Vinit Nijhawan: Serial Entrepreneur, Venture Capitalist

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.

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 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

Regional Venture Capital Business Models

Download nijhawan_presentation_to_necina_sep_2008.pdf

I was invited by the New England Chinese Information and Networking Association (www.necina.org) to speak at their annual business plan competition kick-off. About 150 people showed up on a gorgeous early fall day. My talk was about regional differences in entrepreneurship and venture capital within the US and around the world (see the attached presentation). I was approached by many young entrepreneurs and MBA students after my presentation. Although the audience was quite similar to www.tie-boston.org audiences, I was struck by how many women attended. Other observations:

• Many of the young entrepreneurs and MBA students were from mainland China not Hong Kong or Taiwan.
• There was considerable enthusiasm from young entrepreneurs for iPhone applications.
• Many in the audience were surprised by data on the impact of immigrant entrepreneurs in the US.
• Many wanted to raise money from US venture capital firms rather than purely Chinese VC firms.
• There were two young entrepreneurs from Africa: Cameroon and South Africa and we had a lively discussion about entrepreneurship in Africa. One was searching for a business idea to take back to Cameroon, but was concerned that there were no VCs in Cameroon. I mentioned an article I had read about an entrepreneur in Ghana who had cultivated a stand of trees to provide renewable products. The business model was brilliant and he was seeking $10M in London to expand by purchasing more forested land. The other entrepreneur wanted to raise money for South African startups in Boston. Seems like a ripe opportunity for a VC firm to establish an office in Africa.

The growth of global VC firms with regional offices continues. Boston area VCs have been quite aggressive in setting up offices first in silicon valley, then India and China. Highland Capital is even setting up an office in Europe. These regional offices have sufficient ability to modify their focus for the region they are in but follow the same investment selection and management process as headquarters. An example is Matrix India which is focused on investing in consumer-driven companies, unlike Matrix Boston which made most of its returns on telecom technology companies. Matrix India has invested in a fast food chain and a company that brings luxury brands to India. Boston area VCs have had offices in silicon valley for years but it is odd that most silicon valley firms don't have offices in Boston, I wonder why? It seems to me that aggressive early stage silicon valley firms would be welcomed by entrepreneurs in conservative Boston.

Craigslist, monks and Nantucket

I just returned from the 8th annual Nantucket Conference (www.nantucketconference.com), an elite gathering of Boston's VC, CEO and entrepreneurs. As always it was a thought provoking two days and a time to solar charge my batteries with the early summer weather.

Besides the panel I moderated on CEO-Board relationships (:-)), I found Jim Buckmaster, CEO of Craigslist the most fascinating panel at the conference. Jim was interviewed by Jessi Hempel, Innovation Editor of Business Week. Craigslist can best be described as a local community bulletin board, operating in hundreds of cities in the US and around the world. 20 million unique visitors visit Craigslist every month. The entire endeavor is run by just 24 people in San Francisco, mostly developers and customer service representatives.

Jim clearly had honed his responses to business journalists over the years and provided to-the-point, almost droll responses to all ofJessi's and the audience's questions. There was this sense of confusion and awe in the audience about the mission of Craigslist, a for-profit organization, not maximizing revenue and profits but serving their users' requests. In fact they generted revenue only when users requested it, for example with paid classifieds in a few cities. Jessi estimated their annual revenue to be $25M, but given their large user base, they could generate hundreds of millions of dollars in revenue annually. Jim kept reiterating that the company was not capital constrained in responding to users' needs and really had no need to generate more revenue.

I went up to Jim afterwards and remarked that the closest organizational parallel to Craigslist I could think of was an order of monks. Like Craigslist monks have a mission to serve their constituents, they raise capital to fullfill that mission (donations, selling homemade jam, etc.) and they can get distracted from that mission by accumulating too much wealth and heirarchy (eg the Catholic Church). Reforming sinners, or spammers in Craiglist's world, is part of that mission. Monks get by with minimal personal comforts and get pleasure in fulfilling their mission, similarly the software developers and customer service people (and Jim and Craig) get the pleasure of peer recognition in satisfying their customers and seem not to be motivated by personal wealth accumulation.

We watched a movie: 24 hours on Craigslist, which provoked another thought. Perhaps online communities like Craigslist could provide analytical fodder for measuring the health of real world communities. Analytical information such as job creation, etc is already being collected from online communities but I am thinking of things such as the mental health of a community. Data on Craigslist's user base in every city could be analyzed by academics for these kind of indicators.

I was having a discussion over lunch with Mark Heesen, President of the National Venture Capital Association (www.nvca.org), Don Dodge of Microsoft (http://dondodge.typepad.com/the_next_big_thing/2006/06/microsoft_looki_1.html) and others about this parallel for Craigslist and got quite a discussion going. Mark's observation was that for-profit organizations by focusing on growth generated jobs and that was beneficial to a community and that Craigslist was an aberration. While I am fully in agreement with Mark on job creation, many people, particularly younger people in the US are coming to the realization that personal fullfilment does not come from wealth creation alone. Maybe we should adopt Bhutan's measure of national wealth: GDH or Gross Domestic Happiness instead of GDP!

Immigration and Innovation

I spent the last few days at the 7th annual Nantucket Conference (http://www.nantucketconference.com/agenda.html) to chair a VC panel with Todd Dagres of Spark Ventures, Jeff Andrews of Atlas Ventures, Charley Lax of Grandbank Ventures and Mike Greeley of IDG Ventures. I have been an advisor to the conference for several years and it continues to be a "must-attend" venue for VCs and entrepreneurs in New England. One of the keynote speakers this year was Susan Hockfield, President of MIT. I had hosted Susan a year back at www.tieconeast.org when she had just become President of MIT. She has accomplished a lot in a year and I was again impressed by her vision and grasp of details.

Of particular interest to me was her interest in globalization of innovation and MIT's role. She mentioned MIT's lead in Open Courseware (all of MIT's course material is available for free online) which had inspired other universities around the globe to do the same. She also brought up a few facts about innovation and immigrants:

• 60% of US GDP growth since WWII is attributed to technology innovation
• MIT has consistently been rated as the #1 science and engineering college around the world since US News and World Report began scoring and has been instrumental in leading US innovation
• 50% of the faculty of MIT was not born in the US and have driven this innovation
• 8% of undergraduates and 30% of graduate students at MIT are immigrants
• Since 9/11 applications from international students has plummetted as the US has raised the hurdle for student immigrants to get visas

The recent issue of Economist has an article http://www.economist.com/opinion/displaystory.cfm?story_id=E1_GRRNGQS on US immigration policy for knowledge workers. Some excerpts from that article:

• 3,000 technology firms created in Silicon Valley since the 1980s were founded by Indian-American and Chinese-American entrepreneurs (30% of the total firms created in that period)
• Foreign-born college graduates in Australia are 10% of the population, 7.5% in Canada and just 3% in the US. While the US was closing its borders after 9/11 both Australia and Canada actively sought skilled immigrants

I am convinced that the US will maintain economic leadership through the 21st century on the strength of its post-secondary institutions (Harvard's endowment of $25B is certainly more than the sum of endowments of all the universities in Canada and Australia) which attracts the best minds in the world. Attracting and retaining these minds has been hugely beneficial for the US and for the rest of the world. Successful Indian-American entrepreneurs are providing knowledge and capital to entrpreneurial ventures in India and some are even returning to India. US immigration policy needs to be biased towards legal, skilled workers. All the recent focus on illegal immigration is important but as history has shown, disproportionate wealth is created by skilled immigrants.

Shakespeare and Innovation in China and India

I spent a couple of days last week with 50 CEOs at a retreat led by Tina Packer, head of the Shakespeare company in Lennox, MA. The Boston Globe wrote an article on the retreat: http://www.boston.com/business/globe/articles/2006/03/10/executives_confront_their_inner_hamlets/.

Shakespeare wrote and performed his plays at a time of intense change in England. The country was finally united under Queen Elizabeth and had become a Protestant nation. The theater was an alternate venue from the church for public discourse. Rhetoric (the gift of gab as I call it) and the rule of law emerged as a way to settle disputes, with the sword relegated to the professional soldier. At that time I learned, England was the most litigous country in the world. I believe as a result of rhetoric scientific thinking became prevalent and England went on to colonize the world with its superior technology and economic innovation.

The US inherited this love of rhetoric and law with the settling of the Puritans in Massachusetts. In time the US became the leader in innovation and controversially, the most litigous country in the world! Freedom of thought and economic pursuits are ingrained in the constitution (a marvel of rhetoric), forming an oasis that economic immigrants from around the world have flocked to.

So if rhetoric and the rule of law predicate the growth of countries what does that portend for China and India? First of all I would argue that rhetoric and the rule of law are more necessary in diverse countries than homogeneous ones. Japan has done reasonably well as a one-party state for over 50 years (a multi-party state being a proxy for vigorous national debate and rhetoric). I would also argue that smaller, diverse countries can also get away with less rhetoric (eg Singapore). This would suggest that large, diverse countries such as China, India and Russia will enjoy economic growth only in an environment of rhetoric and rule of law. So why do these countries have such different rates of growth given that India has the most rhetoric and China the least? I think the answer is that it is a marathon not a sprint. Over 30-50 years India should emerge as the economic leader, Russia second and China last. That is assuming the status quo. In reality, under Putin Russia is limiting rhetoric and should therefore slow down economically. China has an historic opportunity to increase rhetoric and emerge as a true world power. India must grow fast enough so its abundance of rhetoric does not turn into a populist revolution of the underclass led by socialist thinkers (witness the growth of Maoist rebels all over South Asia).

China vs India

MIT Sloan School of Business professor Yasheng Huang's editorial in the Financial Times "What China could learn from India's slow and quiet rise" got a firestorm of discussion going with a few friends. His thesis is that China's economic growth is being driven by capital investment both domestic and foreign whereas India's is driven by domestic demand so the use of capital is far more efficient. Additionally, China's political structure is inherently unstable whereas India's turbulent democracy is stable-- "15 years, six governments, five prime ministers, one direction" is the slogan from a recently formed organization www.ibef.org trumpeting the Indian brand. My random thoughts on China versus India:

• The trade between them has grown rapidly in the past two years as a result of thawing of political relations but also Adam Smith at work. A few examples of this: (1) we had the Chairman of Infosys Narayan Moorthy speak at www.tie-boston.org and he described the growth of their China office to address IT outsourcing opportunities in East Asia: Japan, China, Korea, etc.; (2) a friend from Delhi who designs and manufactures industrial speakers found it was more reliable and cheaper to manufacture in China than India inspite of his low volumes; (3) one of www.keyvp.com portfolio companies supports a Chinese plastics manufacturer that is moving it's entire plant from Shenzhen to Chennai as the Indian market is less competitive than the Chinese market
• India's urban infrastructure is atrocious and definitely has an impact on growth. When I was in Beijing a couple of years ago 10 year old buildings were being torn down to be replaced by building as or more modern than those in Boston. India's infrastructure in circa 1970s. This is a failure of governance in India.
• Many of the professionals I met in Beijing had one leg outside the country, almost as if they felt the current political/business situation could dissapear overnight. I met many people with a spouse and children in Australia or Canada. Clearly the Chinese political situation has to change to encompass broader dialog of the future.
• Economic well being is important but so are social cohesiveness and spiritual happiness. I find India has an abundance of the latter two but China appears to be more like Japan. Once economic well being is achieved people thirst for more. Japan is facing that transition and so will China.
• So both countries' future depends on reform of their respective governments. China's government needs to evolve to plurarism and India's towards greater efficiency and free markets.