December 2009 Archive

Battered and Fried

It’s the end of the year and my blogging frequency on this site is showing it. A lot of bloggers bitch more the more stressed they get. I just go quiet.

My trip to South America was great, but perhaps a bit ill-conceived. I gave myself a week’s break in between three weeks in three different cities in China in October and three weeks in six different cities in India in November. And then gave myself four days between India and two weeks in Chile and Argentina. Didn’t follow that? Yeah, try living it. One of those four days in town was spent cooking a Thanksgiving for ten at my house. (Full disclosure: My mother-in-law actually did most of the work.)

My immune system has held up amazingly well all year through some 25 weeks or so spread across nine different trips in six different countries. But it finally succumbed to a stupid cold in Argentina. I think it was more fatigue than anything. No sooner would I get in a moving vehicle or sit down in my hotel than I’d slip into unconsciousness.

This has been a trend over the last few months. Vivek Wadhwa marveled as I slept for several hours on one of the bumpiest roads in India, and Allen Taylor, of Endeavor, compared me to one of those old farmers who sit down, lean their head back and start snoring as soon as they get in their favorite chair. (I have a penchant for finding sleep wherever I can get it.)

Still, I fell in love with South America (as I tend to do with most places) and met some great entrepreneurs. I’ve written a ton about them on TechCrunch lately, if you want to know more go here. As is the trend with this book, many of them are building businesses so intense and improbable they make launching an iPhone app look like a playground game. The biggest challenge is deciding what to publish now and what to squirrel away for the book.

In less than a week, I’ll be on a plane again, but this time going to my hometown, Memphis, for the holidays. While Mr. Lacy races around the tri-state corner of the South taking photos, I’ll be busy writing. I am forcing myself to write 30,000 words of my book by the end of the year. I’ve got about 10,000 done now. One word for that: Woof. Watch Twitter for signs that I’m distracting myself from the task—I mean, watch for updates on my progress.

I will take four days out to roundly smack-down anyone who says Nashville is a better city, and now that the dates have changed from Dec. 31-Jan. 3 to Dec. 27-30, it even overlaps nicely with my 34th birthday.

Thirty-effing-four. I’m telling you I look every bit of it after this year of travel. I also have an interesting collection of scars, bites, bruises and scrapes from life in all these far flung places. A lot of mornings of yelling “Good Lord! Where’d I get THAT?” in various hotel showers. But I wouldn’t trade it. Seeing the world and meeting thousands of its entrepreneurs over the last year have permanently changed my worldview and changed me as a person. It’s a good kind of pain. I mean—assuming I do actually get this book done by next August. Not totally sure I won’t yet wind up kidnapped, in jail or in an insane asylum.

Oh, I’m sort of burying the lead here, but I’m no longer doing a column for BusinessWeek. My contract elapsed just as the Bloomberg acquisition was happening and not only has the person who requisitioned my column quit, but every on-staff and contract columnist has been let go. So, not a shock, it didn’t get renewed.

I don’t know if I’ll pick something else up. It is a sudden and worrisome hole in my income, but I’ve also got eight months and six more trips to go on this book and the fewer distractions the better. I’ve invested too much of my own money, my youth, my time, my health, my marriage-well-being and my blood in this book not to make it the best it can be. One less distraction may be a blessing in disguise.

Oh, I have another buried piece of news. The Kauffman Foundation-- one of the largest non-profits in America whose job is to champion entrepreneurship-- gave me a nice grant to support the current book. I probably haven't mentioned it, because I was so stunned by the generosity and show of support for the project that it almost seemed too good to be true. But I've already started spending their money and the check hasn't bounced so I guess I'm not dreaming. Given, the lack of BusinessWeek income, they've pretty much saved the project, so thanks Kauffman! 

Of Olives and Argentine Jugaad

My favorite TechCrunch post I did on my trip to South America.

“I just emailed you a video. You have to watch it now,” I said to Paul Carr, my resident TechCrunch partner-in-crime.

“Why are you sending me a video about….farm equipment?”

“Just watch it.”

“Oh my God! What is it doing to that tree!?”

“Turn up the volume. You have to hear the music.”

I probably could just embed said video and hit publish, but the Colossus—the world’s largest and possibly most badass olive harvesting machine—deserves a few more words than that. And so does the company behind it, MaqTec, which spent ten painstaking years building a business that sells $500,000 pieces of farm equipment from the middle of nowhere in Argentina.

I know, farm equipment isn’t really a regular beat at TechCrunch, but take away the product and the story of the Colossus is just like any story of a scrappy software, hardware, Web or gaming company that saw a big innovation hole in the market and decided it could go up against bigger, lazier competitors who’d dropped the ball on innovation. Only in this case, it wasn’t Microsoft or Yahoo. It was John Deere and Caterpillar.

To be fair to those lazy giants, the Colossus is attacking (and if you watch the video, you know that’s the right word) a small farming niche: High-density olive groves. But that’s exactly how most successful Silicon Valley startups skip around the plodding feet of tech giants: They find a market opportunity big enough to be a business, but small enough the big guys won’t see it or care about it. (Yet.) That was the formula for Intuit, Adobe, Siebel or more recently Flickr and YouTube.

I met Martin Bonadeo and Jose Mourelle, MaqTec’s founders, at Endeavor’s International Selection Panel in Patagonia two weeks ago and was so captivated I trucked out to Venado Tuerto Santa Fe—aka the middle of Argentina— the following week to see the machine in person. It was a long drive full of pretty much flat farmland. “If you’ve seen Iowa—you’ve seen Argentina,” Bonadeo said.

But it gave me plenty of time to hear Bonadeo’s story. This guy isn’t Indian, but trust me, he’s got enough Jugaad to fuel Argentina for the next forty years. Simply put, this is a company that never should have succeeded, but did through smarts, trial-and-error and sheer “no-we-can-build-this-company-in-rural-Argentina” force-of-will.

The idea was born back in the late 1990s. Argentina offered a tax benefit to encourage the planting of some 70,000 hectares of olive trees in poor areas of the country. Argentina had less than 20,000 hectares before the change. The catch was these groves had to be high density, a minimum of 300 trees per hectare. The incentives have worked well enough that Argentina’s Ministry of Economy and Production estimates that the country could be a top ten producer of the world’s olive oil supply within the next decade.

Olive groves take about three years to mature and Bonadeo—a self-proclaimed “soybean man” and long-time farmer—noticed a problem before a lot of other people: Who was going to harvest all these olives? Harvesting olives is expensive and time-consuming and has to be done in a 70-day window. There just wasn’t the labor in Argentina, especially given the high-density plots. It would take 800 people to harvest 1,200 hectares. “That’s more like a military operation than agriculture,” Mourelle says.

So began years of trial and error building the Colossus, a huge machine that, crassly put, looks like it’s having its way with an olive tree. The machine straddles a row of trees and rubber tentacles gently swat off the olives at rapid speed. The arms can move in and out to hug the canopy of the tree—all controlled by a joystick in the air-conditioned, comfortable cab. The company is doing roughly $4 million a year in revenues and sells the machines in six countries. The Colossus increases productivity ten-fold and cuts harvesting costs by a third once the cost of the machine is paid back.

It was a humble beginning. Bonadeo barely had a working prototype and no customers. There’s no such thing as venture capital in Argentine farm country. Without money, he couldn’t build more machines. Bonadeo used to befriend olive farm managers to find out when the owners would be in town. He and his team would crowd into a van and tow the Colossus over for cold calls. Sometimes he was laughed at, sometimes the owner wouldn’t be there after all. “There’s no way you guys can build this business from here,” potential buyers said, even when they saw the machine working. It was disheartening.

The only reason the first Colossus was sold was luck. Two farms were close to signing, but not quite ready to commit to the pricey $500,000 sticker price. So the smaller one called up the larger one and offered to split it with him and share the machine. Simply out of Argentine machismo the owner of the larger farm decided he wasn’t going halfsies on any farm equipment, called Bonadeo into his office and said he had five minutes to make a sale.

“What’d you say?” I asked.

“Hamana…hamana…hamana…” he joked.

It didn’t matter what he said, the man bought one anyway. Soon after that an Australian company placed and order for three machines. Three! “Not bad, fat boy,” Bonadeo said to himself. MaqTec was in business.

Today, it’s still an uncertain slog. Mourelle is the salesman and he spends much of that time flying around the world selling machines, while Bonadeo manages everything on the ground. He spent much of the week before his Endeavor pitch trying to get some Swedish tires out of Argentine customs.

I have to admit my original hope in driving so far to see the Colossus was that they’d let me drive one. Mourelle told me I only needed to watch a 45-minute instructional video to be qualified. (I love South America.) But alas—due to such constraints in parts and working capital—there wasn’t one with tires that wasn’t already sold and at a customer’s farm. But seeing how one was built was more impressive in person. Not because it’s elaborate but because the “factory” is so sparse. Each machine is comprised of parts from scores of local vendors and international companies and welded together in big, open garage-like workshops. Sure the rooms are big, but so is the Colossus. It’s hard to fit more than one in there at a time.

The biggest concern over MaqTec’s future isn’t so much John Deere building a me-too product. Should the Colossus become a serious enough threat to the $23 billion company, it’ll likely do what the big tech companies do: Make MaqTec an acquisition offer.

The bigger concern is whether Mourelle and Bonadeo have it in them to keep slogging away at a difficult business that’s made only more difficult by capital constraints and the challenges of building a company amid the soybean fields of Argentina. The two are definitely tired. They probably need some money and definitely need to fill out their management ranks to give each of them a break. But I’m not giving up on them. On paper, they shouldn’t have made it this far. They’ve innovated in a forgotten space with huge competitors in a place with no inherent advantages. What’s managing growth compared to that?

Watch the video below to see the Colossus in action. [NOTE: The bizarre similarity between MaqTec and TechCrunch’s logo and video intros are just sheer, weird coincidence.]

Of Angels and My New Favorite Word "Jugaad"

India-slumangel-small Here's another cross-post from TechCrunch. I've spent much of the last two years thinking about angel investors. Both during my US book tour last year and my 2009 of International travel, the number one complaint I hear from entrepreneurs is that there are no angel investors in their cities. Yes, angels are one of the most important parts of a startup ecosystem, but as I discuss below it's actually a lagging-indicator of a healthy startup scene. In other words, the first generation always has to make it without angels. So are modern day entrepreneurs unrealistic to expect a $20,000 check just because they have an idea? Also in this piece, how some savvy Indians are trying to short cut space and time and "jugaad" their way to more angel funding. Btw- This photo is one of my favorites I took in India. It was painted next to a temple in one of the slums I visited in Delhi.

There was one complaint I heard over and over again from Indian entrepreneurs during my three weeks shuttling between Delhi, Jaipur, Bangalore, Mumbai and Pune: There aren’t enough angel investors in India.

Now, truth be told, that’s a complaint I also hear in the American heartland, in Canada, in Europe, in Africa, in China and, well, pretty much everywhere I’ve traveled to over the last few years. I’m not sure people ever feel they’ve got enough money being thrown their way.

But there is definitely something that makes Silicon Valley and Israel different from almost everywhere else I’ve been. Both have a wide base of people who made lots of money in the late 1990s Internet boom: The Yossi Vardis and the Marc Andreessens, but also hundreds of lesser known stock option recipients who may not want to start another company, but want to stay in the game $10,000 or so at a time.

Sure, Europe has had some big hits, but a culture of being tight-fisted with stock options has kept the wealth from getting spread widely enough to create a large base of millionaires who feel comfortable backing startups. Bebo’s Michael Birch and Skype’s Niklas Zennstrom are more exceptions in London than the rule. Even a city like Seattle, which had two colossal wins in Microsoft and Amazon doesn’t see a critical mass of angel activity—or even venture activity according to Dow Jones VentureSource. Typically just under one hundred startups raise venture capital in the entire state of Washington each year. For all the talk that Boston’s venture scene is “dead,” Massachusetts still gets nearly three times as many deals.

Note, this isn’t a question of wealth. There are plenty of pockets of the super rich throughout the world. But unless you earned it from a high tech start-up, you’re culturally loath to give it out to a guy you don’t know with an unproven idea.

Angels may be considered a crucial ingredient in today’s modern startup ecosystem, but if you think about it, asking strangers to write you a $20,000 personal check for no guarantee and a chunk of stock is a pretty new phenomenon. It’s the result of a decade or more of broad-based success, not the result of one big hit. That means a healthy angel environment isn’t necessarily a sign that a place is about to take off, rather, it’s a lagging indicator of a healthy startup scene.

That brings us back to India—a place that venture capital has been pulling out of in recent years as the burgeoning 1.2 billion person domestic market hasn’t adopted new technologies, goods and services as quickly as outside investors would have liked. (With the noted exception of telecom.) In 2008, just $1 billion venture dollars went into some 93 Indian startups, according to Dow Jones VentureSource’s Global VC Report. That puts India behind Europe, China, Israel and just barely ahead of Canada. In the first half of 2009, the numbers were even bleaker with just 25 Indian companies getting $213 million in venture capital.

Alok Mittal, a partner at Canaan Ventures in Delhi, agrees with the numbers and says the angel totals are far worse. If there’s about $1 billion in true venture capital in India, he says there’s only about $50 million in angel deals. Compare that to the United States where there’s roughly $20 billion in venture capital and another $20 billion in angel deals that primes that VC pump. That’s a disconnect that gives Indian entrepreneurs fits. “Indians are inherently very risk adverse and many of the entrepreneurs who’ve made money just put it in stocks,” Mittal says.

It’s all the more frustrating to entrepreneurs on the ground because there are so many prominent Indians who’ve had huge success in Silicon Valley and talk a big game about the opportunities in India and their desire to help give back to their native land. The cash just never seems to make it over. What gives?

For a start, angel investing is a local phenomenon, as much about mentoring and connections as it is about the thousands of dollars invested. An Indian who’s made billions in the Valley doesn’t necessarily know the first thing about mentoring an inexperienced kid with an idea in Mumbai. Until Indians start having more big hits in India, it will struggle to improve its angel landscape.

So India—or any region like it that has money, desire and opportunity but a lack of sustained big wins— has two choices: Muddle along without the help of early money and wisdom and churn out some big hits or figure out a way to hack space and time. Not surprisingly, I met several parties in India trying to do the latter. Can it work? Maybe, but there are inevitable tradeoffs.

The most common hack is creating so-called angel networks and there are a slew of them in India. They tend to do a few dozen deals a year. The advantage is by sharing the risk, angels get more comfortable with this type of investing and can pool their resources, and diversify across several deals.

But there’s a clear disadvantage: True angel investing is when a self-made individual with no one to answer to makes a gut decision to back an entrepreneur. Institutionalizing the process makes raising angel funds like raising a small round of venture capital. There are still the same hoops to jump through and demands of near term revenues, there’s just a smaller pot of money at the end of the gauntlet. Mittal is part of one of these angel groups and admits it’s not nearly a big enough solution. “We have done twenty deals, but what’s twenty deals?” he says.

Another idea is a Y-Combinator style incubator being hatched by former Valleyite Freeman Murray (above, right) in Bangalore. Murray ran something similar in Pune, and has relocated to the South where there’s generally more startup activity as kids watching Web 2.0 glamour from afar are quitting boring jobs with multi-nationals to start mostly Web and service companies.

Murray sees the slow growth of India’s Web market as a potential advantage, giving him plenty of time to handhold and mentor smart kids with a good idea but little else. And just $10,000 each can keep these companies running and experimenting for a while.

Where does Murray get the money? Some of it is his own savings, and some comes from those very same Indian Valley successes who want to seed companies in the motherland but need someone to be the feet on the street. A similar approach is being launched by Indus Khaitan, a former Symantec executive who moved back to India and joined Morpheus Venture Partners, which recently closed a new fund thanks also to Valley-based Indian wealth. He’s also based in Bangalore.

Khaitan is one of those natural networkers with an easy smile and an ever-available credit card to buy group dinners. But Murray gets the laid-back, hippie points—he’s constructed a huge Burning-Man like complex in downtown Bangalore where he’ll put on community art and startup events. It’s wrapped in Chinese tarps with a multitude of metal stairs leading to different floors and levels inside. It’s got wifi (natch), and soon, a garden for a roof and solar panels to replace a power chord that’s now being piped in from the neighbors.

There’s something in India called Jugaad — it’s an innate creativity for problem solving that some worry the Zippo-lighter-flashing kids working for multinationals in Bangalore have lost. Murray may be a California native, but he has jugaad in spades.

But even if each effort is successful, they are still just tiny drops in the bucket—and India has a pretty large bucket. Vishal Gondal, founder of IndiaGames and a rare Web entrepreneur who’s made money in India, has had it with the partial solutions. He’s sick of attending startup events where three smart kids win the competition and the so-called “early stage VCs” judging it all say the companies are still too early stage for them to invest in. “Why are they even there?” he says of the VCs. At a recent competition Gondal stood up and personally committed $100,000 to the winner on the spot—giving his wife palpitations.

Like Mittal, Gondal (left) sees scale as the only way to push India out of this early stage funding rut. Twenty new deals is nothing—India needs to be minting 1,000 new startups over the next five years to finally start seeing some big hits emerge, he argues. He proposes a sort of uber-angel network that would look for thirty startups per year from the big major Indian metros and 10 startups from the next largest second tier cities. That leaves five to ten slots for other cities or rural areas. If each of these companies got the normal seed investment of in the $20,000 investment range, seeding 1,000 of them over five years would cost just $20 million—a big sum, but not outrageous.

Having seen loads of cities try to “recreate” Silicon Valley and fail, it’s hard to be too optimistic about any plan to short-cut the natural development of the primordial soup that leads to a complex ecosystem of entrepreneurs, VCs, angels, advisors and startup worker bees. But the fact that these efforts are coming from disparate, frustrated grassroots groups and not some top-down government grant or well-meaning, fair weather rich outsiders, lends some hope that things could change in corners of India’s entrepreneurial world.

The truth is India’s dream of building the next big fast-growing powerhouses will have less to do with angel money or Western venture money and more to do with getting around that ingrained fear of risk-taking.

There’s still a strong cultural stigma to failure in India. Walking away from a prestigious and high-paying multinational job when you don’t have an angel to catch you isn’t easy, especially in a year when India has seen some of the first corporate layoffs. But jugaad is all about finding a way, and the best Indian entrepreneurs will. The others should probably just stick with the high paying job at Microsoft anyway, angel investor or no.

Sarah Lacy’s entertaining and informative tour of the world’s fastest growing economies undeniably proves what we’ve known at Endeavor for more than a decade: that impressive and inspiring Entrepreneurs can truly come from anywhere! In taking us on a whirlwind journey bursting with frenetic energy – matched only by that of the amazing entrepreneurs she meets – Lacy gives us an important glimpse into the future of the global economy – a place where the craziest, high-impact entrepreneurs from anywhere and everywhere set the pace.
Brilliant. Crazy. Cocky.

New Book

An unforgettable portrait of the emerging world's entrepreneurial dynamos Brilliant, Crazy, Cocky is the story about that top 1% of people who do more to change their worlds through greed and ambition than politicians, NGOs and nonprofits ever can. This new breed of self-starter is taking local turmoil and turning it into opportunities, making millions, creating thousands of jobs and changing the face of modern entrepreneurship at the same time. To tell this story, Lacy spent forty weeks traveling through Asia, South America and Africa hunting down the most impressive up-and-comers the developed world has never heard of....yet.

Excerpt »

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Srah Lacy

Sarah Lacy is an award-winning reporter who has covered high-growth entrepreneurship for more than fifteen years. She is the founder, CEO and Editor-in-Chief of PandoDaily.com, the site-of-record for the startup ecosystem. She lives in San Francisco.

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