September 20, 2008

Outlook for Indian Corporate Venture Capital - By Sanjay Anandaram

While VC funds have played a critical role in the creation and sustenance of companies in the US, it would be a gross oversight to miss the role that US corporations, especially in Silicon Valley, have played in engendering and nurturing innovative startups. From hi-tech companies (e.g. IBM, Intel, Microsoft, Cisco, SAP, Motorola, Google) to bio-tech and healthcare (e.g. Dow Chemical, Johnson & Johnson, SmithKline Beecham, Pfizer) to publishing and media (e.g. Reuters, EW Scripps, McGraw-Hill, Disney, Sony) to aerospace and defense companies (e.g. Boeing, Lockheed Martin) to energy (e.g. Chevron, BP) have played an important role in furthering innovation in the US. According to PricewaterhouseCoopers and the National Venture Capital Association, in the first half of 2008, corporate venture capitalists were involved in roughly 300+ companies or 20% of VC deals signed and invested over $1 billion or 7% of overall venture capital dollars invested in US companies. Even the CIA spun out a venture capital fund called In-Q-Tel in Silicon Valley about a decade ago for investing in next generation companies!

Over the past couple of years, the funding environment for Indian startups has changed dramatically. There are funds across the entire chain – angels to early stage to growth and beyond. The ecosystem is becoming more and more developed and conducive for entrepreneurial companies. The one big missing link was the serious involvement of the Indian corporate sector. Therefore, Bharti Airtel’s recent announcement of the Rs 200 crore Airtel innovation fund aimed at fostering innovation and entrepreneurship in telecom was a long overdue and extremely welcome one. And as a poster-child for world-class entrepreneurship from India, it was only apt that Bharti Airtel be the one.

Of course, while companies like Infosys had incubated and spun-out companies like Yantra and OnMobile and HCL and Infosys had invested in the odd VC fund, there hasn’t been a formal investment and corporate development effort by Indian companies for gaining strategic advantage apart from financial returns. In recent times, Reliance Technology Ventures, Capital18 (the investment fund of the Network18 group) and the Future Group (brands like Pantaloons and Big Bazar are part of this group) have established formal programmes as well. These are very welcome initiatives and must be encouraged by all interested in the creation and growth of Indian entrepreneurs and innovation. The shifting of gears by the Indian economy and the consequent explosion in opportunities have, of course, played a great catalytic role in engendering change in the traditional mindset. The realization that constant innovation in a knowledge economy is critical for continued value creation is forcing companies to set up corporate development programmes.

The specific reasons are therefore straight forward: no one company can keep up with the rapidly changing market and technology scenarios; early investments in startups can provide interesting marketing, sales, channel, customer support, supply chain and technology insights; access to high calibre talent and innovative business models is another benefit; and of course, potentially attractive downstream M&A opportunities and financial returns. Startups, for their part, apart from having access to traditional VC funds now also can access corporate funds which provide advantages like access to customers, markets, technology, best practices, manufacturing, brands, and so on. Startups with corporate venture capital backing gain higher valuations at IPO than those without and also get higher takeover premiums in acquisitions according to studies in the US.

Startups should also be aware of the challenges of taking capital from corporations. A close relationship with a corporation might prevent other companies from associating with the startup due to fears of competition. The startup can end up serving only the custom needs of the corporation to its detriment since it may be ignoring a larger and more lucrative market opportunity that might not be of interest to the corporation. The startup should also take care not to be excessively close to its corporate investor as the corporation’s bear-hug might become suffocative.

Clearly, as the Indian economy and Indian companies continue to grow and mature, the premium on rapidly creating and delivering innovative solutions to customers will only rise. Innovative solutions require innovative approaches and insight. And innovation around the world is nurtured best in fast moving, high calibre startups. Hopefully therefore we’ll see more Indian corporate VC funds playing their part in the Indian entrepreneurial ecosystem.
What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

September 16, 2008

NSRCEL's workshop on Finance and Biz Dev for entrepreneurs

Nadathur S Raghavan Centre for Entrepreneurial Learning (NSRCEL) at IIM-Bangalore is organizing two day workshops for entrepreneurs. The first - on Sep. 29 & 30 - will focus on Business Development Skills and the next - on Oct. 3 & 4 - will focus on Finance for Entrepreneurs.

For more information, contact:

Girish
Nadathur S Raghavan Centre for Entrepreneurial Learning
Indian Institute of Managment Bangalore
Bannerghatta Road, Bangalore 560076
Tel: 080-26993701, 3721, 3710
Fax: 080-26993769
nsrcel.orgnsrcel@IIMB.ERNET.IN

September 07, 2008

Are We Inventive Enough? - By Sanjay Anandaram

Over the weekend, I was immersed in reading Madcap Crazy Inventions by Gyles Brandreth, a slim volume published in 1997 as a tribute to the imaginative people from around the Western world. These quite remarkable people dreamt up an incredible variety of inventions that, no doubt, they thought would prove very useful but which we recognize today as being simply ridiculous. Of course, the inventors themselves had faith in their inventions! The inventions range from a spaghetti eating tool to a robber catcher to a rat scarer to a stammer stopper to reversible trousers to the Smellorama (where smells were made to match the action on a movie screen!). Most of the inventions were made in the 1st half of the 20th century.

On February 28, 1856, the Government of India promulgated legislation to grant what was then termed as "exclusive privileges for the encouragement of inventions of new manufactures". On March 3, 1856, a civil engineer, George Alfred DePenning of 7, Grant's Lane, Calcutta petitioned the Government of India for grant of exclusive privileges for his invention — "An Efficient Punkah Pulling Machine". On September 2nd, DePenning, submitted the Specifications for his invention along with drawings to illustrate its working. These were accepted and the invention was granted the first ever Intellectual Property protection or patent in India!

After the patent for the “efficient punkah pulling machine” one would have imagined that the electric fan would have been patented in India electricity having come to India in 1906. Look around and see the environment around – there are thousands of opportunities for innovation and invention. Yet the story of inventions and patents in India has been a long and sorry one.

That set me thinking. What would a list of Madcap Crazy Inventions look like for India? I suspect our list, if at all, there were one would be rather short and boring. And why should that be the case?

Madcap and Crazy are two words that as most stereotypes would have us believe adjectives that describe brainy scientists and inventors. Would we describe our scientists and inventors as “madcaps” and “crazy”? Why not? I think the problem lies in our social milieu. To make truly quantum leaps in science and innovation, one needs to be imaginative, unafraid to question the status quo and be willing to experiment. And even more unafraid of failing. Einstein imagined what it would be like if he were to ride atop a beam of light – A madcap idea? Yes! Crazy idea? Yes!! Edison is supposed to have tried several hundred materials before he chose the tungsten filament for his electric bulb. Our social milieu frowns upon questioning, imagination, experimentation and indeed failure.

True innovation comes from both right and left brain thinking. Not valuing or appreciating the arts and humanities adequately leads to atrophying of creative powers and insight. Creating “insanely great” products like what Apple routinely churns out, for example, requires not just engineering smarts but a high degree of creativity. As a nation, we’ve consistently under-emphasized the arts (the economic rationale is appreciated but that’s not the point) over the last 50 years and are now therefore left wondering about the arcane intricacies of say, user interface design, which is all about understanding how humans interact with each other. Movie making, for example, is another field which requires an enormous amount of creativity – from writing a top class script to visualizing the scenes to creating the mood to the music. Without the training in giving free reign to one’s imagination, experimenting and failing, it is hard to see how top class movie making talent from India can stand up on the world stage and be counted.

Another example: how many of our youngsters read science fiction for example? How many writers of sci-fi do we have? How many of our youngsters read or write or undertake creative pursuits? Sci-Fi by its very genre challenges the writer and the reader to imagine worlds that don’t exist. Innovation will ensure that these worlds come to pass! Is it a coincidence that the US and Japan have the world’s most evolved and robust sci-fi sub-cultures?

Sure, there have been truly Indian innovations that have addressed Indian problems but these have been sporadic and highly uneven. The National Innovation Foundation, the GIAN-Honeybee network are terrific initiatives to harness innovation and grass-roots inventions. But there needs to be many more such programmes especially ones that can be scaled.

With India’s booming economy and growth prospects, it can only be hoped that more and more madcap and crazy ideas will be worked upon, failures notwithstanding. After all, as the saying goes, if you haven’t failed it means you haven’t tried hard enough.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.