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.

 

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.

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 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 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

Passage to India Part 2

Chandigarh December 7, 2008

I drove straight north from Delhi to Chandigarh about 300 km, on a much improve four-lane highway. Chandigarh is a planned city that was designed by the French architect Le Corbusier in the late 1950s. It remains a delightfully livable city which the rest of India has failed to emulate. I am attending the wedding of my cousin’s daughter, a recent dentist graduate, to a young engineer who works with the Tata’s. The local TiE chapter has also invited me to speak to their members tomorrow.

 

I have met several entrepreneurs who have returned from the U.S.to take care of aging parents and then set up businesses here. Chandigarhis considered to be a tier 2 city (tier 1 being Delhi, Mumbai, Bangalore, Kolkata and Chennai), in the same league as Pune and Ahmedabad. In reality those cities are far more industrial, including technology-related industry, than Chandigarh. There is a nascent life sciences industry forming, especially around agricultural products: Chandigarh is the capital of Punjab, India's bread basket. However most of the entrepreneurs I met had small outsourced information technology businesses with customers primarily from the U.S. 

There is an excellent engineering college in Chandigarhand I had the chance to meet with the Director of the college Manoj Datta. He is busy setting up new degreed programs to respond to industry needs. For example he was evaluating a graduate program in biomedical instrumentation in conjunction with a local biological institute. We had a vigorous debate about the viability of that degree, along with the head of Phillips Labs from Delhi. Phillips Labs are creating new products for emerging markets by launching them first in India, they support all of Phillips divisions including the medical division in Andover, MA. For example they recently launch a UV water purifier that is more effective than charcoal filters. Tainted water is a big problem in India as many tourists have found. The public water supply is invariably contaminated and almost everybody has a water purifier at home. Boston Universityhas a world renowned public health department that has projects in India, I need to connect them to Phillips Labs and Punjab Engineering College.

I had an interesting conversation with the CEO of the Usha Group, who have been making ceiling fans and air conditioners for many years. He showed me a cellphone that they have launched in tier 3 and 4 cities in India. The cellphone is manufactured by an ODM (Original Design Manufacturer) in China to their specifications and distributed via thousands of cellphone retail distributors. They have been struggling to differentiate themselves other than price. He told the story of an upstart competitor that had inferior products but stumbled on to a need in the rural marketplace for phones that had long battery life. Electricity is not readily available in most Indian villages and is unreliable when it is. I asked him if he considered differentiating on the cellphone user interface, perhaps by using the Google Android operating system and then customizing the UI for rural India consumers.

Passage to India Part 1

New Delhi December 4, 2008

I arrived in Delhi near midnight off a packed flight and to a crowded international airport, no sign of any slowdown in activity as a result of the recent terrorist incidents in Mumbai. The cool winter air is thick with construction dust, there is a new airport being completed and an extensive subway system, including a line running to the airport.

My first task was to get a local SIM for the Sony Ericsson phone I borrowed from my son. I went to a Bharti Airtel customer service center in a south Delhi market in Lajpat Nagar. It was packed with about a dozen customer service reps (see photo), a payment kiosk and about twenty customers. The rep looked at my phone and said that it was locked to the Rogers network (my son goes to college in Canada) and I should go down the street to a shop to get it unlocked. I went to the shop titled “Orange Teleservices” (see photo) and they promptly said they could unlock it for Rs.650 (about $13) and it would take two hours. I then went to get a passport photo taken at a nearby shop called “Kodak Express” (see photo) and paid $1 for 8 color photos. I went back to the Airtel shop and filled out an application for a prepaid account: my photo, passport information and local address was attached to the application. I was told that my SIM would take a day to activate after my application information was verified. This was a new procedure as a result of foreign terrorists acquiring India cellphone accounts to escape being tracked. Seems like the recent terrorists were a step ahead, they bought satellite phones in Dubai to communicate with their handlers in Pakistan.

 

Airtel Customer Service:

 

The entire experience with getting a local phone service was much more cumbersome than activating a phone in the US or Canada. Then again I imagine if I was an Indian citizen visiting the US, walking into an AT&T store I might also have to wait a day to get activation? I was astonished by how many stores there were all over south Delhi offering mobile phones and services. With 300M subscribers, up from about 100M when I was last here two years back it is becoming a huge industry here.

 

Getting my phone unlocked:

 

Getting my photo for the Airtel cellphone SIM application: