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• Morgan Stanley: Rising Macro Risks; Lowering Growth Estimates

. . . a turn of macro events does bear some strong resemblance to the mid-1990s cycle. As in that cycle, a favorable emerging market environment accentuated the acceleration in the growth trend to the overheating zone in the current cycle. Total capital inflows into India increased to US$98 billion in 2007 from US$12 billion in 2002, mimicking the overall EM capital inflows trend. We believe that these large capital inflows played a key role in boosting India’s growth cycle to above-sustainable levels. Capital inflows resulted in a sharp fall in real interest rates, boosting domestic demand.

During the 1993-98 cycle, the Asian crisis and resultant risk aversion in the global financial market prolonged the down-cycle. The Indian corporate sector suffered major negative operating leverage after having increased business investments. Private corporate capex had risen from the trough of 6.1% in F1994 to 10.4% in F1996. Indeed, in the current cycle, private corporate capex has increased at a higher pace to an estimated 15% of GDP in F2008 from the low of 6.6% in F2004. We believe that the current adverse global macro-environment is increasing the risk of a prolonged domestic demand slowdown, resulting in negative operating leverage for the corporate sector again.

• Hindu Business Line: The long and short of rupee futures

The lot size has been kept at a mere $1,000, which is just about Rs 42,500 at today’s rate . . . the value of one lot of rupee futures is going to be half that of one lot of the Mini Nifty.

. . . there appears to be some serious issues with the present conception of the rupee futures market, wherein dollars can neither be delivered nor be taken delivery of, and the futures can only be cash-settled. This feature not only divorces, at the very time of birth, the rupee futures market from the thriving OTC dollar-rupee market but may also give rise to a number of challenges.

• Information Arbitrage: Monitor110: A Post Mortem

The thesis: more and better information is being put out on the Internet every day, information that can be valuable to Institutional investors who are constantly looking for an edge. And these investors were not very sophisticated about how to best access this information; Monitor110 would use technology to help them get that edge.

While we certainly made more than seven mistakes during the nearly four-year life of Monitor110, I think these top the list.

1. The lack of a single, “the buck stops here” leader until too late in the game
2. No separation between the technology organization and the product organization
3. Too much PR, too early
4. Too much money
5. Not close enough to the customer
6. Slow to adapt to market reality
7. Disagreement on strategy both within the Company and with the Board

As we continue to build Moneyoga, we’ve come to realize that while the capital markets offer several opportunities for tech/Web startups, very few of these are viable business models in India.

It’s time to share the news that since I quit the comfortable world of monthly paychecks, I’ve co-founded a new venture: Moneyoga. The idea is an amalgamation of the following:

• A data & system based (aka quantitative) approach for Indian markets
• A strong dose of transparency - full disclosure of the risk/reward history of every trading strategy, and
• A real investment community - not to be confused with your typical messageboards, where the information content & value are inversely proportional to the number of messages

My partner in this experiment is Deepak Shenoy (site, blog) - both of us decided it was time to go full-time with our stock market interests. Deepak has been an entrepreneur before, but for me this is all brand new. The initial rush is slowly wearing off, as I realize how much work there is for us to do - whether its managing the company accounts, buying hardware, writing code, raising funds, thinking about various revenue strategies, doing PR, printing business cards, increasing my caffeine intake, . . . . the list is endless. But boy - am I glad I am doing this!

As for Moneyoga, here’s the site & blog. Given its recent birth, it will be a few weeks before you see a whole lot of activity. We are engaged in developing a prototype asap, and will keep everyone posted.

Meanwhile, if you want to get involved in any way - helping us find investors, becoming or referring an employee, or beta testing the prototype - just shoot us an email.

• Charlie Rose interviews Craig Newmark

• Paul Graham: The Equity Equation

Whenever you’re trading stock in your company for anything, whether it’s money or an employee or a deal with another company, the test for whether to do it is the same. You should give up n% of your company if what you trade it for improves your average outcome enough that the (100 - n)% you have left is worth more than the whole company was before.

• Open Source: Getting Schooled in Design

When people talked about innovation in the ’90s, they really meant technology. When people talk about innovation in this decade, they really mean design.

Focused chaos is good.

Blogging will be light over the next few days - not that it’s been too heavy of late - I’ll be off to Chennai to attend Proto.in this weekend. Should be fun - there are 23 startups presenting their ideas / prototypes, and a whole bunch of investors (both VCs and angels) wanting to invest in the best!

Check out the agenda and coverage in Mint:

. . . the basic criterion is that start-ups should have a product that they can demonstrate. The selection is made on the basis of the strength of the product as well as the maturity of the team, and whether they can differentiate themselves in the market.

. . . a number of companies in areas related to online transactions, VLSI (hardware design) and some in the enterprise solutions space. The number of companies in the mobile space has reduced.

The venue is IIT-M; never been there, but heard it’s quite nice. Only thing that scares me is July weather in Chennai!

• Paul Kedrosky: Favorite Three Questions for Early-Stage Companies
  

1. I’m a star prospective employee (salesperson / engineer) you’d like to hire. Recruit me.

2. I’m a nervous prospective customer. Gently size the opportunity, and then sell me.

3. I’m an angel investor you’ve just met. You have one minute, so get me interested in taking you seriously.

• Venture Hacks: Fund raising advice

Non-valuation terms are more important than valuation. Valuation is temporary, control is forever. If you don’t control your future, your current valuation is irrelevant.

Your current valuation is irrelevant if the board forces the company to raise a low-valuation Series B from existing investors by rejecting offers until the company is almost out of cash.

• Marc Andreessen: Bubbles on the brain
  

If you’re going to listen to people who predict bubbles or crashes, you have to be ready to stay completely out of the market — the stock market, and the technology industry — almost every year of your life.

If you’re going to call a bubble on the basis of lots of bad startups getting funded and failing, then you have to conclude that the industry is in a perpetual bubble, and has been for 40 years.

• Financial Express: Stock appreciation rights soften ESOP blow

Companies are exploring stock appreciation rights (SAR) to get over the blow dealt by finance minister P Chidambaram on employee stock option (ESOP) plans in this year’s Budget.

In SAR, a company gives its employees a formal option to profit from any appreciation in the value of its shares. It is, therefore, a stock option. But, it is different from Esops that do not require employees to pay for the SAR when it is offered. Instead, they pay when they exercise their right to buy it.

• Mint: Venture capitalists ready wallets to revive funding for start-ups

Venture capital firms, led by Silicon Valley’s best of breed, have raised close to $2 billion (Rs8,000 crore) for investment in India since January 2006.

Key target areas include product development, the Internet and mobile, and next- generation outsourcing services. Some of it will fund consumer services businesses in the retail, hospitality, health-care, entertainment and media sectors.

Most are looking to invest between $200,000 and $5 million per company. The typical investment model would be to enter a company with seed funding, which could be as small as $75,000, and scale up as the company grows. The investment horizon in each company would be three-five years.

I came across this summary of Seth Godin’s book “The Dip”. It boils down to this:

This ‘be the best in whatever you do’ mentality is not only a hallmark of highly successful companies in most industries, but they also usually have a cult-like customer base (think Apple).

Here in India, how often do we come across companies obsessing over creating the best products / services / customer service?

For all the hype surrounding venture capital, most VC firms have delivered pretty mediocre returns (via Venturewoods):

Look at the bottom 25% VCs and their median return of 20% p.a. in the late 1990s - no wonder the limited partners (LPs) are unhappy with all but the “A” grade VCs such as Sequoia, KPCB, etc.

Have VC invesments in India fared any better?

Via Chris Anderson of The Long Tail book/blog, here’s a very interesting piece of research: A practical methodology for analyzing long tails, by Kalevi Kilkki: This article provides a simple formula and a practical methodology for analyzing long tails. The same model can be applied to topics as diverse as books, search phrases, size of companies, and geographical distribution of populations.

In my opinion, the long tail concept - and perhaps Kilkki’s model - should be a tool in any technology entrepreneur’s (and investor’s) arsenal. The success of Amazon, Netflix, eBay, etc. can be better understood in this context - and can be applied while defining a new business model, especially for Internet startups.

Anderson argued that products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, if the store or distribution channel is large enough.

The primary value of the internet to consumers comes from releasing new sources of value by providing access to products in the long tail.

In India, I am sure that we will see a major long tail success story; here are some wild guesses as to where it might come from:

• Regional language blogs / portals / online communities / audio-video
• Micro-lending (similar to Prosper.com)
• Concierge services (as in “we will take care of your chores for Rs x. per month”)

To some extent, this is dependent on how fast PCs, Internet access and broadband connectivity can penetrate the world of the typical Indian. Nevertheless, there are plenty of inefficiencies and/or opportunities waiting for the right business model.

Mint reports on the growing number of Money Managers providing wealth management services; here are some statistics:

• There are ~ 83000 Indian millionaires, according to a 2006 report on Asia Pacific wealth by Merrill Lynch-Cap Gemini.
• Client Associates, a boutique wealth management firms, has 250 clients in Mumbai, Delhi and Bangalore.
• Verdant advises senior corporate executives, professionals and mid-sized entrepreneurs with an ability to invest at least Rs 1 crore.
• Elite has about 178 clients, including NRIs, in several states.

A nice summary of the PMS/WMS landscape in India.