Vinit Nijhawan: Serial Entrepreneur, Venture Capitalist

Investing in University Spin-Offs

This was published in Silicon India April 2011.

    US public and private research universities are by far the best in the world at educating young people and conducting basic and applied research. Harvard College was founded in 1636 and was followed by many other universities up and down the east coast. However the first university to emphasize research along with education was Johns Hopkins, founded in 1876 with a $7 million gift from railroad baron Johns Hopkins. Johns Hopkins’ model was partially adapted from German research universities. Following Johns Hopkins many US industrialists became benefactors of private and public research universities: Rockefeller to the University of Chicago in 1892; Carnegie Institute in 1902, etc. 

            The Federal government established the National Academy of Sciences in 1863 and the Morrill Act was signed in 1862 provided federal land to states to establish public universities. The first “land-grant” college was Kansas State University which started in 1863 (where my father went for his engineering degree in the late 1940s). Michigan State University, Pennsylvania State University, Rutgers, University of Wisconsin followed closely behind. The Federal government also passed the G.I. bill after WWII that allowed hundreds of thousands military personnel to get university education. Federal institutions like the National Science Foundation (NSF) and National Institute of Health (NIH) were also created right after WWII, launching the 60-year technology led economic boom the US has enjoyed. Between 1940 and 1950, the contribution of the federal government to university incomes increased from $39 million to $524 million. The direction of university research shifted away from research intended for local industry application to more basic scientific research, with applications to national goals in defense and health care.

            The economic impact of US research universities in commercializing their research has been immense: 

• Since 1939, Stanford faculty and students have founded more than 2,454 companies, such as Hewlett-Packard, Cisco, Sun Microsystems, Google, Yahoo, contributing to the economic dynamism of Silicon Valley.
• In 2009 MIT published Entrepreneurial Impact: The Role of MIT.  In 2009 there were 25,800 active companies founded by MIT alumni that employ about 3.3 million people and generate annual world revenues of $2 trillion, producing the equivalent of the 11th-largest economy in the world.

• According to AUTM (Association of University Technology Managers) just in 2009: 658 new commercial products introduced; 5,328 total license and options executed; 596 new companies formed; 3,423 spinoff companies still operating as of the end of 2009
• Gulbranson and Audretsch (2008) studied two programs centered in engineering schools, the MIT Deshpande Center for Technological Innovation and the UCSD von Liebig Center. After granting less than $10 million to projects, these centers helped advance 26 spin-offs that have raised a total of $160 million in outside investments.
• Between 1980 and 1999, university spin-offs in the United States created $33.5 billion in economic value (Cohen 2000), at an average of $10 million per startup

     In 1980, Congress passed the Bayh-Dole Act that enabled universities to own and manage the intellectual property (IP) arising from federally sponsored research. Universities were obligated to commercializing this IP by transferring it to existing and spin-off companies. The resulting licensing revenue was split between the university and the faculty inventor. Shortly after 1980, spin-offs and products based on university IP rose steeply as universities and faculty were incentivized to commercialize their inventions (see charts below).

         Boston University (BU) was established in 1869 as a divinity school. It became a major commuter university in the Boston metropolitan area with about 300,000 living alumni. More recently it has become a renowned research university with over $400 million annually in research funding going to over 2,000 laboratories.  BU has 19 colleges and schools with 3,300 faculty, 16,000 undergraduate and 13,000 graduate students. The Office of Technology Development was established in 1975 to commercialize BU’s research. 

    BU established a venture capital fund called the Community Technology Fund in 1975. By 2007 it had invested $14M with one significant exit: A123 Battery, an MIT spin-off that was incubated at BU’s Photonics Center incubator. In 2007 the new President of BU, Bob Brown (formerly MIT’s Provost), decided that BU should not have a VC fund and the Community Technology Fund was shut down. The un-invested portion of the fund was placed in the university endowment and the Office of Technology Development receives an annual draw to support BU spin-off activities. These are invested in two programs: Ignition Grants that advance laboratory research towards commercialization and Launch Awards that provide bridge equity funding for BU spin-offs that will raise venture capital funds.

    The university spin-off process requires tremendous support from university tech transfer offices. Faculty are generally naïve about spin-offs and have to be educated about the process. Entrepreneurs find it difficult to identify viable spin-off research projects and have to be matched to the appropriate project. The scale of the opportunity is immense, for example at BU at any given time we are managing about 600 commercialization projects. Each one has a unique path to commercialization. These can be broadly broken up into two distinct paths: license to an existing company or license to a spin-off company. Licensing to an existing company is ideal but it is hard to match existing companies’ R&D plans with university research. One has a lot more control of the commercialization process with spin-offs though not with follow-on funding from VCs.

    At BU we have developed a New Ventures group and process that has the following components: (1) the Kindle Mentoring program that has about 100 start-up CEOs and executives that are matched to spin-off companies; (2) Gap funding with Ignition and Launch awards; (3) student analysts who help with go-to-market strategies and (4) a New Ventures director who orchestrates these assets. They key to obtaining follow-on funding from VCs or other non-equity sources of funding is to match the right entrepreneur/CEO with the appropriate project at the right time. 

    I joined BU in January 2010 to  transform the Office of Technology Development. Having no background in university technology transfer turned out to be an asset as I brought new thinking into the process. We are one year into a three-year plan to transform the way university technology commercialization is done. A key component of the plan is to create 10 spin-offs a year from BU intellectual property and know how. At the end of 2010 we had a dozen spin-off in the market raising equity financing. Several have raised small amounts of seed financing from angels and recently we received our first tier 1 VC term sheet. Stay tuned.

 

India Trip December 2009: Part 5

January 5, 2009 -- The biggest challenge and therefore opportunity faced by India is its demographic dividend: there are over 500 million youth under 25 years of age and 350 million under 15 years. 30% of them are in cities. A small percentage of these youngsters will obtain university degrees. The majority will need vocational training. The government has understood this challenge and has set up the National Skills Development Corporation that is developing policy to educate 500 million people in the bottom of the pyramid in vocational skills. These people are retail staff, telecom field workers, commercial vehicle drivers, rural consumer sales, mechanics, factory workers, etc.

While the scale of the opportunity is huge, the cost of training these workers has to be extremely low as most of them don’t have any assets and will either have to be subsidized by the government of will have to take loans. Most of these people come from families that are not in the organized sector, in other words do not have any concept of structured employment so the drop out rate is high. Many entrepreneurs have entered the education market in India, the number of new universities and K-12 schools is staggering. Very few entrepreneurs are willing to enter the vocational training market, as it is very difficult to make money.

Understanding this, the national government has begun to take the lead in vocational training. For example, the government has taken 150 of 1,500 government-run Institute of Technology (ITI) and entered into public-private partnerships (PPP). Other government departments are paying private sector vocational training companies a fixed amount for every person they train successfully.

Most major US universities are engaged in discussions on establishing some presence in India. MIT has been given a five-year contract to establish a Global Health Institute in Delhi. Rumors are that MIT may establish a joint venture business school in India soon. Bob Brown, President of Boston University will be in India in a couple of days. Boston University just established a new position Vice President for Global Operations to lead BU’s efforts in establishing global presence. India is a key part of this vision.

The current generation in India is called the “why” generation. They are questioning all aspects of Indian life. This after generations of children being told what to do and how to think by elders: parents, teachers, etc. In the urban, middle class they are driving a consumer culture, similar to America’s: coffee shops, bars, cars, clothes. They are also changing social mores, equality for women, homosexuals and in fact getting laws changed to reflect these new mores. They are also globally savvy, plugged into Facebook, sometimes working for multinationals and traveling abroad frequently. The bottom of the pyramid, particularly in rural areas, is completely disenfranchised from this global reality and how India deals with them in the next two decades will determine whether it remains a pluralistic, democracy. A possible alternative is a populist, labor led, violent revolution.

 

India Trip December 2009: Part 4

December 29, 2009 -- The ruling Congress Party turned 125 years old today to muted fanfare. Founded in 1885, it became the main opposition to British rule, eventually coming to power in 1947 when India reclaimed its independence. It remained in power for thirty years, losing in 1977. Since then it has been in power off and on. One constant has been the leadership of the party, an unbroken line of Jawaharlal Nehru, his daughter Indira Gandhi (assassinated by her Sikh bodyguards), her son Rajiv Gandhi (assassinated by Sri Lankan Tamil separatists), Sonia Gandhi (Rajiv’s Italian born wife) and soon if his mother has her way, Rahul Gandhi. Apart from a brief period of emergency rule brought on by Indira Gandhi in 70’s, India’s messy democracy has somehow kept the country together.

Nehru ruled India for close to twenty years after independence. People have faulted him for taking India down a socialist, planned economy path called the License Raj, with most industries nationalized and bureaucrats deciding who produced what. Free market liberalization began when Rajiv Gandhi came to power in 1984, bringing in a new generation of bureaucrats. True market reform was forced on India in 1993 when the country almost ran out of foreign reserves, the Prime Minister today, Manmohan Singh was Finance Minister then. Nehru is now recognized for establishing world class institutions that are now bearing fruit: the armed forces research centers, post secondary educational institutes (Indian Institutes of Technology, Indian Institute of Management, All Indian Institute of Medicine), the Indian Space Research Organization, Central Drug Research Institute and the Bhabha Atomic Research Center .

These were institutions of hard power. India has a rich cultural history that was nearly extinguished during British rule. After independence it began to be revived, patronized by the newly wealthy in India and the Indian Diaspora primarily in the UK and US. There were the classical arts and then there was Bollywood cinema. Practically every India, rich or poor, knows the words to all the popular film songs from movies of their generation. In a country as diverse linguistically and economically as India, Bollywood has been as instrumental in keeping the country together as democratic politics. As I have traveled around the world, in Asia, the middle east, Russia, I have been astonished that people have know all the old time Bollywood stars. This is the projection of India’s soft power.

The political class came to power in a time of Gandhian idealism, with the British relatively peacefully extricated from the subcontinent. The political class quickly grabbed most of the reins of power, nationalizing all major industries in the 1950s and 1960s. This power corrupted the political class, enriching themselves to obscene levels and erecting statues of themselves. Fortunately the entrepreneurial middle class is slowly eclipsing the political class and there is a feeling of inevitable reform of the government’s 40 million employees.

The Partition of India and Pakistan was painful and has been a drag on both countries economies and psyches’ since Independence but India has moved on, remaining a secular democracy driven by a free market economy. Pakistan has remained a feudal state, ruled by a tight political class supported by the military. India is coming to the realization that a stable Pakistan is better for India than a breakup of Pakistan. The middle classes of both countries have similar aspirations; the problem is that in Pakistan the political class is dominant and need the “threat” of India to stay in that position.

India Trip December 2009: Part 3

December 27, 2009 -- There are now 500 million cellphone subscribers in India. In the major metropolitan cities, penetration rates are close to US levels. A golf caddy, who makes about Rs 300 per day ($6), has a cellphone so golfers can reserve him for a round. 500 million subscribers appears to be a large potential market for mobile value added services  (VAS)such as cricket scores and Bollywood ringtones. However unlike the US where an iPhone app can reach tens of millions of consumers, India has a fragmented demographic. There are five dominant cellphone operators in India, each with about 100 million subscribers. Mobile VAS is becoming a big opportunity in India. Operators have to be looked at as 60-80 “companies”. Each of India’s 30+ states is different in consumer language, culture and therefore needs. Most of the cellphone growth is now in rural areas that still retain centuries old way of living.

Indian startups have learned to operate in a high growth, low cost and fragmented market.  In practically every consumer category, India is the toughest market in the world: in telecom India has the lowest ARPU (average monthly revenue per user) is going from $7 to $2-3. India is manufacturing the cheapest car in the world, the Tata Nano which retails for Rs. 100,000 ($2,000). A tandoori roti which costs $2 in a Boston restaurant can be purchased for Rs. 2 in the alleys of old Delhi, a heart bypass surgery which costs $50,000 in the US is available for Rs. 50,000 in India with equal mortality outcomes.

China, which is following the Japanese and Korean economic model of supporting oligopoly, scale-size companies in every industry, with access to low cost capital, Indian companies are engaged in vicious, even unhealthy competition, that requires constant innovation to bring costs down. Investment capital is costly, therefore most companies operate with bare minimum up-front capital investments and a pay-as-you-grow investment model.

I visited an Akshay Patra kitchen, a charity providing free mid-day meals to school children, and marveled at how they are delivering over a million meals daily for $3 per child annually. Operating in tbd cities across India, each location customizes meals to suit local tastes, rice in the south and wheat rotis in the north. Founded by a religious Hindu organization, it is being financially and organizationally supported by a number of IT millionaires, including Narayan Murthy of Infosys and Boston’s Desh Deshpande. Akshay Patra is innovating in manufacturing (specialized roti machines that spit out 30,000 roties and hour), supply chain efficiencies and IT infrastructure to manage and track health and success outcomes for the children.

Emerging from the chaos that is India are entrepreneurs who use Juggar to get around daunting obstacles: an inefficient and corrupt government, consumers with very little buying power and infrastructure that cannot keep up with demand. These entrepreneurs, once they establish scale operations in India, will be ready to compete in global markets.

India Trip December 2009: Part 2

December 22, 2009 -- I have come to Jaipur, a major tourist attraction, for the TiE Charter Member Annual Retreat. 250 charter members from across the 53 chapters of TiE are in attendance. These are some of the most successful entrepreneurs in the US, UK, India, Canada, Singapore, Malaysia and Japan. The retreat begins with a meeting of the Board of Trustees of TiE, of which I am one. In addition to a number of housekeeping issues, we agree to accept a proposal to start TiE’s 54^th chapter in Brussels. There is a sizeable contingent from Boston, including Desh Deshpande (Chairman Sycamore and early investor in Airvana and A123 Battery), Shikhar Ghosh (Founder OpenMarket, HBS professor), Venkat Srinivasan (founder eCredit and Rageframe Networks), Vik Mehrotra (CEO of the Venus Capital hedge fund), Jit Saxena (Chairman Netezza), Amit Kanodia (CEO of Lincoln Ventures)and Amar Sawhney (CEO i-Therapeutix). There is no other event that provides a snapshot of the global health of entrepreneurship.

Not only a major tourist destination, Jaipur also is the jewelry capital of India. Coincidentally the annual jewelry trade show is happening while I am here. Had a chance to browse the show with my wife. Despite a Rs 400 ($10) entry fee, which is a lot for India, the show has a throng of consumers looking at the latest necklace, earring and bracelet designs. There is probably hundreds of millions dollar worth of jewelry at the trade show and there are a lot of transactions happening. Indian women buy more gold and jewelry than any other country. No sign of recession in Jaipur.

Jaipur was the seat of one of the richest Maharajas in India. It is also an example of how concentrated wealth can spawn the most amazing architecture and art but can also corrupt and unravel dynasties. The Maharaja of Jaipur is now an ordinary citizen with a fraction of the wealth his grandfather had.  I am reminded that empires fall for one major reason, being overstretched militarily. This was partly the cause of the fall of Jaipur’s Maharaja’s, they had to spend a large part of their treasury in fighting wars with neighbors and then with the British. This an important lesson for the US, we are running huge deficits to fight wars in Iraq and Afganisthan and also to maintain military presence in Europe, Asia and now the Middle East and Central Asia.

Had a chance to listen to the Standard Charter Bank’s Asia CEO chat about economic issues. Some very interesting insights:

-       There are three economic drivers for countries: financial resources (China, Quatar), natural resources (Canada, Australia, Brazil), adaptation to change (US, South Korea). Other countries have to pick one of these strategies

-       The US consumer has been the driver of the world economy over the past few decades, now the US consumer has to spend less and save more whereas the Asian consumer has to spend more and save less, something the Chinese consumer in particular will have to learn to do

-       There is huge consumer spending growth opportunities in China and India: the US consumer buys an average of 7 pairs of shoes annually. Chinese and Indian consumers 0.1 shoes per capita.

-       Retail forms  0.2% GDP in India (in spite of having 15 million shops), Walmart alone is 0.3% GDP in the US

 

India Trip December 2009: Part 1

December 17, 2009 -- Driving from Delhi to Jaipur on the Delhi-Jaipur highway.  The new 10-lane Gurgaon highway, opened a year back, is already at capacity. The first 30-miles are stop and go traffic through the industrial suburbs of Delhi. The Maruti-Suzuki car factories and Hero-Honda motorcycle factories and their parasitic ecosystem for auto parts manufactures ring the highway. Commercial trucks make up two thirds of the vehicles on the road, many of them dilapidated and overloaded, lumbering along at fifteen-twenty miles and hour. There is a murky haze over the highway and the industries we are passing by and the winter sun feels distant. The trucks have grizzled, unkempt drivers, many with a navigator/helper riding shotgun with his arm hanging out waving on overtaking vehicles, who blast their horns for added caution.  Like in America, these trucks are the blood and the roads the arteries of the economy. Unlike America, but like many things in India, they are inefficient, supported by abundant, therefore low cost, labor. 

I am back in India after ten months, ostensibly attending the TiE charter member retreat and the annual TiECON India conference (dubbed the TiE Entrepreneurial Summit or TES), this time in Mumbai. The theme of the conference is Jugaad, a very Indian management concept, or lack thereof. Jugaad means to cobble together a solution to a problem quickly and with no planning and getting around any obstacles such as government corruption. Markets around the world are changing more rapidly, driven by labor mobility, online commerce and technology. Planned economies and business culture in places like Japan, Germany are at a disadvantage. India perhaps has an advantage with its Jugaad culture in supplying to fast changing markets. Of course in markets such as infrastructure,  Jugaad  is a disaster and that is evident in India.

This Jugaad management style that Indians, including Indian-American entrepreneurs, employ can be a advantageous in fast changing or shall we say chaotic environments. The dot com era was such a period and Indian-American entrepreneurs, especially in Silicon Valley, thrived. A similar environment exists in India today, with rapid urbanization, a growing middle class that wants all the same products and services Americans are used to. India has bounced back from the recession in less than a year, with record car sales in November. Annualized GDP growth dipped to 6% at the depth of the recession but is back to over 8%. Unlike China, this growth is driven by domestic consumption, not exports or government spending on infrastructure. Entrepreneurship is thriving in India. TES has 2,000 people registered. By comparison TiECON in Silicon Valley, the largest gathering of entrepreneurs in the US, had 4.000 registrants in May 2009 and TiECON East in Boston had 800.

My Calendar

So you want to get funded...

I have been both an entrepreneur and a VC and now I am teaching entrepreneurs how to deal with VCs at Boston University. In the end raising money from VC is a sales process not unlike selling a product/service to a customer. You first have to establish the need: (1) is the VC partner interested in making an investment in the space you are in and (2) how many boards are they on, the fewer, the more likely they need to make another investment. Next you have to identify the targets: this is much harder since VCs needs are dynamic, sometimes as dynamic as what they read in WSJ that morning about a space. Then you have to make the sale: my experience is that VC partners make their mind up to promote your investment within 15 minutes of seeing your pitch--move on if the body language is not totally supportive of you. Lastly and the most difficult is the close: without real or perceived competition it is not in the VC's interest to close quickly--their risk goes down over time as your company/idea matures. Net net it is a difficult sales process for most entrepreneurs, especially first time entrepreneurs and it is time consuming. Finally it is crucial to manage the post-sales process effectively: my recommendation to VC-backed CEOs is that they have to allocate 15% of their time to "investor relations". It feels like overhead, but it is crucial to manage your VC investors in good times so that they are supportive in bad times.

Liberal Lion and Healthcare

I have been thinking about Ted Kennedy from this morning when my son commented about our meetings with him. These were brief "photo op" meetings but left an impact on all my sons. What made him memorable was that he was authentically personable and he spoke eloquently but with an economy of words. In some ways he epitomized the "great generation" that made America the envy of the world. I lament his passing to our generation that seems to have lost the qualities of (1) holding steadfast to beliefs yet be able to debate them and not call others who don't accept your beliefs pejoratives like "LOSER", (2) humility so we acknowledge flaws in ourselves (unlike Mitt Romney's planned book: No Apologies), (3) humanity to recognize that profit is not the only measure of happiness.

As the healthcare debate, if you can call the name-calling slugfest playing out at town hall meetings and airwaves a debate, gathers steam, the passing of Ted Kennedy is a serious setback for Obama. The primary reason for healthcare reform is not to cover the uninsured but to reduce the cost of healthcare to those who are insured. No one in this country is denied access to healthcare if they are uninsured--hospital emergency rooms are filled with uninsured patients every day. The cost of providing healthcare to the uninsured is paid by taxpayers and consumers since hospitals pass on their costs to Medicare and insurance companies. The spending spree on US healthcare infrastructure mirrors Japan's absurd spending on highways and trains, at some point the merry-go-round has to stop. The passing of General Motors and soon the Liberal Democratic Party in Japan is more than symbolic of these excesses.

So how did the most capitalist of nations end up spending twice per capita on healthcare than most developed nations with worse per capita health (as measured by obesity, longevity, etc). The market is not supposed to allow this and will certainly correct itself, right? On the contrary, we have set up the market so consumers believe that unrationed healthcare is a right and like all markets, producers (doctors and hospitals) are incentivized to sell consumers whatever they want. The key part of this equation is that the consumers not only believe that unrationed healthcare is a right, they also have no idea how much it costs. It is left to the insurers, including Medicare, to "negotiate" these costs with the producers. They don't need to negotiate hard as they can pass on these costs to consumers via insurance premiums and taxes.

The solution is simple, consumers have to directly feel the pain of the costs of healthcare that they are getting so they will self-ration care. The problem is that the only market mechanism to directly feel the pain is to pay for services rendered. Of course one could buy insurance just like one buys life or disability insurance. The problem is that many people, young and poor, will not buy insurance and will not be denied access to ERs. Therefore let us mandate "basic" insurance for all that includes disincentives for unhealthy lifestyle choices: obesity, driving too fast, riding a bike without a helmet (not completely tongue-in-cheek). The question is what does basic insurance deny you that premium insurance doesn't, eg would basic insurance allow "elective" surgery such as a kidney transplant? What if you were paying for basic insurance for years and then switched to premium just before an elective surgery, would that be allowed (a bit like signing up for AAA when your car is broken down so you get a free tow).

Anyways I am probably covering ground that many healthcare policy analysts have. The point is that that healthcare reform is complex and will need thoughtful debate on how it is implemented. The thought leader in this debate was Ted Kennedy and with his passing I dread the outcome. I especially worry that the purveyors of America is the Best are going to ignore Canada and Switzerland and even India in getting ideas of what works and what doesn't. America is best when it attracts the best brains and ideas from around the world and provides products/services to it venturesome consumers.

Academia Beckons

I joined Boston University (BU) as a Lecturer and Executive-in-Residence in January 2008 and have been teaching courses on Entrepreneurship to MBA students. My academic career has expanded recently with two projects:

• I am collaborating with a friend and colleague Vivek Wadhwa at Duke University (I now am an Adjunct Research Scientist at Duke Pratt School of Engineering) to expand on his study about the impact of entrepreneurs on technology startups in the U.S. We are researching the impact of skilled immigrants on other sectors such as academia, retail, hospitality, healthcare, etc.
• I am launching the BU Kindle mentoring program to educate faculty, students, and alumni to facilitate early stage business formation. BU Kindle provides a unique opportunity for seasoned entrepreneurs and business executives to have direct and meaningful interaction with the BU community.

Boston University Kindle Mentoring Program

MIT has several mentoring programs that have been instrumental in MIT's success at commercialization and company formation. The MIT Enterprise Forum, the MIT Venture Mentoring Service (VMS), the catalyst program at the Deshpande Center and the MIT-HST Biomatrix are providing mentoring services to different constituencies.

BU has 3,900 faculty, 2000 laboratories, 13,000 graduate students and received $336M in external research funding in FY2008 (July 2007-June 2008). According to the Association of University Technology Managers 2006 licensing survey of US and Canadian institutions receiving >$250M in research funding, BU was at the bottom of the 3rd quartile for research dollars spent per license granted.

BU Kindle is a step towards accelerating commercialization of BU intellectual property and to encourage BU faculty and students to launch commercial ventures. BU Kindle will connect BU faculty and students to seasoned entrepreneurs and business executives in Massachusetts by creating a custom mentoring model from the ones at MIT, including the MIT VMS.

BU Kindle joins several other programs at BU that support and encourage commercialization:

Program	Mission	History	Budget
Launch	Upto $250K investment in spin-off research.	Renamed five years ago, predecessor created in 1998.	$3M
Ignition	Ignition awards are $50K for research with commercialization promise.	Renamed five years ago, predecessor created in 1998.	$350K annually
Coulter	Commercialize biomedical research.	Coulter Foundation funding 6 centers across the US for commercializing biomedical research. Began 2-3 years ago.	$1M annually
Fraunhofer Alliance	Automation and manufacturing engineering projects pre-commercialization.	One of fifty Fraunhofer Institutes. Is on BU campus. Established in 2005. 50-50 shared royalties.	$1M annually for five years. 50% funded by BU.
BRIDGE	Boston University Clinical and Translational Science (BU-BRIDGE) Institute.	2008 NIH grant.	$23M over 5 years
Business Incubator	Incubate BU technology-related companies, primarily for government-funded research.	Founded 2000.	Commercial lease
BDIC	Incubator within Biosquare for life sciences research.	Founded 1994.	Commercial lease

Additionally, BU created ITEC in 2007 with the mandate to integrate entrepreneurial activities across the university.  ITEC has developed several innovative programs, including eSPRIT (Entrepreneurial Students Participating in Research and Innovative Technologies), and a $50K business plan competition for students. Furthermore, BU students run several entrepreneurial focused clubs where students gather to learn about opportunities and form teams to pursue opportunities.

What's next in Tech?

May and June are the months for entrepreneurship and technology conferences. I just returned from TiECON www.tiecon.org in silicon valley. I was pleasantly surprised at the attendance and generally upbeat mood of the participants. I did not see much change from last year, other than how many "in-between gigs" there were among my friends. There was considerable excitement about mobile applications with the iPhone clearly the trendsetter. There was also much discussion about cleantech though there was much angst about whether the ITC VC model is appropriate for cleantech. TiECON East  in Boston, www.tieconeast.com, started yesterday with a rousing speech from Tim Cahill, Treasurer of Massachusetts. The hall was packed and the mood was generally upbeat.

We have attracted two conferences to Boston University (BU) back-to-back in June. On June 24 we have the BU Office of Technology Development/Xconomy event http://www.xconomy.com/boston/xsite2009/, followed on June 25 by http://whatsnext.eventbrite.com/ sponsored by BU Institute of Technology, Entrepreneurship and Commercialization/Future Forward. Both events feature Boston-area entrepreneurs and VCs and will address the gnawing question: where is job-growth going to come from in New England. Greylock moving its headquarters to silicon valley is symbolic of this area's relative decline in the ICT industry.

As in the past fifty years, sustainable job growth will be driven by technology startup activity. The combination of ambitious, technology savvy university graduates combined with smart capital is a huge advantage for Massachusetts. 55% of PhDs in Engineering are foreign-born. It is imperative that these skilled immigrants be encouraged to stay in Massachusetts, especially in startup companies. I have joined hands with my colleage Vivek Wadhwa at Duke/Harvard to continue his work to influence the skilled immigration debate in favor of entrepreneurship. It is time we created a "startup green card" with preference given to any foreign-born entrepreneur educated in the U.S. and working at a startup for at least three years. Stay tuned for early results from this BU/Duke/Kauffmann Foundation study to be published later this summer.

Why a company needs to be based in Massachusetts

This article was published in Mass High Tech magazine on May 8, 2009: www.masshightech.com.

Massachusetts is a great place to start a business. Massachusetts is similarly a necessary place for a multinational to setup a branch office. What both startups and established business need to continue to grow are: people, capital and access to markets.

People: A+

            Massachusetts has the largest concentration of world class secondary and post secondary educational institutions in the world. We have approximately 460,000 post secondary students enrolled in 117 colleges and universities across the state. Many of these students stay in Massachusetts after graduating. We are number one nationally for residents with the highest college attainment. We are number one nationally in the concentration of science and engineering graduates. In most states across the U.S., about two thirds of Bachelor degree graduates come from public universities, in Massachusetts two thirds come from private universities. Not only does Massachusetts have fabulous intellectual capital in its workers but they are also very entrepreneurial. There were 5,000 new companies started in Massachusetts over the past six months, though this is down 13% from the same period a year ago.

Capital: B-

            Access to venture and debt capital is crucial for company startups. Massachusetts is number one nationally in the number of high-tech companies per capita and level of venture capital. The venture capital industry was established in Massachusettsafter World War II, with the formation of American Research & Development (ARD) by Harvard Business School and MIT professors. Massachusetts ranks fifth in the number of millionaires per capita with $335 billion in assets. Angel investors based in Massachusettsare active but do not invest as much California angels. Additionally there is significant personal wealth in Connecticut and New York Citythat could be attracted to invest in Massachusetts startups. Massachusetts ranks number one in Federal Small Business Innovation Research contracts, a form of government funded seed capital.

 

Access to markets: B+

            Massachusetts6.5 million residents are mainly crowded inside the Route 495 ring. Enjoying the nation’s third highest per capita median income, this population is an early adopter of new technology and services. For a European or Asian company, Massachusetts is ideally situated to access markets in northeastern U.S., comprised of nine states that accounts for 25% of the GDP of the U.S. Furthermore Massachusetts is number one in receipt of Federal R&D expenditures for academic and non-profit institutions.

Key industries in Massachusetts are Life Sciences (ranked #1 in the US), Information, Communications & Technology (ICT) (have fallen behind California), Cleantech (neck-in-neck with California), Defence & Aerospace (have fallen behind DC, Texas and California), Financial Services and Leisure (great arts, sports and general cultural scene). Other old industries that are experiencing technology-led reemergence and where Massachusetts excels are industrial robotics, advanced transportation, and renewable energy.

How we can improve:

1.      Get better at commercializing research conducted at universities. MIT is at the top of the game but Harvard and Boston University (BU) are laggards. For example BU has about 4,000 faculty, 2000 laboratories, 13,000 graduate students and received $336M in external research funding in FY2008. According to AUTM’s (Association of University Technology Mangers) 2006 licensing survey, of the US and Canadian institutions receiving >$250M in research funding, BU was at the bottom of the 3^rd quartile for research dollars spent per license granted.

2.      Encourage millions of Massachusetts’ alumni to communicate through and occasionally gather in Massachusetts. Let’s create an annual alumni gathering in Boston, coordinated by all colleges. We can have sub-fairs at this gathering with themes such innovation, arts, sustainability, healthcare, etc. Economic activity will naturally arise from making Boston the ‘knowledge hub’ of the flat world.

3.      Increase the amount of seed capital for startups by: (a) reenergizing MTDC (Massachusetts Technology Development Corporation); (b) encourage non-Massachusetts angels to invest in Massachusetts’ startups.

4.      Actively retain immigrants who complete advanced degrees at Massachusetts’ universities by helping them get permanent visas from the federal government. In return they agree to stay in Massachusetts for defined period.

Predictions for 2009

Here are my predictions for 2009:

1. Buzz--The buzz topic of 2009 will be the shrinking of venture capital and private equity. The business model for this financial asset class is in need of change and until it does Limited Partners will lower their exposure to VC/PE.
2. Exits--We will see a dramatic drop in M&A activity as a result of tight credit markets. We will see some recovery in the IPO market.
3. National--We will experience a severe recession.
4. International--India will recover from it's slowdown by Q2'09. China will not recover until 2010. 
5. Mobile--The emergence of client-server software on smartphones and the growth of BtoC enterprise mobile apps (what I call CRM 3.0).

Here is how I fared with my 2008 predictions:

1. Buzz--The buzz topic of 2008 will continue to be energy and cleantech. We will see a huge growth in VC investments in such companies. I was right on. CleanTech investments by venture capital firms reached $4.1 billion up 52% with 277 deals in 2008. Source www.pwcmoneytree.com. 
2. Exits--We will see a dramatic increase in cross-border M&A with many Indian and Chinese companies acquiring US and European companies. I was dead wrong. China cross-border M&A dropped by 30% and India by 51% in 2008. 
3. National--We will experience a recession. Unfortunately I was right on. 
4. International--The Flat World concept (Friedman) will be replaced with the lumpy world (Ghemawat). Companies will have to deal with a global skills shortage in very local ways. I was right on. In spite of a global recession some countries have fared much better, eg India as compared to the US and China.
5. Mobile--Apple's greatest innovation in the iPhone is its browsing capability as a result the mobile internet will finally take off. I was right on. Browsing has taken off with the iPhone browing holding a commanding lead with a 3X increase in it's share of total (landline and mobile) browsing. 

Here are my predictions for 2009:

1. Buzz--The buzz topic of 2009 will be the shrinking of venture capital and private equity. The business model for this financial asset class is in need of change and until it does Limited Partners will lower their exposure to VC/PE.
2. Exits--We will see a dramatic drop in M&A activity as a result of tight credit markets. We will see some recovery in the IPO market.
3. National--We will experience a severe recession.
4. International--India will recover from it's slowdown by Q2'09. China will not recover until 2010. 
5. Mobile--The emergence of client-server software on smartphones and the growth of BtoC enterprise mobile apps (what I call CRM 3.0).

Passage to India Epilog

Boston Tuesday January 20

 

I have been back from India for about 2 weeks and have had time to reflect on my trip and to view my hometown of Boston with a fresh pair of eyes. The front page news in India was about Satyam’s $1 billion fraud and India’s impotence in stopping Pakistani-supported terrorism. Back in Boston it has been about Madoff’s $50 billion fraud and Israel’s Gaza war. The flat world indeed!

 

Satyam’s fraud is being compared to Enron, though it is likely that Satyam with hundreds for Global 1000 customers will survive. Ramalinga Raju, the CEO of Satyam and his brother are in prison, Madoff remains in his $7M apartment on bail. As I think about these two events, I am struck by one commonality: the ability of smart people to fleece others in their close communities. In the case of Madoff, the global Jewish community is shocked at how he defrauded several Jewish philanthropies and individuals of billions of dollars. Raju comes from a tight community of Rajputs (the warrior class who are predominantly in northern India) who came to Hyderabad to serve the Nizam or King in pre-colonial times. Raju comes from a landowning farming family with strong connections to the state of Andhara Pradesh (AP), whose capital is Hyderabad. He has a web of connections to the business and political elite in AP who will find it difficult to distance themselves. Likewise, I imagine the Jewish community is concerned about the negative image of the community as a result of Madoff’s misdeeds.

 

As is evident from all the strife around the world, humans are still drawn to their communities. The U.S. is increasingly settling into like-minded communities who overwhelmingly vote democrat or republican. Having just watched President Obama’s inauguration speech along with a couple of hundred people in the cradle American democracy, the town library in Lexington, I am hopeful that the divide-and-conquer colonial era is drawing to a close. We have the first brown-skinned leader of a predominantly white-skinned country, son of a citizen of Kenya, a former British colony. In his inaugural speech Obama said “our patchwork heritage is strength not weakness”, and I truly believe that both the U.S. and India share this patchwork heritage. The Indian peninsula has seen inward migration from the first humans to leave Africa 60,000 years ago to Aryans from Central Asia, Muslims from Turkey, Jews from Spain, Zorastrians from Persia, and Christians from Europe. In spite of these conquering migrations, or perhaps because of the relatively peaceful integration of these immigrants, for hundreds of years India was the richest region on the planet. The U.S. is now the richest country in the world and the citizens of the U.S. in choosing President Obama have astonished the rest of the world, many of whom live in former European colonies.

 

Barack Obama has a unique opportunity to lead the U.S. and the world into a new transnational era: jumpstart a post-carbon economy, bring about free trade in goods, and solve major post-colonial border disputes (Kashmir, Palestine, several in Africa) that will go a long way to weakening the foundation of muslim terrorists.  Just as he energized a new U.S. generation by using the new person-to-person medium of the internet to transmit his message, perhaps he will directly communicate to hundreds of millions opted-in cell phone users across the globe with a new message: “let us build not destroy”.

 

Boston and Massachusetts is at the center of this new transnational era. Many of Obama’s close advisors hail from universities and public institutions in Boston. The children of the political and business elite from many countries around the world come to study here and whether they stay or return, form bonds with native born Americans that last a lifetime. A formal social network of Boston-area alumni would certainly span the world and keep Boston relevant in the 21st century…calling all entrepreneurs!

 

Post-colonial President

Passage to India Part 8

Mumbai-Delhi Tuesday December 23

I boarded the overnight train to Delhi at Bombay Central Terminal (the mixed use of old and new city names for Bombay is a metaphor for old and new India—the old structures retain the original Bombay and everything new is named Mumbai). I had forgotten to print out my e-ticket and was prepared to battle/sweet talk my way onto the train. My last train ride in India was over 20 years ago and I have a lasting memory of patiently standing in a queue to purchase a ticket that never moved as people muscled their way to the front of the queue. Getting on the train required sharp elbows and more than likely the conductor had sold your seat to the highest bidder. The contrast this time was stark. I had to pay Rs.50 ($1) to get a ticket printed out on the train. The familiar red-clad coolies/porters were still around but there was no need for their help, the boarding of the train was orderly, seats were assigned and the conductor was Amtrak-like amiable.

The train departed Mumbai on time, the orderlies prepared my bed in the four-bed compartment, with spartan but crisply laundered sheets and I promptly went to sleep. A couple of hours later I was joined in my compartment by two gentlemen who had boarded at an unknown station. I was in the Rajdhani express train, a series of overnight trains between the metropolitan cities in India. My ticket had cost about $65, a flight would have been $110. I wanted to experience train travel and to get a sense of the geography of India’s industrial corridor, running between Mumbai and Delhi, encompassing the modern states of Maharashtra, Gujarat, the central state of Madhya Pradesh (MP), the tourist state of Rajasthan and the largest and one of the poorest states in India, Uttar Pradesh (UP). I was traveling on the most expensive ticket on the Rajdhani, the least expensive was about $1.50.

 

I woke up at the crack of dawn when the porter entered the compartment to offer tea. I watched the sunrise over a misty, flat landscape. Everywhere I have been in India the sky is hazy. I cannot ascertain if it is industrial pollution, winter mist or smoke from wood fires, perhaps a mix of all three. Even here in the countryside the sky is hazy. It is as if the entire country is an incense filled temple. The passing landscape is a dusty brown and is dotted with patches of green marking small farms, stunted trees and an occasional herd of cows. Every thirty minutes or so we pass through a small town with a train station. Garbage is strewn everywhere on the tracks and occasionally there is a garbage dump alongside the tracks at the edge of a town, with foraging pigs and cows.

One of my companions is a Sikh gentlemen whose cellphone jingles a bhangra ringtone every few minutes. He appears to be a little under the weather and sleeps in between calls and occasional visits from people on the train: “Papa-ji kaisay ho!” (How are you, pops?). Just passed a larger town called Ratlam. We must be in MP since this where my wife used to get off to go to Indorethe capital of MP and onto the hill station of Mau to visit her aunt.

The landscape is greener now, dotted with yellow fields of mustard, irrigation fed no doubt as the last rainfall was likely during monsoons in July/August. The train passes over largely dry riverbeds. Power lines and telecom towers are everywhere. Motorcycles and trucks wait at level crossings. Kachrod station passes by in a flash of yellow walls and red bougainvillea. A field of cotton with a dozen men and women hand picking. A southbound flatbed freight train passes by, our train slows down with jerky braking, dwarf palms dot the sides of the tracks. I recall Yasheng Huang of MIT mentioning that the India is a tropical country while China is a temperate country and life is more difficult in tropical climates. Two days before Christmas I am sitting in an air conditioned train looking out at laborers working in what appears to be hot sun. In the bathroom I poke my hand out the open window and air feels cool. We fly by Nagda, a larger town in MP. I have a conversation with a porter in the hallway. Apparently this is a special Rajdhani that runs during holiday periods. He says that is not as luxurious as the daily Rajdhani from Mumbai to Delhi.

I don a long-sleeved t-shirt as the AC is slightly chilly. I have managed to avoid sickness so far, neither catching a virus nor bacteria via contaminated food or water. My travelling companion has a bad cold and I want to be cautious. I offer him a Motrin from my medicine kit.

We slow down to pass by Suwasa. There are a few schoolgirls riding their bicycles on the road parallel to the train tracks, all dressed in a school colored salwar kamiz. Their braided ponytails and dopatas (long scarves) trail in the breeze as they chat and ride. The landscape is increasingly turning yellow, with fields and fields of mustard. The country side appears to have more people. A child is flying a kite, apparently not made of traditional tissue paper but of foil. I had met a businessman who is supplying foil for kites and my first thought was the environmental damage all these abandoned kits would cause.

 

Stopped in Kota for 10 minutes. Got a chance to step out and stretch my legs. Lunch was being loaded. Crossed the Chambol river really a stream threading the middle of a huge flood plain. Got into a vigorous conversation with my cabin mates about the problems in India. This seems to be a favorite topic of conversation. Just found out the Sikh gentleman Pratap Singh Fouzdar who is a minor television celebrity who won the 2nd season of reality TV show The Great Indian Laughter Challenge. That’s why everyone keeps stopping by to say hello to him. On top of this he is a minor industrialist, manufacturing synchromesh gears for jeeps and army vehicles out of Agra. I am astonished by the level of entrepreneurship in India. There is no social safety net so everyone is hustling to make a living. Every commercial transaction has an element of negotiation, generally humorously exchanged. There is surprisingly very little pleading or bitterness evident from the poorest of street hawkers when you don’t buy—someone else from the mass of consumers will.

The other cabin mate is a Bihari from Patna who is a project manager for Neptune, a manufacturer of industrial power conditioning equipment. They commented on the sarkari (subservient) nature of Indians: conditioned in pre-colonial and colonial times to a hierarchy that exploited them: peasants by landowners (zamindars); they in turn by the Raja’s and the Raja’s by the British. This hierarchy sucked wealth out of the country during colonial times.

We arrived in Delhi almost two hours late, so much for Lalu-inspired efficiency! The car park at the Nizammudin train station was packed and chaotic. As with most activities in India, great intent, lousy execution.

Nizammudin Limited

 

 

The Great Indian Laughter Champion

Passage to India Part 7

Pune Monday December 22

 

I visited the cerebral city of Pune, 120 miles from south east of Bombay on the Deccan plateau. Pune is the closest parallel city to Boston, with a multitude of universities and government research labs. I attended high school in Pune over 30 years ago. The city was unrecognizable, with huge population and industrial growth. While no Detroit, the automobile industry has a big presence in Pune. It is the headquarters of Bajaj the largest worldwide manufacture of two-wheelers (scooters and motorcycles), three-wheelers (those ubiquitous yellow black auto rickshaws that Hollywood sees as a caricature of India). Tata Motors builds trucks, buses and now cars in Pune. My father had brought us to Pune, called Poona in those days, to help launch the Tata Motors truck plant in 1970. Pune has also become a growing IT hub of product development outsourcing.

 

I thought I might escape the crushing traffic jams of Delhi, Mumbai and Bangalore while I was in Pune; I was mistaken. If there is a symbol of modern India it is that of honking cars and two-wheelers crawling along at walking pace. The three-lane toll expressway from Mumbai to Pune was just like the Mass Turnpike, we were cruising at 70 miles per hour. However it took two hours getting out of Mumbai and two hours to get into Pune, covering about ten miles in each case. India’s transportation infrastructure cannot keep up with the growth of vehicles on the road. Some comparisons, the US has about 11 million km of paved and unpaved roads with about 250M vehicles. India has 3.3 km of roads with tbd vehicles. Most of the vehicles in India are in the four metropolitan cities, with Delhi alone adding about 1,000 new vehicles per month. India cannot emulate the US and depend on roads alone for transportation; it has to build a rail public transport system in cities.

 

The intercity railway network is the largest in the world, with over 2 billion passengers transported quarterly. I have decided to take an 18-hour train journey from Mumbai to Delhi in first class sleeper. I booked the trip online at the Indian Railways website in just a few minutes. The Indian Railways is one of the few government departments that has improved service for the public in the past few years. The Railway minister in Parliament is the erstwhile Lalu Prasad, a breathtakingly dishonest politician who as the Chief Minister of Bihar, brought that state to terminal economic decline. In true American style he has reinvented himself as a competent federal minister, earning a case study at Harvard Business School.

 

Bangalore’s new airport was delightfully efficient and clean and I have heard that the new airport in Hyderabad, the life sciences capital of India, is even better. Air travel is cheap and generally a delightful experience within India. Railway station and airports will soon be connected to urban public transport. Delhi, Bangalore and Mumbai are all building a metro system, with Delhi clearly in the lead.

 

The electricity grid in India is notoriously unreliable. Most of the problem is due to demand outstripping supply. It is also due to the enormous “leakage” of power, ie power that is stolen with the complicity of corrupt municipal officials. As a result there is a huge industry of distributed backup power, every house and office has battery backup UPSs, and diesel generators. The noise and air pollution from these back up generators can be experienced at any retail marketplace. With the nuclear cooperation agreement signed with the US (and France and Russia), India is embarking on construction of a dozen or so nuclear reactors. India is going to buy this reactor technology from these countries and there are billions of dollars of business up for grabs. From what I have heard US companies are in third place.

 

India’s biggest infrastructure challenge is that of clean water. Most of the country receives rain only during a 2-month long monsoon season. The rest of the year water is available from the ground or glacier fed rivers. Municipal water is generally contaminated and available for only a few hours a day. Most people augment municipal water by buying water from private suppliers who ship it in tank trucks. Every house and building has water storage tanks that need to be cleaned regularly so the water doesn’t get further contaminated. Every house also has a water filter to produce drinking water. Bottled water is common and a must for foreigners like me.

 

Amongst the Christmas greetings I am receiving on my Blackberry is one that has a hilarious comparison of cow economics in various countries: Indian corporation, you have two cows you worship them; Chinese corporation, you have two cows with 300 people milking them, you declare full employment and imprison the journalist who tries to tell the truth. US corporation, you sell one and force the other to produce the milk of four cows and then hire a consultant to analyze why the cow dropped dead! Feels bizarre reading emails from Detroit about cows while I gaze out scrawny cows nibbling in the fields we are passing by.

 

 

Passage to India Part 6

Mumbai Friday December 19, 2008

 

The TiE Entrepreneurial Summit in Bangalore was a huge success--the sponsoring hotel was barely able to manage the large crowd. What struck me was how young the crowd was and how aggressive the entrepreneurs were in approaching anyone who looked like they had money to invest. Speaker after speaker lauded the “demographic dividend” offered by all those young people and to be reaped by India. Implicit in this comment was that this group would be well educated. Everyone by now has heard about the Indian Institutes of Technology (IIT) and the Indian Institutes of Management (IIM) and perhaps even the All India Institute of Medicine (AIIM). These fine institutions graduate just tens of thousands students annually. There are many other engineering colleges and management institutes but the most are not graduating world class talent. This is even more evident in high school. The elite private high schools (Cathedral, Campion in Mumbai and Sriram, Modern in Delhi) are excellent but most Indian teenagers in the metros get subpar education at public high schools. In smaller towns the options are even fewer.

 

Nonetheless the kinetic energy of these young entrepreneurs is infectious. One young man bewitched our table with a multitude of startup companies that had been selected by his cleantech non-profit for fundraising help. These varied from electric scooter companies to biodiesel producers. A couple of us were ready to start a company to import scooters to the U.S.! The unwritten story behind these eager entrepreneurs is the hard work they have put in to get to where they are. It starts in elementary school, most students put in a full school day (including hours of commuting) and then take extra tutoring to prepare them for entry exams to the elite private high schools. To get entrance to an IIT or medical school, students have to study 5-6 hours per day for couple of years, in addition to attending regular school hours. Only one in a hundred applying get into these elite colleges. It is questionable that all this studying prepares Indian youth better than American youth for real world jobs but it certainly instills a strong work ethic.

 

Traditionally youth is celebrated in the U.S. but in India age (read wisdom) is respected. This seems to be changing, especially in the workforce. An executive search professional I was chatting with said that many executive jobs came with a stipulation that the candidate be younger than 45. With so many young people available why pay extra for tired, old wisdom?! I don’t know if the average age of Indian companies is lower than that of U.S. companies but the senior ranks certainly seem younger.

 

TiE is launching a chapter in Tokyo and I had a chance to discuss Japan’s new found fascination with India with the founders. Apparently the Japanese were taken aback that many multinational companies in Japan suddenly began to have Indians as the managing head. Japan has always had a historical fascination with India, the home of Buddhism but was always considered an industrial backwater. With the success of its IT and especially automobile parts companies (Toyota Kirlowsker’s plant in Bangalore produces as or more reliable parts as Toyota’s Japanese plants), aging Japan appears to have discovered talented India. There are hordes of Koreans and Japanese on all the elite golf courses in Delhi and Bangalore!

 

National Entrepreneurs Network (NEN) business plan finalists

Passage to India Part 5

Bangalore Monday December 15

 

For forty five years after independence Indian companies for all purposes operated without competition. Monopolies were granted by the government for extended periods. Many fortunes were made, both by industrialists and corrupt politicians. Consumers had to wait years for “luxury” goods such as cars and telephones. This began to change in 1992, when in the face of an economic collapse the Indian economy began to reform. Slowly, industrial sector after sector was opened up to multiple competitors, even foreign ones. The IT industry evolved slightly differently as the government babus (bureaucrats) were so used to regulating physical goods that the industry was able to export its bits and bytes via satellite links without intervention.

 

Today India has hyper competition in many industries and consumers are the net beneficiaries. There are five major wireless carriers with about equal market share (contrast this with the U.S. which rapidly moving to a duopoly of Verizon and AT&T). As a result making a cellphone voice call in India is the cheapest in the world. My monthly cellphone bill in Boston averages $120 or about $4 per day. I am spending about 50 cents a day in India. Albeit cellphone conversations in India tend to be quick and short, I can only attribute this to how costly phone calls used to be just a few years ago. There are a multitude of startup companies offering value-added services in this vibrant ecosystem. I met a young engineer who had bootstrapped a company to offer mobile internet advertising services to brands. He was saying that the growth of mobile internet usage in rural cities was exploding as small scale business men had no other way to access the internet for relevant content such as local weather, crop prices, etc.

 

Similarly there is significant competition amongst domestic airlines. The customer service on these airlines reminds me of flying in the 1980s in the U.S.. Call centers that respond within seconds, ground staff that is friendly and efficient and best of all, in-flight service that astounds (I just had a flight attendant service a bathroom after a particularly long winded customer!). My sister-in-law just flew from Delhi to Toronto on a Jet Airways flight and said it was the best business class experience she had ever had, and she is a frequent and demanding flier. I was conversing with an executive at the biggest training school for airline staff and she said that they train about 2,000 customer service reps annually and only the crème de ala crème make it on to plane as flight attendants, and yes, looks are an important criteria.

 

In contrast almost any government run service is horrendous. Delhi’s domestic airport was mobbed at 5:30am for early morning flights. Security was overwhelmed and chaotic. I witnessed a shouting match between a patiently queuing customer and someone jumping to the head of the line because they were late for a flight. There are exceptions of course. The entire city of Delhi appears to be under construction with an extensive expansion to their 4-year old metro (subway) underway to be ready for the Commonwealth Games in 2010. Crews are literally working 24x7 with minor disruption to traffic. I contrast this to the Winter Street exit off Rte 95 in Waltham where repair of single bridge has been going for over three years with no end in sight. Interestingly elections are hard fought in India because politicians end up in personally lucrative monopolies. Since they maybe in power only for a single term, they try to extract as much graft as they can. Government led corruption is the bane of emerging economies from democratic India to autocratic China. Fortunately India has a highly competitive press corps that is valiantly trying to inform the public about government’s misdeeds. In the aftermath of the Mumbai terrorist attack, some politicians’ heads rolled as a result of press coverage of their ineptitude. In the U.S. no leader lost their job as a result of the security lapses in advance of 9/11. Nevertheless the Indian public would gladly trade the U.S. public sector for India’s. Perhaps our multitude of outsourced government contractors should set up in India and begin lobbying for outsourced services from the Indian government, a win-win situation for both countries!

 

There is no doubt India’s youngsters are eager to move up the social ladder and are prepared to study hard, work hard and compete aggressively.

 

Ready to compete in the global economy

Passage to India Part 4

New Delhi Friday December 12

In this flat world the news that Congress was not going to bail out Detroit was the topic of conversation everywhere. Everyone is wondering how Obama is going to play the awful hand he has been dealt and save the world economy. My bother-in-law just returned from a BRIC related conference in Moscow and related that China was being very sympathetic about the predicament that America was in. Several people mentioned that China held many cards now as their economy was not only integrated with America’s but also many emerging countries. There is a feeling in the air that in this global poker game, fortunes are about to be made and lost.

 

I have had a chance to meet a couple of early and growth stage VCs and entrepreneurs in the past couple of days. In Boston the startup ecosystem appears to have hit the pause button in Q4 as a result of the financial meltdown. While not paused, the startup ecosystem in India appears to have hit the slow motion button. While VC firms here are not shrinking they appear have put expansion plans on hold. Some observations:

 

• I saw an advertisement for a new Bollywood film that is an Indian version of one my favorite films, Memento. Like Bollywood many startups have been formed with Indian versions of successful U.S. business models. Investors like these companies because the bet is on execution not technology.

• There are very few management teams or entrepreneurs who have taken company from an idea to scale. It feels very like the mid-80s in Boston with the twist that markets are now global.

• There are very few growth stage companies that are both growing 30+% and maintaining decent gross margins. Everybody in India seems to be competing on price to gain market share.

• VCs in India are generally more passive in managing their portfolio companies than Boston VCs. There is a feeling this needs to change since many startup entrepreneurs are first time CEOs.

• There is a huge “bottom-of-the-pyramid” focus. Most consumers and enterprises just cannot afford to pay US prices for products and services. This requires local knowledge and considerable innovation. There are several of these companies in healthcare, a few in telecom but I haven’t seen any in information technology.

Bollywood Hollywood

Passage to India Part 3

New Delhi December 10

 

The housing meltdown in the U.S. got me thinking about the property market in India. With the dramatic urbanization and growth of Indian cities property prices have skyrocketed. In good neighborhoods in Delhi prices have increased 100x in 30 years. I met a small dairy farmer who supplied a neighborhood with milk from a few cows by bicycle who had sold his property for $2M (see the photo of him delivering milk).  Property and property rights, or the lack thereof, is a central theme in free market India. India has national, state and municipal laws supporting intellectual and physical property but enforcement of those laws are weak. This is especially the case in housing. In India possession is more than 9/10ths of the law it is the law. In a situation similar to rent controlled properties in some U.S. cities (remember rent control in Cambridge?), there are millions of tenants who occupy properties, pay nominal rent and cannot be evicted.

Land is an emotional issue in India. Hundreds of millions of farmers still make a living off their land. The size of the average farm has decreased since independence as generation after generation has subdivided land among their children. In the cities single family homes have grown into multi-storey apartment buildings with each floor given to a child as inheritance. Even the mighty Tata Motors was forced to move their Nano car plant from one state to another because small farmers protested against having their land taken by eminent domain. While India is a mobile society, people tend to retain their ancestral land. This creates a shortage of properties for sale, especially in old established neighborhoods in cities.

Most Indian families I know have a property dispute within the family, generally resulting from inheritance. The legal system is slow and corrupt and it can take upwards for 10 years to resolve disputes (it is very easy to delay the legal process by bribing clerks and even judges). As a result possession has become the instrument of choice in such disputes. When the second parent passes away the children start moving themselves or their relatives into parts of the property to stake a claim. Naturally this creates discord within families. Feudal India is never far from the surface of 21st century India.

In contrast intellectual property is well protected in India. Partly as a result of joining the WTO and the fact that most ordinary people are not affected by IP, it is not politicized and the courts generally act quickly to resolve disputes. A colleague who returned from California to take care of an ailing mother with Alzheimer’s, is running a product development outsourcing company. A couple of his employees naively showed software source code they were working on to a competitor in the process of a job interview. Subsequently a major U.K competitor of their U.S. customer came out with an identical product. My colleague was able to sue in the Indian courts and put his employees in jail.

 

Milk-walla Millionaire