GalaTime

MediaNama: Rediff CEO Ajit Balakrishnan On 3G Licensing, VCs In India, Indic Languages, Broadband, E-Commerce

“At around 50 million users you’ll come across the language barriers. What do we need to do? We need some policy initiatives, we need linguisting tools, voice to text needs to be funded by someone. These things take money. A grant of 4-5 crores (from the government).The present view is - let Google do it, Yahoo do it, Rediff do it, but it’s the wrong approach. Tech and tools need to be freely available. If one or two people do it, it doesnt become an industry. The Ministry of IT has an Annual Budget of Rs. 1000 crores.”

The increasing popularity of Quillpad, Lipikaar, Google Transliterator, etc. should help.

“With mobile commerce, the challenge is margins. If the operator keeps 50%, no point. We need a payment system where the margin is no more than 1-3%.”

Not likely to happen until the big operators stop growing (in terms of subscriber / ARPU) at a double-digit pace and start looking for other revenue streams.

“When the IAMAI had initially approach the government for assistance related to broadband, they found they had shot themselves in the foot. Balakrishnan explained: “A part of the reason why the Government support did not happen is that the IAMAI focused on stating bigger and bigger user numbers. They quoted 50 million, when the base was 10. Most of members of IAMAI committee were youngsters looking to raise capital, so larger numbers helped them. When we went to the government, they said - what’s the problem? (i.e. you have a large base anyway).”

Ah yes, the need to show a large and fast growing market (the J curve / hockey stick) while pitching to VCs. Been there, done that. :)

“What we miss are the Angel investors, who will come and give you 10-20 lakhs. I know there are some who do that, but you need some 5,000-10,000 from them. What’s missing is a provision in Indian Income Tax act, which allows you to write off angel investments.”

Amen! Couldn’t have said it better.

Early-stage (seed) funding is where the biggest gap - and opportunity - is. At Venture Center, we are doing something about this. But unless the GoI pushes reforms in this space (eg. favorable tax treatment for angels/VCs setup as LLPs), the 10L-1crore funding scene will remain stagnant.

Via Paul Kedrosky, Aguanomics: How Drought Promotes Entrepreneurship

… it is unmistakable that the most drought prone states, like Rajasthan and Gujarat, produce by far the most Capitalists while the well watered states like Kerala and West Bengal produce the most Communists. [Kerala and West Bengal have regularly voted Communist for at least the last 20 years and are the only states in India to have done so.] What is even more remarkable is that it is the rainfall/drought variable that appears to dominate regardless of variation in religion, ethnic group, or differential exposure to foreign trade or colonialism.

… ethnic Chinese arriving in tropical rainforests from colder, drier, more seasonally affected regions of China had a cultural advantage over their tropical counterparts when it came to saving, investing and other entrepreneurial activities. If “every cloud has a silver lining”, maybe occasional droughts have a silver lining as well.

Interesting take. Not quite tested on a statistical basis. But it’s easy to relate to, especially for me - I’m from Kutch, the driest part of Gujarat, and growing up it was obvious that entrepreneurship was a the way of life in the community, and getting a job meant something was wrong with you!

The Science of Entrepreneurship

I think to build a great company you need to have a well defined hypothesis based on a theory for a market’s evolved future.

And I think the most effective way to enter that market is to build a company like a scientist testing the theory. As an experiment.

True. Or do what Felix Dennis suggests in How To Get Rich

Keep your eye on the ball marked “The Money is Here”.

• Economist: Global Heroes, A special report on entrepreneurship

This special report will argue that the entrepreneurial idea has gone mainstream, supported by political leaders on the left as well as on the right, championed by powerful pressure groups, reinforced by a growing infrastructure of universities and venture capitalists and embodied by wildly popular business heroes such as Oprah Winfrey, Richard Branson and India’s software kings. The report will also contend that entrepreneurialism needs to be rethought: in almost all instances it involves not creative destruction but creative creation.

… the threat to entrepreneurship, both practical and ideological, can be exaggerated. The downturn has advantages as well as drawbacks. Talented staff are easier to find and office space is cheaper to rent. Harder times will eliminate the also-rans and, in the long run, could make it easier for the survivors to grow. As Schumpeter pointed out, downturns can act as a “good cold shower for the economic system”, releasing capital and labour from dying sectors and allowing newcomers to recombine in imaginative new ways.

• Morgan Stanley: Trouble Zone and Debt Rollover Risks

The Trouble Zone is now facing the challenge of external debt repayment-related capital outflows. Indeed, in 4Q08, capital outflows from debt repayments not rolled over have probably been higher than portfolio equity outflows in Korea and India. These three countries have the highest ratio of external debt to FX reserves. They also have the highest ratio of short-term debt to FX reserves. Korea and Indonesia stand out on this measure, leaving India a distant third in the ranking.

The Eastern European credit turmoil has aggravated the problems for the Trouble Zone in AXJ. Deleveraging in the European banking system is indeed more concerning for the Trouble Zone than the deleveraging in the US banking system. According to the BIS, as of September 2008, about 52% of foreign debt claims on these countries were by European banks. While some of the large, decent-quality companies should be able to roll over their external debt (albeit at higher rates), the small and mid-sized companies are likely to find it hard to get their debt rolled over. In Korea and India, small and medium-sized companies had raised a significant amount of external debt over the last few years.

• Mint: Yield on 9-year bonds top 7% on oversupply

Bond dealers now fear that yields will touch and even cross its July 2008 highs of 9.5% in early next fiscal year beginning 1 April, if the government does not sell its bonds directly to the Reserve Bank of India (RBI). The government is estimated to borrow Rs3.62 trillion next year. It is raising Rs2.6 trillion from the market this year.

Banks will not be able to book treasury profits this quarter and may even have to book losses to show their bond holdings at the current market price rather than at the price these bonds were bought.

Remember those gung-ho articles from December/January - “bonds are the next great investment” ? The fast & furious drop in yields to nearly 5% was a sure sign of retail money flooding into debt funds. Now that most of them have taken a bath, we are getting closer to a good entry point to go long bonds - perhaps in May?

• 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.