahindra & Mahindra ........................ 36 Mastek ............................................... 98 Matrix Partners India ......................... 99 Max Foundation ................................. 92 McKinsey ........................................... 86 Médecins Sans Frontières ................. 91 Mega Grup......................................... 82 Microsoft ............................................ 66 Ministry of Petroleum and Natural Gas.. ........................................................... 35 Ministry of Small & Medium Enterprises ........................................................... 12 MIT University.................................... 68 Mohan Bio Oils .................................. 35 Monster.com ...................................... 71 Mount Carmel College ....................... 98 Mphasis - BFL.................................... 50 Mumbai Angels .................................. 70 Natco Pharma.................................... 89 National Dairy Development Board ... 38 National Entrepreneurship Network... 98 National Informatics Centre ............... 94 NDTV ................................................. 22 Nestle ................................................ 38 Novartis ............................................. 89 NTPC ................................................. 34 Nucleus Group................................... 63 OM Logic ........................................... 97 Omega ............................................... 52 ONGC ................................................ 34 ORG Informatics ................................ 97 Organization of the Petroleum Exporting Countries (OPEC).............................. 36 Passionfund ....................................... 68 Peugeot ............................................. 52 PHDCCI ............................................. 74 Phillips Academy ............................... 58 Pinstorm ............................................ 68 Porsche ............................................. 52 Princeton University........................... 58 Punj Lloyd .......................................... 22 Qsquare Technologies ....................... 96 Ranbaxy ............................................ 89 Realtime Systems.............................. 63 Registrar of Companies ..................... 66 Reliance Industries ............................ 34 Reliance Life Science ........................ 35 Repower Systems ............................. 34

Reserve Bank of India (RBI) .............. 94 Reva Electric ..................................... 36 Rolex ................................................. 51 RSBconsult ........................................ 34 Safescrypt, Sify Ltd............................ 94 Sanbun Publishers .......................... 105 Satellier.............................................. 96 SEBI .................................................. 66 Seedfund ........................................... 70 Shoppers Stop ................................... 59 Shree Renuka Sugars ....................... 35 Slimtimer.com .................................... 96 Smart Analyst .................................... 96 Southern Biotech ............................... 35 SP Jain Institute of Management & Research ........................................... 98 SPV Systems..................................... 34 Stanford University ............................ 68 Stanford University’s School of Engineering............................................... 98 Subha Aviation................................... 24 Sun Microsystems ............................. 86 Sun Pharmaceutical Industries .......... 89 Suzlon Energy ................................... 34 SW Applications India ........................ 96 Syndicate Bank.................................. 76 Tag Aviation ....................................... 24 Tata Consultancy Services (TCS)...... 94 Tata Power......................................... 34 Techtribe ............................................ 97 The Bombay Store............................. 59 Timond............................................... 10 TOM Online ....................................... 68 Toyota ................................................ 36 TRTM Tourism ................................... 28 Unilever ............................................. 53 Union Bank of India ........................... 76 United Database India (UDI) ............. 79 UNFCC .............................................. 36 United Plantations Association of Southern India ................................... 10 University of Michigan Ross School of Business ............................................ 98 US Food and Drug Administration .... 89 Venkateshwara Hatcheries ................ 22 Ventours Aviation ............................... 22 Virtual Bookworm ............................ 105 VirtualWire Technologies ................... 63 Wadhwani Foundation ....................... 98 Welingkar Institute of Management ... 98 Westside ............................................ 59 Wingspan Press .............................. 105 Woodrow Wilson School of Public and International Affairs ............................ 58 Xerox ................................................. 63 Yakult Hoshma .................................. 38


DARE.CO.IN

self/books

Have money. Want to write?

You have arrived in life; and you believe its time you wrote a book about it. But who’s going to publish it, you wonder. Enter Print-onDemand; a solution that offers you hassle-free publishing for a price /Arunjana Das

S

o, you own a moderate to huge business. Learnt a few valuable lessons in life. But something seems missing. Your vanity is not satisfied. Though no Hemingway in the making, you decide to write a book. What better way to etch your name in history than writing a book and seeing it on the shelves of your local bookstore? Only one glitch souring the scene. How do you get it published without the usual hassles of running after agents and publishers? Lazing around by the poolside you wonder, “Do I have to pay VAT on my earnings?” It’s not the money you are wondering about though, for you have enough of that. What you’re actually asking yourself is, 104

OCTOBER 2007

DARE/estimate For a 50 page book Production Costs : Re. 0.5 – 1 / page (minus covers) Rewriting

: Rs. 6000 – 9000

Editing

: Rs. 3000 – 5000

Illustration

: Rs. 1000 – 2000

Cover

: Rs. 20-50 per copy

Binding

: Rs. 50 – 200 per copy (depending on paperback / hardbound)

(Total cost without rewriting and editing = 50+50+200 = Rs. 300 per copy, on the higher side, black and white printing). If you have color illustrations or photographs, then the cost will go up. DISCLAIMER: This data and analysis are indicative and Cybermedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture.

“Who’s going to publish my book? How big is the hassle? Can I face a refusal from publishers?” Enter the world of Print-on-Demand. Print-on-Demand (PoD) publishing or self-publishing is for you if you wish to be a published author and at the same time want to avoid sleepless nights wondering who’s going to publish your work and how many copies will be sold. PoD publishers print only when someone orders a copy. What’s more, you don’t need to be Arundhati Roy to rope in one! And your manuscript need not be voluminous like one of the Harvard Classics, nor does it need to be full of text. The text as well as the number of pages could be scanty.


DARE.CO.IN

self/books The term PoD is often used interchangeably with vanity publishing, also known as “collaborative publishing”, “joint venture”, etc. Vanity publishers expect you to be partners in the publishing process and hence you are supposed to make some investments upfront to cover production, distribution and promotion costs. Write your book and submit the manuscript to them. Being neither Hemingway nor Arundhati Roy, you may quite understandably be worried about your writing prowess. Take relief in the fact that most PoD publishers don’t even screen manuscripts! Your work would be listed on the website of the PoD publisher. Based on demand, the book would be printed, packaged and shipped. You can, of course, create this demand! You could buy your own book and gift it to business partners, friends, family and key employees. You’ll suddenly find yourself as the subject of conversation in golf club meetings, business lunches and evening parties. Since you will become nothing less than a local celebrity, you would better practice autographing copies of your book with a flourish! Will it cost the moon? No. The price of the book is decided based on production costs, discounts to retailers and the revenue that you choose to take home from the sale of each copy. It is important that you get an

DARE/list Sanbun Publishers sanbunpublishers@hotmail.com Cinnamon Teal www.dogearsetc.com/cinnamonteal ABC Press www.abcpress.in/au.html Virtual bookworm www.virtualbookworm.com Lulu www.lulu.com Wingspan Press www.wingspanpress.com AuthorHouse www.authorhouse.co.uk The first three are based in India, the rest are abroad.

ISBN number for your book. An ISBN number is the equivalent of a fingerprint for your book. No two books can have the same ISBN numbers. The ISBN number is used by libraries, resellers to identify your book. Certain PoD publishers offer top get it as part of their package. An ISBN number gives your book a nice professional touch and gives it more authenticity. On an average, a PoD publisher in India will charge anything from Rs 5,000 to Rs 15,000 as production cost for 50 copies of a paperback with around 50 pages. Editing and rewriting services are also provided for a fee. What if you are utterly terrified of trying to write a book but still want to see your name on the cover of a book? No sweat. All you need is the will to write; and only the will. The actual process of writing can be outsourced discreetly! Sites like elance.com help you connect with ghost writers who would do your writing for you, for a pittance! For publishers based abroad, the figures are around four times of what they are here.

Pricing How do you price your book? Retail Price = Total costs + Author’s share + Commission to the publisher + Retailers’ share. It is not uncommon for PoD books to be highly priced. Just look at the equation! The author’s revenue is, of course, decided by you. The publisher’s commission is specific to the publisher.

The discount paid to retailers is usually 40% of the final price. If your book goes to retail sellers, then, they get to keep 40% of the price printed on the cover. If you choose to let the PoD publisher push the retail angle, they will share 60-80% of the profits from the retail sale with you. This would work out to around 20% or so of the cover price. You could opt out of the retail part and instead buy all the copies yourself, in which case, you can work out a deal with the publisher, covering his costs and margins. In this case, it does not matter how high or how low you want to put the cover price at. You could probably distribute a few copies in a nice book-launch function in one of the Oxford or Crossword bookstores! PoD publishers also provide marketing and PR services for a fee. They have tie-ups with such agencies. This means there is somebody who will arrange your book-launch for you. Plus the nation-wide book-launch tour that you might be planning! There are many unscrupulous PoD publishers around. They make money not by selling your book but by charging you a fee! Go with it as long as the deal is transparent. If you have money to spend, an image to boost and even barely passing writing skills, print-on-demand is the way to go. You get to publish your book. You get to keep all your book-rights; and although you end up paying more than the traditional way, you get to experience the high of finding your name on the book-shelves of your friends! DARE OCTOBER 2007 105


DARE.CO.IN

close/data MICR Mushrooms Marketing expenditure

MICR is short for Magnetic Ink Character Recognition, and indicates the series of numbers printed on the bottom of a cheque leaf in a slightly funny font. The technology is fairly old, having been first demonstrated in 1956. The ink that is used for printing this series of numbers contains a magnetic material that can be accurately read by a reader, with a much lower error percentage than OCR. Needless to say, MICR cheques can be processed for clearing faster than non-MICR ones. As per the RBI as many as 2,232 Lakh non-MICR cheques worth Rs 16,06,990 crore were processed during the last financial year.

Mushrooms are low on the calorie count, while being rich in proteins. They are also a rich source of Vitamin B, minerals and folic acid. Major mushroom producers are China, Taiwan and Indonesia, while major importers are the United States, Europe, Canada and Japan. Mushrooms are sold in three forms – fresh, canned and dehydrated. Most of the international trade is in canned form, while local trade is roughly equally split between fresh and canned. The most common edible mushroom is the button mushroom. India is a marginal player in the world mushroom trade, exporting approximately 25 thousand tons in a world demand of 1.4 million tons. World demand is showing healthy growth.

The graph on the right captures the cumulative change in marketing (not advertising) expenditure from the previous year (base 1998-99). As is obvious, new generation companies (incorporated after 1991) have increased their marketing spend at a significantly faster level than their older counterparts. The huge dip in 1999-2000 over the previous year that we see in the oldest of companies is due to government owned companies witnessing a 71.5% dip in marketing expenditure over the previous year. 2003-04 was the time when this set of companies witnessed the maximum increase of 31% in marketing spends over the previous year. 2003-04 saw most companies irrespective of their age increase their ad spends significantly over the previous year. While everyone else slacked off in 2004-05, the new generation maintained the pace. 2005-06 has had a steadying influence with most companies choosing to increase marketing spends by 11-13 % 106

OCTOBER 2007

More than 50% of India’s exports come from one company, Agro Dutch Industries, with farms in Patiala, which claims to be the world’s largest integrated mushroom producer. For the financial year 2005-06, Agro Dutch reported a production capacity of 40k tons going up to 50k tons, export income of Rs 130 crore and domestic sales of Rs 10 crore.



#01 - OCTOBER 2007