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`VCs should have a greater say in operations'
Indranil Chakraborty in Kolkata Indian New-Economy companies will have to give venture capitalists a greater say in operational matters if the funds are to be kept flowing in, according to Mr Arjun Malhotra, chairman of Techspan India Ltd and one of the founders of HCL Ltd. "The entrepreneur should realise that an investor is no less an important member than a business initiator," Mr Malhotra told a formal gathering here recently. "If we want more venture capitalists to invest in Indian companies as well as in new ideas, we should change our mindset of owning a company," he said. He added that, unlike in the US, companies here are unwilling to treat investing VCs as an important decision maker in company strategy and direction. "The person who is investing the money should have the power to intervene whenever the company hits a bad patch," Mr Malhotra said. The corollary to what Mr Malhotra said is that, in a New-Economy, only the right idea backed by money will triumph.He said an entrepreneur should not avoid giving more powers to smarter people. "I always believe that a new-economy entrepreneur should appoint people who are smarter than the entrepreneur," Mr Malhotra added. "It is always better to have a small piece of a large cake than a large piece of a small cake. Gone are those days when a promoter of a company like Wipro could hold more than 70 per cent of the total shares," Mr Malhotra said. Further, according to Mr Malhotra, there should be an important change in the ideas of running a business operation. Unless that is changed, one may not find too many VCs joining the new-economy bandwagon. The entry of VC funds in India is a recent phenomenon. Most of these funds have their origin in the US market and only a few have a base in India. The recent drying up of VC sourcing has forced many entrepreneurs, VCs and techno-promoters to look at various aspects of VC funding. Many VCs feel that a change is taking place in new-economy corporates with regard to the VC'srelationship with the promoters. Mr Mayank Khemka, vice-president of Smifs Venture Capital Ltd said that VC companies usually draw up an agreement that touches issues like approval of budgets, appointment of CEO and major change in strategy, and important decisions are taken in consultation with the VCs. "But seldom do VCs play an active role in the running of the company where the power to hire or fire the promoter cum CEO is one of the issues," Mr Khemka said. "But these things are becoming important for a VC," he said. Mr Khemka pointed out that, with the dotcom bubble bursting and Internet service providers not in good shape, VCs are demanding a more important space in the business operation. Whatever be the changes in the agreement deed among the promoters and VCs, trust is very important. VCs may get the power to sack anyone for non-performance, but ultimately the common goal is to create a robust company, he said. "That can happen only when the VCs and the promoters are bound by mutual trust," MrKhemka said. Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
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