Of start-ups, IPO dreams and differential treatment

 Business Standard recently carried an interesting guest column on job creation through start-ups. The gist of the article was - create an " IPO-lite" (my term) environment for start-ups and India can have a job creation machine. The article certainly did not lack authority, what with both authors being distinguished members of the PE fraternity and Mr. Pai having a larger corporate role courtesy his Infosys association.

 My criticisms of the article are primarily the weak logical connections between job creation and start-up IPOs. Further, in coming up with a differentiated exchange for start-ups authorities would need to consider  possible scenarios which could be a slippery slope to letting in retail participation. While I attach the SEBI concept paper here, unfortunately  the responses and SEBI final regulation could not be found on the website. Lastly, the unstated "this-time-it's-different" idea that seems to inspire this article could in fact be the driver of India's second dot-com bubble.

 On a personal note, this is my second unpublished letter to a newspaper - baby days yet !

Link to IPO article by Mohandas Pai & Praveen Chakravarty

Discussion paper on alternate capital raising platforms and other regulatory requirements

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 “How IPO rules are linked to job creation” (June 3) attempts to embellish the case for an “IPO-lite” mechanism under the helpful suggestion that such proposals can enhance job creation.

Policy makers should re-check their assumptions before signing off on such proposals. While there is no doubt that disruptive business models and VC funding mechanisms are here to stay, it is a well understood that there are other factors which govern VC movements, many of which could run counter to job creation. Portfolio re-balancing (and re-investment) decisions of (mostly foreign) VCs are governed by internal factors such as rate-of-return targets, deal pipelines, and base currency movements, not to mention the relative attractiveness of other markets. No VC is under a mandate to “Make in India”. They are there to provide the best returns possible for their investors.

These returns are derived on the basis of strong management and earnings growth. In the absence of tangible earnings or a management strong enough to deliver it, any proposed exchange will quickly descend into a VCs “musical chairs” with eager participants queuing up for a chunk of shares from the early prospectors/insiders before the next round of fund-raising commences. Setting up an exchange with only institutional investors are participants is also a slippery slope to retail markets. Would MFs and/or pension funds be allowed to invest and if so, are they not deploying retail money? What happens if a start-up (with stratospheric valuations) buys a company on the main board and wishes to pays in stock? Does the exchange not discriminate against brick and mortar firms who might be in the same sector and unable to “IPO-lite”? 

The article is silent on these issues. Ironically the market factors that the article helpfully lists as the cause of poor IPO performance are the same that can stymie the “IPO-lite” policy – lofty (start-up) valuations, poor diligence (institutionalized) by merchant bankers and greedy entrepreneurs (and their VC backers). Is the scene being set for India’s second dot-com bubble?

Impressions – The King of Oil

My earliest brush with Marc Rich might have well been the event that, he believed, would bring closure to the demonization that he was subject to for 17 years of his life. Living in luxurious self-imposed exile in reclusive Zug from US authorities pursuing him on charges of treason and tax fraud, he would find himself up chanting the final prayers in his father's wake over a long-distance call and be reduced to listening over telephone to his daughter die a slow death from leukemia, while being unable attend both funerals in person. He would also complete an acrimonious (and expensive) divorce from his wife of 30 years and go on to marry another (whom too he divorced, 9 years on, in yet another expensive affair).

Somewhere in between all this, in the dying hours of the Clinton era, a Presidential pardon ended and began a new chapter in the media scrutiny in his checkered life. Washed over in the torrent of media horror, I slowly picked together the life of the secretive commodities trader who spawned the colossus that today is GlencoreXstrata.

In this world of self-seekers, both myopic and narrow minded, a shrewd calculating man focused on the long term is indeed rare. Rarer still is to see him as evil. Perhaps this is my bias, but one who thinks long term and puts relationships before profits is in my dictionary termed astute.Marc Rich was an astute man, of this I am confident. But what else was he? An amoral trader, a dutiful son, silent intelligence sentinel, a doting father or a bitter ex-husband? How does one reconcile these contradictions? What can we learn from his failures and his astounding successes – notably, creating the global spot market for oil?

The King of Oil is hence an interesting book, as it pieces together the events in Marc Rich’s life and leaves the reader as the final judge. The absurdities that accompanied his trial and the machinations of Rich’s legal term are laid out in equal measure. Hence the book does not feel like a paid advert. It is in fact a sobering assessment of an infallible truth – even the Supermen and Superwomen that the world has seen will one day fade away in their days of glory or be dragged off their pedestals by Time if they tarry too long.

Reminding us of our mortality through the life of one considered invincible is perhaps the book’s greatest contribution. In parts fascinating, in others saddening, this is a Promethean tale that must be read.

My Name is...

With a mouth like a loose cannon, I am India's latest killjoy.
Spreading trouble with gay abandon, My name is Arundhati Roy !

"Modern Times"

First they came for the women,
and I didn't speak up for I am not a woman.

Then they came for the poor,
and I didn't speak up for I am not poor.

Then they came for my rights,
and I didn't speak up for I don't cherish my rights.

Then they came for Farmville,
and suddenly, all hell broke loose !

(inspired by Pastor Neimoller)

30

The night has passed and dawn has broken,
Another decade now awaits to be written.
With you in my dreams and God in my heart,
Time and I march with nary hesitation.