Colloquium, V Shivram, March 30, 2007
Managing Partner, The Hit Factory
The Mind of an Entrepreneur
On 30th March 2007, Mr. Shivram visited the beautiful campus of ASB. We students were told that he was going to talk on “Entrepreneurship.” This definitely did not prepare us for the amazing journey of starting, acquiring, and merging companies to help new companies grow that we were taken through. It was an amazing two hours of learning through the great experiences recounted by Mr. Shivram. The following is a gist of the talk given by him.
He started of by saying that he was an alumnus of BITS, Pilani and IIM, from where he went to Accenture, Bombay and then to London. There he learned and worked meticulously for three years. During the 1996-97 he said there was this trend for companies to use software that could help integrate the various systems. They were spending billions on this and Mr. Shivram smelled an opportunity. He said that he felt sure there was potential to earn lots of money if he entered this business and he was surer because it was not just him but several VC’s (Venture Capitalists) who were financing companies that were developing and supplying this Enterprise Application Integration software (EAI), which was suddenly the buzzword in the corporate world.
He took a step by step approach to enter the business:
1. He first found out which all companies were being funded for EAI projects and spoke to their respective CEO’s.
2. He made one of the companies Activ Software agree to sign a contract wherein he would build a product for the company which he would own, and would also get royalty every time the product sold but the company could brand the product in its own name.
3. This was a great pot of fortune for Mr. Shivram as he got all the resources of the company to develop the EAI software that was bound to be a hit.
4. The company earned lots of profit and so did Mr. Shivram as he earned royalty whenever the product sold. Also as soon as he realized the company sold a product, he would go to the customer who bought the software and tell him that his firm ran consultancy services in case of any defect or help required with the product.
5. His consultancy company was doing great work in terms of satisfaction for clients and profits for the firm. He had earned a whooping $7 million with a 60% turnover when he sold off the company for a big amount. And lucky for him it was somewhat the end of the EAI boom.
By this time as the ASB students were getting excited to know more, lots of questions were being asked. One of the questions of interest was as to how can one know when to exit a business and why did Mr. Shivram sell of his profitable venture?
In answer Mr. Shivram said that whether a person exits his venture or not depends on several factors:
1. If a person believes that the business will continue till eternity profitably then he won’t exit.
2. If he has used funds of the investor and if they are pressing for returns and threatening to take back funds he would want to exit as there would be need for funds.
3. The entrepreneur’s own attitude- whether he is a risk taker, risk neutral or a risk averse person etc.
And as an answer to why he exit his successful venture he said:
“It takes great will power to walk out of a successful venture you built yourself”, but he did so because somewhere he was too tired to soldier on with the venture by himself. He believed the full potential of his venture required the strong backing of a bigger firm, and there were interested firms ready to pay a good value for his firm. And since the capital markets were very volatile and there was a high degree of uncertainty in the environment, he thought it was sensible to make hay while the sun was still shining. He also had the power to make the call whether he wanted to sell off the venture, as he owned 90% of the company and the employees created no troubles. The recession economy made them move away to different places and he stayed on for a year with his company after it was sold off.
Another interesting question asked was what makes a VC more capable than an entrepreneur to judge which idea holds more scope and potential and how did Mr. Shivram as a VC know which companies to finance?
Mr. Shivram said that every person knows how to do his business and is generally the best with his own. A VC’s business is to judge the profitability and feasibility of various ideas and hence their knowledge, experience and the intuition developed makes them more capable.
As to how he judged ideas he said, there are a few points every VC checks:
1. The team behind the idea
2. The idea itself
3. The environment for the idea
4. Profitability of the idea
However it is practically impossible to find all these when people with idea come to you, sometimes the people are great but their idea holds no profit or future and some times the idea is great but the people behind it are impossible to work with, and sometimes it is just a gut feeling that the idea has potential though the environment may not support it or it may not seem profitable.
Mr. Shivram then spoke about how he hedged his risks when asked by an inquisitive finance student. He said that he was in the business where risk was there no matter what you did, as you were playing with new ideas whose market was unexplored in most cases. But he said they took up only those ideas in which they truly believed there was some potential, and spent their time and money heavily on it and promoted it till it was spotted by a bigger VC who was ready to partner the idea and thus share the risk.
The 2 hours were nearly up… that’s what the watch said at least, but we students were enjoying the learning so much that we were allowed one last question. It was a simple yet relevant question as to whether Mr. Shivram’s firm developed in-house ideas or were they just firm financing profitable ideas?
He said there was a process called incubation wherein in-house ideas were developed. But they did not encourage them much because the company’s hands were always full with other projects. But yes he told us that, when great people came with not so great ideas to them, they would go back to some of these great people and ask them whether they would work on the project the company assigned. After all it is difficult to find people who are excellent in their field.
Megha Agarwal
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