March 31, 2005

Nirma Labs: An incubator that advertises and charges fees

While the incubation programs at several of the country's business schools are figuring out their model, NirmaLabs, located in the Ahmedabad, Gujarat based Nirma University campus, has come up with an unique model that actively seeks out and markets itself aggressively to entrepreneurs. NirmaLabs is taking out prominent advertisements campaign in leading business magazines as part of its efforts to seek out "individuals (and) groom them to be a global player in select high tech fields, and incubate them to create viable high tech ventures by providing a nurturing environment and needed support."

More from the NirmaLabs web site:
NirmaLabs is a not-for-profit Section 25 Company set up by Nirma Education and Research Foundation (NERF). NirmaLabs has been established with an objective to nurture talented individuals in their pursuit of high-tech, knowledge-based wealth generation. NirmaLabs has a corpus of over Rs. 5 crores earmarked to incubate promising individuals and projects. The Department of Science and Technology, Government of India, has decided to support NirmaLabs as one of their Technology Business Incubators...

Selection ProcedureEntrepreneurially inclined bright engineering / science graduates or MBA with 2-3 years of experience, aspiring to make a mark in the high-tech arena are eligible. M.Tech/M.E. without experience are also eligible. Individuals with a remarkable academic record, sound technical knowledge, good business sense, conviction and strong perseverance are identified through a specially devised selection procedure. Freshers with outstanding achievements may also be considered.

Financial Structuring
..Each project funding will be treated as a loan to the project from NirmaLabs. Repayment of the loans by the incubated ventures will sustain NirmaLabs’ activities and reduce the need for recurring funds.

As the concept of NirmaLabs is based on grooming individuals and not specific ideas, direct candidates are expected to pay for the grooming exercise (Rs. 50,000), and also for use of facilities, lodging and boarding (Approximately Rs. 46,000).

The rights to intellectual property, for NirmaLabs funded projects belong to NirmaLabs and will be assigned to the start-up company when it is venture financed. When a NirmaLabs funded project is ready to be spun-off as a “start-up” company, the equity structure will be as shown below:

The other unique feature of NirmaLabs is the concept of a “Pool Company” to create a mechanism to share success. The Pool Company has a 5% equity in every start-up company incubated/funded by NirmaLabs. Every start-up company is given equity in the Pool Company. As the number of incubated enterprises grows, this pool will become larger. Thus, any enterprise which makes it big will yield more gains for the rest of NirmaLabs incubated start-ups.

* The NirmaLabs' "Grooming Program" curriculum:
1. Entrepreneurship: Madhu Mehta
2. High-tech Entrepreneurship: B H Jajoo
3. Creating Entrepreneurial Organizations: K Thyagrajan
4. Challenges of Entrepreneurship: Madhu Mehta
5. Designing Break-through Products: Madhu Mehta
6. High-tech Marketing: B H Jajoo
7. Entrepreneurial Finance: Vishnu Varshney & Bharat Kanani
8. Emerging technology trends in ICT: Saumil Shah & B H Jajoo
9. Legal aspects of global business: M C Gupta
10. High-growth strategies: B H Jajoo & Madhu Mehta
11. Intrapreneurship:. B H Jajoo
12. Business Ethics: K Thyagrajan
13. Managing with a global mindset: K Thyagrajan

“What brought me to NirmaLabs was my desire to start something on my own. After my studies I was struggling to freeze on the right idea and then to take the initial steps to make a business out of it. I would honestly recommend NirmaLabs to anyone, who passionately wants to become an entrepreneur. I feel the grooming here will allow a person to select the right idea, plan well for the idea and take it to commercialization in the best possible way. My grooming here will help me avoid many of the early mistakes that kill early entrepreneurial ventures,” the web site quotes Madhukar Pai, a graduate from the first batch of NirmaLab's "Grooming Program".

NirmaLabs is currrently conducting roadshows across major cities in India to enroll entrepreneurs for its second batch.

UPDATE: Business Standard has an article about the NirmaLabs program.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

March 26, 2005

Why VCs are jerks, according to Paul Graham

Paul Graham, co-founder of ViaWeb (acquired by Yahoo for $50 million), has figured out why (most) VCs are jerks.
The problem with VC funds is that they're funds. Like the managers of mutual funds or hedge funds, VCs get paid a percentage of the money they manage. Usually about 2% a year. So they want the fund to be huge: hundreds of millions of dollars, if possible. But that means each partner ends up being responsible for investing a lot of money. And since one person can only manage so many deals, each deal has to be for multiple millions of dollars.

This turns out to explain nearly all the characteristics of VCs that founders hate.

It explains why VCs take so agonizingly long to make up their minds, and why their due diligence feels like a body cavity search. With so much at stake, they have to be paranoid.

It explains why they steal your ideas. Every founder knows that VCs will tell your secrets to your competitors if they end up investing in them. It's not unheard of for VCs to meet you when they have no intention of funding you, just to pick your brain for a competitor. This prospect makes naive founders clumsily secretive. Experienced founders treat it as a cost of doing business. Either way it sucks. But again, the only reason VCs are so sneaky is the giant deals they do. With so much at stake, they have to be devious.

It explains why VCs tend to interfere in the companies they invest in. They want to be on your board not just so that they can advise you, but so that they can watch you. Often they even install a new CEO. Yes, he may have extensive business experience. But he's also their man: these newly installed CEOs always play something of the role of a political commissar in a Red Army unit. With so much at stake, VCs can't resist micromanaging you...

I realize now that they're not intrinsically jerks. VCs are like car salesmen or petty bureaucrats: the nature of their work turns them into jerks.
Graham also has an "explanation" why a few VCs - like Mike Moritz of Sequoia Capital and John Doerr of Kleiner Perkins - are "good guys" despite being VCs:
They work for the very best VC funds. And my theory explains why they'd tend to be different: just as the very most popular kids don't have to persecute nerds, the very best VCs don't have to act like VCs. They get the pick of all the best deals. So they don't have to be so paranoid and sneaky, and they can choose those rare companies, like Google, that will actually benefit from the giant sums they're compelled to invest.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

March 22, 2005

John Doerr's presentation at Stanford University

A must see presentation from the famous KPCB partner behind Amazon.com and Google.

Just one extract:
Entrepreneurs do more than anyone thought possible with less than anyone thought possible

UPDATE: The fact that Doerr celebrates entrepreneurs as the real heroes (and does not behave like a celebrity himself), earns him respect from even those folks who hate the VC breed in general. "I've met a few VCs I like. Mike Moritz seems a good guy. He even has a sense of humor, which is almost unheard of among VCs. From what I've read about John Doerr, he sounds like a good guy too, almost a hacker," allows Paul Graham, co-founder of ViaWeb (sold to Yahoo for $50 million), in his recent article attacking VCs titled "A Unified Theory of VC Suckage".


Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

March 19, 2005

Paul Graham on starting up

Paul Graham, co-founder of ViaWeb (acquired by Yahoo), has a nice article on starting a start-up. Some Extracts:

On Ideas
An idea for a startup, however, is only a beginning. A
lot of would-be startup founders think the key to the
whole process is the initial idea, and from that point
all you have to do is execute. Venture capitalists know
better. If you go to VC firms with a brilliant idea that
you'll tell them about if they sign a nondisclosure
agreement, most will tell you to get lost. That shows
how much a mere idea is worth. The market price is less
than the inconvenience of signing an NDA.

Another sign of how little the initial idea is worth is
the number of startups that change their plan en route.
Microsoft's original plan was to make money selling
programming languages, of all things. Their current
business model didn't occur to them until IBM dropped it
in their lap five years later.

Ideas for startups are worth something, certainly, but
the trouble is, they're not transferrable. They're not
something you could hand to someone else to execute.
Their value is mainly as starting points: as questions
for the people who had them to continue thinking about.

On People
What matters is not ideas, but the people who have them.
Good people can fix bad ideas, but good ideas can't save
bad people.

What do I mean by good people? One of the best tricks I
learned during our startup was a rule for deciding who
to hire. Could you describe the person as an animal? It
might be hard to translate that into another language,
but I think everyone in the US knows what it means. It
means someone who takes their work a little too
seriously; someone who does what they do so well that
they pass right through professional and cross over into
obsessive.

What it means specifically depends on the job: a
salesperson who just won't take no for an answer; a
hacker who will stay up till 4:00 AM rather than go to
bed leaving code with a bug in it; a PR person who will
cold-call New York Times reporters on their cell phones;
a graphic designer who feels physical pain when
something is two millimeters out of place...

Techies score over MBAs
In a technology startup, which most startups are, the
founders should include technical people. During the
Internet Bubble there were a number of startups founded
by business people who then went looking for hackers to
create their product for them. This doesn't work well.
Business people are bad at deciding what to do with
technology, because they don't know what the options
are, or which kinds of problems are hard and which are
easy. And when business people try to hire hackers, they
can't tell which ones are good. Even other hackers have
a hard time doing that. For business people it's
roulette...

If you work your way down the Forbes 400 making an x
next to the name of each person with an MBA, you'll
learn something important about business school. You
don't even hit an MBA till number 22, Phil Knight, the
CEO of Nike. There are only four MBAs in the top 50.

What you notice in the Forbes 400 are a lot of people
with technical backgrounds. Bill Gates, Steve Jobs,
Larry Ellison, Michael Dell, Jeff Bezos, Gordon Moore.
The rulers of the technology business tend to come from
technology, not business.

Prototype
The only way to make something customers want is to get
a prototype in front of them and refine it based on
their reactions...

In a startup, your initial plans are almost certain to
be wrong in some way, and your first priority should be
to figure out where. The only way to do that is to try
implementing them.

On the need for a "professional CEO"
Sometimes the VCs want to install a new CEO of their own
choosing. Usually the claim is that you need someone
mature and experienced, with a business background.

Maybe in some cases this is true. And yet Bill Gates was
young and inexperienced and had no business background,
and he seems to have done ok. Steve Jobs got booted out
of his own company by someone mature and experienced,
with a business background, who then proceeded to ruin
the company. So I think people who are mature and
experienced, with a business background, may be
overrated. We used to call these guys "newscasters,"
because they had neat hair and spoke in deep, confident
voices, and generally didn't know much more than they
read on the teleprompter.

Talking to VCs, but not for money

Talk to as many VCs as you can, even if you don't want
their money, because a) they may be on the board of
someone who will buy you, and b) if you seem impressive,
they'll be discouraged from investing in your
competitors. The most efficient way to reach VCs,
especially if you only want them to know about you and
don't want their money, is at the conferences that are
occasionally organized for startups to present to them.

Apartments not cubicle farms
An apartment is also the right kind of place for
developing software. Cube farms suck for that, as you've
probably discovered if you've tried it. Ever notice how
much easier it is to hack at home than at work? So why
not make work more like home?

When you're looking for space for a startup, don't feel
that it has to look professional. Professional means
doing good work, not elevators and glass walls. I'd
advise most startups to avoid corporate space at first
and just rent an apartment. You want to live at the
office in a startup, so why not have a place designed to
be lived in as your office?

Location
Besides being cheaper and better to work in, apartments tend to be in better locations than office buildings. And for a startup location is very important. The key to productivity is for people to come back to work after dinner. Those hours after the phone stops ringing are by far the best for getting work done. Great things happen when a group of employees go out to dinner together, talk over ideas, and then come back to their offices to implement them. So you want to be in a place where there are a lot of restaurants around, not some dreary office park that's a wasteland after 6:00 PM. Once a company shifts over into the model where everyone drives home to the suburbs for dinner, however late, you've lost something extraordinarily valuable. God help you if you actually start in that mode.

On the "how many people do you have" question
If you ever end up running a company, you'll find the most common question people ask is how many employees you have. This is their way of weighing you. It's not just random people who ask this; even reporters do. And they're going to be a lot more impressed if the answer is a thousand than if it's ten.

This is ridiculous, really. If two companies have the same revenues, it's the one with fewer employees that's more impressive.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

March 18, 2005

"It’s all about the long tail"

Joe Kraus, co-founder of search-engine firm Excite, has a nice post advising entrepreneurs to pay heed to The Long Tail phenomenon and "think about how to serve millions of markets of dozens instead of dozens of markets of millions".

"The most interesting, transformative businesses that have been built over the last decade and that will be built over the next one are going to operate in and make money from the long tail. Google, eBay, Amazon, Rhapsody, Netflix, iTunes. What do they all have in common? They all work the long tail and they’re all radically changing the dynamics of their more traditional businesses."

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

March 17, 2005

"Be wary how much you reveal to VCs"

Boston.com has an article warning entrepreneurs not to reveal too much about their business plans to VCs, who might wind up passing on your ideas to competing firms.

The article provides the example of Brian Barth, co-founder of online travel technology firm, SideStep, who had a series of meetings with partners at VC firm General Catalyst.

In 2003 and 2004, Barth had a series of more than 10 meetings and phone conversations with partners at General Catalyst, a Cambridge venture capital firm. (Barth remembers three meetings with Joel Cutler, a founder of General Catalyst, and three with Terry Jones, a partner at the firm who was formerly the chief executive of Travelocity.com.)

Barth says that Cutler and Jones never told him they were working on a travel idea of their own, even when he asked them directly about a rumor he'd heard through the grapevine. (In their version of the story, Cutler and Jones were simply meeting with Barth to explore the possibility of investing in SideStep, or possibly buying the company.) A month after the last conversation Barth had with Jones, in March 2004, General Catalyst announced it was investing $6 million in a company that it had helped to form, Kayak.com, to help travelers search many travel sites simultaneously. (Kayak.com wasn't an idea brought to General Catalyst by an outside entrepreneur.) Jones would be chairman, and Steve Hafner, a cofounder of Orbitz, would be the chief executive.

It brings up a question that's constantly on the mind of an entrepreneur: How much do you reveal about your business plan, and to whom? How much entrepreneurial paranoia is healthy -- and at what point does coyness and secrecy start to make you look like a nutcase with a PowerPoint deck?

There are plenty of things for entrepreneurs to worry about. A venture capital firm might decide not to invest, and either develop a company of its own or fund one of your competitors. An important prospective business partner, like IBM or Oracle, could decide to develop a product just like yours after lengthy discussions. In one case that involved a local company, Thomson Financial, which was an investor and had two seats on the board of Boston-based CCBN, decided to start a competing business, and allegedly used information from CCBN board meetings to compete against it


UPDATE: This is what Paul Graham, co-founder of ViaWeb (acquired by Yahoo), has to say on this topic:
You may wonder how much to tell VCs. And you should, because some of them may one day be funding your competitors. I think the best plan is not to be overtly secretive, but not to tell them everything either. After all, as most VCs say, they're more interested in the people than the ideas. The main reason they want to talk about your idea is to judge you, not the idea. So as long as you seem like you know what you're doing, you can probably keep a few things back from them.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

March 02, 2005

Profile of Jet Airways founder Naresh Goyal

Times of India has a profile of Naresh Goyal, Founder of privte airline Jet Airways, which recently pulled off a successful IPO.

This is undoubtedly a great achievement for a man who first stepped into the aviation industry when he joined the Delhi-based Continental Travel — an agency floated by his mother's uncle. After a short stint there, Goyal established his own airline agency, Jetair.

Nursing greater ambitions, Goyal then went on to set up a domestic airline in India when the government opened up the skies to private players. Having staved tough competition from the state-owned behemoth Indian Airlines and rival private carriers such as East West Airlines, Jet today has established itself as one of the most profitable and successful airlines in India.

"Goyal never ran his airline," says Kapil Kaul, senior V-P, Centre for Asia Pacific Aviation. "I see him as a man who possessed a vision. Back in 1993, when other start-ups were inducting Boeing 737-200 aircroreaft, Goyal bought new generation Boeing 737-400s. He understood the value of quality and made sure that he hired the best professional talent in the international market."

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Indiagames and its investors

Business Standard has an interesting article which touches upon the relationship between Vishal Gondal, the founder of Indiagames (now 80% owned by China's Tom Online), and the company's VC backers, Infinity Ventures and IL&FS.

Some extracts:

How Gondal met with the VCs:
Hollywood is a long way from Chembur and might have remained so had Gondal not “bumped into some suits” from PricewaterhouseCoopers, the management consultancy, in 2000. The consultants offered to introduce him to new investors, and the result was seed funding of $750,000 from IL&FS Investment Managers and Infinity Ventures, both Mumbai-based private equity funds.


How the investment changed Gondal:
“For me, the arrival of investors was the most valuable MBA education anyone could have,” he said.


The clashes:
The investors were keen to develop Indiagames as a source of “advertorial” games, a business model that relied on online games designed around consumer brands. But that model did not survive the dotcom crash.

Gondal says the backers subsequently pushed the company towards designing and servicing online games for foreign customers. That made Indiagames an outsourcing arm and, in effect, hostage to overseas clients’ unrelenting demand for lower costs.

“Servicing gets you stuck at the bottom of the value chain and I didn’t want my customer capturing the rewards of my value additions,” Gondal says. He took his sceptical investors to gaming industry events to persuade them that the greatest opportunity lay in designing proprietary games, not servicing clients’ games.

“I wanted my investors to be part of a solution, not the problem,” he says. Fortunately, he won their allegiance to the new business model at a time when wireless services were growing fast, particularly in the mobile gaming market.


The bitter taste:
He recalls an unhappy period when his seed investors, who sold their equity to Tom Online, appointed an executive from a multi-national to manage Indiagames. It was not a successful relationship, he says.


The new challenge:
Now Gondal faces his biggest confrontation. Armed with a rich and well-connected Chinese partner, he is targeting gaming giants such as California’s Jamdat and France’s Gameloft.

“This is the real battle,” he says. Indiagames’s Chinese connection brings one immediate benefit: an investment of about $4 million for expansion. The company, which earned 86 per cent of its $1.2 million sales last year from Europe, will open offices in Los Angeles and London this year.



Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Policy Nonsense

Terry Gold has a great post on how "Company Policy" is something that ends up irritating customers and employees rather than provide order to the business.
..There are other meanings to the word "policy." It can be used to mean "I don't want to hear your problems or your opinion." It can mean "I'm not even going to tell you who made up this rule. It wasn't me, and if I did know who to talk to about it, I'm not in a position to try to get it changed." At its worst, it can mean "tough, go away if you don't like it."...

...We don't have a lot of policy at Gold Systems because I think most issues are best handled with the latest facts and the best judgment. To try to create Policy in advance of a situation is very difficult. I'm all for process, guidelines, plans, principles, but for me Policy is too limiting in most situations.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

March 01, 2005

Welcome move to free start-ups from service tax

The proposal in the latest Indian Union Budget to exempt service providers with up to Rs 4 lakh gross turnover from charging service tax, is a highly welcome move from two aspects:

1. It frees start-ups from the need to bother about service tax registration and payments until they figure out their business model (and hence viability).

2. Service tax is, on paper, supposed to be born by customers. However, start-ups - which typically do not enjoy pricing power - are often forced to "swallow" the service tax component in their pricing, in the process killing whatever profit margins they might enjoy.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.