Priyanka Bakaya, MBA ’11

Department of Energy features PK Clean

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Tuesday afternoon I had the honor of sharing the MIT Clean Energy Prize Showcase floor with 25 teams of America’s most promising entrepreneurs. Representing the best in class...

 

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Posted via email from PKClean Blog

Top 10 Signs of an Emerging & Entrepreneurial India

The end of my first year at Sloan was tinged by sadness, as I parted from dear friends who had become like family. I wondered how anything could be better than the exuberance and new opportunities which filled my first year of business school? Little did I realize what an incredible journey my summer in India would be. As my time here draws to close, I reflect on my 3 months, and even dread having to leave! I spent the first month working on setting up PK Clean’s pilot plant in Pune and leading a local market study with our excellent team on the ground. During my second month I moved to Delhi for the first time, working at Attero, one of DFJ’s portfolio companies in the clean tech space, to get a taste of India’s start-up scene.  In my third month I am living in Bangalore and working at Accel Partners, a Silicon Valley-based Venture Capital firm. The experiences have given me a multidimensional snapshot of the Indian Entrepreneurial Ecosystem and also what life of 20-somethings here is like.

Whining about India’s shortcomings is a favourite pastime of locals and expats alike, but I must admit that these 3 months have given me more to be hopeful about than complain about. India shows many impressive signs of emerging into a global powerhouse in its own right. My trips to India have been almost annual pilgrimages since childhood, and never before have I felt so much promise. These are the top 10 trends which I’ve been most heartened by during my time here:

10/ Ambitious Youth

There is a stark contrast when one compares the youth of India to the youth of the west. To make a *vast* generalization (and in the hope that I don’t offend anyone), the majority of my peers graduating from top schools in the U.S. have a strong sense of entitlement. Most opt for jobs at established organizations in the hope that this will launch their careers – and most of these extremely qualified friends will either find themselves out of a job at various points in time or in a job where they are dissatisfied and looking to move. In India, one finds less of this sense of entitlement, but rather a generation of extremely driven and hungry youth. In fact, I would go as far to say that India suffers from the reverse problem of there being so many opportunities but not enough people of high calibre to fill the need. The most heartening trend has been seeing the speed at which the employees at our family’s company rise up the ranks – our office boy has learned to use the computer to take on data entry roles and our former business-savvy driver has graduated to a business sales role at PK Clean – to give a few examples. Our business school intern at PK Clean this summer was very energetic in his role – and since they are in vast supply, the monthly cost of employing these high calibre youth is still surprisingly less than what you would spend on a fancy dinner in New York City.

9/ Regionalism moving to “Indianism”

Some complain about the fragmentation of India – with its many regions and dialects. However, after spending the summer in 3 of 4 of India’s regions (the West, North and now South) – I find an increasing sense of commonality of experiences across these regions. A contributing factor to this is that now you find chains across the country, a phenomenon which you did not find a decade ago. You also find an extremely high amount of travel between the cities of India – while I’ve been here I’ve used virtually every mode of transportation available from local trains, buses and planes, to scooters and rickshaws. Every form of transport is flooded with people and this high level of commuting between regions for work, education and leisure has helped contribute to reduced regional distinctions.

 

8/ Improving Professionalism

Previously, I had been worried about how India will compete at a global level when Indian corporations lack the quality standards of the West. From outsourcing my own website design to Indian firms to watching Indian entrepreneurs pitch at DFJ’s global business plan contest, I’ve observed that the standard is lower than what one finds abroad. However, I find it heartening that this weakness is now openly discussed by Indians, most recently at a developers’ conference I attended this week at IIMB. When I was working at Attero in Delhi, they were so acutely aware that their employees needed to improve the quality of their business communication that they even had me conduct a training session. That Indians are eager and looking to bridge these gaps is the first step needed to see change.

7/ Aspirational Consumers

Indians (and more broadly Asians) are often characterized as savers over spenders, and while value for money is still primary in buying decisions, I believe Indians are secondarily “aspirational” consumers. When our milk man heard that I would be coming from the U.S., the first thing he asked for was the latest iPhone. Yesterday I rode in a rickshaw, in which the driver had equipped a small screen and surround-sound speakers.  My driver, picking up the fact that I was a foreigner, put on a Hindi film dubbed in English for me to enjoy and charged me 10 Rupees extra, which I was happy to part with for the novelty factor. 

India’s aspiring consumers don’t just stick to their day job to fulfil their desires – for instance, the three personal trainers I have had during my time here have each had dual occupations – one an actor, another an aspiring army officer, and my current one a cricket player. It’s a win-win situation; my body stays fit while contributing to India’s disposal income!

6/ Accommodating Outsiders ...

Formerly when I visited India, if I asked for anything non-standard such as splitting a restaurant bill or a cappuccino with skim milk, such requests would be met with a bewildered look. These may sound like very superficial preferences of a spoilt Capitalist, but the fact that at a restaurant this weekend our group of 6 expats succeeded in getting a split bill, at coffee stores I get my skim milk and free wifi, and that grocery stores are now filled with non-Indian favourites of mine such as couscous, granola and tofu, actually signals something at a much broader level about the rapidly adapting Indian consciousness. All my expat friends comment on how easy it is to talk to people here and form new relationships, and I believe that this is at the heart of India’s success; the openness of locals to get to know and accommodate people from around the globe.

5/.. Yet Staying true to Indianness

While Indians are accommodating the West, they are not compromising their Indianness to simply become a clone of the West. Unlikely other countries which are rife with 7-Eleven and Starbucks stores, you will not find such stores since local brands dominate. From low-end street markets, to mid-range stores like FabIndia, to high-end boutiques on Bombay’s Linking Road, you pleasantly find a distinct Indian style and design consciousness, which permeates all areas from fashion to film, music and art. 

For a sense of the talent, check out my dear artist friend Prashalee’s Bombay-based Point of Hue, or my cousin’s film which she made with classmates at the National Institute of Design (NID) (each second took 4 days!).

4/ Social Responsibility towards Bottom of the Pyramid

Encouragingly, the energy and activism of this generation is not limited to the top of the pyramid. From doing community service at Bangalore’s Leprosy Hospital to interviewing the informal electronic waste sector in the slums of Delhi, I have been comforted by the fact that many young people are passionately dedicated to ensuring the transformation of the bottom of the pyramid. In Bangalore, in a major breakthrough for slum-dwellers, the informal e-waste sector has been able to secure a government license to ensure their livelihoods in processing e-waste. I met with various motivated people in Delhi dedicated to a similar mission for those in Delhi’s slums. Even the leprosy hospital I found filled with devoted practitioners who are willing to take personal risks in order to fight and eradicate leprosy in India, and such sights are truly inspiring. India is still in the early stages of embracing corporate social responsibility, but when one reads the brilliant efforts of Sudha Murthy of the Infosys Foundation (I’d highly recommend her Wise and Otherwise if you like short stories), it gives one hope that corporations and individuals alike are starting to take social responsibility more seriously.

3/ Spiritual Exporters

India’s spiritual strength has existed over centuries – and it is so intertwined with everyday life here, where it is normal to pass a few roadside rituals, temples, mosques and churches on a typical journey across town. Ashrams from Dharamsala and Rishikesh in the North to Aurobindo and Prashanti Nilayam in the South are filled with foreigners coming to India to fulfil their spiritual quench. At the Iyengar Institute in Pune where I was lucky enough to take classes, the waiting list for foreigners is 3-4 years.

This spiritual wealth of India, whether through Yoga or various Gurus and spiritual teachers, not only adds to the openness and diversity of the country, but is an intangible and often overlooked export.

2/ Brain Drain Reversal

Long gone are the days when every Indian’s dream was to get admitted to a foreign university – the ticket to a coveted job abroad. Now I am comforted to hear that even the most talented youth have no desire to leave India. Even those that leave to go to U.S. schools return immediately – and increasingly, to work on start-ups rather than at elite firms and funds. Indeed, even expats who have never previously lived in India, are now coming to Indian cities in large numbers to take on more senior and impactful roles than they would be able to find in the west. For those that return, not only are they able to avail of the great lifestyle which India now offers, but also have more meaningful and rewarding professional experiences.

1/ Constantly Communicating: Building a Vibrant Entrepreneurial Ecosystem

Coming from Stanford and MIT, I certainly have high standards of what I expect from an entrepreneurial ecosystem. From attending several entrepreneurial events here – such as business plan competitions, CleanTech forums, TIE events, conferences – I am encouraged to see the strong interest in entrepreneurship and the willingness of participants to not only brave it as entrepreneurs, but to also build their networks and find mentors and leads. The rising profile of the angel and VC community has been important, and I am impressed by the highly responsive rate of mentors who have been willing to help me grow my own business. 

Indians are constantly communicating – whether on the phone, via SMS (mobile subscribers represent some 600 million and continue to rapidly grow) or in person, and this high level of interaction has made it easier for the entrepreneur to meet people and build important networks.

India of course still has much progress to make across various social, government and economic spheres, but these encouraging trends suggest that India is moving forward in many respects. A major concern is that infrastructure continues to suffer from short-sightedness, shortcuts, and safety issues. While certain infrastructure additions such as the Delhi Metro, Worli Sea Link and the new airports have all been impressive to experience, they have been planned for yesterday rather than 5 years from now. If India is able to more rapidly handle its infrastructure issues, while taking on other social and environmental challenges more seriously, we could begin to see it transforming into a global leader in many new areas.

entrepreneur@MIT

The entrepreneurial ecosystem at MIT is incredible, and I believe there are few better places to grow as an entrepreneur. Many Sloan classmates, like me, work on their start-ups alongside taking a full load of classes and extracurriculars. Sounds like a demanding schedule? I won’t lie, it is, but the fantastic thing is that every class and extracurricular directly helps you become a better entrepreneur.

For the benefit of aspiring entrepreneurs in the prospective, incoming and existing MIT community, I’ve compiled the following list of “Best of” entrepreneurship at MIT. These are a culmination of my best experiences at MIT in my first year, and I’m grateful that so many of the lessons learned from here are things which I already incorporate into running PK Clean every day.

Emerging entrepreneurs need hands-on skills, mentors, idea exchange, industry exposure, and a rich community. MIT offers all these things and more:

SKILLS

I was drawn to MIT since Sloan, unlike most leading business schools, has a very hands-on and extremely applied curriculum. Between Labs, E&I classes, SIPs, IAP workshops, you have an entrepreneurial smorgasbord at your fingertips:

IAP: IAP is Independent Activities Period, which takes place in January before the semester begins in February. There are some great entrepreneurship classes, including the The Nuts and Bolts of Business Plans, which is a great way to get a head start for the Business Plan competitions in Spring. I took the class this past January, and as it’s an evening class you can balance the class while working for a full-time externship during the day.

SIP: SIP is Sloan Innovation Period, which is one week in the middle of the semester where instead of taking regular classes you register for short workshops. Many of these are related to entrepreneurship, and this past year I took several helpful and practical SIPs including IP Strategy, Women and Entrepreneurship, and even one on designing employee contracts.

Classes: Since Sloan allows you to choose electives for 3 out of your 4 semesters, you can take full advantage of Sloan’s best classes for entrepreneurs such as New Enterprises, Technology Sales, Early Stage Capital, Managing in Adversity, and ventures classes such as Media Ventures (collaboration with Media Lab) and Energy Ventures (energy-focus). These are all classes I either took this past semester or am registered for this upcoming semester, and all come highly recommended.

Labs: Sloan offers several “Lab” classes where you work on a project for a real-world company. For entrepreneurs, G-Lab offers the opportunity to work with a start-up globally, whereas E-Lab allows students to do this locally. I’ll be taking one of these Lab’s next semester, and would also recommend iTeams, which is an opportunity to work on a commercialization strategy for a promising MIT technology out of a lab. I worked on this great water technology.

MENTORS

You can find a lot of great mentors on-campus through faculty, E&I staff, and the E-Center’s Entrepreneur-in-Residence program. There are also formal mentoring programs through MIT’s Venture Mentoring Service and through competitions such as the 100K and Clean Energy Prize. Various clubs also have their own mentorship programs – this year I had two mentor’s through MIT’s Energy Club.

IDEA EXCHANGE

Some fellow 2011 classmates really enhanced the idea flow at MIT this year with Erdin Beshimov and Rob Lemis founding MIT’s Entrepreneurship Review and Adam Blake, Morgan Blake and Slava Menn founding IdeaStorm. I highly recommend students getting involved with both – I’ve both pitched and moderated at IdeaStorm and gained a lot of insights. There are also events fostering idea exchange hosted by the E-Club and TechLink on-campus, as well as many interest groups in the area which host some great idea exchanging events such as WebInno, PEHub and TiE throughout the year depending on your interests. I’ve been involved with or attended events hosted by each of these groups throughout the past year, and they’re all great forums to keep on your radar.

INDUSTRY EXPOSURE

As great as the MIT campus bubble is, entrepreneurs also need to be constantly engaged with “the real world” and networking with people across industries. One great way to do this is through conferences. Some of MIT’s best conferences which I was part of this year include the MIT Energy Conference and Venture Capital Conference, and there are also many great non-MIT conferences which you can attend as a student volunteer such as the Cleantech Forum Boston and others depending on your area of interest. The VC/PE Club also offers great events for entrepreneurs, and the treks are a fabulous way to get out into the real world. Another great opportunity is MIT’s Externship program - I worked at a VC in Boston and learned a tremendous amount about how investors evaluate entrepreneurs and the ins-and-outs of funding. Other local groups with events to look out for are the MIT Club and MIT Forum.

COMMUNITY

If all these forums haven’t already given you a sense of how strong the community around entrepreneurship is at MIT, Sloan students can also be part of the Entrepreneurship & Innovation Track during their 2 years. The track entails an introductory course in the Fall, which familiarizes students with entrepreneurial resources on campus such as The Licensing Office and Legatum Center, and includes a weekly dinner speaker series. The highlight of the program is the Silicon Valley Trek in early January, where all the E&I students bond closely. Finally, depending on your area of interest – whether it be media, development, energy or anything else – there is a Sloan community for you. For instance, I’m on the board of Sloan’s Energy & Environment Club, focused on entrepreneurial events. I have also been interested in creating a closer community of women entrepreneur's on campus during my time here, and together with classmate Erica Dhawan we're putting together a Women Entrepreneurship Seminar for the Fall - I'm sure more on this in future posts!

Posted via web from PKClean Blog

Be Green: Be Vegetarian

If you’re trying to be green, perhaps like me you recycle obsessively, use energy saving bulbs and never drive. However, according to a New York Times article “when you look at environmental problems in the US, nearly all of them have their source in food production and in particular meat production”. If you are seriously interested in reducing your carbon footprint, apparently one of the most effective ways is to stop eating meat.

Per capita global meat consumption has more than doubled over the past 40 years; from 70 million to roughly 300 million tons today. This is expected to double again by 2050. Of this, Americans eat about 8 ounces of meat a day, twice the global average, and we grow and kill 10 billion animals every year. Instead of being raised locally where manure can be spread on nearby fields and transportation costs reduced, production facilities now resemble prisons more than farms, hundreds of miles from major population centers, and their manure streams pollute groundwater. The industrial production of livestock is growing more than twice as fast as land-based methods, and these assembly-line meat factories have several harmful effects for the environment.

ENORMOUS ENERGY CONSUMPTION

Producing meat has inherent energy inefficiencies. About 2x – 5x more grain is required to produce the same amount of calories through livestock as through direct grain consumption. This number is as much as 10x more in the case of grain-fed beef. To put this energy consumption in simplified terms, if Americans reduced meat consumption by 20%, it would have the same impact as if we all switched from driving sedans to ultra-efficient Prius’s.

SIGNIFICANT GREENHOUSE GASES GENERATED

Livestock production generates one-fifth of the world’s greenhouse gases — more than transportation! It is estimated that a 2.2 pound serving of beef is responsible for the equivalent amount of carbon dioxide emitted by the average European car every 155 miles, and burns enough energy to light a 100-watt bulb for nearly 20 days.

DEFORESTATION

Livestock requires ever-increasing amounts of corn, soy and other grains, a dependency that has led to the vast destruction of the world’s tropical rain forests. An estimated 30% of the earth’s ice-free land is directly or indirectly involved in livestock production.

POLLUTED WATER SUPPLIES

Agriculture in the US, which now largely serves the demand for meat, contributes to 3/4 of all water-quality problems in the nation’s rivers and streams. The only reason factory farming is optimal is because degrading waterways is free. If dumping carried a non-zero price tag, the entire structure of food production would drastically change.

STARVATION

Interestingly, the majority of corn and soy grown in the world feeds cattle, pigs and chickens, even though roughly one billion people suffer from hunger or malnutrition. As more meat leads to an increased demand for feed such as corn and soy, this leads to higher prices for feed, which has tragic consequences for citizens of poorer countries.

DISEASE

The stomachs of cattle are meant to digest grass, not grain, and cattle raised industrially thrive only because they gain weight quickly, which encourages the efficiency of mass confinement and slaughter. But it causes health problems, administration of antibiotics is routine, which results in antibiotic-resistant bacteria that threatens the usefulness of medicines that treat people. Grain-fed animals are contributing to health problems among the world’s wealthier citizens — including heart disease, some types of cancer, and diabetes.

WHAT ABOUT PROTEIN?

Many ask, but what about protein? Americans eat 200 pounds of meat, poultry and fish per capita per year, representing an increase of 50 pounds per person from 50 years ago. We each consume something like 110 grams of protein a day, about twice the federal government’s recommended allowance; of that, about 75 grams come from animal protein. This recommended allowance is considered higher than it needs to be by many dietary experts. It’s estimated that we would be fine on 30 grams of protein a day, and virtually all of it from plant sources.

SUBSIDIES

Despite all these negative externalities, meat is subsidized by the federal government. Eliminating subsidies could help pass on the true costs of meat production to consumers; the UN estimates subsidies account for 31% of global farm income. In part because of subsidies, real prices of beef, pork and poultry have held steady, and even decreased, for 40 years or more.

THE GOOD NEWS?

So given all these staggering facts, perhaps you’re wondering what the good news is? The good news is we all have the power to have an impact by reducing our meat consumption. Personally, I initially became vegetarian due to animal cruelty, but even without going into the horrors of killing and raising meat in confinement, there are many larger global reasons to remain vegetarian. Perhaps the best news is that we find that the good of people’s bodies and the good of the planet are in fact perfectly aligned.

  

 

Venture Capital in India: Waiting for Exits

India has a thriving entrepreneurial culture, high-single digits growth, strong talent, and is flush with money ready to put to work. Shouldn’t this naturally make it a venture capitalists’ heaven? Not necessarily.

The Playing Field

Venture Capital in India is still at a very nascent stage. The industry consists of roughly half a dozen active firms – most of which are U.S. based. The firms we met included Helion, DFJ, Accel, and I also separately met with Nexus. There are other firms we didn’t get to such as Sequoia, Canaan, and IDG Ventures (the latter which was interestingly co-founded by a Sloanie). Some other firms are present – but invest at a much later stage than pure venture – firms like Bessemer, Battery, Norwest and Matrix. Venture Capital has been around in India for a while, but roughly 10 years ago it morphed into PE. Various players such as ICICI Venture and Carlyle realized that with so much cash, PE was a much better model for them, so switched their strategy. The latest pure VCs to crop up have only done so in the past couple of years.

Are there Exits?

Since the firms have only been around for a few years, VC is still not a proven model in India. Until India gets its 20x’s, the main question on the lips of every firm we met with was ‘are there exits?’  This year should be an interesting year since there are about 100 IPOs lined up, including a sizeable number which are VC funded. However, until some major headline exits happen, VC lacks the reputation and still remains an unproven model in India.

Growth Garbed as Venture

Given its early stage as an industry, the VC happening in India tends to be more risk averse than traditional VC. There are still inhibitions around backing very young companies, so VCs prefer companies which are cash flow positive and use more PE-type criteria in evaluating companies - leading one firm to describe investments as “growth garbed as venture”. While this may be a less risky approach, on the flip-side, this also lowers the return potential. Since Indian VC investments tend to be oriented towards service companies rather than technology companies, while less capital is required and less risk is involved (since they don’t have to prove the technologies), there is also no exponential hockey stick growth that comes with tech plays. Service businesses are instead an execution play, and the time it takes to build out the business is a slower and more gradual process – which makes it tough to ensure that exits take place within a suitable horizon which is shorter than the 10-year fund life.

Where are the Angels?

There is still not much of an angel landscape in India – there are 2-3 well-known angels, but even these have a mixed reputation. However, fortunately the “friends & family” investing sphere is very significant – not surprising given India’s rich heritage of family-owned businesses. Hence, usually there is no trouble in getting early investments of around $100k to $200k. The only active VC making serious investments under $1 million is Accel, with the others mostly staying in the $2m - $10m investment range. Anything greater than $10m becomes very competitive, with companies with revenues to warrant large investment sizes automatically becoming hot property, sending valuations through the roof.

Sectors: Searching for Scalability

Most of the funds we spoke with had a sector agnostic view to their investments. The general theme we heard was there is rarely IP or new ideas coming out of India, and most start-ups are merely replicating and adapting foreign ideas for the Indian context. The one exception to this is mobile, where India is leading trends internationally largely because of the unique set of regulatory and socioeconomic conditions pushing this sector in India. Areas such as internet are still struggling in India, since it is hard to monetize websites if there is no E-commerce. E-commerce is still yet to take off in India since it requires logistics both through distribution and online payment, which are not yet in place. Cleantech is also a relatively new area, with only DFJ and Nexus seriously focusing on it, with some others starting to look at the space more closely. Generally the mantra on everyone’s lips when considering investments was ‘scalability’.

Where does this leave the Entrepreneur?

Interestingly, we heard that 95% of entrepreneurs in India are first-time entrepreneurs. Historically, businesses spawned out of family enterprises, so there was never a need for external funds, but now a new set of professionals is emerging. Other than the regular requisites of having a passion and stomach for start-ups, entrepreneurs in India also need to have a much longer time horizon. In the west, it is sometimes common to think in terms of a 3-4 year time horizon when make a decision to found a start-up, however we in India 10 rather than 5 years is the magic number.

So is it better to be an entrepreneur or investor in India? Chances are that in the early years at least, investors will get hurt more than entrepreneurs. It will take a few stellar exits to prove the model, but when it is proven, it could be the beginning of a very exciting era for Indian business.

Posted via web from PKClean Blog

Indian Cleantech: Set for Takeoff

Clean technology investments are still at a very nascent stage in India – with only two VCs really seriously involved in the space. I met with both of them during my trip – Nexus in Bombay and DFJ in Bangalore. Others are starting to look at the space, and in many of our meetings with other VC and PE firms, they mentioned trying to currently get their head around how best to deploy capital in the emerging Cleantech space.

In terms of the current Cleantech landscape, there is already a decent installed base of Wind and Hydro power, with more expected to come online in the future. Solar has received a good push from both industry and government, with literally everyone we met citing the 2020 solar …. There are also a decent number of waste-to-energy and biofuel companies, however the problem here is with scalability. Since these companies source locally, getting feedstock poses a challenge for scale. In order to avoid getting squeezed by suppliers of waste such as agriwaste, some companies have had to adopt a diversified strategy where 50% of their waste comes from the market, while the other 50% they need to grow captively.

Broadly speaking, start-ups in the Cleantech area are still in infancy. There still have been no dominant players emerge, which is a good thing if you are a start-up like PK Clean. Furthermore, in the Indian context these start-ups are not focused on the innovation side, but the deployment side. As Mohanjit Jolly explained to me - India is going from nothing to something, and not looking for “best of breed” innovations. The industry doesn’t have luxury to innovate, and just needs to put something in place in order to bring energy to the masses. Hence, from a venture capitalists perspective, Cleantech in India is more of an execution play than a technology play.

The following article from India’s Financial Express newspaper presents a great overview of the current state of Cleantech investment in India. http://www.financialexpress.com/news/2010cleantechgetspetraction/593431/0 Coincidentally, the article came out the same day as the start of our Trek, and since I had subscribed to Financial Express on my Kindle for my 2 weeks in India – I was excited to read this on the way to my first meeting. The photo below is of the article on my beloved Kindle:

Posted via email from PKClean Blog

Do You Have the Stomach for India?

As our group met with firms, some of the consistent questions we kept hearing were ‘how long have you been “outside”?’ and ‘do you have the stomach for India?’ The latter question was quite literal, as frequently it seemed like we were being tested through the type of water we requested to drink. (If my bizarre Australian/American accent wasn’t enough of a giveaway that I had been living outside, my preference for Bisleri certainly was). These questions quickly became a pet peeve for our group – we were all of Indian origin and felt a strong connection to our country of heritage.

I can understand why this was a concern for many firms, as understanding the Indian mentality is indeed important for conducting business. For me, while I’ve grown up outside India – the connection has always been strong through yearly trips to India, having many close ties through cousins and friends, and being heavily involved with my family’s business. Part of it has been my own fascination and love for India – during college I chose to spend 2 months in Bangalore researching growth and innovation in the tech sector for my senior honors thesis, and was also involved in social entrepreneurship start-up Vipani focused on the rural sector. On one end of the spectrum I’ve spent time in Kashmiri refugee camps, in villages, ashrams, training as a yoga teacher, and on the other end of the spectrum I covered major Indian IT services and BPO companies while working on Wall Street. In the year before coming to Sloan, I was living in India and working both on PK Clean as well as helping out with the family business – engaged in everything on the ground from property investment decisions, hiring & firing, managing vendors, training staff through series of classes, designing offices and logos, marketing and presenting to clients … really the whole gamut.

So what does it really mean to have a stomach for India? Perhaps there’s something more to it than the Bisleri test.

Posted via email from PKClean Blog

Private Equity in India: Knocking on Heaven’s Door

 

Several PE firms have cropped up in India over the past decade, each seeking to carve out its own strategy for generating returns in the unique Indian context. The operative word here is “unique” – India is unique because LBOs are not possible given government regulations around leverage. Despite lobbying, rules around leverage don’t look like they will change anytime in the foreseeable future. Since leverage is not an option, Private Equity in India remains a Growth Equity play.

Smorgasbord of Financing Options

India is also unique given the wide range of opportunities available for companies to raise money. The IPO market is very active, and since the listing rules are relatively lax, this makes it easy for companies to raise money through IPO as an alternative to PE. However the downside here is that the company needs to be able to perform well otherwise it will be penalized by the market if it tries to raise money in the future (NSR shared with us a statistic that 70% of Indian companies are trading at a discount to their IPO price). Debt is also readily accessible for companies. External commercial borrowings are available since investors don’t mind Indian debt since it represents a relatively risk free investment for a high coupon payment. Finally, once public, companies have various other alternatives available for raising funds – such as QIPs, rights issues and follow-on preferential allotments.

The Holy Trinity of Investing in India

Interestingly, the holy grail of investing in India seemed to be consistent across all the firms we met. ICICI Venture, Actis, Blackstone and others all mentioned the same 3 themes driving their investments:

1.          Consumption

2.          Infrastructure

3.          Outsourcing

1.       Personal consumption includes areas such as hospitals and education, and is mainly driven by the fact that GDP per capita is expected to multiply at least 3 times in the next 12 years. We heard that the city of Bombay alone will be the 11^th largest GDP in the world by 2016. Not only is this important, but it’s encouraging to see that the wealth is percolating to B & C towns and villages. Opportunities in education specifically seem limited to either foreign universities coming to India or professional training institutions such as NIIT emerging. These make sense because they have the ability to scale, and in the case of NIIT, have a process-driven curriculum. K-12 is a tougher area since it’s regulated, and in the case of Pre-K it’s not regulated but it’s not a very scalable model since it tends to be more person-driven.

2.       The infrastructure story is pretty obvious when one looks around at the amount of construction happening across cities such as Bombay and Delhi. Infrastructure includes everything from roads to ports to power to telecom. The key driver of the need for road projects has been from traffic, which has been growing at a CAGR over 10%. However many challenges remain – IDFC spoke of the challenge of getting skilled labor; there is little incentive for contractors to skill their labor when they go to competitors, for instance. Power is another area where tremendous growth is expected – currently India has an energy shortage of 9.6% and a peak shortage of 12.6%.The government has an ambitious goal of getting the country to add 100,000MW between 2008-2012, requiring an investment of $155b; last year 15,000MW was added. IDFC spoke of money interesting opportunities across power generation, equipment manufacturing and transmission, however ICICI Venture warned of more distressed power companies emerging in 2-3 years since they have been built on forecasts of much higher prices that what they will get. Khazanah also noted how setting up the plants was the easy part, but challenges arise in execution – for instance getting land, coal, power grid access, etc. Telecom has seen explosive levels of growth at every level. At this point there are 11-12 major players and a lot of experts expect to see a lot of consolidation in the area in the coming years.

3.       Outsourcing not only includes services like BPO, but also includes manufacturing such as auto components, as well as more research & development which have recently been emerging.  Outsourcing is getting fairly commoditized now, particularly in the services domain. There is huge growth and a lot of scope for further manufacturing of auto components – even though this may be bad news for the western auto manufacturers. R&D is another area where India has a lot of technical talent that can be utilized at a much more attractive cost than the west, if companies know how to properly tap into this talent. (Effectively what PK Clean has been doing through our team in Pune).

Real Estate: Out of Vogue

Saying “real estate” to anyone in Private Equity in India is almost like saying a dirty word. We consistently heard from every firm about how out of favor Real Estate was right now. Basically if you invested before 2005 you’re in good shape, but if you invested post-2006 you’re probably in some serious pain right now (to put it mildly). A challenge for cities such as Bombay is the very limited supply of “good” real estate currently. We heard that office space in Ceejay House, which houses many investment firms in Worli, goes for $180/sq ft, which is more expensive than Midtown Manhattan. These exorbitant prices represent a challenge for any sectors which rely heavily on real estate, such as hotels and retail. For instance, it’s hard to justify expensive brands since not only is real estate expensive, but luxury demand is limited too. The more attractive businesses appear to be those using real estate in Tier 2 cities where there is still growth ahead, and where demand is stemming from the emerging classes.

Bribery: A Tax You Pay to “Save Time”

Another topic that came up in our discussion with firms was the relationship with government. For some firms, government appeared a bed partner of sorts. IDFC was one example where the firm maintains close ties with government and policy makers. It was not surprising when they spoke about having been “coincidentally” correct on many government calls in their investments. Although the government plays less of a role in IDFC now (in 1997 the government had a 40% stake) – the government’s equity ownership still represents 18-19% of the company.

Views on government were mixed – some felt that the general governance of the country was deteriorating. On the topic of corruption, it was unfortunate to hear from one major fund that it’s getting worse rather than better. While the funds would never engage in making bribes themselves, it was generally accepted that most portfolio companies would be making bribes to conduct business. Without some level of bribery things take too long – and one fund manager noted that the key challenge for companies wasn’t Return on Investment but ‘Return on Time’. Some interesting euphemisms we heard for this type of corruption included “it’s a facilitation payment” or “it’s a tax you pay to save time”.

Show me the Money

So given this landscape for PE players, where is the money to be made? Broadly speaking, we know that PE can make money three ways: (i) leverage, (ii) multiple arbitrage, and (iii) fixing businesses. Leverage is not possible in the Indian context, multiple arbitrage is just taking a bet on market movements, and fixing businesses is difficult if funds don’t have a controlling stake.

To get around this, different funds are adopting varied approaches. Carlyle has adopted the approach of focusing on high growth rate companies with low ROE where they can gradually increase leverage across several years. This could mean, for instance, industrial sectors which are capital intensive such as manufacturing and family-owned businesses. Actis meanwhile prefers to make investments in the $50m-$300m range where it can take a controlling stake in the company – the fund noted that 50% of its transactions have been control transactions. IVFA also generally takes a majority or controlling stake of companies, and essentially takes over and runs a portfolio company. While it may not always be easy to take a controlling stake, others such as Blackstone, Khazanah and New Silk Route spoke of how their relationship with promoters and CEOs is the most key thing when making an investment since they don’t have the luxury of being able to make hiring and firing decisions. At least the solid relationship ensures that even though they may only have a minority stake in the company, they still feel a certain level of control over and comfort in management to fix the business as needed. It will be interesting to see how each of these slightly varied strategies plays out for these firms.

 

Posted via web from PKClean Blog

Trekking Around the World with MIT

By far one of my favorite experiences since arriving in Cambridge has been …leaving Cambridge! Coming to MIT Sloan, I had 3 primary goals (i) build skills to make me a better entrepreneur (ii) develop an understanding of the latest technologies in Cleantech (as well as broadly in other areas, such as digital media) and (iii) understand the VC landscape better. Fortunately there are enough stellar classes and extracurricular activities which have helped me make great strides in the first two areas (let me know if you’d like pointers), but for achieving the third objective I’ve spent a lot of time off campus trying to get my head around venture capital.

Since the start of the school year I’ve been on treks to meet Venture Capital (and Private Equity) firms in London, Silicon Valley, New York, Boston, and India. If there was an award for going on the most VC/PE treks ...I would definitely be the top contender. Not something to be particularly proud of since this basically means that I’ve used every break and long weekend being a nerd and meeting with firms rather than lying on a beach somewhere. I also spent the month of January interning at a VC firm in Boston, while many other classmates traveled the world. Although the exotic photos from classmates do look enticing, I definitely have no regrets since I feel that these treks present once-in-a-lifetime opportunities to hear insights about business trends around the world from industry leaders. I not only understand the Venture Capitalists perspective better, but also understand the business landscape in different regions better. Fortunately the nature of venture capital is so tight-knit, that once you have a few connections in any region it makes it easier to connect with others. Since I wanted to be a little selfless and share some of the insights I’ve been learning with others, the next few blog posts are dedicated to my takeaways from my most recent India VC/PE Trek over Spring Break. Hope these allow you to relive the experience a little – Enjoy!

 Group Picture from London VC/PE Trek – Thanksgiving 2009

Posted via email from PKClean Blog

Beginnings

Wow, what an incredible two weeks ...I can already get a taste for what an amazing two years I’m in for. Coming in, I admittedly expected Orientation to be along the lines of the “mindless but fun” orientations I’ve encountered in the past, but MIT did a spectacular job of making sure whatever activities we were engaged in were purposeful, thought-provoking, and  innovative …very much in line with the culture here.

The highlights of the past week for me were the team-building at Warren Center, the Beer Game (which, alas no, does not involve drinking beer), and Saturday’s Energy Sailing Regatta. Without boring everyone or revealing too much to future students, the Warren Center is an outdoor facility where we faced a number of challenging activities (such as building a raft out of minimal material, climbing a giant ladder-type structure, etc) in our core teams. A Core team is basically a team of 6-7 people which you work closely with during core classes on all your work – they usually try to make it as diverse as possible (in our team we have 7 countries and 7 industries represented!). The activities were challenging and really pushed us to consider how we could best operate as a team. My favorite activity was the giant ladder, since it not only pushed us to work effectively as a team, but also work with other teams in our section. I was proud that instead of focusing on maximizing points by always sending up the strongest guys, we early on made a group decision that ‘points were pointless’ and that we wanted to maximize fun and make sure every single person went up. We succeeded, and it was so exhilarating being part of a team where despite hardly knowing each other, everyone was so eager to help and make sure everyone succeeded.

The beer game which concluded the week was equally thought-provoking, but in a different way. It is basically a social experiment in the guise of a game, where in teams of 8 you act out the supply chain of a beer factory. The game was invented at MIT and has been played thousands of times around the world – and the results for every single team is always the same. In case you are curious you can google “MIT beer game Sterman” to read up on it, but one of the more disturbing aspects of the game is that by the end of the game team members are usually skeptical and distrusting of one another. It was definitely in stark contrast to the warm fuzzy feelings we felt at the Warren Center, and made us consider how certain ‘systems’ can lead to specific behaviors. Professor Sterman ended the session with photos from Iraq’s Abu Ghraib prison and the Stanford Prison Experiment, and without having to say it we were all reminded of Nazi concentration camps – all situations in which regular people like you and me in a particular environment were capable of abominable actions. It is scary thinking how various environments everyday bring out behaviors in us over which we have little control, and an important lesson to us as future managers on how to go about creating environments which bring the best out of participants.

On a lighter note, yesterday was MIT’s annual Energy Sailing Regatta, co-hosted by Total and the MIT Energy Club. MIT has a great sailing culture, and our boat house offers free classes and free use of equipment to all students, so definitely something to make the most of! The day was a great way to meet people across MIT and Harvard interested in energy, discuss trends, and enjoy the beautiful Boston weather out on the waters. We also had a good Sloan turnout, and fellow Sloanies Jeff Feng, Dean Berlin, Tom Rose, Steve Yoshida and Anton Safronov all made it out. Total flew in from France and paid for everything including breakfast, lunch and dinner, and even gave us free polo shirts... I am slowly getting used to all the perks of being a student again J While I was too busy competing in the regatta to take photos, I “borrowed” these from the total-sailing website to give you a visual of what it’s like out on the water: