Nobody’s saying no to India’ – phew, that’s a relief...

The survey of a few global LPs by VCCircle that was intended to understand 'what a LP wants from Indian PE managers" but actually feels like "why a global LP wouldn't want to put his best bucks in Indian PE" threw up some expected & some strange surmises, but nevertheless makes an interesting read –

The link to the article is below & below that is a repro' of my own comment on the article;

http://www.vccircle.com/news/general/2013/05/20/what-do-limited-partners-want-indian-private-equity-fund-managers-results

My comment:

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Interesting surmises!

What makes the takeaways less validated however is the lack of disclosure or at least a categorization of the LPs surveyed**. This gap I felt more acutely for a few like the question # 9 the response pictorial of which indicates that 50% of LPs surveyed will put money in PE/ VCs that're focused on investing in growth-stage enterprises – this averaged-out response doesn't allow one to assess if this is the response of each LP sub-set falls within this range or if some LP sub-sets deviate from the mean significantly.

I also felt a lot of the questions were overtly leading & that could skew the responses in favor of the inherent bias/ prejudice in the question (for e.g. 10 & 11..)

And yeah, the sliver-lining… It warmed my cockles that LPs have acknowledged of the promise of Healthcare Industry in India & the candid confession that ‘no body’s saying no to India’ – phew, that’s a relief.

**I realize it’s possible this can be done still from the data available OR it has already been done… only I couldn’t see it in the downloaded report.  

Economists often ignore politics says Donald Marron! - wish we all could...

Mahatvakankshi...

That's what I thought I'm becoming when I dared comment on a blog dedicated to Economics!!.... and, on an article dwelling on how economists don't seem to be factoring-in how 'policy decisions might change the future balance of political power' at that!!! - 

Well, here's the link to the article & below's my comment on the same...

http://dmarron.com/2013/05/08/should-economists-pay-more-attention-to-politics/#comment-13844

My comment;

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1. on May 14, 2013 at 8:26 am | ReplyMurali Apparaju

   Of course they should pay attention to politics… 

   The legacy of a theorem & assumption based scenario-building clubbed with the current trend of considering only the mathematical & econometric models as having scientific/ academic rigor I feel made economists predominantly quants… with very less patience and sensitivity towards the uncertainties that can be explained only qualitatively and never numerically……

   Guess some of the lost ART needs to put back in the SCIENCE of Economics 

Will the Indian Mobile makers pay a price for the judicial ambiguity (& their own..) on 'Essential Patents' & FRAND terms?

In his characteristic & incisive style, 'Spicy IP' Prashant Reddy unravels for debate, the ongoing litigation between Ericsson & Micromax Informatics Ltd. after Ericsson sued Micromax (and Mercury Electronics Ltd.) a few months ago for allegedly infringing 8 of its telecom patents for a range of wireless technologies, including 3G, AMR and Edge - read the artcile here @ http://spicyipindia.blogspot.in/2013/05/the-ericsson-micromax-patent-litigation.html 

Looking at the haste in which the Delhi High Court granted an ex-parte interim injunction against Micromax, I cannot but agree with the writer's initial assessment that Indian regulatory apparatus & companies are not geared up for fighting complex & strategic IP litigations.

I however don't share Prashant's (rather gloomy) view that "it is unlikely they (Indian companies) will take the extra-effort to counter-attack Ericsson in a bid to pre-empt future action by other patentees" - like i said earlier in a article of mine, commerce & the promise of it is a good enough reason for any company to learn the ropes of the trade. It also should be understood that, even if it makes immense sense, someone like Micromax may not really be able to go all proactive since they aren't exactly the Apple OR Samsung & their margins, I would expect, will be minimal.

The need is however crystal clear - It's about time Indian regulators, judiciary & indian tech-companies that have to mostly deal with dangerous dampeners like royalty-stacking et al take a crash course in what they need to expect & how they could make strategic litigation a part of their daily lexicon.

below is my comment posted on the above article on Spicy IP;

vishrasayan said...

Excellent insight Prashant!

It appears as though the displaced-vanguards of the mobile technology such as Motorola, Ericsson have re-strategized their revenue generation to monetizing their patents rather than depending on competitive selling :-)

I also see your point about the Indian regulatory, judicial apparatus & the companies themselves prepping way too less on litigations and that's bothersome – this lack of comprehension also resonates with the lack of precise articulation I wrote about some-time ago on my blog… hopefully this will change.

I do agree the potential for royalty-stacking in mobile technology makes it much complex and hence the need for a middle-path, but healthcare too comes with its own complexity of access to latest innovation - I have read your earlier post on compulsory licensing – it appears to me there’s a dichotomy in your justification of premium for innovation (patents) in healthcare and not applying the same yard-stick for the mobile technology…?

1:22 PM

Dear HBR, defend your research!

In the May 2013 issue of HBR that has a ‘spotlight on entrepreneurship’, Adi Ignatius observes in the very first paragraph of his editorial that the “IPO market has been soft for years” & on a closing note hoped for ‘a steadier flow of IPOs’ as the economy is on the path to recovery.

This angst I thought pretty much reinforces the dominant LP complaint of an ‘absent IPO market in venture backed firms’ these days. Given this, I expected the articles to focus on elucidating about scalability of an early enterprise to the entrepreneurs – which I realized wasn’t the case after reading through the same.

Each of the four articles & the one interview instead seemed standalone in content & interestingly anti-VC in tone & tenor – not sure why. Since an elaborate hypothesis on these already elaborate academic articles didn’t appeal to me, I felt capturing the essence of each article in a single line would make it crisper - but given the duality of the message in the articles/ interview, I decided that the take-away messages should be in two sets, one for the entrepreneur & one for VC.

Here goes;

FOR THE ENTREPRENEUR

Go the Lean-way or Fade away¹

Seek out the client, not just an investor²
To err is VC – YOU, be the driver³
Marry the VC if you must, just make sure the pre-nup is not one-sided!⁴
If you are good, a Top VC will find you / If a Top VC funds you, you must be good!⁵

FOR THE VC

Lean is in – Junk the flab (read: 5yr business plan et al.)¹
Failing early is a virtue, at times, most times²
Focus on great returns, not on large fees – Stay relevant³
VCs are good but dated – Brace up for the Gen-Y entrepreneur⁴
If you aren’t a top-quartile VC, tough luck!, great deals don’t happen to you⁵

Article reference:

Click link to access the article, (I pay for my Kindle edition tho’..)

1.        Article “Why the Lean Start-Up Changes Everything” by Steve Blank

2.        Article “What Entrepreneurs Get Wrong” by Vincent Onyemah, Martha Rivera Pesquera, and Abdul Ali

3.        Article “Six Myths About Venture Capitalists” by Diane Mulcahy

4.        Article “How to Negotiate with VCs” by Deepak Malhotra

5.        “In Search of the Next Big Thing, Interview of Marc Andreessen

Most of the above messages have been around for some time now, only this comes across as a tacit academic endorsement of the market grapevine - If I forget scalability for a moment, my summarized takeaway from the above is;

Whether or not there’s something basically and drastically wrong with the current VC model, the emerging new trends in the start-up strategies make it pertinent that the early investors, in particular the VCs, should evolve in tandem – This is important not only for sustaining the radically different new-gen start-ups but also for the sustenance of the VC domain itself.

I always liked the way the professors are called out to defend their research in “Idea Watch” section of HBR, So do I now say; 

Dear HBR, defend your research? 

Game on…


After thought:

Ponder the following exchange between Adi Ignatius (Editor HBR) and Mark Andreessen (Venture Capitalist) - ref: “In Search of the Next Big Thing

Adi:    You’ve developed a strong philanthropic focus. Is the next generation of investors thinking about social investment?

Marc:   No. [Laughs.]

Adi:    So much for my hopes for the next generation.

Marc:   Many younger entrepreneurs have a social mission or a philanthropic agenda. They start early. Investors, not so much.

Considering this is towards the end of the conversation, I thought Marc was pretty dismissive about another aspect that investors both big and small HAVE to eventually look at "Corporate Social responsibility" of financial organizations. I pondered on this in my earlier article titled "IRR v/s Social Impact: Do financial institutions necessarily go through this dilemma?" - No answers tho'.

Does the SEC validation of TFC model pave way to cyberization of venture capital? – a SWOT

It’s always exhilarating when the old, routine systems and approaches evolve by embracing and respecting the newer technological trends – the recent endorsement by SEC (The US Securities & Exchange Commission) of the TheFundersClub (TFC) model of venture funding is surely an exciting harbinger of things to come.

Some suppositions & sweeping statements before a SWOT

• Even as the Venturebeat article is upbeat about this validation of SEC being ‘significant for the venture capital and finance industries as well as start-ups looking for more flexible methods of fundraising’ – I’d consider that TFC is essentially a platform for individual accredited investors to spread their investments and risk & NOT (still) a VC firm that went online!
• At this juncture, this is indicative of the strong trend towards of ‘gamification of investing’ rather than ‘cyberization of venture funding’.

STRENGTHS - This shift, whether or not paradigm, is promising

• NUDGE TOWARDS A VC PROCESS UPGRADE: Like the Venturebeat article says, while VCs routinely chase investments into innovation, VC process itself has been largely untouched by technological advances – THIS is definitely is a nudge in the right direction
• ENHANCED ANGEL INVESTOR BASE: The ability of an individual investor to bring down the investment size than otherwise possible offline will potentially open up the angel funding domain to a lot of HNWIs that else would go in for more conventional investments such as equities trading, real estate et al.
• IMPROVED DECISION TIMELINES: The USD1K - 250K window for investment allowed by TFC is pretty much within the risk-threshold of an individual investor (the median deal size of an angel investor is ~0.6mio USD) & considering TFC makes screening of potential deals easier for the angel, it does appear TFC and the likes (clones that’ll invariably emerge & soon), can potentially get popular among the non-regular, domain-neutral angels that have a need to invest but very little time & inclination for any kind of foot work/ due-diligence.

WEAKNESSES - Good to be aware about what to be wary of

• IMPATIENCE FUND: What helps the current ‘offline’ VC model is that the relative smallness of PE/VC funds in the total investment pool of an LP, essentially makes VC a patience-fund & this in effect is largely true with Angel investors that behave like the VCs. An open, online competitive crowd sourcing of funds may change the expectations of the investors and take the patience out of the fund.
• CROWD BIAS V/S TRUE POTENTIAL: Again, the same transparency that lets the investor see the cumulative investments a particular company is attracting may also trigger a crowd-bias categorization of the hosted investee companies as attractive or unattractive merely by their ability to attract funds & not necessarily by their true potential, thus making it a gamble rather than an investment.
• INVESTOR ATTRITION: And, while the range of investments allowed could lure a lot more investors like it has been mentioned before, it is also highly probable that the investor will compare it with his other investment options that may offer a quicker ROI & get disillusioned
• SCALABILITY ISSUES: I’d think the scalability of a venture funding follows the path; angel investing --> venture capital --> private equity. Looking at the regulatory scenario & the way LPs operate, it doesn’t look plausible that this model can be applied in a scenario that i) Involves fund raising from traditional LPs & ii) Involves funding rounds involving multiple VCs  

THREATS - Being the devil’s advocate in an angels’ gathering

• OFFLINE IS THE EVENTUAL DESTINATION: It is interesting to note that the SEC ‘no-action’ letter substantiates the non-action mostly based on operational relevance of the offline arm ‘FC Management’ rather than online TFC as such. – If not anything else, this indicates the omnipresent importance of an offline validation of an online user interface – But what’s the threat perception in this realization?... ponder this; It’s a well acknowledged fact by now that the real-money is offline & the scalability of any e-commerce platform is only when it triggers the quintessential O2O retro transition – This is particularly true in a case wherein it becomes necessary for TFC or the likes to generate more carried interest in order to be sustainable & the requisite scale of operation makes it pertinent that the investor & the investees are physically & comprehensively attended to – thus there exists a threat of the model progressively getting offline & hence get inconsequential.
• CYBER-CONSUMERS ARE A DIFFERENT BREED: I always felt that the absence of
  
  scope for a visual prejudice or lack of pressure in conforming to imposed stereotypes makes the worldwide web a great leveller wherein most consumer demographics tend to blend and behave in a very similar fashion in being impulsive, adventurous, trend-junkie, impatient – meaning essentially everyone’s a teenager on Cyberia. For a marketer this means that the average risk taking capacity of a consumer online is higher than when the same consumer is offline – but on the flip-side this also means that the cyber-consumer is seldom loyal & quick to get bored & that’s a definite & short-term threat.

OPPORTUNITIES - It’s eventually the potential of the Opportunity that prevails

• The SEC endorsement qualifies the current TFC model as being the proof of concept for (eventual) handling of venture capital non-conventionally. As postulated above, there appears to be a lot to sort-out before the model can be scaled-up successfully, but the opportunity of defining a paradigm shift in VC is out there & I'm sure someone's already cobbling together a design to overcoming these road-blocks to scalability.

As Heraclitus said long ago, the only constant is change!

Foreign students find v(l)ocal support to become resident-aliens in the USA!, ....Conditions Apply

The tagline on the website says it all;

"It’s a no brainer to keep and attract brain power in America".

Led by the NY Mayor Michael Bloomberg, the enterpreneurs and pragmatists at Partnership for New American Economy in the USA are pushing for Immigration reform that'll help foreign students pursuing advanced STEM degrees (Science, Tech, Engg & Math) obtain greencard on priority & stay back

There are some interesting comments on a related blog post by Brad Feld, "Help Support Immigration Reform In The US"

Below is the comment I posted on the above entry;

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Murali Apparaju •11 hours ago

Wow, straight from the heart bro..... I have folks in the USA that are run of the mill, the huddled masses that are struggling with the same employer for 12 years for the elusive green card..... I also have folks in the USA that are the pampered usefuls.... ones that make it to the green-card & citizenship quick n easy, ones that could change the face of Indian enterprise if they choose to come back but wouldn't since uncle Sam wants them.

With no malice towards a great nation that takes care of it's own people before anyone elses (& heck, why not?), I don't think Brad there's any further need for reform, USA was/ is doing a great job of keeping the advanced STEM students trained in its own universities within its borders.... Take heart Jo...., just make it to that darn dean's list!

The reform is needed in India (& probably in China, Vietnam et al)..... on how to lure back home the advanced degree STEM students groomed on home soil but polished in the US universities, create great jobs & assure quality of life for them within their country of birth......

(nothing personal again, I just finished what i felt that Anand started & stopped short of completing....)

Confessions of a VC on a Total Write-off

In a very candid entry on his blog, Bruce booth postulates on what could've gone wrong with the once highly promising Dx dream-venture, On-Q-ity - a must read!

http://lifescivc.com/2013/04/on-q-ity-a-cancer-diagnostic-company-r-i-p/

Below's the comment I posted on the above entry;

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Murali Apparaju•2 hours ago

It's always painful to see a promise not living up to the faith of those who believed....

I'm not exactly sure, but what you said about recapitalization sounded like 'despite the value of the combined capital raised by the two merging ventures prior to 2009 was USD 31mio, the merged entity (On-Q-Ity) prior to investment was valued at USD5mio', To me this initial valuation (& disregard of capital) is where the deal started going wrong?? - wasn't this one of the risks flagged in 2009?

While not tranching the investment does look like the most probable reason for the VCs losing out on the return, I'm wondering what promise of return led to the VCs risking a USD 21mio investment upfront into a company wherein a cumulative capital of USD 31mio only resulted in a USD 5mio valuation? - probably there was something prophetic about the then CEO using a term "diagnostic blackhole" back in 2010..... (different context ofcourse..)

PS:

It'd be interesting to understand why the exit-route expectations involved "oncology focused Pharma M&A"?, consdiring Dual Capture OnQChip techonology wasn't really being worked on as a customizable companion diagnostic platform? OR was it?

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