How to exploit the Indian capital market?

First things first! A reminder that the discounted rates for registration will last only till Friday so if you would like to save, you must register right away.

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And now to more important stuff!

It is very tempting to think of India as a third-world country (which it is) that can only provide cheap labor, not just for BPO but also for value-added work like analyzing X-rays or pharma research or tax accounting. In our cost-cutting obsession, however, we may be overlooking what else India may have to offer.

Previously I have talked about tapping into the consumer market that is exploding in India. I have also emphasized the need for innovative business models to target the Indian consumer, but there is another path to participating - through investment into public companies.

As the chart below shows, the Indian stock market (Bombay Stock Exchange index in blue) is at an all-time high. When I plotted it against S&P500 (in red), the first thought that struck me was that for some of you it may already be somewhat late to enter. While I do not expect the market to drop in the near future, I do expect that it will continue to rise at a steady pace for one simple reason - it started from a very small base and only now it has arrived to a point that global investors are taking it seriously. In other words, it still has a huge upside potential though do not expect it to double in less than three years.

So how do you capitalize on some of the emerging areas of growth and maximize your return? How will the current economic policies impact India's growth? These are some of the issues we plan to dwell on during TiECon. And do not forget that this time we are going to have several Indian policymakers at the conference. And while they will get an opportunity to make their pitch on why we should invest in India and their efforts towards further liberalization in the financial and retail sectors, we also will get a chance to impress upon them the changes that we would like to see so that Bombay Stock exchange will be as easy to navigate as New York, London, and Tokyo exchanges are.

What do I recommend?

If you are a sell/buy-side portfolio manager or analyst, investment banker or an economist, TiECon will provide an excellent opportunity to get a first-hand understanding of the capital markets in India. And the session I recommend is the one entitled "Emerging Trends: Cross Border Investing" on June 16 at 0115 PM. And while many attendees find it difficult to attend sessions on Saturday, if you are serious about studying India as a potential investment opportunity, I also recommend that you come just for the "Investing in India" session right after lunch.

Related article: Investment opportunities in India

- Posted by Jay Dwivedi

Investment opportunities in India

In my previous post I had discussed the somewhat gloomy investment climate in the United States. While we continue to make modest investments in highly promising ideas, we are taking lesser risk than we did just a few years ago. A lot of this shift in investment patterns is driven by the returns we are currently getting. As pointed out in the 2005 Venture Capital Report by Wilmer Cutler Pickering Hale and Dorr (a TiECON sponsor), a very successful sale today is a fraction of what we used to get. For instance, the report says, last year just two venture-backed companies were purchased for more than half-a-billion dollars and only 15 were purchased for more than a quarter billion. Ouch!

So where are the most attractive investment opportunities?

Apart from China, which continues to attract high levels of investment, India is another attractive market. Venture capital investment has crossed over $1B in India. And according to projections, the India biotech sector hopes to generate investments of $10B by 2010.

The country is experiencing GDP growth rates that are 2-3X of US GDP growth. The Venture Capital Report predicts that more VC firms will invest in overseas companies, sometimes with a local investment partner. I do not expect that most investments in India will result in billion or multi-billion dollar deals that we would like to see, but my research shows that the time horizons for an IPO can be relatively shorter and probability of a higher return on investment (ROI) higher in India during the next 3-5 years.

How can you get a first hand understanding of the investment climate in India?

As you plan your schedule for the conference, you might want to attend the session "Emerging Trends: Cross Border Investing" on June 16 at 0115 PM and another session at 0200 PM on June 17th that focuses specifically on investment in India.

Other related post: Using innovative business models for India

- Posted by Jay Dwivedi

India emerging as a consumer market

If you have not seen Sanjay Kadaveru (co-chair of the organizing committee) around for a while, there is a reason for it - he is networking with Members of Parliament (MPs') in India. The Indian Parliament is like our Congress and its members play an important role in policymaking. MP's also make an effort to bring investment to their districts.

And here is the update. We have confirmation from as many as five MP's to attend TiECon East 2006, including Madhu Yakshi and Sachin Pilot. They will be the members on a panel on infrastructure and governance in India.

Why are we inviting Indian policymakers?

As many of you have experienced during last 2-3 years, TiE has gradually evolved into a conduit to investment opportunities in India (either directly through network access that it provides or through entrepreneurs that choose to have management teams based in the US while locating the development and other process in India). By providing access to Indian policymakers, not only are we ensuring that they understand what we need from them, we are also giving them a chance to demonstrate to us what they will do for us to attract our dollars as they highlight India's transition from a offshoring to a market opportunity.

India's role in global economy changing from a BPO center to a consumer market

India's recent entry into the global economy was triggered by our desire to cut costs by offshoring low-end jobs. While most experts agree that relocation of these jobs has benefited American corporations, there has been another unintended social/economic outcome - India can now claim to have a real middle class that has rapidly growing discretionary income. In many cases, they are already consuming what we take for granted. During a recent trip, my jaw dropped when I was invited to visit the Shipra Mall on the outskirts of New Delhi - it was better than some of the malls in the Boston area, according to my wife who knows this better than I do. And the prices were actually higher than those in the US for most product categories since these new malls predominantly carry luxury goods by Indian standards.

In summary, it may be the right time to look at the country as a growth opportunity. You might also want to read my thoughts on why you should build a new business model for India if you want to serve the Indian consumer.

- Posted by Jay Dwivedi

Five reasons to register now

Al Kapoor and Sanjay Kadaveru, the co-chairs of the organizing committee, gave a very strong reason yesterday for you to register right away. Only the first 400 registrants will be able to reserve a seat in the special pre-event reception with Clayton Christensen - “How to predict whether your idea would succeed or fail.”

However, for those of you who are planning to attend, but have not registered yet, here are four more reasons why you should register now:

1. TiECON East is organized entirely by a group of volunteers. The longer you hold off on registering, the more we have to focus on marketing/advertising. Not only does this cost money, it also takes away valuable time of our volunteers who would rather focus on making the conference itself better, than making phone calls or sending reminders to you - not the best utilization of our talents/time. For instance, I would rather do the research to tell you about how to improve venture capital activity or how to start your networking now or why we need need new business models for India, than to write posts like this one. In order to keep attracting the best pool of volunteers each year, we want to make sure that they get to work on challenging assignments and focus on what is important.
2. TiECON is a not a profit-making machine. Whatever money we can save in marketing/advertising will help you, the conference, and the organization.
3. We do not have rigid cancellation policies. If you register now and realize later that you cannot attend the conference, just call the TiE Boston office. We are very accommodating.
4. And finally, while TiE gets a hundred bucks less if you sign up now, everyone is still better off if you register early.

Posted by Jay Dwivedi

How to improve venture capital activity?

I just received my copy of the 2005 Venture Capital Report from Wilmer Cutler Pickering Hale and Dorr LLP (a TiECON East 2006 sponsor) and a few things stood out. Over the next few days I will be picking a few relevant findings for you to ponder as you prepare to attend the conference which is just about three months away.

2005 was not a great year for financing of new ventures

As the chart below shows, while things have stabilized since the downturn started in 2000, we are still at the same level as we were in 1997. And if you are not depressed yet, the report says, "We do not see any developments of trends likely to result in a significant change in the level of venture capital investments in 2006." Ouch!

So what went wrong?

1. There are fewer high-quality investment options.
2. My research shows that investors have become better at managing risk and no longer trust the entrepreneurs as they did in the past. While it means better scrutiny of business models and working with more conservative estimates, it also means that some promising ideas do not get funded.
3. Lack of innovation. That's right. Those of us who watched what happened during the 90s remember very well that some of the best ideas came from innovation (not slick marketing). For instance, e-commerce, nano-technology, broadband, etc.

What can we do to energize the investment climate?

While a lot of TiE community members are too excited about globalization of venture capital activity and argue that merely investing in India and/or China will somehow solve all the problems in the world of investing, the reality is that smart investors do not invest in companies that plan to merely sell more widgets (at some point all markets commoditize). They are desperately trying to find the startups that come up with new business models.

In summary, as you work on new business ideas or seek funding for your existing business, take a look at the degree of innovation in your business. We often tend to forget the importance of innovation, as Clayton M. Christensen (a speaker this year) would tell you.

Posted by: Jay Dwivedi

How to start networking now for TiECON?

So you have signed up for the conference and are planning to show up in June at the Hynes Convention Center. In the meantime, you have no other plans for the conference. If that describes you, here are a few tips for you to start your networking now and to get the best out of your investment in attending.

How to network prior to the conference?

1. Develop a list of specific individuals/organizations that you would like to contact. You can get ideas by reviewing the list of sponsors/speakers/attendees. If you are not sure about who to reach out to, just pick up the phone and call someone that you know within the TiE community or the TiE Boston office.
2. Identify the right individual. This is extremely important since chances that you will make the right connection will depend on who you try to network with. For instance, unless you are a C-level officer in a Fortune 500 company, you might want to avoid contacting Rajat Gupta directly. Identify someone who will benefit as much from you as you would from her/him. Peer-level networking is always the best way to get started and then you can find your way up through that initial contact.
3. Make the initial contact. Start off by establishing the TiECON connection (you/your colleague is speaking; your firm is sponsoring, etc.). Then quickly get to why you would like to establish a relationship (planning to run my business plan by a few industry experts; have an established business, but need growth capital; interested in investing in India biotech sector and need to identify investment opportunities; etc.). Suggest next steps (would like to email more information; set up a time to talk prior to/during the conference; etc.).

Hopefully, you will do fine from here on. Remember that almost everyone that is attending the conference is there to meet people that can help them succeed professionally. As long as you can make that happen for them, they will be delighted to network with you.

I will share more tips on networking at the conference in a separate article.

- Posted by Jay Dwivedi

Using innovation to do business in India

Anu Chitrapu is right. India has been a lot in the news lately because of the World Economic Forum and the visit by President Bush to India. And it is very encouraging to hear that the President appreciates the forces of globalization and how they are likely to benefit the whole world. "People do lose jobs as a result of globalization and it's painful for those who lose jobs," the President said and strongly defended the outsourcing of American jobs to India as the reality of a global economy. He added that the US should instead focus on India as a vital new market for American goods. Which brings me to something that I want to talk about - Innovation!

Finding business opportunities in India

We in the world of investors, venture capitalists, and entrepreneurs tend to focus so much on the ~300 million people (the so-called Indian middle class) that we overlook the rest of the population (~2.5X of this number). In my opinion, any idiot can sell to the Indian middle class by treating it as just another market segment that happens to be growing at 3X the US GDP growth rate. These people speak/understand English, desire American products, are seeing huge growth in disposable incomes, and are ready to spend it on consumer goods. But where is the innovation here? Where is the value created? In no time, India too will become like the United States (price-based competition in every sector leading to erosion of profits) and if there was no value proposition to begin with, your Indian business may be in trouble. We all know what happened to the so-called Asian Tigers.

Need for new business models in India - only true innovators will create shareholder value

What will distinguish the "me-too" businesses from the true innovators are the new business models are:

1. Products and services that can be consumed by a broader section of the Indian society, not just the middle class.
2. Offerings that are less susceptible to commoditization.

And both these elements of the business model can only be achieved if we wear our "innovation hats" and think creatively about a new value proposition.

So when President Bush is challenging American companies to stop fighting globalization and see it as an opportunity for innovation, he is alluding to cell phone companies that have made cell phones affordable to the Indian masses or the companies that are trying to sell the Rs. 10,000 PC or the Rs. 100,000 family sedan.

I am hoping that as we delve into these issues at TieCon East 2006, we will get an opportunity to hear about some new business models. In other words, how do we leverage innovation to create more compelling value propositions.

- Posted by Jay Dwivedi

India in the news

It is amazing to see how much India is in the news nowadays. I don’t mean just now – that is expected with President Bush’s visit – but this past year I have seen more news articles than I could read on India. My favorite article is the one called “Davos days and Bollywood nights” which talks about India at the World Economic Forum conference at Davos this year. From being a country that was barely noticeable in Davos, India went on to center stage with a pomp and glory not associated with a third world country. The so called “poor” country was greeting all guests with a goody bag filled with great gifts from India including a pashmina shawl, some ayurvedic oils and an ipod with Indian music! The most striking thing was that India sent 115 delegates compared to China with 30.

Talking of China, there have been quite a few articles on India Vs. China too. At MIT Sloan we are now offered a course on India Vs. China taught by Professor Yasheng Huang, an expert in the field. There was also the New York Times editorial which talked about how the infrastructure in India is bursting at its seams. Airplanes apparently circle above the airports in Bombay and Delhi and waste precious fuel all because there are not enough runways and gates at the airports. But with all the FDI coming into the country I think it is just a matter of time before India fixes its infrastructure problems.

The TiECON organizing work is picking up intensity. We are all very excited with the keynote speakers. If you have not done so already check out our speakers.

Anu Chitrapu