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September 2, 2004
Haque: Shift in Global Venture Economy Means New Challenges and
Opportunities for U.S. and Indian Entrepreneurs
In the past few years, U.S. companies have outsourced an
increasing number of jobs to India. Journalists and politicians
of all stripes have had a lot to say about this; however, some
of these assessments have been quite facile. According to the
Austin chapter of The Indus Entrepreneurs (TiE-Austin), the
relationship between U.S. and Indian businesses merits deeper
consideration.
On Aug. 28, TiE-Austin sponsored TiECon Texas 2004, a conference
focused on aspects of entrepreneurship that will inform the
relationship between these two countries in the coming years.
The conference was co-sponsored by the McCombs School of
Business’s Center for International Business Education and
Research and the South Asia Institute at The University of Texas
at Austin.
Promod Haque, a managing partner at Northwest Venture Partners,
gave the keynote address. Haque, who was once rated the World’s
#1 Venture Capitalist by Forbes magazine, took the audience on a
quick tour of venture capital’s hectic last decade.
Five years ago, “there was money pouring in, irrational
exuberance, deals being done on the back of napkins,” Haque
recalled. The mood among investors was so buoyant that a job in
sales became a sinecure, as “things sold themselves” and capital
came pouring in. For a short time, this optimism was rewarded.
On one deal, Haque said, Northwest Venture Partners’ ROI was
slightly more than 125 times the amount of the original
investment.
However, continued Haque, easy money, overconfidence and a
general lack of discipline among entrepreneurs constituted a
recipe for a disaster. He questioned how substantial businesses
can even be built in an environment that prioritizes fantastic
short-term success over long-term sustainability.
To illustrate that point, Haque, who serves on the advisory
board of the Kellogg School of Management at Northwestern
University, recounted an anecdote about a professor there who
planned to publish his next paper in the Harvard Business
Review. Asked why he didn’t wait to publish it via
Northwestern’s own journal, he responded, “My job is to think up
new business models and publish them before they get obsoleted.”
One would think that the spectacular burst of the dot-com bubble
would have chastened investors and entrepreneurs, and Haque said
that he does think entrepreneurs are demonstrating a greater
concern for discipline, process and accountability than before.
However, “you see a little bit of that bubble mentality coming
back, and that is dangerous.”
Haque is, he said, relatively optimistic about the future for
venture capitalists. At the same time, however, he believes that
“in the next five years the number of VC firms is going to
shrink to 50% of what it is now.”
Those firms which thrive in this new economy will do so by
displaying greater capital efficiency. After all, Haque said,
“You don’t see billion-dollar exits anymore.” Rather, exit
valuations of companies are trending downward. Therefore, the
days of hundred-million dollar investments are over: “Unless we
can get these companies built for $25-30 million of capital, the
business model for venture capital investing is going to fall
apart.”
For his own part, Haque added, “If you can’t build an enterprise
software company on $15-20 million, don’t even come to me.”
These new economic realities, he said, will cause entrepreneurs
to embrace opportunities to lower their cost structure—such as
selective outsourcing of jobs to India. However, he said, with
the Indian IT market still in its infancy, the U.S. and Europe
continue to be the primary early adopters of new technology.
Therefore, a company’s front office is best located either here
or in Europe.
In the future, concluded Haque, he expects venture capitalists
to show an increasing interest in these “hybrid” investments,
firms that have employees in the U.S. and abroad.
Throughout the day, speakers from academia and industry agreed
that the emerging ties between these two countries portend
business opportunities for U.S. and Indian entrepreneurs alike.
Panel topics included cross-border entrepreneurial
opportunities, the largely untapped potential of the Indian
market for consumer goods, global sourcing and the process of
“Oscarizing” Bollywood.
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
