White on Brown

Mark Mobuis

Since 2005, India has been the destination of choice for institutional money mangers to invest their clients money. As a refresher, India was one of the 4 countries mentioned in the now famous 2003 report from Goldman Sachs titled “Dreaming with BRICs: The Path to 2050.”  The acronym BRIC stands for Brazil, Russia, India and China. It’s a report that many managers used as their investment thesis for entering the 4 countries mentioned and led one of the authors Roopa Purushothaman to land a gig with the largest retailer in India – The Future Group.

I’m all for research reports and believe it serves a purpose for investors that might not have a clue about certain markets and/or companies that are operate in those markets. These country reports are all very similar, they are super positive about the growth of a country and how big these markets are. However, what is really annoying is when foreign analysts, fund managers or super investors fly to India and tell Indians how their markets operate. It’s what I call “white on brown” – white guys telling brown people about their own markets.

Mark Mobius is the most recent fund manager to fall into this category. I have a lot of respect for Mark Mobius who is the emerging markets rockstar with Franklin Templeton where he oversees $50 billion in assets for them. In fact I got a chance to hear him speak in Bombay in October 2007 and was quite impressed. Recently in an interview with the Times of India he talked about his investment philosophy in India and was asked about corruption in India, he had the following view on corruption:

Corruption is rife everywhere in the world. It’s only when it really impacts the process of a business in a big way, you’ve got a problem. But that’s not the case here.

I read that quote and had to re-read it to see if he was talking about India or some other country. Mark, If you can’t speak the truth then don’t say anything but don’t insult my intelligence. Currently, India is embroiled in the largest corruption case involving one of the darling sectors for institutional fund managers – the telecom industry.

Ex-telecom minister A. Raja, industrialist Anil Ambani and heaven forbid Ratan Tata are being brought in for government questioning on how telecom licenses for the 2G mobile spectrum were allocated. If Ratan Tata who runs the Tata Group which is the largest business house in India and viewed as the most honest and above corruption is being questioned, it shows how wide the net of corruption is and it absolutely affects the process of a business in a big way. From what telecom insiders are saying the corruption is only going to get deeper and affect more individuals and companies.

Mark is correct, corruption is everywhere even in the US but happens at such a high level it doesn’t directly affect the average US citizen.  In India corruption starts at home, want to get a phone connection? want to get a gas connection? You better be ready to slip some cash to these service providers to get service or “your file” might get lost. Some say that’s not corruption but just paying for a speedier “value added service” but don’t fool yourself, the entire value chain is corrupt. I don’t fully blame Mark for his myopic view on corruption because when he visits a country like India, the red carpet is rolled out for him.  Government officials want his stamp of approval, companies want him to invest in their companies and the press wants something to print. Mark doesn’t have to really get his hands dirty when he comes to India, he gets to view everything through a rose colored lens and everything delivered on a silver platter.

Any fund manager that says corruption is not a major issue I offer you a challenge. Buy a flat in Thane and commute for 6 months to South Bombay for work.  Let’s see how you deal with the following:

  • Getting your flat registered without paying a bribe
  • Landline MTNL phone connection
  • Gas cylinder or piped connection
  • Power cuts (corrupt power grid)
  • Water shortages
  • Commuting by car (road infrastructure badly maintained)
  • Commuting by local trains? Don’t even try it.

Staying at the Taj is not a proxy for how the majority of Indians live, work, play and learn (yes, that’s an old Cisco marketing campaign slogan).

: If you are interested in downloading the BRICs report “Dreaming with BRICs: The Path to 2050” you can download it here.

The above article was syndicated on Huffington Post.

Entrepreneurial Excuse #8

Recently, I ran into someone who I have met several times before and we both have a similar backgrounds in the financial markets. He told me he recently left his job and was looking for another place to work. I casually asked him why not start something instead of working for another corporate giant. His response was “he was too young”, I almost fell out of my chair and had brain freeze for a couple of minutes.  I believe I’ve heard all the excuses in the book, but this was the first time I heard that one.

I looked straight at him and said “really, ever heard of Mark Zuckerberg?” I named a couple more people and his response was “in the financial markets I’m too young to start something on my own.” At this point I figured there is no point in mentioning anyone else but I did, I asked him if you knew John Arnold, who left Enron in his early twenties and started what is now one of the larger energy trading firms in the world – Centaurus Advisors. It was pretty clear he was getting all defensive and said “he left Enron, did he cause the collapse?” At this point I just backed down and said “yeah you are right, you are too young.” Not because of his age but his immaturity.

I didn’t mention the other person I had in mind, Barry Silbert. I recently had a chance to listen to a speech he gave at Stanford (via a podcast) and he was really impressive. At 25 years old Barry left investment bank Houlihan Lokey and started selling illiquid assets using nothing more then some phones and an Excel sheet via a firm called Restricted Stock Partners. Now, his firm is one of the most recognized names because when you hear those crazy valuation numbers for Facebook, Barry’s renamed company SecondMarket is behind those transactions.  SecondMarket has become the de-facto platform for Facebook employees to unload their restricted stock options on the partially open market. SecondMarket has created a whole new market for startups that are making money but don’t want to IPO for whatever reasons they have.

Actually, I could give several more examples but there is a bigger picture here. For this young kid maybe being an entrepreneur is not for for him and sometimes I question is it meant for anyone. With all the ups and downs and the constant strain on your health, wealth, friends, etc. Most startups are usually doing 4 things: begging for business, tweaking their product, getting publicity or addressing customer issues. And, those 4 things are not very sexy but once you have achieved your goals all 4 of them make for a great story.

In most instances people feel they are above doing the “messy” work that I mentioned above, such as begging for business. Begging might be a strong word but in essence it means cold calling, going to events where customer might be or giving product demos. I know many people that are working for large companies and they are really good at their job but would absolutely die in a startup and vice versa. I need to realize it’s a choice and it’s not for everyone.

Article on Barry Silbert and SecondMarket in Bloomberg BusinessWeek (link)

The above article originally appeared on VCCircle.com.