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This is the latest in a series of posts related to career options developing in India which I started putting together for business school students and professionals seeking my advice.  Most interesting developments to report on are in venture capital, private equity, investment banking, and entrepreneurship.  The previous edition is here for those who missed it.

Venture Capital / Private Equity / Growth Equity

The Indian PE/VC scene is thriving as evidenced by the Ernst & Young round-up for the most recent quarter. All the fund raising of the past year has now led to a number of funds stepping up hiring at the junior levels but there continues to be an exodus of professionals at mid-to-senior levels.  As I reported recently, limited partners are very concerned about this churn and although hiring has picked up we are in a period of transition for the industry.

Before you dial the recruiters, you must consider a perceptible change in how teams are being built in India now.   Funds are now reportedly a lot less excited about candidates that do not already have several years of experience in India, a substantial deal sheet and the most important shift (especially at the senior most levels) is an expectation of exits.

In my opinion, the sector has become less attractive: even if you do break into this business, as valuations reach stratospheric levels, it has become harder for investment professionals to do good deals and generate returns for investors (and hence for themselves).

Investment Banking

Investment bankers have thrived as India Inc. continues to raise money from private and public markets and buy assets overseas.  They also serve foreign firms that are hunting for a toehold in the growing Indian market.    Hundreds of intermediary firms and investment banks have sprung up over the past few years and this robust marketplace has a broad spectrum of them:

• Local equity capital market bulwarks (Edelweiss, Motilal Oswal and JM Financial)
• Local upstarts (Avendus, Equirus, Centrum, etc.)
• Advisory arms of Indian banks (Kotak, ICICI, Yes Bank , etc.)
• Global bulge bracket firms (Credit Suisse, JP Morgan, etc.)
• Advisory arms of accounting firms (Ernst & Young, PWC, Deloitte and Grant Thornton)
• Prolific free-lancers who are deeply entrenched in local entrepreneur networks

• Credit bureaus: Experian and TRW
• Corporate information services: Dun & Bradstreet and Hoovers
• Ratings agencies: Moody’s and Morningstar
• News and pricing services: Reuters and Bloomberg

Over the past three years, I have come to realize that the information services sector in India is still very young to say the least.  The only established models are a couple of ratings bureaus (CRISIL and the new entrant, Highmark) and rudimentary pricing/news services for financial investors.

It is hard to imagine that the entire $1.3 Trillion Indian economy is supported by less than $200M worth of information services (by my estimate which includes the $140M of CRISIL revenues and the Indian components of global information providers).

As we look at the prospects of a $5 Trillion economy  in India over the next ten years, this anomaly surely has to correct itself.

Platform wars

• Nokia+Symbian: India still has a large installed base of smart/feature phones consuming data.  Although the death-knell for Symbian may have been sounded, for the foreseeable future, mobile apps in India cannot ignore it.
• Apple: Although iPhones and iPads get a lot more ink and attention, the reality is that a negligible fraction of the userbase is on iOS.
• Blackberry, Java, Android: all these platforms are significant but Android is growing fastest

Browsers vs. Apps:

• Where Apps win:  Usability is the *sole* driver of adoption, not technology enhancements (e.g. screen size, USB ports, 3G network, etc.).   Apps are better suited to deliver optimal experiences.  Browser experiences continue to suffer from lack of usability just like the failed promise of WAP’s first run 10+ years ago.  Apps can support next generation user-interfaces including local language speech, pre-integration between multiple apps (e.g. linking Yelp reviews to Google Maps and FourSquare).
• Where Apps lose: Lack of stickiness plagues apps; most downloaded apps are seldom used after a few attempts.  Major publishers favor the control that a mobile site offers, especially when it comes to ad-supported revenue models.

The Ecosystem

• Appstores aren’t working for India focused apps: the Apple appstore is the only one that has figured out how to get developers paid but unfortunately very few Indian users exist on their platform.  Android/Nokia/Microsoft need to get their act together.
• Development skills are scarce:  those that are available are working on outsourced app development projects for the US market.   This makes them hard to hire for apps focused on India where app revenues are likely to be much lower.
• Mobile payments are caught up in a regulatory quagmire.

Despite all the challenges, a number of interesting companies are betting their future on the development of the app world, both locally in India and globally.  Some of my more memorable conversations today:

• Telibrahma:  Apps that use “augmented reality” to enhance the effectiveness of traditional advertising media
• TrackEveryCoin:  Personal finance management
• Infosys Flypp: a white-labeled AppStore platform
• July Systems: mobility middleware for media businesses and enterprises
• Guruji: a mobile ad network serving (over 1.5B impressions a month)
• InMobi: claims to be the largest independent mobile ad network (over 40B impressions a month)

Hangzhou is the tenth largest city in China (purportedly), scenically set on the Yangtze River, historically significant for having been a seat of power, and has developed as the equivalent of the Hamptons for wealthy Shanghainese to use for weekend homes.   More recently it has grown into a high-tech hub.

There were symbols of affluence everywhere – Lamborghini and Ashton Martin cars driven by young men and women from American style coffeeshops to villas dotting West Lake.  In short, this was surely not representative of mainstream China!   But yet my experiences here were powerful and enlightening.

Infrastructure
China’s much touted world-class infrastructure was in evidence everywhere.   Highways, bridges, high-speed rail and airports are being designed to be not just world class but the world’s best in class.  What is less obvious is how these projects get executed.

• Capital: To begin with, the government has made capital “freely” available.  As long as competent developers show up and bid to develop a project, government backed funding schemes make capital available at almost no cost.  There are strong incentives for developers to do a good job.
• Execution: We met property developers who had executed large scale commercial projects (like a mall) from conception to full-scale operations in less than 20 months
• Red tape: In India, it takes about 80 licenses to execute a typical construction project.  China has whittled this down to less than 20; getting these licenses can be cumbersome but it is a predictable, well-understood process.
• Work ethic: The lay person is industrious, and singularly focused on doing his/her job well (I am generalizing of course).

Generational Change

• Consumption: although luxury brands were conspicuous in the city, there was a palpable trend among the youth towards more western-style consumption of small luxuries like ready to wear clothes, eating out, partying, etc.  Hangzhou has  a disproportionate number of luxury cars, but the automobile has now displaced the bicycle as the symbol of China’s mobility.
• Technology was evident everywhere.  Mobile phones are a mainstay for voice and data services.  But computers, wi-fi, electronic signage, cable and satellite services, Imax screens, automation of civic services, etc., are taken for granted.
• Gastronomic preferences are changing.  I had several memorable meals around the city.  There is more acceptance of non-Chinese food of course but even within their own cuisines, affluence is prompting the locals to eat more meat, seafood and vegetables.  Most “special ” meals rarely include traditional noodle or rice fillers.
• “Westernization” of the youth was inevitable but local traditions endure.  Restaurants and nightclubs are replete with NBA logos, baseball caps worn backwards, rap music, and hip-hop dance moves; I could have been in any city in the world, except for the local touches.   We played a very local drinking game with friendly strangers dressed in western couture.  Dice were rolled to determine who drinks from a pitcher of top-shelf Scotch laced with sweetened iced-tea, and as Eminem lyrics drowned out any possible conversation, “Google Translate” on our mobile phones allowed us to exchange pleasantries across the language divide.  All this along with the food accompaniment of choice when drinking in this part of China: a platter of sliced melons, cucumbers,  and spiced duck-tongue.

Entrepreneurs
I was fortunate to meet some world class entrepreneurs in China.  They displayed the same traits I have seen in America, Europe or India: vision, charismatic leadership, an appetite for risk, and a strong drive to “create.”  A visit to the Alibaba campus was particularly inspiring; we were early investors in the business that Jack Ma has built to be a lifeline of the Chinese economy.

From China I came away impressed (and awed) – by a nation obsessed with progress and aspiring to world domination in the next few decades.  As I have previously opined, some would like to compare India to China but for some years now it will remain a game of catch up.

• On an aggregate basis LPs continue to have an appetite for India and China as they seek GDP and consumption led growth but their concerns are growing.
• On China, they are overweight relative to traditional allocations, but with some trepidation as the specter of  inflation and exchange rate policy changes looms.  Even more worrying is the rise of domestic (RMB) funds which could disturb the level playing field.
• On India, they are slightly underweight relative to recommended allocations.   There is continuing concern about governance, currency and inflation issues.   However, the one solid aspect of investing in India has been backing investment teams with long histories of working together and delivering results.  That has changed recently: the breakaway funds launched by some heavyweights (Ajay Relan left CVCI, Renuka Ramnath left ICICI-Ventures, Rajesh Khanna left Warburg Pincus, just to name a few) have caused more concern than the geo-politico-economic factors that previously bothered investors;  I heard this lament even before news of the recent Sequoia decapitation broke last week.
• Europe and US are looking up as the public markets have bounced back and VCs/PEs have seen some exits recently.
• Sector focused funds seem to be slightly out of favor: recall the frenzy for cleantech funds of recent vintage? Not so much fun anymore.

Team, strategy, stage, and geography (in that order) seem to be priorities that indicate a return to basics.

[Note:  These notes are heavily paraphrased, and quotes may not be attributed accurately.   More pictures below.]

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The panelists were:

• David Weiden of Khosla Ventures
• Matt Murphy of Kleiner Perkins Caufield & Byers (KPCB) where he manages the iFund, a joint initiative with Apple
• Martin Gibson of Accel Partners, and
• Roberto Bonanzinga of Balderton Capital (formerly  Benchmark Capital in Europe)

Q. The world is moving towards apps and legions of developers are clamoring for our attention.   How do apps get noticed?
Matt:   Clearly Apple and Google do a good job promoting applications on their marketplaces, but operators can also help app developers get noticed.   Getting promoted there is not easy but we also have ad networks now promoting apps, so there is always that option.

Q. How are location-based services working?
Roberto:  Location based services have been spoken about for many years but we can now see them working at least in two dimensions.  The “checking in” paradigm is working well for so many companies and they are now able to monetize location.   Another that is beginning to look up is the tie-in to location that “augmented reality” applications offer.

Q. What is going on with mobile payments and  mobile wallets?
David: Buying goods consumed on the phone is in place already.  But as transactions move to being more off the phone, operators will likely get left out of this.  It is already visible with folks like Visa demonstrating NFC payments here at the show which runs around the operator completely.
Matt:  A fight over the secure element in NFC chips will likely stifle innovation.  I prefer  iPhone-like integration of payments into the phone; the iPhone app market  gets 7x the conversion of Android from free to paid apps.
Others:  Mobile payments are finally beginning to take root and more so in the developing markets where models like mPesa are working well.

Q. How do we entrepreneurs and start-ups work with operators?
Roberto:  Operators need to make it easier for us to work with them.   Yes, we need technical APIs into their systems, but we also need an “organizational API” which will allow us to work with them for mutual benefit.

Q. Is Machine-to-Machine (M2M) communication going to be big?
David:  The idea of machine to machine communication sounds cool but there are still too many unknowns.   Smartgrid is cool now (where machines communicate their power needs to the grid and the grid controls appliances and hence consumption directly) but how much value is it going to create is unknown.   What I like to see is the use of M2M to augment our current systems.  For example, mHealth could see more penetration of iPads for point of care applications.   Similarly a device called Square makes iPads behave like Point of Sale machines.   I do think there are M2M opportunities in payments and object tracking.
Martin: I agree with David that there are too many unknowns  but for a startup “fail fast” is important (i.e. experiment with business models but abandon those that do not work very quickly).   This will help us overcome the uncertainty.  And yes Enterprises are buying into iPad in a big way and using it in all kinds of applications we could not have imagined when the device was launched.

Q. What about Google and Apple? These are two companies that are new to the mobile space and are now dominating it.  Ho w can/will operators respond?
David: Operators can’t really compete except perhaps payments.
Roberto: The largest social network in the recent past was Vodafone but they lost control over the address book.  And now others are building very cool applications centered on the address book.

Q. Is Mobile Advertising working?
Matt: eCPMs are still low but we are now getting much better at targeting for mobile ads which should improve yields
Roberto: Mobile ads need to use mobility features like context, location, history, etc. else they will not be effective.
David: Finally mobile advertising make sense now when video is possible.  How much can you convey in text messages or display ads?

Q. How can operators be more than the bit pipe?
(I was surprised that we could not get any good answers from the panel on this one).

Q. How about Television?
Although everybody has been forecasting the death of TV for years now, TV is surprisingly still around, and we are watching many more hours of it than we did ten years ago.   How we consume it has surely changed: in addition to broadcast, satellite and cable, services like Hulu and Netflix are a big part of our lives.    So consumption of TV on mobile is a phenomenon likely to grow.   We already see that cable TV is being delivered to iPads.  It is important to remember that “Cable” is based on content and less on access.  So the core business of Comcast and Time Warner may not change much regardless of where the content gets delivered.

The forum ended with a networking event that capped off a great day of discussions held under the impressive dome of the Palau Nacional de Montjuic.

Fortunately, I spent some quality time with CXOs of network equipment makers and operators and a few things I learned:

• Networks evolving slowly: 3G and 4G rollouts are well on their way but LTE is what keeps operators busy.   I found no surprises in their plans for spectrum, radio or base station equipment plans.
• Continued focus on cost reductions: There was more of the usual talk about cost reduction in low ARPU countries (South Asia, Africa) where diesel continues to be over 25% of the opex per base station.   I met several companies that offer towers supported by solar or fuel cells
• Networks are getting choked: a surge in mobile data traffic has sent capacity planners into a tizzy. Bandwidth consumption is up 4x or more over the past two years now and the network core is now being upgraded to 40G in a hurry.  One Indian operator told me that key trunks in India are also being upgraded to 40G, something I had assumed would not happen until 2014.
• Data traffic presents a conundrum: the operators are not entirely excited about the traffic increase because the bandwidth consumption boom has not been accompanied by a corresponding increase in revenues or contribution margins.
• Operators are fighting to stay relevant: they are struggling for ideas amid a new reality where their ownership of the customer is being questioned.  Most transactions originating on the phone get closed off-deck when consumers buy music, apps, or in-game consumables directly from Apple or a third-party.
• Payments is the next battlefront: operators have long held the belief that mobile payments was their game to lose and this year they expressed renewed optimism about it.  However, they seem to be losing their grip on that too as banks, Visa, Amex and handset makers have all demonstrated workarounds which would cut out the operators completely.  Although there is much excitement around NFC, I think there is a battle brewing for control of the secure element in it which will be similar to what we saw when the first smartcard based payment systems were launched.   Back then, issuing banks, Visa, Mastercard, Amex, and operators all wanted to make this piece of real estate their own and refused to cede control to others for running multiple applications.  A business model for all to win did not emerge back then and that is a great challenge again now.   As a positive, the chicken-and-egg run around of mobile payment infrastructure to interoperate with mobile payment enabled devices will likely end this year or next as more devices ship with NFC built in.
• For now operators are a bit-pipe: one thing seems to be certain, unlimited data plans are out of favor in the US and Europe and definitely headed that way in other parts of the world.

Most of the day was spent working with investors and entrepreneurs in the mobile ecosystem (separate post coming up) but I did go back to the exhibit halls to capture some key takeaways.

1. Everybody was present: every  major operator, device maker, equipment maker, software vendor that mattered  had a booth/stand or was walking the aisles and hobnobbing at parties after hours.
2. You can be there without being there: Conspicuous by their absence were the major forces in the world of mobile today:  Google and Apple. However, the highlights of the show were guerilla tactics employed by Android (Google’s mobile OS) and a cool party they threw off campus.  They completely overwhelmed the buzz at the event by launching collectible Android pins that became the rage among attendees.   And yes, Eric Schmidt of Google did deliver a keynote.  Apple was not there in body but was everywhere in spirit: in conversations, in keynotes, it was impossible to ignore their influence on the mobile ecosystem.
3. The Chinese are coming, if not already here, from every direction!  In network equipment, Huawei and ZTE  no longer seem to worry about Cisco or Nokia-Siemens Networks or Alcalu whose lunch they have been eating for a while.  They are fighting each other hard (one company’s inebriated executive was asking me for the scoop on how the other was doing in India).    Their showing in devices and terminals was impressive.  The Schenzhen contingent was huge and they showcased everything from their “kill Nokia” handsets to Kindle quality e-book readers to an exact clone of Microsoft’s new Kinect technology which allows XBox users to control their game without Wii like remotes.
4. The Japanese have not given up yet. The Docomo team and their partner device makers showcased some very cool technologies and continue to demonstrate leadership.   One particularly cool application had a 3D phone which provided 3D tactile feedback inches away from the screen.   I could “feel” a T-Rex jump out at my stylus when it was near the phone with a mix of intensity, direction and surprise that makes it very powerful for gaming and multi-media consumption in general.
5. The talk of the show: An obscure Russian IT company called CBoss put up a looping dance show featuring up to eight fashion models.   Nobody at the show knew what CBoss does but the booth attracted huge  crowds and probably fed a lot of traffic into the Microsoft stand across the aisle(watch a video here).

Other pictures to follow-up from my post yesterday on key trends and devices at the show:

• An under-impressive Samsung Galaxy tab in 10.1″ form factor.
• A very impressive Blackberry Playbook, with a decent keypad, and a better browser than they have ever showcased.  A dearth of apps will be its Achille’s heel for a while.

The most palpable excitement at MWC this year is around the next generation of smart phones and tablets.  As a backdrop to this note, it may help to check out this incredibly honest letter from the CEO of Nokia to his employees last week (full text here).

The big stories this year:

1. Windows phone 7 is real. It works smoothly and fast on several devices I tested it on (HTC, LG, Samsung, notably didn’t see a Nokia). It has an excellent user interface (borrows the best of iPhone and Android in places but has three key concepts underlying it which makes it powerful and will likely be emulated by the others:
   • Active tiles: harkens back to Windows Active Desktop where the wallpaper gets updated to reflect information you care about. Here each tile (which could encompass a hub – more on that below – or an app) displays information on the tile itself. So a stock ticker tile could turn green or red, an email tile could display the number of new messages and change colors etc. So you do not have to enter a tile or hub unless something is going on there.
   • Hubs - The OS is clustered around a few hubs of activity: the address book is your social hub and ties nicely with all messaging and social network posts for each contact. Similarly gaming is a hub and connects well with Xbox and online profiles for games you play on the device.
   • Pivots: Instead of tree like menus for applications, the hubs feature so called “pivots” which I am still trying to understand but intuitively appear to be different ways of getting to information. So you can pivot from a game to your avatar and from there to avatars for your friends who also play the same game and another pivot would put you in your address book.

   My sense is that Windows 7 will become a contender as it will serve the niche Microsoft centric folks who already own an Xbox and prefer Outlook to Gmail and Bing to Google really well. The app strategy will determine how much of a challenger they become to Apple/Google.

2. Features are being cranked up yet another notch: The phones I played with this year make my 4 month old Samsung Galaxy 3 (which I thought was real fast) look very sluggish. They are sensitive to network performance too but here in Spain they seem to perform really well on 3G networks. They are real multi-media devices now: Nvidia showcased cutting edge graphics, HD video and Dolby played real 5.1 hi def sound surround from touch phones
3. NFC has caught the interface buzz this year. Several handset and chipset vendors showcased NFC offerings. More importantly payment networks (VISA) and POS manufacturers (Vivotech) threw their weight behind NFC showcasing working platforms. While devices with built in NFC are on the way, several clip ons to existing phones and micro-SD solutions are already available.
4. The Tablet revolution continues: I got my hands on the blackberry playbook (pictures to come later). This is a sweet 7″ device with a very intuitive interface that breaks away from the button-down corporate feel of their email devices. However it does allow a bluetooth tether to your handheld blackberry to share emails and documents between devices. Although it feels solidly like a consumer device rather than a corporate one, I still cannot see why I would buy this without the full app support that Apple/Android provide. It also does not solve the problem of my corporate blackberry being locked down. And the playbook lacks 3G support for now (huh?).  This year is going to be see a battle of the iPad2 vs. an army of 7″ Android/Blackberry devices.

The conference is set on the massive grounds of the National Palace in Barcelona (called the Fira) and covering it takes several kilometers of walking around so there is more to come on the subject.