Hi Guys,

Glad that many of you read the post from yesterday.

Today was the most exciting talk, in my humble opinion, of the TiE-ISB Connect 2010. In the eco-system (as in most
other places) we have entrepreneurs, venture capitalists, angels, private equity players, investment bankers, executives,
aspirers and wannabes of all the listed types.

And then, we have Mr. Srini Raju. As obvious, I’ve got great respect from what I heard and saw (today) about him. So
when he speaks …. I listen. So here my codified transcribe of his talk for all those who share something similar or
contrary. I think I got most of his speech (which I will refer to … till I hear him next time around).

Now, let’s cut to the chase (as before … italics are my thoughts …. Will be kept to a minimum):

• Quick background …. He did lots of stuff … COO of Satyam, first CEO of Cognizant (then D&B) and now runs
Peepul Capital. Here is some more detail on him:
http://en.wikipedia.org/wiki/Srini_Raju_(Chintalapati_Srinivasa_Raju)
• “Born into a middle-class agricultural family of three children in 1961 in Khajipalem, Guntur District,
Andhrapradesh, India. Srini did his early schooling in government primary schools in near Vijayawada (1st-4th),
Khajipalem (5th-7th) and Pittalavani Palem (8th).” Man …. How lucky am I? (Schooling never had anything to do
with education and even lesser with business)
• Mr. Raju spoke about the recession and the gradual recovery. India has shown respectable recovery. However,
the US and Europe continue to be under stress. The economics are a cause for concern but optimism exists
• Particularly for India, emerging business are seeing rapid capital flows particularly from the Foreign institutions
through FDI and FIIs. This is good for the country but nothing to be overly excited about. Because, the nature of
this capital is short term to quite an extent and a capital flight can lead to shocks in the short-term. The
valuations of companies including the sensex seem overvalued and corrections will have to take place (just as
they have happened in many instances in the past in various other economies. We could share notes for those
interested in digging deeper on this aspect.

sayhi2jason@gmail.com
• The fund flows have put upward pressure in the Indian Rupee. The FDI, FII and remittances from NRIs have all
led to the strengthening of the rupee (the Rupee has strengthened by c. 4.83% since a year back
http://www.google.com/finance?q=USDINR. This obviously has been negatively affecting export industries like
IT.
• India is a net importer with a c. 35% fiscal deficit (I have not checked this). But this gives reason for the rupee to
weaken as opposed to the current trend. Hence, there is potential for weakening of the rupee too.
• Most of the foreign capital seeks to be deployed in “established corporations”. As a result, SMEs still have
funding shortages.
• Inflation continues to be high and hence interest rates too are high to contain inflation. At c. 15% borrowing
rates are among the highest in the world in India.
• For the SMEs and emerging businesses, various capital sources are emerging. These include private equity /
venture capital players (seeking 25% after-tax returns). For these returns to be delivered on a sustainable basis,
companies need to grow at c. 30% or so …. (more on this subsequently).
• Other emerging forms of capital funding include mezzanine funding a debt type funding with minimum return
needs and are senior to equity but subordinated to senior debt. Mezzanine costs about 18-20%.
• Now … lets get to the Peepul side of the story and the opportunities Mr. Raju and his team sees …
• In the past few weeks, Peepul raised c. 300-400Mn$ of new money. I believe they have already deployed most of
their previous raisings …. Some 850Mn$ I heard somewhere in talk. The returns they promise investors are in the
range of c. 25% post-tax I’d guess.
• The LPs who invest in these funds seem to be of the opinion that Chinese entrepreneurs are more keen on
sharing the money and wealth creation in comparison with their Indian counterparts. Mr. Raju does not suggest
a preference or advise but attributes this more to cultural factors. Indians believe in doing things for the long-
term (so long that it actually outlives one-self) and therefore see very little liquid cash realization. Mr. Raju
pointed to many in the audience who own acres and hundreds of acres of land and property but see very little
actual cash-flow … barely few ‘10s of lacs.
• Many of the HNIs are ….. “Perceived asset rich and cash-flow poor”. Dear Mr. Raju …. I will use this sometime I
want to impress another firang. I’m sure he will like it :-)
• As with the investor community’s needs …. They need to make money and cash-exists in some time frame …
short of long … 3 years or 5 years. This often proves to be a challenge with the Indian business community which
is particularly dominated by family businesses and all the jazz behind it.
• The fee structure of Peepul Capital is quite investor friendly …. i.e. a share of the profits above a hurdle rate …
sometimes 8% - 15%. This is lite on the management fee (apparently) which in other funds ranges at about
0.25% of AUM for a debt fund and 2.0% for a private equity fund. The asset management industry is beginning
to evolve their compensation structure so that the GPs earn on similar lines like Peepul Capital.
• NOW THE MORE INSIGHTFUL PART
• Opportunities for investing do exist in India. With the overall economy growing at >8.0% this is apparent.
However, some industries experience more rampant growth c. 20%-30% particular in the sectors like ITES etc.
while growth in other sectors is way lower with agriculture at 2.0%, mining around 5% and manufacturing of c.
5%-15%.
• With this evolving dynamics, various industries are showing varying growth. For e.g. the telecom sector which
used to show phenomenal growth is now tending towards stagnation. New operators coming into the market
and increased competition is putting pricing pressure on the telecom operations and margins are shrinking.
However, on the positive side the volumes are increasing very respectably. The number of mobile phones in the
market is today estimated to be 650 million (while some panelists mentioned the # of unique subscribers to be
more like 300-400 million).
sayhi2jason@gmail.com
• The BANKING sector has been largely reliant on the urban population. However, now they need to start looking
at ways to provide services to the larger population in the villages and rural areas. The problem they are facing is
that cost of service is proving to be high. But, they will need to evolve ways and means to deliver services using
other forms …. E.g. retailers, mobile payments, etc.
• The MICROFINANCE sector has suffered an image problem due to the recent events. This is largely self-created
with these institutions posing as social enterprises and opposed to profit enterprises with a model for social
inclusion. They will find a way to repair their image and get going with business.
• Similarly, the INSURANCE industry needs to go beyond the urban crowd and reach to the Bottom of the Pyramid
through similar strategies like the banking sector.
• The EMERGING BUSINESSES of entrepreneurs are now blessed with opportunities to come up with solutions to
fill these gaps and then potentially merge or get acquired by bigger players. This is not a recommendation but a
natural evolution of such industries.
• EDUCATION also presents lot of scope but however many players are already established in the country. There
seems to be an oversupply of institutions to meet the current demand. For instance there were 20-30
engineering colleges about 10 years ago … and today there are about 700+ (I haven’t verified these numbers). So
now there is a problem of both oversupply and quality.
• HEALTHCARE is an attractive sector but business models need to evolve that are efficient. Particularly interesting
are “medical delivery” models … e.g. diagnostics, medical supplies, etc.
• MANUFACTURING seems attractive too. Businesses globally are beginning to see new manufacturing hubs in
addition to china and India is attractively placed. The manufacturing industry is more easy to operate in now
with lesser labor issues, regulatory issues, etc. Lots of opportunities are emerging both domestically and
internationally.
• HYGIENE AND SANITATION. This is a huge market in itself including clean water, waste management, etc… but
this is probably in early stages and the market entry timing is probably not correct in the present scenario. Mr.
Raju himself made some investments here but the market realities have not been as fast paced as he had earlier
anticipated.
• TECHNOLOGY AND ITES BUSINESSES. This is Mr. Raju’s sweet spot. The industry is placed in an attractive
position. The question is of growth and not of sustenance. There are many opportunities out there but the
industry needs to INNOVATE. In fact, Mr. Raju mentioned a friend of his who started is company in the recession
is now operating at about 12-15 Mn$ sales in just TWO years! (Wow!). The industry needs to find niche and
valuable opportunities and go after them. Such avenues include SAAS, Cloud Computing .. whatever name you
could attach to it. Collaborations and partnership are particularly important here and the technology industry
needs to evolve in these aspects.

sayhi2jason@gmail.com
BONUS: Mr.Raju’s speech was followed by Mr. Nadendla Manohar (http://tedxhitechcity.com/speakers). The
unanimously elected deputy speaker of Andhra Pradesh state legislative assembly. He has been elected member of
Tenali constituency twice, in 2004 and 2009. Apologize that I haven’t been so much into politics …. But Mr. Manohar is
GOOD! I haven’t heard such a relevant speech from a politician in ages!

I ACTUALLY noted his speech down too! Let me know if you guys are interested and I can codify his words for you some
other evening.

So guys … that’s it from my side for tonight …. Hope it helps.

Thank you Mr. Raju!

Cheers!

Jason

sayhi2jason@gmail.com