With every seat filled and participants spilling down the stairs, a panel on venture capital and private equity at the India Business Conference brought together "six thoroughbreds" of the industry.
The pool of "extraordinary" technical talent in India is a big plus, said Venetia Kontogouris, of Trident Capital, a thirty-five-person firm with $1.3 billion under management that invests in information and business services companies. Finding good middle managers is more of a challenge.
"I think the quality of management in India is pretty good. You just have to work hard to find it," said Ashish Dhawan, co-founder and senior managing director at ChrysCapital, a private equity fund that manages about $200 million. People's aspirations have changed, said Dhawan, with many hoping to work at large multinational corporations that come to India. The trick is in luring talent to entrepreneurial ventures.
Ramanan Raghavendran, a senior partner at TH Lee Putnam Ventures, leads his firm's investment activities in business process outsourcing (BPO) and software. "India is a standard now," he said. "If you're starting a technology company of some size and don't have an India strategy, you're not likely to survive long."
True, but in the coming years, investors will look beyond India as a place to create value through labor arbitrage, said Navin Chaddha, of Mobius Venture Capital, a firm focused on technology companies and services with $2.25 billion under management. "Investors will begin to use the labor pool available in India to create real value arbitrage—to tap markets they couldn't have tapped before," he said.
"The labor pool is getting more sophisticated," agreed Mintoo Bhandari (HBS MBA '92), of the View Group, an international private equity firm with offices in Boston and India. People are beginning to understand how the game is played globally.
"It's about enlarging the pie, not just slicing up what's already there," he said.
Watch out for wolves
The structure of private equity in India is the same as it is in the United States, with most funds coming from outside of India, said Ashish Dhawan. Banks don't want to enter the space just yet and most insurance companies have their money in government bonds. Accepting money from large family businesses is problematic because they tend to interfere.
Investing in India, however, requires some thought in terms of a company's structuring and the legal environment in which it operates. "Our general preference is to have corporate governance outside of India through offshore vehicles," said Bhandari. "That allows contracts to be set up exactly as they would be in an American private equity environment."
| Our general preference is to have corporate governance outside of India through offshore vehicles. |
| — Mintoo Bhandari, View Group |
The best cases to learn from are failures, said panel moderator Robert Higgins (HBS MBA '70), a founder and managing partner at Highland Capital Partners and a senior lecturer at Harvard Business School. What can go wrong? What are some of the disaster scenarios?
"Disasters are generic to the VC business," said Raghavendran. "If you pick the wrong entrepreneur, they'll fail—it doesn't matter where they are. If you pick the right entrepreneur, they figure out how to survive. That's a global issue. It's not specific to India."
A downside specific to India is its corporate governance, which is generally poor, said Dhawan. "There are lots of wolves in sheep's clothing," he cautioned. "People never learn to be honest if they've been dishonest for forty or fifty years."
Beware resume inflation, added Jonathan Guerster, a managing director at Offshore VIEW who has extensive experience in start-ups. Operating managers who oversee thousands of people and move from place to place to build their resume are not always the best people to build value in an entrepreneurial setting.
The next big deal
Software portability means that offshoring will continue to be a big opportunity, with companies moving software services and customer interactions offshore, continued Guerster.
Chadda said that his firm would be focusing on cross-border deals in the software and BPO sectors involving U.S. companies with Indian subsidiaries that build scalable operations around low-end transactions in health care, financial services, and life science services.
"I think the next big opportunity is to find the new sectors where you can take an Indian business global," said Dhawan. Asian Paints, for example, is swiftly becoming one of the largest paint companies in the world. "They have proven that they can crush the international competition," he said.
Raghavendran counseled the audience of largely Indian nationals to look beyond the established BPO model and think of companies like Asian Paints as the most exciting new category of opportunity: "businesses coming out of India that may go off and conquer the world."
The student-run conference was organized by the South Asian Business Association (SABA) at Harvard Business School. 