Of Angels and My New Favorite Word "Jugaad"

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.

Memo from the "Fake" India

Note: Errr, I wrote this almost a week ago when I was in Goa. I had horrible wifi issues the rest of my time in India and could never post it, so I'm posting it now. From Chile if you read the above post...better late than never right?

I’m writing this from one of the nicest places I’ve ever stayed. It’s a villa at the Taj Exotica in Goa—a sleepy little beach community south of Mumbai. The weather is perfect. We have our own pool on our terrace overlooking the beach. I’m watching the sunset and sipping a cocktail next to my long-suffering husband as leggy white birds hop around on the lawn and bearded black crows fly from palm tree-to-palm tree, seemingly just bitching to one another. (Maybe it’s about the wifi, because that seems to be the only thing that sucks here.)

And yet, rather than blogging about how lucky I am for this two-day respite, I’m thinking about how lucky I am that I don’t think this is India.

I’ve noticed a huge disparity in the impressions of people who vacation in India and those who do business in India. And a further disparity in people who are wealthy and do business in India and those who are middle class and do business in India. Had I come here and spent a week at this resort—or thousands like it—had Ayurvedic massages and laid on the beach being wait on by a smiling Indian staff, I’d no doubt come home and gushed, “Oh, I LOVED India.” Similarly, if I’d flown first class, stayed at the nicest hotels and asked all of my meetings to come to me, I’d say something like, “India is fascinating! Why aren’t more people doing business there?”

As it is—flying more than 20 hours each way in a middle seat in coach, living in five star hotels that barely live up to that billing, and spending more of my three weeks in traffic than in meetings—I can’t sum up my personal experience in India in one verb or adjective.

It is hard to do business here. I can easily see how urban Indian life could grind anyone but the wealthy down over time. Despite the near ubiquity of English-speakers and the similarity in terms of a democratic government, India would be a substantially harder place for me to move to than China or even Rwanda.

But that only represents more opportunity for local entrepreneurs. India isn’t a gold rush right now. A lot of money is pulling out and even a lot of local entrepreneurs and investors are wondering if consumer Web and local IT services will ever take off here. People are simply sick of waiting for this huge 1.2 billion person market to wake up and start consuming and a lot of them are leaving. Several local entrepreneurs have decided to  build companies aimed at Western markets instead.

And guess what? That’s exactly the time anyone with a clue should be doing early-stage investing in Indian companies aimed at the domestic market. It is waking up. It’s not developing the way the US did or China is, but it is developing and it’s nascent enough that only the locals get it.  I’ve spent three weeks in this country witnessing its sometimes horrific fits-and-starts of modernity (let’s just say I’m more familiar with the smell of human feces than I’d like to be) and meeting more than 100 impressive and not-so-impressive Indian entrepreneurs. I have no doubt that the next generation of multi-billion Indian businesses are probably starting up right about now, and someone with a strong stomach (ahem, literally) will win big.

Of Cows, Traffic and Elon Musk

Another cross-post from TechCrunch. This is for all the people who've complained I've been too positive about India. (I swear, there's no pleasing you people. ;) )

BANGALORE, INDIA — It’s almost as if Russian cell phone carrier MTS has bought the naming rights to Bangalore. I half expected my immigration stamp to read “BANGALORE! ™ BROUGHT TO YOU BY MTS.” The carrier recently launched service in the uber-competitive Indian telecom market and has erected billboards every twenty feet or so. I have never seen so much advertising by one company in one space. They all sport an agro looking dude with his face twisted in some rebel-yell while he does inscrutable things with robots and mechanical arms holding different tech gadgets.

Why have these ads made such an impression on me? Because I’ve spent a week sitting in stopped Bangalore traffic looking at them. Ironically one keeps boasting: CONGESTION-FREE MOBILE NETWORK. Sitting still and listening to the honking of cars, mopeds, bikes and rickshaws all around me, it’s an easy guess that, if true, MTS could be the only thing congestion-free in India.

I used to think I knew bad traffic. After all, I moved to Silicon Valley during the famed Internet bubble when Highway 101 slowed to a crawl during peak commute hours. And I’ve spent time in legendarily congested US cities like Los Angeles and New York.

Now that India has one of the world’s best mobile infrastructures, it needs a decent road infrastructure. And a smart entrepreneur needs to come up with a modern fix. But before we talk solutions, let’s dwell more on the problem.

Simply put: All of you Americans—or Londoners for that matter—who Tweet about sitting in traffic have nothing to complain about compared to the emerging world. And in my experience, so far, India’s traffic is the absolute worst. A drive between cities that should take an hour takes four. A commute across a city can routinely take two hours-plus. We’re not talking about rush hour. I’ve quickly learned to allot at least three hours for each meeting—one hour for the meeting and one each for getting there and back.

Even so, despite my best efforts, I’ve been late for nearly every meeting. In Mumbai one meeting scheduled for late morning took six hours out of my day. (Fortunately, the meeting was well worth it.) And in Bangalore my cab driver tried to take a back-alley short cut, when suddenly, our path was blocked by a cow just munching on some roadside grass. He honked and honked and she just looked up and batted her pretty brown eyes at me as if to say, “Oh, you’re not making that meeting on time, hon.”

Indians complain about the poor foresight and urban planning of their government, but it’s not all the government’s fault. The Chinese government is the master of over-building capacity to anticipate growth, and city traffic in China is becoming unbearable as well. It’ll only get worse as an anticipated 30% more cars per year come on the road.

The problem is the hyper-charged urbanization these countries have experienced. In the West cities grew over centuries allowing city planners to adjust and modernize as industrialization drove higher occupancy. And in the past few decades there’s been a flight out of downtowns to suburbs. Of course that presents its own growing pains—especially in US cities that have experienced massive suburban sprawl like Phoenix and Atlanta. But in the grand scheme of things, the moves have been predictable and manageable, whether individual cities have handled it well or not.

Not so with the rapid urbanization of cities like Beijing, Shanghai, Shenzhen, Delhi, Bangalore and Mumbai. The step up in pay from hundreds to thousands of US dollars a year has been swift and far reaching. In China, agricultural classes have moved en masse to staff huge several-thousand-person factories, and for the Olympics, they moved en masse into hospitality jobs in Beijing’s raft of new hotels, malls and restaurants. This is to say nothing of the increase in government jobs and startups. There is simply no way to make remotely the same wage or have the same access to infrastructure and services outside a city. In some parts of India it’s been more pronounced as hundreds of thousands of sophisticated R&D jobs typically pay more than China’s factory jobs.

Here’s my point: All the existing Western solutions, endless government funds, underground subways and top urban planners will not solve this problem. Because simply put: The world has never seen urbanization so extreme by millions—maybe even billions— of people seeking a better life. We need some innovation here. And I know at least one guy who is thinking about it.

At a conference earlier this year, Elon Musk – the guy who co-founded PayPal, Tesla, SpaceX and laughs like a James Bond villain — talked about two new businesses he was mulling.  One was electric, supersonic planes, which I’ve salivated  over since. The other was pre-fabricated freeway overpasses to alleviate traffic by making it go vertical without the costly billion-dollar customized expansion fees.

I have to admit, at the time, I was more excited about the planes. But his freeway idea may be a better business. It would dramatically affect the lives of billions (literally) and create at least millions of revenues in the developing world where quick, cheap options are needed and there is hot-and-heavy government money to pay for it.

Now, clearly Mr. Musk is busy with existing ventures Tesla and SpaceX. So now’s your chance to steal the market out from under him! India and China are waiting.

Fire in the Belly

Up until about 48 hours ago the only time I'd gotten sick reporting this book was in London at the BT Tower. (We called it Scallop-gate. Paul Carr was also a victim.) But, oh, has India finally caught me in its Delhi Belly clutches. Mr. Lacy and I have spent about eight hours in the bed or the bathroom. We're sipping Gatorade now and hopefully on the mend. My stomach no longer feels like it's bleeding so that's a plus.

In news of a more metaphorical, good kind of "fire-in-the-belly" here are the links to a two-part series I wrote for BusinessWeek on the six different entrepreneurs you meet in China. I wrote it a while ago, and sadly, it might be my last BusinessWeek column ever. The new Bloomberg overlords have already canceled far fancier outside columnists like Maria Bartiromo and Jack and Suzy Welch, and my contract is up. I love writing it and have so much loyalty to BusinessWeek so I hope we can figure something out. But no matter what, I'm glad my (maybe) last columns were ones I was proud of. 

Meanwhile, I should have a few more TechCrunch posts on India coming up...once India stops pummeling my digestive system!

Of Slums, Computers and Solutions to the Future of Both

This story was hard to write. The first version was way too long and too book-y. But frankly, it one of the best things I've written in a few years. So I saved it for the book and struggled to start again.

I'm going to let the story mostly speak for itself. It bears noting: These kids didn't ask me for a cent. I was prepared to give them 100 rupees each for their time and hospitality and my guide told me they wouldn't want it. I didn't believe him and had the money ready. But indeed, they never asked. And considering every single waiter, hotel clerk, bell-boy, driver, abused person tapping on my car window has asked me for money in India, that was possibly the biggest shock of the whole experience. 

DELHI, INDIA–“I’ll take you! I live there!” a small boy with a blue shirt and a perfect toothy grin said as he ran ahead of me. His quiet friend in yellow jogged beside him smiling shyly, his jet-black Elvis curl bobbing on his forehead. The boy in blue stopped a few yards in front of me turned around, beaming and added in Hindi, “I know computers quite well.”

These weren’t middle class kids on the well-trod, parent-driven Indian path to seats at IIT. These were Delhi slum kids, whose families likely live on less than $2 a day. And yet, for the last five years, they’ve spent several hours of their free time every day playing games and learning English, Math and Science on computers.

So how have they bridged the much-agonized-about digital divide without a hand out from a chip company, computer company or wealthy philanthropist? A for-profit Indian company called NIIT.

It started back in 1999 when Sugata Mitra, NIIT’s chief scientist, noticed his kid could learn how to use gadgets like a mobile phone far faster than tech-savvy adults could. At this time, most computer “labs” in Indian schools were one or two computers that were only to be used under the strict supervision of a teacher. The reasoning was computers were expensive and required training and supervision. As a result many kids only got to look at them from afar in the classroom.

Instead Mitra wondered what would happen if he left a computer out in the open for a group of children to discover. So he literally knocked a hole in the office wall to the slum on the other side.  He shoved a computer in the hole and set up a camera on a tree limb to record what happened. A 13-year-old, illiterate kid who’d never seen a computer wandered over tentatively, and soon realized he could move the cursor by moving a finger across the touch pad. Within four hours, a small group of kids had gathered. They had figured out how to open Internet Explorer and were playing a game on Disney’s Web site. “All of us were absolutely shocked watching that,” says Abhishek Gupta who heads the program now. Some expected the kids to break or even try to steal the computer.

A pilot project with the World Bank followed, and 22 of these “Hole in the Wall” kiosks were set up around the country from 2001 to 2005. The organization studied the results closely. The most obvious take-away was that kids left on their own will learn computers. The project also helped develop team-building and social skills—with 200 kids sometimes huddled around one screen. Whether the computers lead to more general academic improvement was less clear, but in many cases it was up measurably, Gupta says.

But interestingly when that partnership was over, NIIT didn’t take the project down the non-profit route. It’s not because the company is adverse to such things—it’s also opening a new high-end university that is run as a non-profit. But there’s a unique attitude in India that believes the way to eradicate poverty is to turn India’s scrappiest, free-market entrepreneurs on the problem, not to increase handouts.

NIIT now sells the kiosks at between $6,000 and $20,000—depending on which model and how many screens—to the government, who puts them mostly in schools in India’s poorest areas. There are 500 stations in India and a handful in 10 different African countries.

Having customers means NIIT has had to compromise on the original vision. For instance, the government requires administrators to keep an eye on the systems. They’re not open when an administrator isn’t there. But running the program as a business has assured its survival and given NIIT the cash flow to pour money into content creation so it doesn’t have to rely on the country’s spotty Internet connections for kids to stay engaged. Gupta says his job isn’t necessarily to be a profit center. Success is running a break-even program that makes a social impact. But that’s still a world away from a donor-funded program.

NIIT isn’t alone. For profit companies have made microfinance loans for years in India. One of the most known is SKS Microfinance. It was run as a non-profit in the early days, but when it was time to scale, decided to turn into a Sequoia Capital-backed startup. “It’s important to realize the poor have been paying three-to-four times more to the local money lender,” says Surendra Jain, a managing director with Sequoia in Bangalore. “There’s nothing wrong with using the same tools to scale the way other companies scale. The question is: In your heart are you doing the right thing?”

Even non-profits I’ve met over the last two weeks run themselves to rely on revenues not donors. An example is LabourNet,  a company that seeks to move India’s huge informal workforce into a formal channel. The company organizes phalanxes of construction crews, drivers, cooks and retail clerks and matches them with the best employers. How does it reach them? Word of mouth and SMS. So far 7,000 workers are in the system.

It was started by Solomon JP. His umbrella non-profit organization, MAYA, has already produced one self-sustaining company that trains poor youth in making high-value furniture. With a grant from Bill and Melinda Gates Foundation, CHF International, an international NGO addressing urban poverty in India, is providing technical and financial support to help LabourNet become a self-sustaining enterprise. “Being poor isn’t about not having money, it’s a lack of capabilities,” JP says. So LabourNet doesn’t stop at getting poor people a job, it offers access to healthcare benefits, issues ID cards, and helps with bank accounts, literacy, and job training too. The worker pays a small fee, and the employer pays LabourNet a larger one in exchange for matching them up.

It’s hard work. JP has been working with the poor in Bangalore for some 15 years and says it’s like Hotel California. “I don’t recommend this path. I can never leave. I’m trapped!” he says with a weary half-smile. (I’m not sure what percentage of that is a joke.) But he believes he and others can solve the problem through self-sustaining means as long as organizations don’t sacrifice humanity in the name of efficiency.

It’s a dramatic difference from China, where most entrepreneurs are building businesses that are aimed squarely at the top of the pyramid or the burgeoning middle class. But since India is a democracy—and not an authoritarian one—it doesn’t have the same social safety net of other emerging worlds. It’s fitting that it’s trying to use a free-market economy to solve its social ills instead— something American do-gooders could probably learn from. After all, we’ve got our own digital divide.

One final note on NIIT’s Hole in the Wall program: It was allegedly the inspiration for the book “Slumdog Millionaire” which spawned the movie. “Where’s my Oscar?” is a favorite joke of Rajendra Pawar, the chairman and co-founder of NIIT. I asked a lot of people working to eradicate poverty how they felt about the movie, and most said it was neutral-to-positive for India. It doesn’t hurt to show rich Americans how one-third of India’s 1.2 billion-person population lives, even if it was sensationalized. The difference is none of them are banking on a one-time windfall as the answer.

Of India, Gateway Drugs and the Internet

Almost slipped on the cross-posting promise! Here's a post I did yesterday for TechCrunch. At least I think it was yesterday....days are blurring together in India. I was really happy with how this story turned out, but it was a challenge to write. Why? Because Deep Kalra is just really, really likable. I don't just mean that he's a nice guy-- he's a great entrepreneur, took risk where a lot of Indians have not, has built a great business and takes his team on rafting trips!

He studies entrepreneurs not just in the US but around the world, and not in a sycophantic name-dropping way. He wants to learn how to be better. He's one of the most impressive guys I've met in India, in short. And that sucks, because it's hard to capture "endearing" and easy to capture "weird" or "mean" or "quirky."

Paul Carr has become my de facto second set of eyes on TC posts when I'm exhausted and traveling. (What can I say? I like editors. You can take the girl out of old media....) At any rate, his comment was "I really care about this guy and want him to do well!" And anyone who knows (or reads) Paul knows he's kind of a jerk. So perhaps I captured "endearing" after all? I hope so. Enjoy.

GURGAON, INDIA– Back in 1995, Deep Kalra knew that India had burgeoning consumer promise. So he took a risk, quit his safe-but-boring banking job and joined AMF Bowling—an American company that was aiming to bring bowling alleys and billiard halls to India for the first time.

It didn’t quite scratch his entrepreneurial itch: The hobby was ahead of its time for Indians. He managed to open about 200 lanes, most of them in small centers. Worse, Kalra was in that business-man’s-limbo: The venture wasn’t really his own thing, but he had a remote boss back in America who didn’t give him much mentorship or guidance.

So after four years, he headed back into the safe world of banking. And then, in 2000, with some money saved up, he decided to leave again and do things his way. Enamored by the Internet and frustrated by how hard it was to travel in India he opened MakeMyTrip.com. The site—as you might guess from the name—was like any of the online travel brokers started during the dot com bubble, only it was in India.

Of course, that was a pretty crucial difference. That venture too was ahead of its time, but it was his and Kalra stuck it out. After the market crash and September 11, Kalra’s foreign investors reneged on $1 million in funding commitments. Then there was the triple whammy of SARS, which made everyone want to travel in Asia less. He was 31-years-old with a wife and a baby at a time when starting a dot com was insane and in a place where it was downright suicidal. Indeed, many VCs will tell you today that India—where only 50 million people are online and just two million have broadband connections— is still not ready for the consumer Web.

But Kalra and two senior managers bought back their equity in the business and agreed to go without salaries for 18 months. He called a meeting and asked the staff to take 40% paycuts. Twenty-five of them stayed and 17 balked and quit. Kalra decided to focus on selling travel to returning Indian expats rather than locals, but he kept an eye on that sleeping giant of a domestic market.

A year later, MakeMyTrip broke even, in 2003 he reluctantly decided to trust VCs again and in 2004– when Internet adoption in India had finally started to grow and much of the Indians who had the money to travel had credit cards, bank cards or access to money transfers—Kalra came back to his original vision of building the Expedia of India. “There’s a fine line between resilient and stubborn,” he says, sitting in his office in Gurgoan surrounded by globes, maps and maps with mashed-up pictures of many of those employees who stayed. “It worked out, so we can say we were resilient. But at the time I worried I was just being stubborn. But I figured you regret the things you don’t do in life, not the things you do.” When I met him the day before, Kalra easily rattled off details of a bowling supercenter that opened up down the road after his AMF days. You can tell it stings a bit, but if we were sitting here having the same conversation about an online travel company that took off after he gave up, it’d be devastating.

What Kalra didn’t know back in those dark days was that he was about to benefit from a global Internet truism: Online travel is the ecommerce gateway drug. It makes up some 70% of global ecommerce, it was one of the first categories to take off in the United States and one of the only markets big enough to sustain a host of publicly traded Internet competitors. Similarly, Ctrip was one of the first big Internet hits in China.

India—a country with few Internet homeruns—took longer. But Kalra’s company is now making $5 million in US  dollars of profit this year and doing more than $500 million in gross bookings. Revenues are up 88% during the recession and one-out-of-every-twelve domestic flights in India is booked via MakeMyTrip.com. After airline tickets, the second biggest category is railway tickets—the site sells 2,500 of them every day. Kalra is busy interviewing a lot of US-trained management types to augment the team. Don’t look now, but MakeMyTrip could be India’s next dot com IPO. (Like most well-behaved CEOs, Kalra wouldn’t comment on any immediate IPO plans.)

Why does travel take off so fast? For starters, it’s one of the only categories where you buy something that’s delivered over email. Forget costs—in emerging markets shipping to far-flung areas doesn’t always exist. Kalra says etickets may have saved the company. For most, booking online doesn’t require a huge change in the way they buy travel. In pre-Internet days in India and the US most people booked travel through a travel agent who’d pull up inventory in a computer. The Web just cut out the middleman. (And his fees.)

Compare that to online shopping for physical goods, which requires a radical change in behavior. People who’ve only recently gained a disposable income frequently want the experience of shopping, and the ability to feel, examine and try things on. “Malls are still a new thing here,” Kalra says.

And because a ticket or hotel room is a perishable asset, someone who can move those assets can get a nice cut. Kalra has made more money during the recession by getting better rates from anxious suppliers.

Travel won’t be the ecommerce exception forever. India’s rush of a middle class with disposable income is evolving fast. When Kalra was growing up no one went on Honeymoons abroad and now most of the kids in his office do. And hotels were verboten—you visited family and stayed with family. Kalra has a hunch the next local ecommerce hit could be FlipKart, an online book retailer with a whopping 5 million monthly uniques, profitability and a new round of cash from Accel in the bank.

MakeMyTrip still suffers from some local cultural hang-ups. Hotel bookings, for instance, aren’t doing quite as well. People don’t trust unknown brands and only 15% of Indian hotels are known brands. (Personally, I don’t think US sites have cracked the hotel problem either. I only book from local recommendations.) Similarly, people don’t want to book big vacation packages online, so Kalra has opened 20 physical stores to guide people through the process.

And there’s the so-called “last mile” problem. Kalra doesn’t plan on addressing it by opening more stores. Instead, he’s playing with the idea of a business-to-business product, where existing local travel agents would use a slow-connection optimized version of MakeMyTrip to access more inventory than they can now and sell through the site’s existing back-end system. He doesn’t want to cram an efficient online option down the throat of a population that knows its local travel agent and likes to go in and chat with them, have a cup of tea and discuss cricket scores. And clearly one deal with a travel agent is a far more efficient way to reach a whole village.

Kalra is smart. He studies every competitor out there. He’s ripped ideas off lesser-known companies like FareCast.com, corrected me on the pronunciation of China’s up-and-comer Qunar.com (so much for my Mandarin lessons), and can quote Expedia’s customer conversion rates. (They’re 6%, by the way. His are 7%. It’s the most important metric he watches.)

Ahead of his time or no, Kalra is glad he took the risk when he did. He’s not sure he would today even with more money in his savings. He’s also glad he didn’t give up on India’s domestic market, “If I’d been in Silicon Valley I’m convinced we might have reached scale in half the time, but we also probably would have been obliterated by the competition.”

That’s the benefit of slowly emerging markets that’ll eventually have a big payoff—you get time to make mistakes.

Adventures in Spas

I always like getting spa treatments in other countries because you never exactly know what they are going to do to you. Extra anxiety points if you don't speak the language because you don't know how to politely tell them to stop.

I went for a facial in India before leaving Delhi to get rid of some of this caked in smog and pollution. Three weeks in China followed by three weeks in India and I'm amazed my skin has held up as well as it has. (I know everyone talks about smog in China, but in my experience pollution is worse in Delhi than Beijing.)

It was going ok. I was in a small room covered by yellow-and-white striped towels that I think my family used to unearth for beach trips. I was ordered to keep my eyes closed as my face was rubbed over and over rhythmically with some kind of mask. It was mostly relaxing. Then the woman got a load of my horribly ungroomed eyebrows.

"You're eyebrows are too long!" she exclaimed.

"Um, yeah I know, I've been traveling," I said. (I also haven't had a haircut in months. Thank God it was in a shower cap.)

"I need to take care of these!" she said.

"Um...ok."

"What do you do?? Tweeze them?"

"No I get them waxed, I've just been gone." (I'm getting more nervous here.)

"Oh, that's a horrible method."

"Well it usually works for--"

"Hold this skin tight!"

"Oh, ok."

Now remember, my eyes are still closed. She proceeds to start doing what feels like hacking away at my face with a straight edge razor. Tears are streaming out of my eyes and my grip keeps loosening on the skin around my eyebrow making it sting more. I was thinking, "How long do I have to endure this and what the hell could she be doing??"

Finally I said, "That really hurts!"

"It's better," she said. She finished with the left brow and I opened my eyes and said "How are you doing that? It's horrible!" I was half expecting to see a chainsaw in her hand. Instead she had a piece of string wrapped around two fingers, and held in her teeth. She smiled. "Indian method. Rips out the whole root."

"Is that razor wire?" I asked. She grabbed my hand and showed me on my arm hair. I'm still not sure how she did it-- but it was like one of those rope tricks kids do. She pulled the string from different angles causing it to wrap around the hair and then -- rip. I was so amazed at the ingenuity I let her do the other brow. They do look pretty good. (Even if they're still sore.) I didn't know anything could be more painful than waxing. American women really shouldn't complain!

Please Don't Make Me Leave this Comfy Bed

When you wake up this exhausted-- it's a problem. I am absolutely beat after five days traveling around Northern India, jolting along Indian roads, riding smelly animals, meeting nearly 100 local entrepreneurs and experiencing some of the best hospitality I've had during the whole book project.

I have a lot in my head I want to write, both for TechCrunch at the book, but there are too many things and they're all yelling. So I'm going to give them another day to settle down. I'd love to give them that day sitting on a massage table somewhere or doing some Yoga. Unfortunately, I've got a pile of meetings today too. Tomorrow, I head to Bangalore.

Here are some pictures from our weekend in Jaipur:

 

 

About Those Elephant Rides

Yes, Vivek Wadhwa finally found me an elephant to ride. It wasn't as scary as I thought I'd be. Kind of like an amusement park ride that spits all over you. Pictures follow.

India's omnipresent "bling" as applied to an elephant:

"You're not going to trample me right, Mr. Elephant?"

 

Leaving the station...

 

...and Twittering about it

"Can I Call You Back? I'm on a Camel Right Now."

Vivek Wadhwa actually said that as we were riding camels today. Yes, the trend of amazing cell coverage in emerging markets while I can't get a signal in my living room continues. I am far too tired to write a more salient post than that. So here are some pictures of me and a camel named Raju.

Raju: "Sigh. Another American wants a ride."

 Note: I'm a little trepidatious about this whole camel thing at first...

 

Boarding all rows...

 

Raju takes a break. Exhausted from carrying me around.

 

Back on the camel.

 

And, you're done Raju. Drink up, pal. You've earned it.

 

Being on the camel wasn't really scary at all-- it was relaxing. We're supposed to be riding elephants today after a meet up with the Jaipur Chapter of TiE, an amazing group for connecting and supporting Indian entrepreneurs around the world.

I think the elephant will be scary.