Managing your Funds. The Quantum Jump.

Dayal’s Quantum Mutual does not hire distributors to reach out to the public. It is the first fund house in India to offer services through informal channels such as the internet and word-of-mouth.

No banker or broker will ever advise you to buy the mutual funds that he manages. Actually there is a good chance, in case you tell your broker that you specifically want to buy them, he will strongly advise you against it. But Ajit Dayal is not your average asset manager. And if he succeeds in his mission, history will remember him as the man who changed the way mutual funds are sold in the country. 

India has over 30 asset management companies, each falling over the other to grab the retail investor’s money. Over the years, they have been influencing distributors (bankers and brokers) to sell their products to gullible investors. Things have turned so bad these days — distributors are calling the shots and routinely push products to earn that extra bit of commission from the asset management companies. 

But Ajit Dayal’s Quantum Mutual does not hire the services of distributors in reaching out to the investing public. It is, in fact, the first fund house in India to offer services through channels like the internet, to reach the investor directly. This not only eliminates the possibility of distributor misselling, but also ensures that not a single penny of your investment is spent on the distributor fees. As a matter of fact, it is invested in the market, helping you earn better returns. 

How It All Began 

The story behind Quantum Mutual goes back to late 2005, when after getting permission from Sebi to start his own AMC, Ajit Dayal met several distributors to create awareness about his funds. But he was shocked to see them put forth ‘a pricing sheet’. For 6% commission, you’ll get Rs 6,000 crore, for 5%, Rs 500 crore and so on, distributors told him. “Without bothering to check whether a product is suitable for investors, they came up with a sliding fee structure,” reminisces Mr Dayal, who is one of the first stock analysts and investment managers of the post 1991 era. “But who is going to pay for all this?” he asked them. 

The last straw came when Mr Dayal went to a senior broker and asked him to recommend his funds to investors, but refused to pay him the hefty commission that he demanded. “We make elephants in the industry dance to our tune, you are just an ant,” thundered the broker. The decision was made. 

Ethics First 

Mr Dayal tells us that in his long career in the financial markets, he and his team always believed in ethical and unbiased practices, where people should get no more than a fair share of business. As a matter of fact, he had first entered the world of finance as he thought it was the least corrupt service industry, especially because there were no licences. 

“So we decided to go for the direct-to-investor approach. We believe that investors should have the choice to invest, without paying the intermediaries,” he says. Today, the firm has its headquarters (and the only branch) in Mumbai. It accepts both online and offline applications. 

The business is loosely modelled on the lines of Vanguard Funds in the US. While all other fund houses in US also employ distributors to sell their products (a la India), Vanguard is a no-load fund that reaches it investors directly. In an industry which has over 10 trillion dollars in assets, Vanguard accounts for a tenth part and is the second largest fund house in the country. 

A Long Journey 

Currently, Quantum Mutual has only Rs 70 crore as its corpus, although it manages about Rs 400 crore for several foreign funds. With a single equity scheme (which we must say is doing well), there is not much to boast about. 

However, the low cost technology that the fund company employs has meant that the break-even for the company has declined dramatically. To put this in perspective — last year, Ernst & Young, a consulting firm, said an AMC would need Rs 9,000 crore and 30 branches to break even. Things are a lot easier for Quantum which only relies on word-of-mouth and referrals for publicity, not huge billboard adverts. 

“It took Vanguard decades to have a sizeable presence in the US. With faster technology today, we should be able to make it in next two or three years,” says Mr Dayal. We hope too. The still evolving Indian asset management industry requires heroes like Mr Dayal.

Mr Arjun C. Marphatia, CEO, Quantum Mutual Fund.

Excerpts from an Interview with the CEO.

With no conventional distributors, how will you sell your funds?

It remains a challenge in the backdrop of a system marked by frenzied activity on the part of distribution outfits.

What we have done is simple: distribution commissions have been kept out, so investors are sure that more of their allocation is being put to use.

Clearly, we are urging them to come to us directly.

This also means that they must break the old habit of going through intermediaries. And, as you know, this habit is really old, considering the history of distribution of savings and investment products in this country.

Is it a divergence from the usual industry practice?

It is. It is not that distributors do not bridge the gap between mutual funds and investors. But in the current format, their heavy presence results in certain costs.

This comes in the shape of commissions, including trail commissions, which are commonly paid to them.

This has become the norm in our market, a norm that is probably not paid the kind of attention it deserves. It is as if that the market has taken it for granted.

Your equity fund professes to appeal to the longer term investor...

Yes, we want unit holders to stay with us.

Quantum Long Term Equity Fund will not take sector calls. Instead, the fund manager's focus will be on specific stocks, which may bring about particular sector weightages.

Let me point out here that the portfolio should ideally have 25-40 stocks.

At the moment it has about 15 stocks, including such heavyweights as TCS and ONGC.

Mind you, we do charge a four-per cent exit load if an investor pulls out before six months.

This becomes nil if he or she stays on for a full two years.

You have not been able to invest much yet. How do you explain this?

It is true that over 60 per cent of the fund's corpus is parked in liquid assets.

Plainly, we are waiting for the right opportunities.

As to exactly when such opportunities will crop up is a matter that should not be speculated on.

The point is, we expect corrections in a few segments. And in a number of cases, significant value is yet to be unlocked.

Take, for instance, a company like Bajaj Auto, which should soon start to derive considerable value from its investment in its insurance joint venture.

Or consider Aditya Birla Nuvo, which has a latent telecom angle to it.

What are you introducing next?

We may consider a balanced fund and a tax-saving product.

In future too we will stick to our basic approach while trying to provide higher risk-adjusted returns.

It should be remembered that a bullish market such as this will easily eclipse the cost of collecting money through high-decibel NFOs.

Managing your Finances: The Money Man.

Managing The Money Men

Money, it’s a crime. Share it fairly but don’t take a slice of my pie —Pink Floyd.

They might as well have been singing this song for professional investors who invest seed capital in businesses that are now ready to bloom. But to bloom, these businesses need more capital and these investors are not excited about it as they do not want to get diluted and lose control. They also don’t want professional investors into the business as it dilutes their stakes. This affects the business models and many times companies with good business models simply fold up.

RK Reddy, when he moved out of Fractal Analytics blamed the fallout on this phenomenon. “It is happening everywhere in India. Getting funding for new ventures for young businessmen is not easy in this country. It is not like the US where even venture capitalist help you in your funding requirements before you are even a graduate. India in this respect still has a long way to go,” he says. Mr Reddy is the co-founder of Fractal Analytics who moved out to start on his own along with another partner due to the difference with the investor in Fractal Analytics.

When Mr Reddy passed out of IIM-A, he and his friends thought getting professional investors to invest in their ideas will be easy. They were from the same batch of IIM-A and had enough work experience to get seed capital. But that was easier said than done. He and his friends had a tough time talking to investors and then finally ended up with a professional investor who invested the initial seed capital to start Fractal Analytics. No venture capital or institutional investor was interested in putting the seed capital.

Another services firm founded by a group of professionalsturned-entrepreneurs thought they had solved their one of the most pressing problems when they finally found a business group willing to fund their start-up. But like any relationship that goes through different phases, this one hit a rough patch a couple of years into its existence. On one hand the entrepreneurs had everything they asked for — investors who were on the board but did not interfere in the daily functioning and the strategic decisions were taken by the management team. “This is one of the biggest nightmare for an entrepreneur. But we were very lucky in this,” recollects one of the founder-promoters.

However, on the other hand, a passive investor was not the ideal recipe for growth. As the entrepreneurs soon found out as they grew bigger. Now they needed more management bandwidth and from professionals who could bring in more than money to the table.

The choice was a difficult one. Either the founders or the investors had to dilute their stake and make a compromise. Expectedly, the investors were unwilling to dilute their holdings. At this stage, the company could’ve gone the Fractal way with the founding team and the investors going different ways, and one of the members of the founding team chose to do exactly that. Frustrated by the slow pace of growth when its peers where growing much faster through acquisitions, one of the members moved out.

A solution was reached a year and many months later when the investors finally agreed to sell part of their stake and the company was able to get in an investor who would take the firm to the next level. “Had we done this earlier, we could’ve probably grown much faster. But sometimes you simply have no choice but to be patient. Indian culture is different from the American culture,” says one of the founders who stayed on.

Venture capital firms face these problems on a regular basis where they see a clear conflict between the promoter and the investor. These firms though invest in companies at the seed capital levels, they do it only if that sector is in vogue. In many cases these firms do not want to take a contrarian view and prefer to go with the trend. “Many venture capital firms will not have issues investing into a firm that is into social networking but will not invest into a business that is based on knowledge or hard skills,” says an entrepreneur who has moved out of a firm to join the competitor.

VCs on the other hand do not like to be tagged based on trends or any other parameters. Each and every venture capital firm operates differently and works in terms of domain expertise. If they do not understand the business they simply want to avoid the investment. In general they prefer businesses that are already on a growth path than be the seed investor.

“Individual investors work well when it comes to seed capital or absolute start-ups. Their requirements and expectations are different.

But when the company is on a growth path, institutional investors work better for the firm. These new investors are in a better position to help and guide the firm as compared to individual investors,” says Alok Mittal of Cannan partners, a firm that provides venture capital. When there is a VC there is a healthy board process which is absent in the case of an individual professional investor. Getting the VC funding at initial levels or seed levels is not easy in a country like India. Good business models will suffer in the hands of individual investors and this may kill entrepreneurship in India. Though VCs are saying that they are looking at good business models which require seed capital, these firms are more interested in how fast a company can be taken public and latch on to market capitalisations while the trend is hot.

Like Mr Reddy says: “Before I start something on my own, I will first look at the quality of investor. Everything else comes later.”

Article Resource:
The article appeared in The Economic Times, Mumbai in one of their successful columns on Entrepreneurship/Start-ups called "Starship Enterprise".

Making Money with the Click of a Mouse.

MAKING MONEY WITH THE CLICK OF A MOUSE

Ads remain the main model of making money from the Net. But, now the advertiser is demanding more tangible benefits from the site owner

IN THE heady days of the dotcom bubble, when the flow of venture capital burst the plumbing, online businesses started in every street corner with the idea of deriving revenues from advertisements. To say that ads will bring in the money was easier than designing a cash flow model for the raw business. Though the ensuing bust thankfully put an end to such websites, Internet businesses and online advertising have continued to evolve. Today, at least half a dozen portals and websites in India have demonstrated that successful business models can be built around advertisement revenues. And some estimate online promotional spending has grown 100 times in the last seven years. Good time to toe the line? Yes... well, may be.

Industry players say the Internet industry in India as well as the advertisers who patronise it have matured, leaving room for only serious players to succeed. It will be a hard and tortuous path to build a sustainable revenue flow and it takes more than a mere IP address to get advertisements. While there are ventures that offer a unique value to customers and thus justify the ad spend on them, there are many who are in the bandwagon just for the heck of it and run the risk of failure.

From bloggers leveraging Google AdSense to techies running YouTube clones to entrepreneurs innovating ever newer online business models, a lot of people are starting web ventures depending on advertisement spending as their principal revenue source. Take Bloozler, for instance. It is a tool that puts blog posts into an e-paper form, story placements prioritised on the basis of user ratings. Or, consider Vakow, a web and mobile-based service dedicated to forwarded text messages. Bloggers and SMS forwarding users are not likely to be vigorously interested in paying subscription fees and these unique ideas must depend on online advertising to have a chance at becoming big businesses.

Yet, go online and you would find several me-too websites that are also tapping the ad world. There are at least 20 ‘Indian’ YouTubes — dekhona, meravideo, videochutney, videocurry, merovideo, punjabitube and so on. Most seem to be driven by dreams high valuations like the $1.6 billion Google dished out for the video sharing service it bought.

In India as in many places else, advertising is the most popular revenue model for Internet businesses. Subscriptions and commissions on transactions are difficult to enforce or represent a much smaller potential market. The new rules of the game require the website owner to present a tangible benefit to the advertiser and be accountable for results. Industry experts list a few of the rules as most crucial:

DEFINE AUDIENCE

Too many online businesses try to capture as many visitors as possible and end up diluting the appeal. A successful website clearly defines its audience and is able to sub-divide its visitors into packages for advertisers. These subgroups are redirected to pages that suit both sides. “The entrepreneur needs to know clearly who his audience is, what is it that he is providing and how is he going to source it… Service the audience right and everything else is a byproduct,” says Dinesh Wadhawan, MD and CEO of Times Internet.

Sometimes, the solutions purportedly offered by online businesses is fuzzy and advertisers don't see a point in communicating through them. “People are trying to fix problems that the consumers don’t even know about,” says Suvir Sajan of Nexus India Capital. “They first come out with a solution and then try to educate people about the problem. For instance, we were once presented with the idea of a start-up that came up with a single page to manage their whole lives. My question to them was ‘why would anyone want to use that?’ After all it isn’t so difficult to check your mail on one site and news on another.”

KEEP ADVERTISER IN MIND

Websites often create content that cannot be matched with relevant advertisements within a page and presented to the reader. Often, they do not have content that go along with the advertisements in hand. The online property must be designed not only with the readers in mind, but also factor in the interests of advertisers, experts say. Advertisers can be fastidious. “They want to see that the content, the look and feel of the pages goes with their brand. For instance, the page which suits an Asian Paints ad, will be very different from one that suits Goldman Sachs,” says Pratap Bose, CEO of Ogilvy and Mather. In websites offering a rainbow of content, classification and clear separation of modules will be crucial to attract advertisers.
Sulekha.com, which began during the dotcom years and survived to tell the tale, suggests a modular approach. “For instance, if you clearly categorise the film section, or the book section or the classified section, this would be beneficial for the advertiser,” says its founder Satya Prabhakar. This will be particularly useful for small businesses, because it is cost-effective for them to advertise online than in conventional media. Leverage this advantage.

BE ACCOUNTABLE

At the end of the day, advertisers want their ad spend to convert into business transactions. An online business owner must actively engage to lead this conversion. Gone are the times when advertisers went by the number of visits, or eyeballs as they called it. Now, they insist on measuring the time spent on each page and the number of unique users. “The industry has gotten more systematic. Advertisers now have the ability to track clicks, clickthrough leads, clickthrough conversions and transactions. this has made the industry more accountable,” Mr Prabhakar says.

BUILD TRAFFIC

The raw material for an online business trying to attract advertisers is the traffic. Content business is not about selling content to readers, but selling audiences to advertisers. “Worry about advertising after building the traffic. But the first rule there is to create a solution that solves a lot of people’s problems,” Rajesh Jain, who started Netcore, says.
Traffic won’t come if visitors don’t see value in coming back. Many entrepreneurs have tried to ape models that worked abroad and build copycat sites for Indians. These have now fallen by the way side. Venture capitalists, too, don't touch these clones any more. Advertisers won’t come where even investors fear to tread. One key trick to build good traffic is to let the website be simply organised and easy to navigate. There are many content-rich websites that are a surfer’s nightmare and it shows in their poor advertisement appeal.

INNOVATE

TV show hosting site, Nautanki.TV, has let its platform by used by content creators who, in turn, can make some money too. “People who wish to use our site as a platform for their content, will have to pay us a basic platform fee. Whatever they earn from the advertisers they bring, they can keep,” says Nautanki’s founder Sunil Nair. Look for going beyond the pricing-per-click model and innovate to give better value to advertisers, content creators and visitors.

At an annual spend to just Rs 450 crore, the Indian online advertisement market is still a tiny, nascent segment. But the bitter after-effects of the dotcom bust has forced the industry to grow up quickly. As the economy grows at a scorching pace, the need for web-based solutions and online advertising is headed only skywards. Time was when the bubbly first mover into a web business idea walked away with rich valuations, but the online world has come a long way since. It is now a place only for steady, long-term players with a cool business sense.

Article Resource:
Author: Jacob Cherian is the Chief Editor in the The Economic Times, Mumbai and the article appeared in one of their successful columns on Entrepreneurship/Start-ups called "Starship Enterprise".

Eight Costly Marketing Mistakes.

Eight Costly Marketing Mistakes

MARKETING ONLY IN THE SLOW TIMES

To grow your business, you need an ongoing, targeted marketing programme you can manage year-round along with the day-to-day demands of your new business. One mistake start-up entrepreneurs often make is to put marketing on the back burner and focus exclusively on the few customers they’ve got. Marketing only during the slow times dooms you to living on an economic roller coaster.

FAILING TO FOCUS

Often, start-up marketers fail because they try to tackle too many types of prospects on a limited, start-up budget. Going after everyone who will listen is a shortcut to failure. On the flip side, when you narrowly focus your marketing efforts on a qualified target audience, you’ll get spectacular results.

OVERLOOKING TESTING AND RESEARCH

So you think millions of people will want to buy your product or service. What makes you so sure? Before committing lots of cash to launching your new business, do some market research. The internet is your best source of published information. You can test the market using surveys. Testing can keep you from making costly mistakes based on false assumptions about your product, service or customers.

RELYING ON JUST ONE OR TWO TACTICS

It’s only natural to rely on the marketing tactics you’re most comfortable with. If you like meeting and talking to new people, you may focus on networking. If you’re shy, on the other hand, you might rely solely on direct mail. Such singlemindedness is a major marketing mistake because it prevents you from exposing a full range of prospects to your message.

UNDERSPENDING ON MARKETING

It’s just as important to set aside marketing funds as it is to budget for tools you’re going to need to run your business. If you go to a bank for financing, you’ll be expected to show the banker your marketing budget — because without marketing, there’s very little chance you’ll be able to repay your loan. Even if you’re funding your company without help from a bank or other lender, you need to follow the same guidelines.

FAILING TO PRESENT A PROFESSIONAL IMAGE

Your marketing materials sell your company image to the world. To be successful, you need a cohesive family of tools that stand up to those of even your largest competitors. If you hand out shoddy, poorly produced marketing materials to prospects, don’t expect to be picked for plum jobs. Also be aware of how your company ‘sounds’ when prospects call.

IGNORING CURRENT CUSTOMERS

As your business grows, you may become so focused on getting new customers that you overlook current customers. That is a major mistake, since it generally costs more to win a new customer than to ‘resell’ to an existing one.

OVERLOOKING WHAT TECH CAN DO FOR YOU

Contact management software and e-mail marketing are just two options that can streamline your marketing efforts and improve your productivity. Without a good contact management programme, business contacts may be lost and call-backs missed. Don’t overlook these valuable tools that can help your business grow.

Reference:
(Source: Microsoft Small Business Center)

Money Matters

Making the Right Pitch for Capital

Many financing efforts fail because of avoidable mistakes that are made in pitching potential lenders, structuring the agreement or managing the money once the deal is done.

HALF-BAKED BUSINESS PLANS

There’s nothing worse than going into a money meeting unprepared. If you haven’t put the time and energy into writing a full-blown business plan complete with elements, such as a cogent description, financial projections and a competitive market analysis, the people with the cash won’t put the time into evaluating your proposal.

FOCUSING TOO MUCH ON THE IDEA AND TOO LITTLE ON THE MANAGEMENT

It’s not enough to convince potential backers that you’ve invented the next must-have gadget or can’t-miss clothing store concept. You also need a team that can generate the revenues to repay a bank loan or provide an exit strategy for a VC or angel investor. Many business novices ignore the second part of the equation; that can doom their money quest.

Remember, the greatest racehorse in the world still needs a great jockey to a win the race. The same principle applies in business. Showing that you have recruited a top-notch salesperson, a skilled marketer, an accountant with start-up experience, other key personnel, and even outside experts like an attorney or business coach who can supply professional guidance is essential to finding a funding source.

NOT ASKING FOR ENOUGH MONEY

Starting out with too little money is one of the causes for start-up collapses. That’s often because entrepreneurs, who are wet behind the ears, don’t realise that they should calculate their borrowing needs based on their worst-case scenario instead of their best-case forecast. An old accounting axiom says that everything will take twice as long and cost twice as much as you expect. While that may be an exaggeration, new business owners are frequently too optimistic about how soon they will begin to fill their cash pipeline and how fast the money will flow. If you’re underfunded, you won’t have a cushion to tide over in the event of slow initial sales.

HAVING TOO MANY LENDERS OR INVESTORS

One of the hazards of securing financing from multiple sources is managing too many relationships and expectations. It takes time away from your core business. These not-so-silent partners may have conflicting interests or demands and the consequences can be devastating.

FAILING TO GET ALL THE PROPER LEGAL AGREEMENTS

This is arguably more important than a prenuptial agreement for a couple with significant individual assets. Every lender or investor eventually will need his money back, and a legal document covering everything from the terms to the timing can avoid the kind of acrimony just described.

POOR CASH FLOW MANAGEMENT

Too many new business owners burn through their seed money too quickly and fail to reach cash flow-positive status in a timely manner. Some causal factors, like late product deliveries and economic downturns may be beyond one’s control, but the executive team is clearly at fault for others, such as unnecessary spending and overly optimistic expense/income forecasts. Financial sponsors don’t take kindly to that sort of mismanagement. And if they turn off the tap, all your hard work may go down the drain.

Reference:
(Adapted from entrepreneur.com)