Round Table Entrepreneurship in a Globalising Economy -- Discussion Mathew Manimala Mathew Manimala is Professor of Organisation Behaviour and Jamuna

Raghavan Chair Professor of Entrepreneurship, Indian Institute of Management Bangalore. manimala@iimb.ernet.in Prof Manimala anchored the Round Table Discussion and is the Guest Editor of the Round Table on Entrepreneurship in a Globalising Economy -- Discussion Globalisation of economies is generally attributed to the policies of economic liberalisation, deregulation and privatisation adopted by governments in various countries. However, the Information Technology revolution and the global business opportunities created by innovative entrepreneurs using the capabilities of the new technology, have also had an important to play. In India too, several aspects of entrepreneurial activity have been influenced by globalisation effecting changes in the nature of businesses, the type and level of technology, the profile of the Indian entrepreneur, sources of finance, location and nature of customers, partners and suppliers, the legal structure, organisation and HR practices, operational and growth strategies, and so on. In the context of these wide-ranging changes, the IIMB Management Review Round Table on Entrepreneurship in a Globalising Economy, debated the issues relating to venture creation in a globalising economy. The issues discussed included the challenges of entrepreneurship education, the developments in research in the field, the issues confronting the new economy entrepreneur, the complexities of technology transfer, entrepreneurial finance -- particularly the considerations of funding small enterprises, and the relationship of entrepreneurs with venture capitalists and angel investors. Parameshwar P Iyer Knowledge-based Entrepreneurship The Indian Institute of Science (IISc) was founded in 1909 through the vision of Sir Jamshedji Tata, possibly the biggest entrepreneur in India. One of the objects which Sir Jameshedji Tata had in establishing the institution, which imbued it with the entrepreneurial spirit right at the beginning, was that the investigations and studies in IISc concentrate on such branches of knowledge that are likely to promote the material and industrial welfare of India. Our mandate at the IISc is to do research and to train people to do research and many institutions in this country have spun off from the work done at IISc. Collaborating with Industry: Our centre, the Centre for Scientific and Industrial Consultancy (CSIC), was specifically established in 1975 to cater to industry requirements

and it works in a responsive mode, with short term-, fixed scope-, fixed cost- projects, where we deliver results in the form of software, a product, a process, advice or whatever is required of us. Recently we found that that mode was not sufficient to handle the increasingly new types of collaboration proposals that were coming from the industry. For instance, we were getting queries from companies to fund research work or an R&D Lab for a fixed number of years without clearly knowing what the deliverables were going to be, but with the caveat that the company would come back after a period of time, see what IP there was, and then decide what it wanted to own in that IP or how it wanted to commercialise the IP. Since such loose forms of interaction were very difficult to handle in the commercial consultancy mode with fixed definition of scope, time and cost, the Society for Innovation Development (SID) came into being in 1991-92, and you could say that it is competing with the parent centre when it comes to long term interaction with industry. Various kinds of programmes are coming into this society, including licensing, technology transfers and commercialisation though they may not be a part of front end research. The society today is earning as much revenue as our consultancy centre.
The panellists in the Round Table discussion on Entrepreneurship in a Globalising Economy were: Dr Parameshwar P Iyer, Chairman, Centre for Scientific and Industrial Consultancy, Indian Institute of Science. piyer@csic.iisc.ernet.in Mr. Samir Kumar, Managing Director, Inventus Capital Partners. Samir@Inventuscap.com Mr. N Raghunandan, CEO, Indium Software (India) Ltd., raghunandan.n@indiumsoft.com Prof Kavil Ramachandran, Entrepreneurship Area, The Indian School of Business. k_ramachandran@isb.edu Ms. Anjana Vivek, Consultant, Nadathur Holdings and Investments Pvt Ltd. anjana@srwadvisors.com The discussion was anchored by Prof Mathew Manimala. Prof B Mahadevan, Chief Editor, IMR, was co-chair. Students of the Fellow Programme in Management and the Post Graduate Programme in Public Policy and Management, IIMB participated in the discussion.

Our initial interactions taught us that an academic and an industry person formed something of an odd couple, with different expectations, backgrounds and agendas. The industry basically looks for profit, adheres to rigid time schedules, has very specific areas of interest, is concerned about whether things are doable and wants everything to be confidential. We are often required to sign a confidential disclosure agreement (CDA) even before we start a meeting. Whereas academics look for respect and peer recognition, working with flexible time schedules, with generic interest and little consideration for technological feasibility. But over the last 25 years we have learnt to work with each other. We have had very good collaborations in areas such as manpower creation, but the areas that require strengthening relate to customised training -- specially with the advent of hi tech industries, and systems design particularly having to deal with large scale systems such as transport and infrastructure projects. We are encouraging exchange of faculty between the industry and the institute, getting adjunct professors from the industry/ organisation with which our faculty members consult. In the last three years as we have got more and more into contract research for the industry,

research partnerships and alliances, we find that a single company is no longer able to fund an R&D programme. So we have alliances of companies who are otherwise competitors getting together and funding a research programme, and customising the generic results for specific applications. Our programme of faculty entrepreneurship too is just a few years old but has been very successful. Of late, SID has expanded to include incubation programmes, entrepreneurship training and innovation along with long-term industry projects. Technology Transfer to SMEs: A survey conducted by IISc in the years 1986, 1996 and 2006, reflects the changing nature of the R&D and technology transfer needs of SMEs. The SM entrepreneur has moved up the value chain. Earlier, the requirements were for testing, evaluation and diagnostics, for using the facilities at the institute for certification. Today the requirements are more for product innovation, process design and development, and systems design, and they have grown more than two and half times in the last twenty years. There are a larger number of requests today for advice on R&D, which indicates that the entrepreneur is factoring R&D as a part of the firm right from the beginning and is looking to outsource to the institute. Firms today are also looking at a greater number of issues relating to transfer of technology. We are getting far more requests for manpower development and human resource training especially in biotech, IT and some of the new materials enterprises. (Prof Iyer, could you please provide a table on survey results here?) There is an increasing awareness of intellectual property and licensing issues, of secrecy and confidential disclosure issues with CDAs and NDAs being insisted upon before they talk business. There is a heightened interest in exports and global markets. There is a definite trend towards knowledge based entrepreneurship in SMEs as opposed to the earlier capital based or physical resources based model. Entrepreneurship and Innovation: The cue to entrepreneurship is innovation and creativity, and in this context, the results of a survey that we conducted among a higher end corporate group, were revealing. We asked 32 successful corporate heads in Bangalore about managing an innovation and the organisational aspects involved therein. At the management level, it emerged that four factors had played an important part in the success of their innovative ventures -- focus, mastery of the field/project, intensity in terms of passion and attachment to work, and lastly, integrity in terms of fiscal and ethical issues in running the business. From the organisational point of view, we found that innovation was very strongly correlated to four factors -- processes and how well they were defined, relationship building both formal and informal -- within the organisation; the level of peoples commitment; and belongingness. (Can we have the sketch of the model for managing innovation here?) Discussion K Ramachandran: Is there a trend, in the queries you get from entrepreneurs, towards globally competitive products and technologies or are they largely pertaining to smaller products and smaller technologies for smaller markets? Parameshwar Iyer: Till about 15 years back most of the queries were local and within the national benchmarks and national markets but from the mid 1990s we have started getting

people who look at global markets, who benchmark against some of the best standards and the best products in the world. In pharma and biotech, the entrepreneur may be based in India but the market is increasingly getting global. K Ramachandran: Is your shift into incubation and mentoring a part of this exercise? Is it becoming more of a norm than an exception? Parameshwar Iyer: We started incubation very recently, with the SID model. Earlier, we were involved up to a proof-of-concept or a very small prototype level. Then we would transfer the technology to the entrepreneur and it was entirely up to the entrepreneur to do the rest. It was his promotional effort that got it into the market. We were doing the hand holding but we were not physically sheltering or housing anything at the institute. The latest developments are only four or five years old. Mathew Manimala: When you transfer technology developed within IISc to an entrepreneur how do you manage the IPR who holds it and what are the conditions? Parameshwar Iyer: In our model, research is seeded and funded largely by government organisations. Our faculty send out research proposals based on their research interest largely to government organisations, get research funding and start research work. Industry steps in at the 50% point or even later in that innovation cycle. The earlier the industry steps in, the larger is their claim on the intellectual property. If somebody were to fund a greenfield project then all the IP would belong to that sponsor but that has rarely happened. Typically the industry comes in at the 80% point with partial support or bridge money mainly to complete the innovation process. In which case we say that the faculty is the inventor and the IP is assigned to the institute. If the industry funding is substantial we bring them in as the co-owner of the IP and give them the first right of refusal. Whatever comes to the institute as royalty, either lump sum or through deferred payments is divided equally between the institute and the faculty. But we are not very rich. K Ramachandran Entrepreneurship and Globalisation: Customer Dissatisfaction as Key Enterprises go global for a variety of reasons. Awareness of global opportunities leads entrepreneurs to exploit them which may take them outside their accustomed horizon or their own countries, leading to globalisation. In India, the IT and garment clusters have grown thus. Growth pressures often lead entrepreneurial organisations to expand globally. For instance, Sony and Matsushita invested heavily in technology development in their initial days but since the domestic market did not get them the required returns, they expanded. Very often companies pressurise governments directly or indirectly to change their policies and that has led to globalisation -- Microsoft is an example here. In the past 10 years the global communication barriers have crumbled especially after the arrival of the Internet, and several pioneering innovative entrepreneurs, like Dell, have used the Internet effectively to globalise. The benefits that accrue are not limited to large organisations alone but include small organisations, such as the micro level BPOs as well.

While the above factors are interconnected and lead singly or jointly to the globalising of enterprises, what lies at the heart of entrepreneurship is the attractiveness of the opportunity. Customer dissatisfaction is the source of entrepreneurial opportunity. If the customers are not dissatisfied you cannot sell a product or service. Customers are often made to feel dissatisfied through education, advertisement and other means. What are the components of dissatisfaction? The discontent-criticality matrix (Exhibit 1, Slide 3 in K Ramachandrans presentation) indicates the two major dimensions of dissatisfaction. If the need criticality is very high then the customers are very dissatisfied. At the same time if the level of discontent with the existing solutions or alternatives is also very high then the dissatisfaction goes up. In the first quadrant, of high level of discontent and high level of criticality, any product you put into the market will be pulled by the customer very easily. Bottled mineral water would fall into this quadrant. Globalisation and entrepreneurship are connected with the attractiveness of the opportunity, which in turn connects with the level of dissatisfaction the customers may have or can be created. Which is what globally expanding organisations do -- move from country to country and region to region expanding their operations. Many global organisations have emerged through the entrepreneurial route along the processes listed on the conventional value chain (interpreted here as the customer dissatisfaction elimination chain -- Exhibit 2, Slide 4 in K Ramachandrans presentation). Examples include Google in the information collection process, Visa in the buying process, and American Express or courier companies in the delivery process. Each of these components has the criticality discontent dimension to it. Unless this criticality discontent is maximum the opportunity will not be attractive and you cannot become a global organisation. It is a conundrum that goes back and forth. In the process there are many organisations that have unbundled their value chain across regions and nations. A prominent example from the 1990s is the Li-Fung Model from Hongkong, as also the DIY-Value aggregator model. Along with value unbundling across regions, the opportunities and advantages across value links will trickle down even to micro enterprises. One classic example of it is the leather industry where the initial processes the collection of the carcasses, cleaning and salting is done in the villages at the micro level enterprises, the next process (the de unit ) is carried out in a mid-size organisation and finally it goes to the leather finishing unit which is a fairly big, high technology organisation. Global entrepreneurship could yield several advantages for India. Global entrepreneurship entails high quality entrepreneurs who would be leading globally competitive organisations and in the making of global quality entrepreneurs, mentoring is becoming very critical. The key capabilities of global entrepreneurship are: Thinking big and synthesising the constantly emerging knowledge on a dynamic basis, both directly and indirectly. Opportunity spotting but unless the opportunity is globally attractive it may not be worthwhile for the entrepreneur with the global bent to pursue it. The passion to build the organisation continuously very many organisations get stuck at mid stage, which is why mentoring is very critical. Finally, a dynamic resource mix -- the right mix of resources will enable

entrepreneurs to become globally competitive and that will have a multiplier effect not only on the individual or the country, but on firms of different sizes as well. Discussion B Mahadevan Three years back I was involved in a research project which looked at the 50 most successful business models in the last 40 years. Two interesting things emerged, which corroborate what Prof Ramachandran said. We found that the most successful business models in the last 40 years in the US have shared one common attribute they came out at a time when the degree of homogeneity was very high. It was so high that perhaps the customers were tired and this provided an opportunity for entrepreneurs to innovate and come up with an entrepreneurial venture. Secondly, the most innovative and the best money spinners in the last 40 years were industries which were 200 to 400 years old, selling groceries, books or coffee. Thirdly, there were companies which were apparently unaffected by the ups and downs of the business environment, such as South West Airlines that did not seem to be affected by the slump in the airlines industry post 9/11. These fifty business models had apparently been following three types of customers leads which the others had not. One was the set of ignored needs. If an entrepreneur can identify ignored needs there is a big value creation opportunity that is waiting. Air Deccan in India, for instance, is targeting first time travellers. Second, was the set of misunderstood needs. A US company called Paychecks created a lot of value because it clearly understood the requirements of SMEs it took care of their regulatory requirements and all their financial transactions. There were simply no players to offer that service because they thought nobody wanted it. The third set of needs was evolving needs. Amazon and Dell have understood that it is an informed seller who tries to reach the most intelligent buyer. Today buyers are far more technology savvy and they form a segment that has to be catered to. These kinds of value creation opportunities seem to suggest that there are distinctive ways by which innovation and globalisation may happen to an entrepreneur. Sunil Gulati (PGPPM student): As a society are we sowing the seeds of entrepreneurship? As parents do we allow our children to be innovative? Does our schooling system encourage innovation or entrepreneurship at all? Even in the bureaucracy, the government does not encourage innovation.

K Ramachandran: There is a lot of momentum building up on entrepreneurship education. The Department of Science and Technology has created the National Science and Technology Entrepreneurship Development Board NSTEDB, an organisation that is encouraging the creation of entrepreneurship development cells, Science and Technology Entrepreneurship Parks (STEP), as well as business incubators. The UGC and the AICTE have allocated funds for the creation of entrepreneurship development cells (EDCs). Interestingly there are not many takers for the funds though they are available. Thirdly, there is the Society of Entrepreneurship Educators (SEE) in which both Prof Manimala and I are involved. The intention was to enable the entrepreneurship creation process to be available in every nook and corner of the country. We wanted to enable each college in the country to be an entrepreneurial activity centre like the IIMs or IITs or ISB. The SEE is intended as such a country-wide network. One of SEEs mandates is also to work with school children. From the NSTEDB side the number of requests is growing substantially and the SEE is supporting many of the initiatives. We are involved in incubating, training and supporting teachers. Society too is looking at entrepreneurship very much more positively these days. While there is change taking place, it will take a few years before it is noticed. Entrepreneurship as a value is being inculcated through all these changes. You cannot change values overnight but it is happening. Mathew Manimala: One of my studies investigating the impact of the environment on the development of entrepreneurs revealed that all that the government was doing to facilitate the task environment, like providing training, money or technology, was not making any significant difference to the emergence of innovative entrepreneurs. So probably what we are missing out is the facilitation of the general environment through our socialisation, our culture, our economy, our political and legal systems. We have already developed a non entrepreneurial or non innovative individual and facilitating such an individual with a task environment may not help much. Samir Kumar: Entrepreneurship and failure must go hand in hand. So long as society does not embrace failure we are going to find it difficult to get a broad-based entrepreneurship movement. Government and entrepreneurship are poles apart. Someone who is working in the government is a risk averse person and an entrepreneur is a highly risk loving person. To expect entrepreneurship in government is not going to be easy. While society is changing, as long as we continue to have this attitude towards failure, it will be a stumbling block. Anjana Vivek: In Silicon Valley and the US in general, VCs actually fund failure in that such examples are showcased. We need more such examples in India so that by showcasing funded failures we can attract more viable projects. N Raghunandan

Entrepreneurship in a Globalising Economy: Understanding and Defining the Market Space My presentation is split into the entrepreneurship and global economy aspects of the topic, which I will connect at the end. Globalising Local Success: Globalisation in any business is the function of an entrepreneurial mindset and an ability to figure out how to globalise your local success. To take an example from an unconventional industry the film industry while our local state film industry has not been able to do it, some actors from the Hindi film industry (Aamir Khan and Aishwarya Rai, for example), after achieving considerable success in the country have capitalised on it and are showcasing their talents with some measure of success in the West. In fact, Aamir Khan spoke of how he positioned his film Lagaan, doing road shows and talking to film critics when it was entered for the Oscars, and that such efforts required ten times more investment if one were really serious about international awards like the Oscar. Market Issues of Entrepreneurship: Entrepreneurs must define the market space in a fairly large manner. Most entrepreneurs have a tendency to define the market around their technology or around an unfulfilled need. To give you an example, my company was among one of 26 players offering interactive voice response (IVR) systems, which were commissioned by the Chennai railway station in 1996. Here, our success was built on the way we responded to the customer. When every other company was defining itself as an IVR company, we said we were in the business of business response, that we were collaborating with our customers and partnering them to provide them with technological solutions or innovations to enhance the way they would respond to their customers. We not only started offering IVR, we used IVR as a platform to offer web based response, call centres, and solutions for the applications around the market space we defined. This definition dramatically changed the product strategy and our level of innovation and made the company fleet footed enough to beat competition. In three years that is, in 1999 when we got our first round of funding, our profits were larger than the size of our competitors. Similarly, the tendency to define business around a skill I am JAVA shop or a DOTNET shop or I offer SQL based services -- narrows down the ability to envisage a larger market. This will be to ones disadvantage when one tries to globalise because there are several JAVA and DOTNET shops out there. For example, Indium had been in the business of software testing for three years when in 2004 we decided to redefine our business as testing was not an essential service. So we changed our business definition saying that we are in the business of enhancing software quality and consequently we would provide strategic inputs to organisations at every stage of the development life cycle of software to be able to enhance their quality. Testing was one such offering that we would provide. Perhaps this mindset change that we were able to effect as a team was responsible for our having grown 100% year on year in the last two years.

The third big challenge in this space is the sudden tendency of the entrepreneur to become overly global, to open offices in locations all over the world. It is essential for entrepreneurs to focus on market clusters that have a critical unfulfilled need or a major problem of dissatisfied customers. Often customers may want you to get into a geography that you are completely unprepared for. However, if an entrepreneur wants to globalise, he has to follow the man on the moon approach, that is, a clear milestone based vision to be an innovative global entrepreneur. The US today is the only country that has put man on the moon. It could have seemed a wasteful programme at one stage but that was clearly their target. Today NASA may find it extremely unviable to send man on the moon, but it has established the US as the clear leader in the space industry with its closest competitor struggling to get anywhere close. Policy Issues of Entrepreneurship: Entrepreneurs who are venturing into foreign soil must have a clear understanding of the policies of that particular government, and keep themselves updated on the changes. Entrepreneurs must enter the geography they plan to operate in with the larger vision of being good citizens rather than with a view to generate revenues in the short term. Further, entrepreneurs must do their due diligence to understand whether the requirement is to open a branch in the foreign location, go in for a joint venture or a subsidiary. For instance, when we went abroad with an application that was customer facing and hence involved the high possibility of litigation, our due diligence led us to establish a subsidiary. While entering a particular space in the Middle East, we were advised that a JV was the best way. However, this turned out not to be in our best interests as a JV would depend entirely on the motivation of the local JV partner. When one is entering a large geography with the intention to globalise in the market place, it may be prudent to locate a co-founder because one needs to understand the mechanics of doing business in that geography better. Every globalising entrepreneur needs to learn the fundamental rules relating to accounting practices, labour related issues such as visas and work permits, and other policy and practice issues and the entrepreneur needs to understand every single rule himself, and rely on other agencies only for counter-checking because finally, it is his head that is on the block. It is also important to understand the localisation and branding issues. We learnt the hard way when we entered the geography of former Yugoslavia and realised that the name of our company had been sending the wrong signals to our client. We got the contact only after clearing the air on the matter. In conclusion, it is worth an entrepreneurs time and effort to define the market space fairly largely, attempt globalisation in pockets as against large clusters, and invest in the necessary bandwidth and energy to understand the policy and local issues of the geography that one intends to operate in. Perhaps the right time to look at globalising is when innovation in the domestic market has been reasonably successful. Discussion Parameshwar Iyer: Would glocalisation the ability to think globally but act locally be a prerequisite for a successful entrepreneur in a global economy?

N Raghunandan: If you are unable to successfully market your product in the domestic market, chances of your success outside will be fairly low. One needs to have some amount of success in the domestic market to be able to understand what the global markets would mean. Anjana Vivek: It is very important to understand the market. A lot of entrepreneurs, particularly technology entrepreneurs, do not focus on markets when they come out with something innovative. An innovative product or idea in itself does not guarantee a market. Though the focus on the market seems like common sense, it does not happen and is in fact a classic problem. And in the context of the global economy, it is particularly important to understand the global market, where European markets could be different from the US. It is this lack of focus that generally kills the business. Further, other than ensuring the quality of the product, there has to be a dramatic shift in the ability to package and position the product, to understand global positioning of similar products and how we position ourselves differently compared to those products in those markets. N Raghunandan: If you are mentoring entrepreneurs it is essential that they be taught fundamental selling skills. There is a yawning gap in that area in our training system. Typically, a graduate from a reputed business school would want to go into product management or research or investment banking but not selling. I am thankful to the organisations that I worked for, which sent me to the Xerox Need Satisfaction programme where you had to be a down-to-earth salesman in order to be able to strike deals. When I am advising a set of entrepreneurs who despite their wonderful products and installed capacity are unable to grow, I ask them to figure out how to sell need satisfaction, find out why people are buying their product, what needs it satisfies, its criticality, and the larger market space that can be addressed. The entrepreneur should be a reasonably good salesman and understand his technology and space worth. B Mahadevan: To share from my experience about defining the market space, some years ago, when I was working for ABB, there was a company in Nagpur called Asian Electronics, which unlike ABB and Siemens did not define itself as a manufacturer of circuit breakers and other such products. They analysed that manufacturing companies were buying these parts in the first place as they all wanted assured power supply. So Asian Electronics declared that they were not selling circuit breakers but uninterrupted power of specified rating per day. Initially, the company was successful but they did not grow because of a serious crunch of managerial talent. N Raghunandan: The transition from tiny to small to medium will definitely happen by defining the business. But growth from medium to large requires larger managerial talent and a larger vision. Several companies have been unable to make this leap. Samir Kumar Venture Capitalists and Entrepreneurs

Venture capitalists (VCs) and entrepreneurs are often perceived to be on the opposite sides of the table but are in fact, partners. The venture capital industry in India is in the nascent stage. It is only in the last six or seven years that we have had real venture capital as opposed to institutional capital, in that people from an operating background have entered the field. That will transform the way in which venture capital operates. Profile of VC Activity: The number of private equity venture capital investments in the country and their value has been going up steadily. In 2003, such investments were worth $ 500 million from less than 40 deals, while in 2005 it had risen to $ 2.3 billion from about 148 deals (Source: TSI Media). This is a healthy trend as increased VC activity indicates increased entrepreneurial activity. But the gap that we should all be cognizant of is indicated in Exhibit 1 (Slide 4 from Samirs presentation Investments by Stage). The first bar indicates early stage deals, the rest indicate companies that have long been established and PIPE, the fourth bar indicates companies that are publicly listed. Thus private equity activity in India is concentrating on established enterprises and not too much attention is being paid to new enterprises. But again there has been a healthy growth from 2004 to 2005 and there are many firms focussing on the early stage space. Criteria for VC Funding: What do VCs look for when they fund ventures? The answer simply is, big financial returns, as VC firms in turn have investors who are hoping to make their money multiply. The most important considerations for VCs while funding enterprises are -- the quality of the entrepreneurial team, visible exit opportunities, the market opportunity and a unique value proposition. Of these four, the entrepreneurial team is the most important for if it doesnt pass muster, the VC will not go into the evaluating stage. An entrepreneurial team must have 101% integrity, a distinguished track record/academic background, a cohesive and complementary founding team, a sound board of directors, advisors and technical people, passion and commitment to the venture and a willingness to share. The usual exit routes from enterprises are IPOs, Mergers and Acquisitions, Company/Promoter buy-backs, Secondary Sale and Liquidation. VCs require visible exit opportunities, and very often entrepreneurs do not understand this. VC funds have a predetermined life and at the end of the life the fund must pack up and return its money to its investors. An entrepreneur may build a company which is making revenues worth Rs 20 crores and a profit of Rs 5 crores, and consider it a very successful enterprise. However, it is unlikely that it would be a successful enterprise from a VCs standpoint because he would be unable to exit from that enterprise. This is the area where we usually spend a lot of time educating entrepreneurs. Type of Market: The ideal markets that VCs would like to address are large global scale markets, though of late the Indian market has started maturing. Certain sectors like the wireless and mobile data services have exhibited rapid growth with opportunities to create large enough firms that give the VC an exit. VCs would prefer to enter markets with not too many existing players. Further, the entrepreneur must have a unique value proposition to offer it could be technological superiority, or innovative application of technology, or new business models. If there are large entrenched players in the business

then there must be something in that enterprise that will outlast the existing players, otherwise it will get trampled under foot. The business, as Raghunandan said earlier, must address some real customer need/pain so that customers would pay the premium that would render the business profitable and eventually earn the VC a handsome return. Challenges in Raising VC Capital: Entrepreneurs looking for VC funding would do well to note that blind calls to VCs rarely get funded. It is important to build relationships, often through networking forums. To create a good first impression, entrepreneurs must get ready with a crack executive summary, a good business plan and speak with enthusiasm to convey their passion for the enterprise. Since VCs need impeccable references, prospective entrepreneurs are advised not to burn their bridges when they switch jobs and conduct themselves always in a totally ethical manner. Lone rangers rarely get funded, so it is important to build a cohesive team with complementary skills before approaching VCs. Discussion Parameshwar Iyer: We see a lot of small ventures getting funded but when will we see a star performer in the Indian entrepreneurial scene? Will the next generation see a Bill Gates or a Narayana Murthy? Samir Kumar: We have had some spectacular VC funded exits in the last few years India Bulls, India Games, Sasken, to name a few -- all venture funded companies that have given their venture capital investors spectacular returns. N Raghunandan: While Bill Gates or Narayana Murthy are great inspirational icons, entrepreneurs must carve out their own vision of the market space and the possibilities of the business according to their aims, vision and ambition. They must ensure primarily that their funds are giving them the right returns. From the VCs point of view, once the life of a fund is over, a VC with a good standing in the market will be able to raise funds all over again. Anjana Vivek: Many entrepreneurs are concerned about showing the negatives in their business plans in case it should put the VCs off. Samir Kumar: VCs can always figure out hidden negatives. It is better to share the risks upfront and discuss them openly. But I can understand where this query is coming from. VCs in India are often dubbed as glorified bankers and entrepreneurs will be wary of showing things as they are till VCs prove that they can take and manage risks. Sunil Gulati (PGPPM Student): Graduates from institutes of repute like the IIMs begin with very high salaries. Would that not be a disincentive to entrepreneurship? Moreover, does industry promote entrepreneurship within its ranks, among its employees, for instance?

Samir Kumar: It is not the industrys job to promote entrepreneurs. Industry is concerned with delivering shareholder value to shareholders. Market forces are the best agents to allow all these things to play out. Moreover, industries often promote intrapreneurship by incubating teams and seeding ideas that they may eventually fold back into the organisation. Coming to the question of large salaries, that would not be a consideration for an entrepreneur who is passionately pursuing his idea. Moreover, market forces may reward him manifold much more than the large salary he would have earned. Srinivas Gunta: Buyouts funded by VCs are still a rarity in the Indian scenario. Is it because of the regulatory constraint or are VCs themselves not looking at buyouts as an active option? Samir Kumar: Private equity is a very new asset class for India. At one end of the spectrum are venture capitalists who invest in the early stage and take early stage risks and at the other extreme are the mezzanine private equity and buy out firms. In India we are only now beginning to look at that space and almost all the participants are overseas buyout firms. However, taking the cue from ICICIs active participation in the space, we are sure to see more buyouts as we go down the line. Parameshwar Iyer: We should raise the question of social entrepreneurship. Our centre is involved presently in a project on bio diesel generation. This is an extremely important project from the points of view of energy security, carbon credit and even economics. But it will probably be six or seven years before you can look at a return number. Would VCs be willing to fund such a project? Will they be able to recognise innovation in that space for what it is? Samir Kumar: Social venture funding is quite active in the US as well as in the West. Social venture capital funds that fund social entrepreneurship are just beginning to happen in India. There is some talk of C K Prahalad setting up a fund for social entrepreneurship, that may not deliver the same returns as venture capital returns but will still be self sustaining. Sunil Gulati: As the Commissioner of Census, Haryana, I would like to draw your attention to a group of statistics. The census classifies workers into three categories -main worker, marginal worker and non worker. In Haryana, the recent percentages for the three categories were 36%, 4% and 60%, respectively. Whereas in Gujarat, the percentage of marginal workers is around 25%. In our country, self employment of the modest sort is often considered demeaning. An entrepreneurship index for different states would indicate where the rates are low and there could be a campaign for social awareness generation. For a very long time as a nation we have looked down upon entrepreneurs and it is time that we raise their class. Anjana Vivek

Venture Creation in a Globalised Economy: Angel Investment There are many sources of angel investment. The classic source is through family and friends. Successful people who want to give back to society something that they have earned, who are either motivated by a social objective or by the need to keep themselves engaged, are another source. Typically such kind of angel investment happens in areas in which the persons are comfortable, in that they can identify and understand the proposals that come to them and they are confident of contributing to growing the venture. Unlike in a bank investment where there is limited intervention from a banker, VCs or angel investors or equity investors are expected to participate to a larger extent. Equity investors are more involved participators because they also own a bit of the company. Angel investors too want to grow with the company and be a part of that story and they can add value as they understand the industry. However, entrepreneurs must do their homework with due diligence and choose the right angel. Other than looking at the prospect only in terms of the value or money created, they must look at the softer issues, like ethics, growing the business, the geographies in which they want to expand, and so on. Broadly, there are three aspects that need to be considered when one is looking at angel investment. At the pre-investment level, the environment must facilitate the availability and the visibility of a pool of money so that entrepreneurs can select the suitable angel, as one would a bank. For angels and entrepreneurs to come together and match their needs, both sides need to be educated. There must be forums which fulfil this need. To increase the size and visibility of the pool, and all-round awareness, it is essential to educate not just prospective entrepreneurs but professionals across the board, people who come in touch with the entrepreneurs on a regular basis -- bankers, educators, lawyers, chartered accountants etc. Entrepreneurs then need to be educated about the next stage or the post-investment stage, where, apart from money, other skills are required. Most entrepreneurs need hand holding in the early stages as they do not have processes in place. This may not be on account of lack of knowledge or business experience, but simply, lack of time. Professional advisors such as chartered accountants and lawyers help to put processes in place, but you also need mentors who will understand the finer perspectives. Education must happen from a holistic business perspective, that which goes beyond revenues and profits to adding value. The third stage is the exit stage, where an equity investor typically gets in and the angel investor would like to get out. Is there a system or mechanism to enable angels to get out? The eco system still presents a problem with that in India. For this, we need to have levels of players. A seed investor may take a 20% investment in a company and off load at the next stage with another investor and keep a 5% stake in the business. The mechanism by which there are multiple layers of investors is still to evolve in India. Till that happens what are the alternate exit mechanisms? While it is reassuring to say that the entrepreneur will buy back, can we realistically look at buying back in a situation where

the business is not doing too well? While it is difficult, it is important to look at innovative ways of exiting. There are no easy answers to this. One thing though is that it is driven by the internal requirement of the entrepreneur or enterprise. So each one should evolve in his/her own way, keeping in mind the larger context as well. We could also look at how the regulatory environment can enable exit. Discussion Parameshwar Iyer: My experience with self help groups and micro level enterprises reveals that their biggest challenge lies in the marketing of their products. Can we motivate big organisations like ICICI, or even small timers who have now become established brand names, like Lijjat papad, to become a VC marketing enterprise for other SHGs? Information and communication technologies may also be enlisted to provide a virtual market place. B Mahadevan: Such initiatives are very much on the cards. However, the greatest challenge we have in this country today is the transaction inefficiency that prevails in the whole chain, particularly in terms of information. There are too many players and the whole value is appropriated out of the last leg in the chain. However, initiatives like ITC e-choupal have made a creditable beginning in getting transactional efficiency into the system, by providing information and also, an alternative system to the traditional mandis. While ITC was initially trying to push their products through these channels they have realised that this has acquired carrier status now. The improvements in IT infrastructure and the Internet have facilitated the timing of such initiatives. The Internet has the greatest capability to drive down transactional inefficiencies. In the next few years, we should see other such initiatives, not necessarily driven by the government. K Ramachandran: Such marketing support may be helpful in the early stages of an enterprise or with a micro enterprise. However, if it persists, you may be cutting off the manufacturer from the market. Once the manufacturer ceases to understand his customer, the entire system collapses because the manufacturer does not build any brand image in the market. A real entrepreneur would never delegate this to anyone. It would be suicidal for him to do that. Parameshwar Iyer: The co-operative model, which has proved successful in the Green revolution and the White revolution, may prove a successful model with microenterprises. N Raghunandan: Coming back to angel investing, there is a trend, especially in the US, where the band of angels is accompanied by a management team. Angels typically identify a set of organisations with high technological innovation but poor marketing track record or vice versa, and try to marry them or make the probability of exit or value creation higher. There is a need in India as well to have a management team in waiting for venture capitalists, private equity and angel investors especially in the newer range of investments. Some private equity companies have already tried this quite successfully.

Anjana Vivek: Often, with really small early stage companies, they do not get the kind of leadership they need as they may not excite quality people. Entrepreneurship models should be able to accommodate senior people who work part time till the organisation evolves. R Nagaraj: As CEO of IIMBs NSR Cell, my experience is that the people in the IT product line typically look for VC funding. A majority of those who want to start in the services sector go back to funding from friends and family. However, in the manufacturing sector, such end use funds are still not forthcoming. They rely heavily on banks. K Ramachandran: In the Indian context we find substantial interest in the manufacturing sector from the VC angle but on the angel front I dont see much activity. Although our organisation gets enquiries from industrialists who are looking for angel investment, they dont know where to go and there is a disconnect there. Is there any mechanism or forum where angels are pooling especially from the manufacturing side? Anjana Vivek: There are only piece meal efforts on at present but there is place for such a forum. Mathew Manimala: Does the word angel really connote some altruism? Why are they called angel investors? Anjana Vivek: Unlike a VC fund, an angel fund is not a formal system of funding with a formal structure where you have to return the money. An angel chooses to invest his/her money as he likes and so it is assumed s/he is being large hearted. However, just as all venture capital is not vulture capital, not all angels are good angels. Samir Kumar: The angel phenomenon started in Silicon Valley when people who were successful in their own enterprises decided altruistically that since they had been successful they would give of their time, their energy and incidentally their money to budding entrepreneurs. Angels do not have the money minded focus that venture capitalists have because angels are investing their own money and VCs have the responsibility of managing someone elses money. That brings the element of vulture vs the angel into the picture. B Mahadevan: This discussion has raised questions regarding social responsibility and entrepreneurship and the need to marry them. The literature on innovation clearly says that value creation is different from value appropriation. The challenge here is in getting the complementary assets together somebody can market while somebody else can signal quality. Entrepreneurial innovations have been moving towards the creation of complementary assets. Mathew Manimala: This has been a fruitful discussion where many perspectives have been represented. We had the academic perspective presented by Prof. Ramachandran, the practitioners views by Mr. Raghunandan and Mr. Samir Kumar, and the mixture of

academics and the practitioners perspectives by Prof. Iyer and Ms Anjana. I thank you all for your contribution.