The desi guide to investing in India

Success in PE ?1

noreply@blogger.com (Varadha) — Thu, 06 May 2010 05:37:00 +0000

Like they say deal-making is about managing 3 E's - Egos, Emotions and Expectations, this wonderful piece of article I came across in the blog The Private Equiteer throws light on what is needed in a mid-market PE fund. For once, I have very little to add except to shamelessly plagiarize the link and post it.

As said elsewhere in the post, the recipe for success is to be truly amiable and tenacious. PE deals take a lifetime to complete (in the context of finance where trading can make you as much in a month if not a year). Softer aspects like rationality, friendship, temperament and a X-factor (what does the team think of you ? Go or a no-go ?). I have been in situations where the sheer patience and ability to hang in there to the relationship has been a deciding factor for either side (assuming of course the price is in and around the fair zone - no one is a sucker). Sure, you may not consummate anything but the mindspace one occupies is sure to guarantee you a look-in in the future as well.

On the stuff about portfolio management, can't agree with the stuff any more. Remember you are only a general physician - so please do not get into cardiac or arthritic territory. Acknowledge your lack of expertise (self-deprecate and direct them to a specialist) and focus on generic issues which can be de-constructed easily (people, systems, process issues than technology or product or market dynamics). Remember no physician ever held onto a patient (and his trust) by monkeying around with his health !

~Varadha
(varadha.r1@gmail.com)

Dr. Jekyll Investor & Mr. Hyde Manager

noreply@blogger.com (Varadha) — Fri, 23 Apr 2010 07:04:00 +0000

One of the great many chasms that every single PE manager worth his salt has to go through is to figure out the delicate balance between the role of an investor and a manager without becoming disruptive.

How deep does one dive in ? How strong does the understanding of the organizational DNA have to be ? How strong should the technical/domain knowledge be ? For a relationship to blossom into one based on deep trust and commitment, the PE investor needs to move beyond the role of an investor who can bring in generic perspectives and become a trusted confidante; Being a trusted confidante automatically means ability to add value to the technicalities of the business/organization as also to the "mental orientation" of the promoter. May be the investment manager needs to ask himself if he can hold fort should the promoter vanish for 6 months which would mean answering the following questions for oneself:

Do I understand the business in granular detail ? Sales structure, organization, productivity, sales cycles, supply chain, mark-ups, commercials, quality issues, customer expectations
Do I understand the organizational DNA ? Is it driven by individuals or teams ? What are the motivation levels amongst lower rung employees ? How strong are the company's processes and systems when compared to its peers ?
How is the market place evolving ? What are competitors doing that we are'nt ? What stage of the curve is the industry going through- early growth, heavy competition, consolidation or mature growth ? How well prepared are we for the next phase ?

An investor's role as a manager is like what someone said " it is not that you would, but you could". It is my firm belief that as one starts thinking about these, the value addition on business specifics tends to flow automatically strengthening the relationship that exists. Contrary to popular belief, I tend to believe that being an investor and a manager are not two different roles at different points of time. A good investor needs have a realistic managerial perspective and a strong manager needs to understand the way an investor sees things - you may be running the most salient business on earth, but if you cannot carry along your investors with you, it does not mean much.

~Varadha
(varadha.r1@gmail.com)

India's demographic dividend - a mirage ?!

noreply@blogger.com (Varadha) — Thu, 15 Apr 2010 04:24:00 +0000

Reading this wonderful article in the mint on the lack of challenges in a typical middle-class kids' life was quite an eye opener to the risk in India's much anticipated demographic dividend. It is certainly something most of us who spent our childhood in the pre-liberalization era can relate to - cycle as the only known mode of transport, one channel on TV, no computer, no video games, no internet, no mobiles, no apartments and no playing indoor games.

Kids of this age are getting increasingly isolated and cushioned at the same society from the realities of the society. My friend who runs a pre-school at Gurgaon was commenting about how a lot many kids in cities have never seen the outside except through the window of an air conditioned car. This might be great news for kids' TV channels, makers of video games and eatables but is not great news for the society (no, no "no sour grapes" syndrome here- coming from someone from the previous generation). I am now starting to find kids of house-maids and autorickshaw drivers to be much smarter on the street - for eg., buying vegetables, running errands, managing minor tussles on the street or for that matter even helping out their parents by earning a buck or two.

Every country at some point of time went through this stage of increasing luxury and isolation of children (Nordic countries and US in the 1970s) and it has remarkable repercussions like gun/drug/LSD culture, increasing suicides, violence. A spotless scrubbing of all grey/dark zones of life leads to an aimless drifting with most of them taking to "taboos" simply because those they are the only challenges for them to surmount.

Of course, it is just as likely that a few of these guys will turn out to be the Bill Gates-es and Michael Phelps-es, provided they have their value systems in place. Of course, that is contingent on parents and the time and effort they spend instilling basic values in place and giving kids a check of the societal realities. I am no doomsayer, but it is'nt going to be a rollercoaster as most of us imagine it to be.

~Varadha
(varadha.r1@gmail.com)

Right fund size ?!

noreply@blogger.com (Varadha) — Mon, 05 Apr 2010 05:07:00 +0000

This interesting article from KPMG that talks about the PE industry in India raises a pertinent question. What is the right fund size that marries the market opportunities with the economics of running a fund ? Seems like there is a difference between the perception of LPs and GPs (page 5). If 30% of the LPs want a small fund ($ 100-200 mn) 35% of the LPs want a fund that is in the region of ($ 200-500 mn) (vis-a-vis 20% and 35% for GP, it sure is an interesting combination.

I guess the question that LPs are asking themselves really is that in PPP terms a $ 200 mn fund in India would be the equivalent of a $ 1 bn fund in US (which pre-2007 was fairly common place), a significant size even the world's largest economy, especially if you are focussed on "classical private equity" (unpolished, unlisted companies). That means a $ 100 mn deal size assuming a portfolio of 8-10 companies (which means company revenues of anywhere from $ 50 -250 mn and PAT of $ 20-30 mn) - not pushover numbers in any case.

Dissecting the onion another way, the micro fund category (sub $ 100 mn) seems grossly under represented, given the fact that this is the sweetest spot in terms of risk-reward (get into companies with minimal concept risk but significant execution risk). However, it seems that the jury thinks it is unviable given the bandwith issues involved in managing the portfolio (I think this is an area that will get changed along the lines of the Silicon Valley model - where you could have a roster of operating partners that devote a part of their time to grooming companies thereby reducing the burden on the fund management team).

Given the current circumstances, I would think the ideal size for an economy like India (which is far more broad based, driven primarily by entrepreneurs, not the Government and hence has a larger range of opportunities) ought to be in the region of $ 200-300 mn.- if one were to marry the overheads of fund management with the opportunities available in the market). Of course, this will also depend on the style of investing (preference of size of stake, operational involvement).

Thoughts, any one ?

~Varadha

Why some PE funds do better than others

noreply@blogger.com (Varadha) — Thu, 25 Mar 2010 05:10:00 +0000

For once, I do not have to write a cent from my own thinking in a post. The Mckinsey Quarterly article (though dated but clearly in with the theme of these times) sheds light on why fundamental outperformance is the only sustainable source of value creation (very very cliched, but terribly true).

Assuming there are no free lunches, there is so much to the arbitrage a PE fund can seek at the time of entry. A proprietary relationship built on trust and commitment can get you a discount but is not going to entirely contribute to an arbitrage opportunity. Of course, the smarter, seasoned ones can spot smart "buys" or smart "sells" in special situations (how many times a century are you going to have Goldman or a GE with a bowl in front of your house giving you a 10% preferred ?! or dump everything before a bubble ?) but for the majority of homo sapiens, the arbitrage opportunities are not worth too much salt.

Of course, pushing for outperformance means the obvious nitty-gritties - kicking tyres all the time to understand ground realities, understand organizational levers, spending quality time with top management and focussing on continuous improvisation.

But as a Private Equiteer, the piece de resistance is the fact that you can go to sleep every night assured in the fact your investment has appreciated (and is appreciating) even if a gale force hits the markets. That's priceless !

~Varadha
(varadha.r1@gmail.com)

Entrepreneur and the art of identifying "Tipping Point'

noreply@blogger.com (Varadha) — Wed, 17 Mar 2010 05:23:00 +0000

Last week, I chanced upon Graham's essay on "what start-ups are really like". A lot of it holds true even in early growth companies (including investors are clueless !). The one thing that stuck me is every single business I have seen seems to go through that one single "Tipping point' or 'Inflexion Point' from which it emerges much stronger or much weaker (hence, takes on a different trajectory post that).

I am not necessarily talking about topline or bottomline (often they could be misnomers for the amount of confidence and dynamism you see in the Management team). It is just that one single event/incident/spark that changes the entrepreneur's outlook towards the meaning of his business and life. It ironically always comes from outside and from the most unexpected quarters - like a peer outside telling you what a great business this is or one of your suppliers telling you that you are his "fastest growing customer". Case in point being A.R. Rahman's music - if the Slumdog Millionaire recognition had not happened, he probably would have coasted along as yet another great Indian music director, only to be relegated to oblivion by the succeeding generation.

It seems it is one such small spark that turbocharges the small motor that is the human mind and makes it spin faster, harder and bigger. To quote from Malcolm Gladwell's The Tipping Point, it seems like one needs a connector (who are social trend setters) to make one realize his own potential (Johari Window, anyone ?).

As for my tipping point, I do not think I am there as yet...!

~Varadha (varadha.r1@gmail.com)

Private Equity : Absolute Vs Relative return

noreply@blogger.com (Varadha) — Mon, 08 Mar 2010 08:44:00 +0000

Coming on back of this great article I read on investing across Geographies, I am tempted to ask ourselves the question - is Private Equity an absolute or a relative return asset class ?

Most people investing in India over the last five years would tell you that private markets have had a much higher volatility and have underperformed the public markets overall (extremely illogical, no reason why size and liquidity premium should be negative). As things stand, if I were allocating assets I would be hard pressed to answer as to why I should choose Private Markets in India over public markets or better still, why I should choose India at all ?

Going by the flights/hotel test (Indian hotels are overpriced and yet overbooked and similar is the case with flights), it seems like India is seeing a bubble, at least for the time being. So are you better off betting on a star-fund manager in India (for the uptick provided by his alpha) or are you better off investing into the beta of a new market. Tough call, is'nt ?

Even in this era of globally mobile capital and minimal information asymmetries, the first movers stand to make an inordinately high return. With internet, new age media and mobile, the window of opportunities are becoming smaller and tighter which also means the rewards for the birds that spot the window are that much higher.

However, as an institutional investor are you looking to maximize returns in the medium term (3- 5 years) or in the long term (15-20 years). It seems like a lot of people are willing to stick their neck out for the long term and back fund managers that deliver superior alpha than piggyback on the next market beta wave. I guess the underlying logic must be sustenance of outperformance in the long run than a flash of brilliance in the medium term.

~Varadha (varadha.r1@gmail.com)

The Coffee talk - art of internal selling

noreply@blogger.com (Varadha) — Tue, 23 Feb 2010 04:34:00 +0000

It seems like the biggest battle facing most managers is not so much ideation but enforcing change within the organization. Often, by the time you have understood the concerns/perspectives of various stakeholders (leave alone create solutions to address them), one is exasperated. Which means, little time for actual execution on the ground. Sort of analogous to idle time in Manufacturing - 90% of any manufacturing process is idle time, only 10% is actual processing time.

This was valuable advice given by a colleague of mine - "As one goes up further, the biggest battle is to carry along multiple constituencies - well-wishers, not so well-wishers, peers, sub-ordinates, bosses. " For you to carry along someone, you first need to know what the other person is thinking - and that is'nt going to happen unless you there is open, informal communication. Unless you have a feel for the undercurrents, you are not going to be able to sail your yacht through. Understanding undercurrents often does not involve a deep dive, but a consistent ability to take mini-dips, socialize ideas, get other people's perspectives and work on change.

At a personal level, I would like to believe it enriches one's perspective - ability to read and handle other people, understand their fears/insecurities/turn-ons/turn-offs. For me, the biggest though has been learning to think on my feet - you learn to handle the most unexpected questions and perspectives.

Here is a link to an excellent article that does raise some very pertinent questions on this topic.

~Varadha
(varadha.r1@gmail.com)

Strategic Vs Private Equity Interest in a business

noreply@blogger.com (Varadha) — Mon, 15 Feb 2010 11:40:00 +0000

Most businesses in India have at some point of time or the other experienced this conundrum of seceding stake to a Financial Vs a Strategic investor. Since there are plenty of definitions of a Strategic Investor floating around, for the sake of simplicity, we have to define this as someone who has an inherent interest in having a strong say in the day-to-day management of the business vis-a-vis a financial investor who is happy to be a navigator/co-passenger and not meddle with the details.

In most cases, a strategic buyer will offer a higher upfront valuation (because he finds use for a lot of intangibles that the financial investor often does not - not unless he is thinking of synergies within his portfolio). For eg., - brand, distribution channel, sales capabilities, products/IP which unfortunately are not worth much for a PE investor. However, what people often miss out on is the fact there might not be alignment between the entrepreneur's thinking and that of the strategic buyer even in the short term.

Not every strategic buyer wants to grow the business - case in point being disruptive acquisitions by Google, Microsoft to weed out potential competitors at a nascent stage or better still, Coke's acquisition of Thumbs-Up or Maaza (both the brands got nowhere after the acquisition). In a lot of cases, it might be the case of defensive strategy to kill a niche competitor before he even becomes a threat to the larger company. Even in the best case where there is alignment, there could often be a case of the acquiree being held captive by the whims and fantasies of the acquirer (who is often using the asset to promote his larger interest). For example, a backward integration strategy could give a larger lever to the acquirer by improving his margins (and hence might reflect in the price), but often could check-mate the acquiree in the medium term as most of its other potential customer might turn away because of softer issues (data secrecy, conflict of interest).

The message is simple - where you see a headroom based on your own capabilities to grow, go with a PE fund. If not, go with a Strategic buyer.

What motivates an entrepreneur ?

noreply@blogger.com (Varadha) — Mon, 08 Feb 2010 05:23:00 +0000

One of the toughest questions Private Equiteers deal with is the art of fathoming the motivation behind entrepreneur - is it money, fame, self-fulfilment of driving to fruition an idea or the genuine drive to make a difference to the society ?

The piece I read recently, What motivates an entrepreneur ? is a pointer to some of this. It is a little dated but I presume nothing much else has changed. A majority of people seem to cherish the autonomy of being one's own boss (Is that a good thing for a private equity fund ? How much space will such a person be willing to secede for other's ideas).

One of the most important questions we need to pore our heads over is the resilience and dedication of the entrepreneur to the cause at hand. If times go sour, will the person be willing to stick on and improvise on the business ? Or is he a fairweather merry maker who likes the sheer thrill of doing something new all the time and has no qualms shutting the door if the going is not good enough ? Is he going to be happy seeing his face on the cover story of a business magazine or pink daily or is the latest new sedan going to give him the highs ? Or is it the thrill of being acknowledged by his social coterie about his achievements ?

Often, a lot of entrepreneurs I have met are not so much motivated by money (especially in an Indian context where ostentatious display of wealth is still not taken very well by the society) but more by self-fulfilment (whether it be desire to make a difference to society or to prove oneself that one can do it). If you cannot get this pulse right and touch the right nerve, no amount of external pressure or coaxing/cajoling is going to make the entrepreneur come out of his shell and look beyond the obvious.

Surely tougher than it sounds, is'nt it ?

~Varadha
(varadha.r1@gmail.com)

Entrepreneurial Motivation

noreply@blogger.com (Varadha) — Sun, 07 Feb 2010 13:27:00 +0000

One of the many things that we need to pore our heads over is the resilience and dedication of the entrepreneur to the cause at hand. If times go sour, will the person be willing to stick on and improvise on the business ? Or is he a fairweather merry maker who likes the sheer thrill of doing something new all the time and has no qualms shutting the door if the going is not good enough ? Is he going to be happy seeing his face on the cover story of a business magazine or pink daily or is the latest new sedan going to give him the highs ? Or is it the thrill of being acknowledged by his social coterie about his achievements ?

Often, a lot of entrepreneurs I have met are not so much motivated by money (especially in an Indian context where ostentatious display of wealth is still not taken very well by the society) but more by self-fulfilment (whether it be desire to make a difference to society or to prove onself that one can do it). If you cannot get this pulse right and touch the right nerve, no amount of external pressure or coaxing/cajoling is going to make the entrepreneur come out of his shell and look beyond the obvious.

Surely tougher than it sounds, is'nt it ?

~Varadha

(varadha.r1@gmail.com)

Snow balling - the art of making close calls

noreply@blogger.com (Varadha) — Sun, 31 Jan 2010 08:38:00 +0000

One of the many things that Private Equiteers lose sleep over are close calls - viz., calls where they are indifferent to the alpha and beta errors (viz., they cannot decide if the investment opportunity is poor enough to let it pass without a blink or compelling enough to justify a scamper).

As a sheer coincidence, I have been reading Snowball about the life of Warren Buffet for the last two weeks. The book is a nice read and a strong recommend from my side. This one is extremely special since it potrays him as an ordinary human being with the pulls and pressures from various walks - the sacrifices his wife and family made, the mistakes he made with investments and of course, the surprising gamut of emotions that lies behind this witty, numbers driven legend.

We keep coming across this all the time in real life as well - it seems most people handle this by procrastination or asking for more and more data (which only serves to deepen the agony because data after a certain point is hardly conclusive. For every good reference you get, there is a so-so reference as well).

Buffet seems to build on the same pithy-ism that Lincoln used many years ago "Reputation is like fine China. It takes a lot to build but one small mistake can make it come crashing down."

Warren Buffet's take on this is simple. If the investment goes wrong, what is the worst damage that can happen to your reputation ? Or in other words, if the company throws up a year later, are people going to tell you " See, I told you so; The guy/company was no good.." or are they going to say " hmm... the guy was good..may be just tough circumstances".

Remember, that an investor can never substitute a manager just like the converse is true. A lot of investors expect positivities to flow in to further their "alpha" like market multiples, new innovations, growth beyond the company's comfort zone etc. Buffet's take on this is simple : Do not budget for these - if they happen, it is a windfall. But do not plonk money on the table assuming angels from heaven will come and help the investment grow. Simply put, do not expect significant increases in managerial capabilities drive investor's alpha.

Hmm..Simple but powerful insights. I guess the difference is in execution, as always.

~Varadha (varadha.r1@gmail.com)

Gin and the art of banker maintenance

noreply@blogger.com (Varadha) — Sun, 24 Jan 2010 14:41:00 +0000

I caught up with an investment banker (who I know fairly well) to get his thoughts and perspectives on the relationships he has with various stakeholders - entrepreneurs, lawyers and of course, PE funds. As the evening progressed, it became more clear to me that this eco-system seems fragile and delicately balanced. While most PE funds are of the view that investment bankers hamper deal making efforts, bid up prices creating a swirl in this entire system. But a more realistic world view would give them credit for the subtle/subliminal influence they exercise over market and decision makers.

The are responsible more often than not for market creation (seeding and germinating the thought of raising further capital to grow and manage"commercial expectations" - it is a pity they do not get paid for it; Quite ironic really since management consultants get paid tons for the same type of "intangible" advice; Imagine if McKinsey told GE that they needed capital to grow and tap emerging markets - do you think they would give it for free ?); Bankers also help improve market intelligence, help compare notes/offers, provide easy reference checks for everyone in the system( promoters to do a ref check on funds and vice versa), notes on competing offers, honesty around expectations and suggestions on deal structuring.

However, I gather that there is a lot of bitterness that flows back and forth in this banker-PE relationship which I think is a sign of immaturity and inability on both sides (with PE taking a larger share of the blame) for their inability to carry the other constituent along - sort of like what happens in a democracy. A parochial, short-term urge would tell you things would be so much smoother and faster for you if the other party did not exist but an objective, long-term, libertarian view would suggest otherwise.

So, what is the morale ? Be nice to bankers and pray they would realize your value as well. You never know which phone call of theirs can uproot all of your hard work and when. All the stuff I had talked about a professional relationship holds, more than ever for a banker.

Of course, it remains to be seen what bankers as a tribe hold about their PE brethren. That is a story for another day by another soul ! That is best left unsaid by me.

~Varadha (varadha.r1@gmail.com)

Retail participation in Private Equity

noreply@blogger.com (Varadha) — Sun, 17 Jan 2010 09:53:00 +0000

There has been a lot of press in recent times about the surge in retail participation in Private Equity in India. I recently got a call from my Relationship Manager at my bank who wanted to check if I would be interested in investing (a minimum of INR 1 Million) into a Private Equity fund floated by a reputed business house. What was shocking was the complete lack of knowledge about the product, the risks it posed and the liquidity window for the fund. He kept insisting that my investments would grow at about 25% every year and I could pull out the money after 5 years. There was pretty much little else he knew - nothing about how NAVs would be calculated and how frequently, and what would be modus operandi for providing liquidity, what type of companies would be invested into and how would they be monitored and how would the carry be shared with the GP (was the hurdle rate 10% at an individual deal level or at a collective fund level).

I did find out that he was getting incentivized 2% of the money raised as his commission. Apparently with mutual fund commissions having dried up (because of SEBI's ruling), there are a lot of banks that are peddling these products to almost anyone and everyone.

Hmm... this got me thinking about the great ULIP scam in the earlier part of this decade. Every bank (under the garb of bancassurance) sold unwitting customers an investment cum life insurance product called ULIP which was, guess what, intended to make everyone (except for the customer) happy. With an administrative fee that ranged from 30-60% on the first year premium (half of which rolled back to the banker as incentive) and a steady trail of 8-10%, it sure did make money - but not for the customer. I must have been one of the biggest suckers - for inspite of being a retail banker, I got sold this product by one of my fellow bankers who promptly quit (after collecting his big, fat bonus). The worst part of it was that I could not surrender the product for 3 years because of a lock-in clause - so I had to throw good money after bad money, to get some of the good money back.

Cutting back to the chase, I am not against improving retail participation in Private Equity funds. But I am against it first time investors investing into first time funds without understanding the risks and the time horizon associated with it. To top it all, there is no one to regulate this - I am not sure if this falls under the purview of SEBI. I feel strongly that there ought to be a strong regulation to improve disclosures and ensure that there exists a certain level of mandatory disclosures upfront and on an ongoing basis before investors can plonk down their money.

Investing into Private Equity is far far riskier than investing into a listed stock or even into a close ended mutual fund (where one can cut one's losses and pull out the money should things go wrong) and one has the ability to monitor NAV's at regular intervals of time. Putting money into a blackbox which promises a high return.

This presents more than ever a case for a "smart intermediary" like a mutual fund - who can pool in the capital and add the smartness that is ever so required. This is critical when there are already increasingly strident voices from the existing LPs on making money in India.

Would love to hear other's views on this...

~Varadha
(varadha.r1@gmail.com)

Culture of a VC firm

noreply@blogger.com (Varadha) — Sun, 10 Jan 2010 11:48:00 +0000

The other day I ran into a peer of mine who works in another VC firm. He casually remarked that the only difference in the performance of VC firms in the Silicon Valley eventually boiled down to the culture of the firm. I was quite bemused with this comment - the rationale being the top VC firms have uniformly "Top decile" talent, access to the same network (with marginal differences that crop up from time to time) and have a hugely overlapping set of smart investors (LPs). So, it eventually boils down to execution (as in any other industry). Of course, the discerning would know that in a small, staff driven firm (as in consulting/mutual fund/hedge fund), it comes down to the culture of the firm:

- process Vs results driven
- democratic Vs dictatorial
- meritocratic Vs gerontocratic
- open, transparent Vs opaque, hierarchical
- hierarchial Vs matrix
- conceptualization Vs execution
- homogenoity Vs heterogenity

There obviously are no easy answers for this on either side. It is a delicate balancing act and the better ones know how to mix and match this concoction according to the needs of the market. A sampling of the behavioural patterns can often give you valuable insights about which way the culture is inclined towards. Similar to what Malcolm Gladwell says in the Blink, the subtle differences are those that can be thin sliced and observed more through guttural signals than rational calls.

For example, how do the sub -ordinates react in presence of their superiors ? Is there a natural deference (through a turning of head towards the superior) after every point they make ? Is there eye contact with the others in a meeting ? Is there a forced fitting of roles based on hierarchy in a meeting ? Is there a complementarity of perspectives or do some people end up cuckoo-clocking what others say ? What deliverables is each person responsible for and is the monitoring process transparent ? Is there discord between the picture the outside world sees of the firm and the self-image the firm has of itself ?

It is amazing to think as to how meeting 2-3 people from a VC firm together/individually for even 5-10 minutes can tell you so much about the firm, its culture, the quality of people and most importantly, the quality of its investments.

Getting back to the beginning, apparently one measure of how VCs benchmark themselves on their culture is on the number of sparks that fly during a meeting - how tough is the questioning on individuals, portfolio companies and completion of tasks; Point certainly to ponder over.

~Varadha
(varadha.r1@gmail.com)

Conducting an effective board meeting

noreply@blogger.com (Varadha) — Sun, 03 Jan 2010 04:46:00 +0000

A news article in Mint this week (which is definitely one of the better newspapers in my opinion - one of the few that has insights rather than old fashioned sensationalized reporting) carried an article about the Top 10 trends in VC/PE industry. Very appropriate and in with the times and not too dissimilar to my earlier post.

Keeping in mind the anthropology of Indians (overpromise and under deliver) and having lived through more than 30 odd board meetings, there are a few insights I have developed on what makes for an effective board meeting.

A board meeting ( or for that matter a performance review meeting) is meant to be a plan for the medium term (3 months - 1 year) and to that extent is forward looking. But most board meetings start off as a prolonged post mortem - what's worse is the collective wisdom of all people in the room is channelized, not into inferring from the results, but in doing the autopsy. That is because most people glean through the numbers for the first time during the board meeting.

There are very useful post on this by Brad Feld and also by Guy Kawasaki which make for useful reading in a different cultural context.

Advance preparation : Most board meetings meander for the first one hour because people are turning over pages of the board pack for the first time and making notes and asking for clarifications on minutiae (what USD rate have you used, what is our accounting policy when it comes to product development costs etc.) which are simply inane and are a drain on everyone's time. Advance preparation by the company and also by the board members helps roll back at least an hour of everyone's time (which should be worth a few tens of thousands of dollars in any case).

Have the CEO/keyman drive the show: This is really the way it needs to be driven in India where legacy/loyalty/"outsider-insider" issues tend to fire up the NIH (Not Invented Here) syndrome. ("Oh no, it is too difficult to try and it does not work in this case"). However, it is important to work on the CEO's mind and ensure that he develops the flexibility and openness of mind to listen to others and try out new ideas. Bonding with the rest of the team over lunch/breakfast informally and drawing on their perspectives and views (on the company, industry, new ideas, immediate priorities etc.) is a necessary add-on to complete this piece.

No open praises: Indians by their very nature tend to have a very high opinion of themselves. By patting someone (unless the company has re-defined all expectations), you are asking for even more complacency down the line. You would expect senior management of any company to be self-driven and not look for external stimuli to propel them on. Would'nt you ?

Lay down immediate priorities: Ah, this more often than not, is the single biggest bummer that makes the meeting feel like a matinee show. Too often ideas that are discussed are chimerical (5-10 years ahead) or are too far off the organization's skill sets (for eg., if discussing about customer behaviour tracking in a retail chain). This is where the succeeding point comes into play - priorities have to get converted into actionables that are tracked meeting after meeting;

If you the company has a vision to serve a million customers in 5 years, a 100,000 next quarter surely won't hurt. So what needs to be done to serve 100,000 customers next quarter - what are the implications for sales and distribution, product, pricing, promotions, marketing, manufacturing, supply chain and inventory. If this does not get translated into actionables and is followed up meticulously, the vision will remain, not surprisingly, a vision forever.

Convert agreed upon priorities into action items: "what gets monitored truly gets done" - Need I say more ?

Have a great new year ahead and this year should be sure fun to watch for the PE industry.

~varadha.r1@gmail.com

Love at first sight- the makings of a great date

noreply@blogger.com (Varadha) — Sun, 27 Dec 2009 12:12:00 +0000

After meeting a fairly promising company last week, my mind re-wound back in time to some of the first meetings we have had with entrepreneurs who since then have gone onto do bigger things (whether funded by us or otherwise). Could'nt help notice the fact that the first instinct after those meetings were overwhelmingly positive. And this had nothing to do with commercials - valuation, terms etc.

And in a large majority of the cases, the feeling was mutual - so it was not the buyer necessarily hankering after the seller or vice-versa. A good number of those have translated into professional, informal relationships far beyond that of the immediate call of duty then. (the transaction).

Curiosity for the other: In a large majority of the cases I analyzed, there was a thread beyond just the meeting that had aroused a curiosity in either. the first meeting of this type (for the promoter) or a strong reference on the counterparty ("Hey, I heard these guys are good", "They are pioneers in their thought process", "Strong team that have made delivered results consistently" or "These are one of the smarter PE guys around", They really build relationships").

Preparation from both sides: The best interactions are those in which the answers and the questions flow freely (none of the "I will get back to you. We have not thought about it " etc.). Even in the rare case of an action item that spills over, the progression happens automatically without any follow-up (no repeated phone calls/e-mails).

Sense of empowerment amongst the team : Rather than a peer to peer interaction, the best interactions are those where there is a lot of cross-firing and creative exchange of ideas. There is no one guy who leads the verbage from either of the teams -

Experience and domain knowledge: This often shines through anecdotal evidence of experiences the entrepreneur/investor have had in the past. The seasoned guys know what they are talking about, do a honest acknowledgement of market realities and have a sense of how to marry the market opportunity with their internal capability. For eg., going after a 1% marketshare in a $ 1 bn market in waste management equipment means nothing; however, saying "We will go after the top 20 government bodies that buy 70% of the total equipment in the country and we are already enlisted as the preferred vendor in 8." means a lot more.

As Neil Diamond's song goes " The first cut is the deepest". It seems like there is love at first sight, certainly in the business we are discussing.

~Varadha

(varadha.r1@gmail.com)

+91 9940670064

Aftermath of a deal - Managing the monkey on your back

noreply@blogger.com (Varadha) — Sun, 20 Dec 2009 05:49:00 +0000

In continuation of the earlier post, I will try and cover some of my perspectives in terms of what entrepreneur's management of the investor.

Inducting the investor into the organization:Too often, the promoter forgets that the investor means nothing to the rest of the people in the organization. These are precisely the people who would have to interact with the investor in minutiae like financial reporting, compliance, business metrices, MIS-es etc. I have often found that a town hall meeting equivalent (post the deal) helps induct the investor into the organizational maze and helps in setting a context for what is to follow.
Creating an atmosphere of credibility and transparency: I have come across promoters who often "massage numbers" before sending them out to investor or simply turn a blind eye to the investor (to the point of exasperation). While this might provide for gratification in the short term, it is important to understand that one needs the investor's buy-in in the medium term (for raising further capital, key strategic decisions etc.) and an acrimonious relationship does no good to either. I have seem promoters who were known for their utter disdain come back to the investor eating humble pie. What goes round surely comes around !
Managing expectations: Post the money exchanging hands, there is no time for bravado. Remember, the investor is as much a part of the boat (sinking or flourishing ?!) and he has as much stake in the upside. If there is a problem, acknowledge it - often a collective reflection (with the benefit of an outsider's perspective thrown in) can help devise simple solutions. The later this happens, the tougher it is to get out of the maze.
Using an investor as a sounding board: I have seen too few Indian promoters push their investors - remember that an investor can bring value to progressive steps like baking in market intelligence/ competitor information, recruiting senior management, instituting processes and systems, because they have the benefit of a wider network and a larger perspective across businesses. Very few boards make everyone of the board members make a case for the value they added at the end of each year (Ala Infosys). A board in which everyone contributes often works wonders (as the investor realizes the rigours of the business and the entrepreneur realizes the expectations of the investor) in driving change towards a collective vision. I recently came across an entrepreneur who wanted me to help him out with the detailing of an overseas acquisition - the risks, valuation, deal and pay-out structure - that is a progressive step and that is the way it is meant to be !

Ahhh, all this serious talk is getting too boring. Let us talk about something a little more interesting next week.

~Varadha
(varadha.r1@gmail.com)
+91-9940670064

The morning after - aftermath of a deal

noreply@blogger.com (Varadha) — Sat, 12 Dec 2009 15:05:00 +0000

Great - you've executed the deal you have always longed for. What do you do next ? One of the most important things I have observed (with my limited perception) is that the way in which the handshake is executed post the money exchanging hands is one of the key determinants of value creation. It determines if you will wake up with a hang over not worth remembering or if it will be a relationship worth cherishing.

Often the counterparts get drained out by the time money changes hands that there is often a period of quietude following the transfer of money. So the entrepreneur at his end, often thinks it is free money he has got and the fund manager thinks this fresh money would be the elixir to all of the company's problems - past, present and future. Sounds familiar ? Nothing could be further from the truth.

Call this a post-nuptial, if you will. A robust marriage, after all, does call for a set of rules that both of the counter parties promise to abide by. Often, the set of rules (said and unsaid) and the implicit, taciturn understanding that is developed during this period are the most critical to long term sustenance.

In a two part series, let us look at some of the thins a fund manager has to make clear at the beginning of a relationship.

Creating credibility in the minds of the promoter: Small details like returning phone calls, responding to mails, developing a rapport with the rest of the management team, taking the initiative to understand the softer aspects of the organization go a long way in making the promoter more accommodating and lessening his distrust.
Exercising influence: The smartest fund managers are the ones who seem to balance the drive towards results with the team building/interpersonal skills. More often than not, fund managers take one of the two extreme stances - throw a fit during meetings on the numbers or do not raise any questions at all (irrespective of the performance !). This simply cannot be !
Understand the business in detail: Adding value to a portfolio company is not about discovering new markets, new M & A opportunities (the promoter is in the field and he should have a ring side view after all) but is to help facilitate a path towards putting together the building blocks that help you get there. For eg., it is about watching out for the risks that you need to watch out for in an M & A, how do you transition someone in senior management out etc. rather than identifying M & A targets or
Explaining the requirements in detail: Do you need monthly numbers or quarterly numbers ? How frequently would you want to do a review ? How deep an insight would you want to get into the business ? Would you want to talk to the rest of the senior management team also on a periodic basis ? Would you exercise your consent rights on every single major capex (land, building purchase) or would you be alright okaying them post facto in a quarterly board meeting ?
Assimilating yourself into the organization: One perspective (that of the promoter's) is never going to give you adequate insights into the organization or the market. For you to get a well rounded perspective, you need to be on first name terms with at least 4-5 of the senior management (and ensure they feel comfortable sharing any controversial views/insights/perspectives). One can never underestimate the importance of this and this helps envisage problems ahead of time.
Driving change early: There is never a better chance to drive change (ranging from to be completed post the deal to process changes to augmentation of senior management) than the early days of marriage. With passage of time, change becomes that much more difficult to enforce - the later you do it, the more time it takes (because your tolerance level increases as well 'coz you are used to it anyway!)

In the next part, I will talk about how an entrepreneur needs to manage the early days of a relationship from his side.

~Varadha
(varadha.r1@gmail.com)
+91-9940670064

What to look or in a VC ?

noreply@blogger.com (Varadha) — Sun, 06 Dec 2009 07:23:00 +0000

The recent news article about LPs getting increasingly disenchanted with their emerging markets portfolio is at odds with the bull run in the capital markets. I had talked about this in my earlier post - about the imminence of consolidation in the PE market in India. While this shake-out is going to inflict a lot of pain all across in the medium term, hopefully it would lead to sanity all around in the long term.

Getting back in line and continuing from the last post, I thought it best to do a critical self-appraisal of my brethren. So, what are some of the aspects an entrepreneur (or an investment banker) should look for in a VC during the limited interactions they have ?

Understanding of business & appreciation: Is the VC giving you undivided attention during the meeting ? Does he/she come across as one who is willing to learn about your business and appreciate the finer aspects ? Can he understand the business beyond just numbers- CAGR, EPS and the like ?

Communication: The same point I had outlined in last week's post holds true here. If he cannot pick up calls/respond to mails and convey decisions unequivocally and on time, how can he hold water for the long term ? What is the reputation of the person you are dealing with in the market ? Is he known to be not temperamental, rude and professional ?

Relationship vibes and passion to build a business: Is this a guy you can get get comfortable with personally ? Will your team be comfortable interacting with him ? Is this person a shoulder you can cry on should times turn bad ? The easiest way to ascertain this is to look for anecdotal evidence from the VCs side of having added tangible value in their portfolio. A lot of inward looking entrepreneurs would rather have a passive financial partner than an activist, high-maintenance VC. The smart ones look beyond the pester (much like Socrates did with his wife Xanthippe) - "If I can tolerate her, I can attach myself to every human being else."

In summary, some of the best relationships are informal and between two level-headed people who have no qualms in disagreeing yet share a collective vision.

Regards
Varadha

varadha.r1@gmail.com
+91 9940670064

Spoilsports of a professional relationship

noreply@blogger.com (Varadha) — Sat, 28 Nov 2009 15:32:00 +0000

Happy to note that there has been an improvement in reception to this blog and the ideas of yours truly. You may have noticed an E-mail feed on this page - you can subscribe to this feed should you wish to make life easier for yourself. Was also able to get quite a few ideas during the vccircle conference in Chennai.

Cutting to the chase, I guess anyone and everyone these days has had experience of people who do not pick up phone calls (nor return them) and are always blowing hot/blowing cold about key decisions. Had a recent experience last week that got me thinking on some of the things that kill the trust and respect in a relationship.

Btb, I do not mean to be hypo-critical - I know I may have done a few of this myself :(- . This is as much a lesson to me.

Communication: How many times have we come across people who do not pick up calls or return phone calls ? One phone call not returned might be a case of poor memory or a tight schedule but consistently skirting calls does not send the right message to the counter party. Is this a company/entrepreneur you want to work with at all ? If he/she behaves like this now, how would you deal with him post money exchanging hands ? A honourable exception to this breed seems to be i-bankers who have made this incommunicado posturing into an art !

Clarity of thought: I have personally met a lot of promoters who are happy to say that "a lot of investors/confidantes/advisors/bankers feel that my business model needs to be tweaked because it can unlock better value for me " (read that as higher valuation). I, for one is from an old school of thought and believe that an entrepreneur has to believe in himself more than everyone else and should eliminate all noise (investors are noise too !!) unless there is a fundamentally strong rationale underlying the change. If you do not believe in the idea, who else will ?

Lack of humility: My favourite put-offs are those who humiliate their sub-ordinates in front of everyone, treat office boys with contempt and their guests guests with indifference (how about throwing the visiting card on the table for you to pick up, dearie ?!) ,. Other pet peeves include people who ascribe all success to themselves, speaking ill of all of their competitors ("that guy is a crook and knows the minister", "he does not know how to run a viable business"). Subtle as these might seem, these are signs hard not to miss. An investor of course has to remember that these are guys who have to keep thousands of analysts happy at a later date.

Managing expectations: Right from the time of meeting to the order pipeline (that perpetually seems to be on the way!) to revenue to profit numbers, the smart guys are those who think long term. They tend to avoid evasive/overoptimistic replies that often damage their credibility in the long term. A deal takes 3-6 months to consummate, so why overstate numbers today if the truth will be out soon ?

I guess dealing with simpler, easy to understand people makes investors' (or an entrepreneur's ) lives easier than having to double guess the intent on the other side all the time. Doesn't it ?

~Varadha
(varadha.r1@gmail.com)
+91 9940670064

The Curious comparison of Private Equity and Bagger Vance

noreply@blogger.com (Varadha) — Fri, 20 Nov 2009 14:35:00 +0000

Apropos the comment on value addition in one of my earlier posts is well taken. Agree to the fact that as long as the promoter treats you as a partner and there is a high element of trust and transparency in the relationship, there are not too many reasons why the marriage (PE infusion is is a marriage) should fail.

I would like to believe that a PE fund is similar to the support crew for a marathon runner or a caddie for a golfer (could not help comparing it with the movie "The Legend of Bagger Vance" I saw the other day). The comparison does sound a little corny, but here goes nevertheless...

Not too dissimilar to the relationship between Bagger Vance (Will Smith) and Junuh(Matt Damon), the relationship is not permanent, but not fleeting either. Ultimately, it is the golfer (read promoter) who calls the shots. The Caddie's core job is to carry the golf kit (and in the case of capitalism, bags of cash ! - argh, that was quite tacky, wasn't it ?!).

The caddie can only help exorcise demons in the minds and bring in perspectives that otherwise might elude someone who is focused on his job. So what does a caddie bring in ?

Peripheral vision: What are your other competitors doing ? Is there a better way to do what we are currently doing ?

Order and discipline: What is the best way to position a ball before hitting ? How would you want to proceed on taking into considering the terrain, weather and the competition ? Who keeps track of the spoken and the unspoken ranging from body language to quality of each shot to hits and misses ?
Confidante and sounding board: Temperance of of the highs and lows of essential are necessary for consistency of performance. Often, a person who is emotionally attached to his sport might find it difficult to distance himself from it. It is the caddie, who serves as the shoulder for the golfer to lean on, during times -good and bad.

Suffice to say the golfer knows his game better than the caddie (otherwise why would the caddie be a caddie, after all ?). We must remember that a caddie is not indispensable but often can lead to that marginal extra that can prove decisive in the long run.

What say readers ?

Varadha

(Varadha.r1@gmail.com)
+91 9940670064

4 F's of Value Creation

noreply@blogger.com (Varadha) — Sun, 15 Nov 2009 07:23:00 +0000

Given a lot of Indian Entrepreneurs have a lot of fire anyway, I was wondering what differentiates the Suzlon's and the Infosys-es of the world from the also-rans. Here goes my thoughts :

Focus : I have seen the case of more than one excellent entrepreneur who tends to take his eye off the ball. Too often, there is another opportunity that comes along that for the right reasons, looks far more lucrative. Can you imagine a Sachin Tendulkar switching to football because he has achieved everything in sight ? Can you imagine Tiger Woods playing anything but golf even 20 years from now ?

Typical distractions are real estate, restaurants, schools etc. that also give you an added social tag. The focussed ones refuse to take the bait and instead improvise/innovate on their core business. The others inevitably regret it. The ones that successfully juggle different businesses are not the ones that micro manage, but find the right people to delegate to and manage by reviews and numbers.

Finesse: This is probably the most under rated quality that the most successful entrepreneurs possess. Too often, the ego, the past successes weigh heavily in the minds of entrepreneurs and force him/her to take a decision that may not necessarily be the best for everyone in the eco system. For eg., " I have dealt with unions before - let us shut this factory", "We need to do this acquisition at any cost " etc. The good ones know where to draw the line. They know how to treat their customers and employees well. That creates a virtuous cycle . More importantly, they know how to self-promote their company by touching the right wires in the eco system - case in point being Infosys whose PR machinery is always working overtime without necessarily giving that impression to the outside world. These become even more so important during critical occasions like an IPO, acquisition, investors' exit etc.

Flexibility: There is a thin line that differentiates Flexibility from Focus and the good ones seem to know it by magic. If the demand for your product is not as great as you would expect it to be, would you find the markets that can give you the demand ? Or would you tailor a new product that has a larger demand in the existing market ? Needless to say, there are no easy answers. The good ones take a periodic check on the business (both internally and externally) and often take calculated, mid - course corrections. For eg., who would have thought Steve Jobs would make success of iPod when it was released in 2001 ? A standalone music player in an era of convergence ? From a company known for its computers ?

Fast & Decisive: Someone famously said "A half executed idea is better than a paper vision". The good entrepreneurs move fast and decisively. Too often, I have seen issue like " We recruited him. He is not performing upto expectations. What do we do ? " persisting for a long time, board meeting after board meeting. Either you augment his skill sets with other people (sub-ordinates or peers) or get a better guy or help him to upgrade his skills.

Any thoughts, anyone ? Is there more to it ?

~Varadha
varadha.r1@gmail.com
+91 9940670064

J-Curve and the art of "Indian valuations"

noreply@blogger.com (Varadha) — Sun, 08 Nov 2009 03:42:00 +0000

Amidst the usual riff-raff of "Oh ! Dealflow has started thawing but so have valuation expectations, if so, even more", I thought it is best to discuss the concept of "Indian Valuations" since they always seem far removed from the rest of the world in terms of logic (or the lack of it). Ask anyone in the primary/secondary markets and they would tell you the same thing - India is always an expensive market when compared to the rest of the emerging markets as well.

In the PE world, more than ever, valuations seem to be dependent on ever increasing projections with an explosive growth budgeted for in the first 12-18 months post fund infusion and a steady 40-50% growth (?!) post that. However, IMHO, reality is far removed and completely counter-intuitive. Most companies I have seen have slow build-up of momentum and the torrent comes gushing out only after 2-3 years (what is known in technical parlance as the J-Curve). Why ?

Transition of "Vision" and mindset: This is singularly the biggest roadblock to the immediate blossoming of an organization. Most often, PE deals take so long that promoters want to get into operations immediately thereafter and often a gush of liquidity is just the right medicine they need to go after the product/client/business they have always dreamt of. But what next ?
Organizational build-up: Most entrepreneurs have always bootstrapped during their formative years - so MBAs and industry veterans were always given a pass because they cost too much. Even if fresh money has come in, it takes anywhere between 3-6 months to staff the key positions and another 3-6 months for the new recruits to be brought to speed to deliver.
Market delays: Governmental clearances for the new land acquisition pending ? MoU submitted with vendors/customers yet to translate into commercials ? Temporary loss of demand for the product/service ? Undercutting by competitors ? You name it and it happens
Business learning curve: Going after $ 5 mn contracts is not the same as going after $ 50 mn contracts. You may the right people but the smartest people still take time to understand nuances of what the customer wants and how the end product needs to be packaged/presented.
Cultural/integration issues:In most cases, PE funds, being the "progressive animals" they are, induct fresh, young, smart talent who often come at better designations and higher salaries. This tends to cause a cultural rift within the organization with the old folk resenting this treatment. This leads to involuntary attrition/execution roadblocks within the organization.

As thumb rule, my experience has been that projections tend to be put off by one year in the best of teams and by 2-3 years at the other end. So, there goes the effect of J-Curve. Needless to say, the smarter PE funds have started baking it into their projections and have tended to adjust their valuations accordingly.

Regards
Varadha
(varadha.r1@gmail.com)
+91-9940670064

Due diligence in an Indian context - what to watch out for ?

noreply@blogger.com (Varadha) — Sun, 01 Nov 2009 12:02:00 +0000

Before I begin, I must say I have been quite happy with the response I have been getting on the blog from the handful of people who have been following it. There has been overwhelming criticism that I am painting a gloomy picture of PE in India and so, here goes some effort towards me cheering this up.

The Due diligence (did I hear someone say "Ouch ! that is so boring - we are already convinced about the business case. That is best left to a big 4 firm to submit a report") is one of the most overlooked aspects of deal making, especially in India where entanglements (into other businesses, either of the promoter or his close members/confidantes) are a big hurdle to deal with apart from the usual E's - Egos, Emotions and Expectations (Courtesy : Venkat of Veda Corporate Advisors, arguably one of the respected names in the mid-market deal making space in India)

For most of us, Due Diligence is a drab process where you are focussed on vetting the internal processes and financials of the company to see if they stand up to the image they have been projecting thus far. However, there are a few softer aspects that go beyond the ambit of what an external DD specialist is capable of (which have been learnt the hard way). So here goes :

Promoter:

Commitment :Will his/her mind be fully into this business post the transaction ? If not, whose eyes are we going to be looking at ?
Ambition :Is the promoter ambitious and willing to pull out all stops to make this a success ? This, to go by anecdotal evidence, it seems is the singular reason why some investments go the entire distance and most fall by the wayside.
Professionalism :Are there any familial pulls/strings that one needs to be aware of ? For eg., feuding brothers, an acrimonious marriage with a wife who is also a business partner? Does he realize that he has to forgo a lot of his intertwining to scale this up ?
Openness to ideas:A lot of promoters having been used to a dictatorial (and that is not necessarily bad in a small, growing company)
Hunger for value creation: While one might think ambition should be intertwined with hunger for value creation, a small sect of promoters do not realize that there are other stakeholders - investors, employees, management who also have to reap the rewards of all the hard work that went in. There are a business groups which seem to live by the credo " Upside is all mine, downside is all the investor's".
Focus & Predictability of behaviour: A lot of entrepreneurs who I have personally worked with seem to get distracted after a while (either because they are bored or get turned on by other business opportunities). In their quest for experimenting with the new, they get into risky moves - diversification, punting big, pursuit of self-glory etc.. For investors though, these are strict "no-nos"

Organization

Competence:Is the rest of the organization upto scratch in terms of delivering the results envisaged for the company ? Or has the promoter surrounded himself with sycophants whose field of vision is limited to doing the best that their boss wants them to do.
Financial checks and balances: How strong is the CFO ? Can he act as a check and balance on strategic issues - can he put the company ahead of the promoter should the situation arise ? Can he veto an unrelated diversification ? A large number of companies in India still have CFOs who are at best rubber stamps resulting in disastrous situations post the investment
Vision and aspirations of the second line: Are the second line of management also seeing an upside in their own careers ? Or are they looking at this round of funding as one that facilitates a cushier lifestyle?

The above I guess is pretty much commonsense for someone who has been in this business for long. But, exactly how does one answer the above ? The simple answer is in "freeing one's mind' - Use your network to tap into market feedback from customers, vendors, peers, friends of promoter, ex-employees. I have personally found a lot of useful insights about the promoter by talking to customers, ex-employees and vendors (who are the only ones who have the benefit of "inside out" and "outside in' knowledge" - a rare but useful combination to asses a person/organization). They are the best ones to answer the following questions:

Behaviour: How has this promoter been in the past ? Has past success changed him ? Is he committed to his employees ?
Values:How strong are his value systems ? Does he live by scruples ? Is he keeping his customers happy ?
Perceptiveness: Is he perceptive to market feedback ? Is he aware of changing market dynamics and actioning on them ahead of times ?
Capability/competence :Do employees/vendors look upto him ? Do they think he is amongst the best there is in the industry ?

As always, happy to take any feedback. Do mail me or post your comment on the blog.

~Varadha
(varadha.r1@gmail.com)
+91-9940670064