October 23, 2005

Technopreneur Promotion Programme

Last week, I came across an interesting ad by the Ministry of Science and Technology in The Economic Times and The Hindu inviting proposals for the "Technopreneur Promotion Programme (TePP)" .

The TePP aims to extend financial support to "individual innovators for converting their innovative ideas into working prototypes/models". Jointly operated by the Department of Scientific & Industrial research (DSIR) and Technology Information, Forecasting and Assessment Council (TIFAC) of the Department of Science & Technology (DST).

Here are some extracts from the FAQ section of the DSIR web site

# Who can apply?

Any Indian Citizen with an original idea/invention/know-how to develop working prototype/processes can apply for TePP support. Even, the proposal from the owner of a ‘start-up’ company/industry may be considered for TePP support, if the annual turnover of the company / industry doesn’t exceed Rs. 30.00 lakh per annum.

# How much support one can expect?

The maximum TePP support would be up to 90% of the project cost . The remainder part of the cost i.e. 10% amount in the project would be invested by the applicant. The upper limit for TePP support for the proposal at present is Rs. 10.00 lakh.


Here are some examples from 114 existing projects funded under this scheme:

"Everybody’s Solar Water Heater" (by a Professor at a engineering college in Tamil Nadu)

"Bullock operated generator with accessories for multi-uilisation" (by a person in Varanasi)

"Arecanut peeling machine" (from Kerala)

"100% Cure of Baldness within 40 days" (Bareilly, UP)

"Treatment of Diarrhea in Animals" (Ahmedabad, Gujarat)

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

Presentations at TiE-Silicon Valley now available via streaming video

TiE Silicon Valley has launched "TiE-Webstream Zone" showcasing videos of presentations by various speakers at its various forums. From Vinod Khosla and Tom Friedman keynoting at TiECon 2005 to the various interesting presentations at the monthly meetings, the selection is indeed wide. Entrepreneurs from around the world will definitely find quite a few vidoes well worth watching.

Thanks TiE-SV for this great effort!

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

Great TiE-Chennai event featuring Chandu Nair

The TiE Chennai Chapter, which hasn't been very active in the recent past, seems to have become vibrant again.

The Chapter's latest "Success Close Up" event on 19th October - featuring Chandu Nair, Co Founder & Director of knowledge process outsourcing firm Scope e-Knowledge Center - was especially interesting and useful.

The Success Close Up event is envisoned as a presentation "by a Successful Entrepreneur who...are willing to share with others candidly their life experiences in an informal setting".

Chandu Nair delivered on all this and more in his very engrossing presentation and sincere and thoughtful answers in the subsequent Q&A session. The presentation and discussions covered how Scope was created (serendipty), challenges faced (one of the main being the need to let people go, ameliorated somewhat by active outplacement help), relationships between the founders (better be direct about issues rather than let them simmer), support from the entrepreneurs' families, etc.

Hats off to Chandu and the organizers for an excellent event.

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

October 20, 2005

Lessons a VC learned from a good exit

Bill Burnham of Celsius Capital has a great post on the lessons he learned from investing in Datapower, a company that was recently acquired by IBM.

The entrepreneur "sometimes" knows his market better
Just after Datapower had launched its first product, a performance oriented appliance, Eugene lobbied for the company to accelerate the launch a second security oriented product that had been planned for a quarter or two in the future. At the time, I remember cautioning Eugene on the potential distractions and costs of having two immature products in the market at the same time. Eugene lobbied hard to take the risk and thankfully he won the day. I say thankfully because not only did the company land a $300K order that quarter for the security product, but it was able to establish significant mindshare in the security space well ahead of its competitors. To this day the security space continues to have the most robust market demand and competitors that failed to quickly launch a security product suffered in the market. The lesson for me in this was that VCs have to be careful not to micro-manage product development in a rapidly emerging market because demand can move very quickly and in unexpected ways.

# Shotgun Weddings Don’t Work.
...The lesson for me as an investor is that you should never insist on making a company hire a specific person a condition of investing as that dramatically raises the potential for conflict. You are much better off investing in advance and helping the company recruit someone great that everyone is 100% confident in.

# VCs can indeed be very unethical.
Prior to raising his first significant round of venture financing, Eugene had raised a seed round from a few individuals and a couple of investment funds, one of whom was a reasonably well known VC fund...Everything was ok until Eugene decided to raise his Series A financing. At that point the VC fund submitted what was clearly a low-ball term sheet and pushed very hard to close it. When Eugene objected to the terms and announced that he would try to generate some alternative offers to see if this was in fact “market” he found that he couldn’t get any traction with other Boston based VCs most of whom would either not meet with Eugene at all or who told him that they would not do the deal without also including the original VC (at the terms they had proposed). Now I don’t know if the original VC had an active campaign to try and discourage other investors from doing the deal, but they obviously knew that new investors would not want to do the deal without them (if the original investors don’t invest that is typically a big warning flag that something is wrong) and used that leverage to try and get a better deal... However after Eugene rejected their term sheet and instead ultimately accepted mine, the VC in question went ahead and not only invested in a competitor, but installed the same executive that they had installed at Datapower at their new investment. Within months, this competitor began spouting very similar marketing messages and appeared to be executing against a carbon copy of Datapower’s product and market roadmap.

Arun Natarajan is the Founder of Venture Intelligence India, 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.

"Top Ten Commandments of Venture M&A"

Bill Burnham of Celsius Capital has a great post. While it is a VC's angle, it has relevance to entrepreneurs as well.

Given the importance of M&A to both VCs and start-ups, it’s important to realize that the seeds for M&A success or failure can actually be sown quite early in a start-up’s life and well before any potential deal materializes.

With this in mind, I offer the following Top Ten M&A Commandments with the idea being that if a start-up follows these commandments it will be able to avoid some of the most common structural and financial issues that have the potential to blow-up a deal or dramatically reduce its value. These commandments include:

# Thou Shall Not Give a Strategic Investor a Right of First Refusal, Right of First Offer or a Protective Provision that Enables Them to Block a Sale.
If you must have a strategic investor in your company (and in general I recommend against it) by all means do not give them a Right of First Refusal, a Right of First Offer, or an ability to block a sale in the event of M&A....

# Thou Shall Require “Drag Along” Agreements In All Series of Stock....


# Thou Shall Not Enter Into Contracts That Create Liabilities More than 2 Years In Duration.
When big companies buy small companies they want as few complications as possible. Long term liabilities, such as 10 year leases or long term supplier contracts (which will no longer be needed if the acquisition goes through), usually won’t kill the deal, but they will lead to direct reductions in the price that the acquirer is willing to pay. With this in mind it makes sense for start-ups to keep most of their agreements to as short a term as possible. Even if a vendor or landlord is offering a significant discount for a 5 year deal as opposed to a 1 year deal, it actually makes more sense to take the 1 year deal, not only from an M&A perspective but also because start-ups are so dynamic that you never know what you will need 5 years from now.

# Thou Shall Write All Customer Contracts And Partnerships Such That They Can Be Transferred to An Acquirer And/Or That Such Contracts Can Be Terminated With Reasonable Notice.

# Thou Shall Not Enter A No-Shop Without Hammering Out All of the Key Terms and Conditions of a Sale First.

# Thou Shall Not Allow A Buyer to Interview Employees Until At Least An LOI is Signed.


# Thou Shall Discuss Exit Expectations With Management and Board Members Prior to Funding and At Least Twice a Year After That.

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

October 16, 2005

A quiz for wannabe entrepreneurs

Business Week has a cute little quiz to help wannabe entrepreneurs find out if they have the stuff.

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

October 14, 2005

VC-spamming that entrepreneurs can do without

Paul Kedrosky has an entertaining account of an "all too common" type of "value-add" from VCs that entrepreneurs can do without.
Too many venture guys do virtually zero heavy-lifting when it comes to qualifying the people they toss at already stressed and over-worked portfolio company CEOs. “Here, talk to this guy, maybe you guys could have an alliance … here, talk, to this guy, he’s with a big company that I met recently.” It’s closer to spam than real added value.


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

October 09, 2005

What's so great about being the founder of a start-up?

"Genuine VC" David Beisel has a list of "Seven Reasons To Become a Founding Entrepreneur", including

Creation. The essence of a founder’s job is to create something where there was previously nothing. An idea becomes a plan; a plan produces a product; a product launches a company. To me, the notion of conceiving and building something both tangible and real is paramount.

..Variety.The title “Founder” is function-agnostic. Sure, someone may be a technical founder or a founder with expertise & a formal leadership role in another function (sales, marketing, etc.), but during those exciting early days everyone is wearing many different hats. The diversity in the tasks required of someone in this role necessitates that there is rarely a dull moment.

Control. Many jobs leave the much of one’s destiny to the group he/she works in, the company he/she works for, etc. Obviously, there are extraneous unmalleable factors with everything in life, career paths are no exception. But a founder is in a unique position to be largely in control of his/her own destiny like few other roles allow.

Passion. A founder with authenticity doesn’t just conceptually understand the problem being solved or value being created, he/she believes and knows it. This deeper resonance produces a reward and benefit that potentially overshadows the others.

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

What motivates a corporate VC?

Until 2004, Intel Capital was probably the sole active corporate VC investing in the Indian technology sector. As I have written earlier, Flextronics with its string of rapid acquisitions of telecom R&D companies in 2004 - quite a few of them, interestingly, with Intel Capital as an investor - has emerged as a significant new player.

2005 has seen the VC arms of Nokia, Cisco, IBM, TI and other hi-tech companies - begin to actively scan the Indian market for potential investments. Add to this, the active investments in by some of the Indian business groups - like the Godrej Group and more recently, Reliance Capital - it certainly seems as if corporate VCs are going to play an increasingly important role in the Indian technology landscape.

In this context, it is important for Indian entrepreneurs to understand the factors that drive corporate VCs vis-a-vis pure financial investors. A recent Knowledge@Wharton article, quoting the work of Gary Dushnitsky from Wharton and Michael J. Lenox of Duke University, provides some useful pointers.

The authors feel "venture capital is an essential tool available to a corporation to increase its innovativeness".
Corporate venture capital is one leg of a three-legged stool whose other two legs are a strong internal R&D capability and strong alliances with academic or government researchers.

Corporations that have stayed the course with venture investing -- DuPont, Johnson & Johnson, IBM and others -- tend to make equity investments in innovative startup companies with strategic rather than simply financial motives, and in time reap both strategic and financial benefits.


While having an VC arm might be good for large companies, start-ups can often discover that having such strategic investors on board may not always be a great idea.
Over the years, many examples have arisen of disputes between entrepreneurs and their corporate suitors over alleged misappropriation of trade secrets during the process of negotiating a corporate investment or acquisition, according to Dushnitsky. He cites a litany of such disputes: Simple.com versus McAfee.com; CardioVention, now defunct, versus Medtronic; a Stanford University professor versus Rockwell International. "The logic is that in these environments, because you cannot protect your idea, more of the technology is likely to be kept secret," Dushnitsky says.

So, when does it make sense for a start-up to go with a corporate VC?
"When corporate venture capital is least likely to attempt imitation," Dushnitsky writes. Based on a matched sample of 258 entrepreneurial ventures and 74 corporate venture capitalists, he concludes that the probability of a relationship between the two parties "decreases if the products are potential substitutes and increases when the products of the two are complementary."

If the products are potential substitutes, "there are incentives for a corporate venture capitalist to behave opportunistically and copy the venture's novel technology," he writes.

Arun Natarajan is the Founder of Venture Intelligence India, 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.