U.S. financiers in India have a tortured history of mapping out grand moneymaking schemes, only to be humbled by the country's powerful bureaucrats and iffy infrastructure. Now the allure of the world's fourth-largest economy--this time powered by a booming b-to-b sector--is bringing them back.
Recent moves by Insight Capital Partners and Merrill Lynch & Co., both of New York, underscore the resurgence of interest in the subcontinent.
Insight, a b-to-b venture capital firm, last month established ConnectCapital, an incubator that will invest up to $100 million a year in Indian technology companies. Merrill Lynch, meanwhile, has introduced a portal aimed at its Indian corporate clients, making it the first major U.S. financial company to do so.
What remains to be seen is whether India's legendary red tape will again hold U.S. financiers back.
ConnectCapital enters India with powerful U.S. backing. It is a consortium of Insight Capital, Microsoft Corp., i2 Technologies Inc., MSD Capital and Ramanan Raghavendran, CEO of ConnectCapital and an Insight special partner.
The idea is that Insight and MSD will provide financial acumen, while Microsoft and i2 will chip in technology and marketing know-how. All will supply cash to the venture. Raghavendran and ConnectCapital's seven--soon to be 15--principals in India will bring it all together.
ConnectCapital will invest only in India-based firms that serve U.S. and global companies. Its dual New York and Mumbai headquarters are meant to help make this model work, said Raghavendran, a McKinsey & Co. veteran.
ConnectCapital will target software, IT and remote services companies.
i2 execs hope the companies that ConnectCapital funds will use its software, said Manoj Gupta, i2's manager-product development group.
Microsoft has a different goal. "There is a very strong talent pool in India, and this is primarily why we went there," said Mark Thomas, a spokesman.
Indeed, India's tech work force--along with the lower cost of doing business in the country--was a big draw for ConnectCapital, Raghavendran said. "You could do it in, say, Detroit, or in [Mumbai] for half the cost."
Merrill Lynch, through its Mumbai-based DSP Merrill Lynch Ltd., plans to provide Internet account access and Web-based transactions for its India corporate clients within the coming year, said Pradeep Dokania, exec VP of the unit. Merrill Lynch's is a bold plan for India, where most financial company's Web sites are essentially brochure ware (as is DSP Merrill's current venue, launched in November 1999). "Net enablement for businesses is becoming a must rather than an option," he said.
There's a market for rollouts such as DSP Merrill's, said Rohit Bhagat, an e-commerce partner with Boston Consulting Group, who previously headed up the firm's India practice. "There is tremendous opportunity in the b-to-b space. If you walk through an office in India, most desktops are connected to the Internet," he said.
But India's poverty and limited foundation have tended to hamper major business initiatives. Tele-communications infrastructure, while improving through cable buildouts, is spotty, and calls often do not go through. And while New Delhi's bureaucrats are currently fast-tracking legislation to ease foreign tech investment, enforcement across the large country is no sure thing.
Still, those interviewed for this story were universally sanguine that India's new tech elite can make this latest business push work. "There is a vigor in India like what you've seen in Silicon Valley," Bhagat said. "It will not be reversed short of some economic catastrophe."