Global economic slowdown approaches forecasts Experian
New Delhi, June 13, 2006
A global economic slowdown is approaching soon, warns Experian in its latest global forecasts for 2007, published in its Global Futures economic report today. “The rise in long-term interest rates since February and the persistence of high energy prices for several years is now impacting on the global economy, setting the scene for a slowdown in the world’s largest economies,” warns Dr Tapan Datta, Experian’s Global Economic Adviser.
“Neither China, which will experience a slowdown in investment and export growth, or other parts of Asia, where domestic demand lacks the strength, will be cushioned against the effects of a slowdown in the main industrialised economies of North America and Europe.” "Higher long-term interest rates and a slowdown in global housing markets are suggesting that consumers and businesses will become more reluctant to spend and invest,” explained Dr Datta.
“The rise in long-term US rates has been driven by the concern that the US's external borrowing needs are becoming more difficult to finance at a time when the US's economic growth advantage is being eroded by a weaker housing market and relative strength in the Eurozone and Asia. Experian’s view is that the US economy will continue to slow through 2007, which will keep the dollar under downward pressure. Markets are confused by the likely direction in US short-term interest rates, but Experian believes that the looming growth slowdown means that short-term rates in the USA should now be left unchanged. Experian is forecasting economic growth in the US to fall below 3 per cent in 2007 and to stay there on average over the next few years.
In a very different view to the prevailing consensus, Experian forecasts that the US Federal Funds rate will be falling by the 2nd half of 2007. “Asian domestic demand is still not a sufficiently robust driver to cushion the effects of a significant slowdown in the US and Eurozone. China, which has been a major generator of demand in Asia, is expected to slow under the weight of lower export growth (weaker global demand and a sustained upward creep in the Rmb over the longer-term) as well as some reining back of the break-neck investment boom taking economic growth rates down from the current 10 per cent level to below 8 per cent by 2010. Although Experian believes that Japan's economy is far more robust these days, consumer spending is not expected to grow any faster than 2 per cent over the next few years, limiting the economy's ability to stimulate the global economy. “The Eurozone is the least likely major region to provide a cushioning effect, as its recovery remains very fragile, and sensitive to higher rates from an inflation-targeting European Central Bank, as well as the likely impact on the Euro from dollar weakness.
The inability of the Eurozone to weather these difficulties in 2007 will mean that the key short-term interest rate will peak at lower levels than generally expected, at 3.25 per cent. Bond yields are unlikely to go much higher than they are currently. The longer-term growth forecast for the Eurozone is seen to be about 2 per cent, with Italy and Germany's growth rates well below this threshold.
The full report entitled Global Futures ‘Stress testing the global economy’ can be obtained by emailing globalfutures@uk.experian.com
About Experian
Experian is a global leader in providing value-added information solutions to organisations and consumers. Experian provides information, analytics, decision-making solutions and processing services. Using its comprehensive understanding of individuals, markets and economies, it helps organisations to find, develop and manage customer relationships to make their businesses more profitable. Experian promotes greater financial health and opportunity among consumers by enabling them to understand, manage and protect their personal information, helping them control financial aspects of key life events and make the most advantageous financial decisions. Experian works with clients across diverse industries, including financial services, telecommunications, healthcare, insurance, retail and catalogue, automotive, manufacturing, leisure, utilities, e-commerce, property and government.
A subsidiary of GUS plc with headquarters in Nottingham, UK, and Costa Mesa, California, more than 12,500 people in 28 countries worldwide support clients in more than 60 countries. Annual sales are in excess of £1.7 billion. For more information, visit the company's website on www.experian.com.
For further information please contact: TapaN DATTA tapan.data@uk.experian.com
Neeraj Atri IndusView
Mobile: 9811714871
neeraj.atri@indusview.com
Or
PETER BROOKER, Public Affairs Director,
Experian International
Tel: +44 (0) 115 934 4548.
E-mail: peter.brooker@uk.experian.com
Bundeep Rangar, Chairman of Indusview Advisors, an Indian-focused corporate advisory firm, has done just about everything.
Bundeep Singh Rangar, Chairman of Indusview Advisors, an Indian-focused corporate advisory firm, has done just about everything. The London based, India-born has been a journalist (at Bloomberg), a live TV host for a show on the internet (in Europe) and an entrepreneur-in-residence (at Jacob Rothschild and Maurice Saatchi-backed Saffron Hill Ventures). But Rangar thinks there are higher mountains to be climbed. "I am restless to do and build...the challenge is to build a world-class $1 billion company in three to five years," he says. For Rangar, India today may be the perfect place to try to do that.
Publication : Business Today
Nature : Business Magazine
Date : May 7, 2006
Readership : 450,000
The Andrew Davidson Interview: Skype chief takes his place as tech hero from zero
London-based Niklas Zennström sold his internet start-up for $2.6bn last month. But don’t ask him how he is going to spend his share
WHEN I WALK IN, Niklas Zennström is peering into his computer.
“He will be with you shortly,” says his assistant, but from where I am standing, Zennström’s long, hunched figure seems more likely to climb into his screen.
Eventually he disengages and ambles over, offering a muted greeting and a hesitant handshake. Zennström, 39, looks like a tousled schoolboy dressed to meet the City: pale blue shirt, pinstripe suit hanging awkwardly, floppy hair brushed Bill Gates-style across rectangular glasses. Only the slight paunch on his 6 ft 4 in frame shows his age.
He seems embarrassed to be there, an effect doubled by his lazy left eye, which looks one way while his right moves the other — making conversation unsettling, as if Zennström is permanently distracted.
He is not, of course. He is, in his Swedish-inflected English, an intense and articulate speaker with a lot to say — so long as you don’t ask him about money. That’s because London-based Zennström, who sold his internet telephony start-up Skype to Ebay for $2.6 billion (£1.5 billion) last month, is understandably wary about his new status as tech millionaire hero.
“I am an entrepreneur,” he shrugs, playing it all down. “I just want to run my company.”
Which begs the question as to why he sold Skype, even though he is staying on to guide its growth, but he has cogent reasons for that too. What he doesn’t want to reveal is just how much he and co-founder Janus Friis, a Dane, pocketed from the deal. They had already sold many chunks of Skype to venture capital, but are likely to have retained at least 15% each — stakes worth £225m.
“It is a private matter,” he says dolefully, sounding rather like Sven-Göran Eriksson.
Ah, these Scandinavians. Perhaps after the first £100m it doesn’t matter. You can buy a lot of pinstripe suits with that.
“Actually I had this suit from before the deal. I am meeting some people today so...”
It wasn’t just for me. He grins lopsidedly. Sitting in a long, glass-walled meeting room in Skype’s Soho adland base, Zennström, it is clear, is not your conventional entrepreneur.
For a start he is determinedly unmaterialistic — no car, no trappings of wealth — with an anarchic streak that makes some wonder how he can hold an organisation together. He is also an uneasy salesman, slow to warm up and so focused on his business that personable small talk is not on the agenda.
Added to that, he runs a surprisingly dispersed outfit: a finance and marketing team in London, a head office in Luxembourg, a software centre in Estonia. Little wonder he complains of spending most of his life in airports.
But Skype, a free telephone service that allows you to talk to anyone else on the internet who downloads the same software, is a gem of a business that Zennström, advised by a small cadre of investor enthusiasts, is building rapidly. And it’s not his first.
Five years ago he and Friis launched Kazaa — they like nonsense names — a file-sharing service that grew to become a competitor to Napster, the music-download site. Then it hit copyright problems.
Zennström and Friis have since sold Kazaa, but its legacy leaves a long shadow. Continuing litigation by record companies to reclaim royalties from music downloads makes it “inadvisable” for either to set foot in America. Zennström describes the legal action as ridiculous.
Anyway, Skype, their next venture, which uses some of the same technology, has become even bigger. The amount paid by Ebay for the business surprised many — and that sum could rise to $3.9 billion if earnout targets are hit.
How could a two-year-old loss-making start-up be worth so much? Because its potential is huge.
Skype was not the first telephone service to use the internet, but it is among the simplest to install and use. And it got its timing right, launching as broadband became increasingly available across Europe and Asia.
Most important, Zennström, who started in Scandinavian telecoms, has waded through the difficulties of connecting Skype to other services, so users can make calls outside the network — that, plus various add-ons, is how it makes its money.
With handsets coming on the market that allow you to use Skype like a conventional phone, and 68m registered users worldwide (180,000 join each day), you can see why Zennström is confident. The national telecoms companies, he says, are simply too slow and too bureaucratic to catch up.
“Several telcos are trying to compete with us but I don’t see them as a threat — they don’t understand this business. Voice communication is no longer a telecommunications business, it’s a software business. Fixed-line telephony will disappear.”
That, he says, is why he teamed up with Ebay, to counter rival services from the likes of Microsoft and Google. Floating the firm — the alternative strategy — looked too risky.
“Ebay has an organisation we can use, the brand, the spread, they know how to deal with government regulators, and they run the largest online-payment service. From an operational point of view it’s a good thing to do.”
Zennström’s early backers insist it will be a good fit. “Ebay appreciates the way Niklas is and have given him a lot of legroom,” says Danny Rimer, partner at Index Ventures, a Skype investor. And despite Zennström’s history of working “against the grain”, adds Rimer, the Swede has proved himself adaptable in the past. Not being able to go to America may even prove an advantage.
Others have been more sceptical, suggesting that beneath the boffiny exterior, Zennström is an instinctive businessman who knows his start-up could be worth less when competition builds up. He is selling at peak prices.
That fits with his dispassionately pragmatic approach. Hence Skype has the London office because of access to capital, the Luxembourg base for tax reasons, and those Estonian software experts because they are cheap (Estonia was a tech hub for the former Soviet Union). Sweden, his homeland, is too expensive to be in the equation.
It’s not ruthless, just thought-out, which is Zennström’s key characteristic. Brought up in the university town of Uppsala, the only son of two teachers, he has always been fiercely intellectual.
He studied engineering with computer sciences at university and considered a career in consultancy. Instead he joined Tele2, a rival to Sweden’s state phone monopoly, and was thrown into management, running its internet business.
He hired Friis, 10 years younger, as part of his team. The two have worked together ever since. They launched internet services for Tele2 in different countries before going it alone, Friis handling software development while Zennström organises.
Both, according to those who know them, are natural outsiders — Friis left school at 16 and spent time on the hippy trail in India. Both are keen to develop “disruptive technologies” that cut across established ways of doing business.
Earlier than most, they saw how useful the internet could be as a means of distribution. Scaling up need no longer mean a huge increase in spending. Hence Skype users push the service around their friends as they need others online, and Skype — unlike a conventional phone company — doesn’t have to spend fortunes gaining and retaining customers.
“It’s a huge transition we are moving through,” says Zennström. “Thirty years ago you needed to have big scale to have global distribution and to be a global player. Today you can take advantage of technology and be a global player yet still small. It’s a paradigm shift.”
It has not been an easy ride, however. The litigation against Kazaa put off many potential Skype investors. At one point the founders were asking friends and relatives for backing, and Zennström has been pushed to the limit financially.
“There are years of arduous labour behind his Skype success,” says Bundeep Singh Rangar, co-founder of Ariadne Capital, which advises Zennström. “It’s a great vindication for someone who was teetering on success before, but didn’t give up.”
Zennström says the money made from Skype’s sale will do little to change his lifestyle. “Perhaps,” he says lugubriously, “I will order more expensive wines in restaurants.” Then he gives a shy look that may indicate he is joking.
Is that it? He shrugs.
“When you are entrepreneurial and building a business, that is where you spend your time because that’s what you are interested in. And when you are at home you just want to spend time with your wife.”
Zennström met his French wife at Tele2 and she understands his obsession. They have no children yet. He devotes himself totally to Skype, often getting home late to their flat in Kensington and travelling one week in two.
So don’t ask him what he will do with those millions — some, for sure, is going into seed money for other ventures, but more than that he doesn’t want to reveal.
“My ambition is to make Skype into the world’s largest online communication company. That’s the driver. Financial gain is secondary.” Then he makes an awkward goodbye and heads back to his computer, looking as preoccupied as when he started.
Niklas Zennstrom's Working Day
THE Skype chief executive wakes at his flat in Kensington at 7.15am. Niklas Zennstrom eats muesli for breakfast and checks his e-mails, before catching a taxi to his office in Soho.
He gets in by 9am. “I concentrate on growing the organisation, that’s one of the big things,” he says. “What’s important is how you organise yourself and communicate, making sure people know what they are supposed to do and who is doing it. Then there are reviews of products, strategies and deals.”
He entertains business contacts at lunch, and works until 8pm.
Zennstrom says he is more at home in London now than in Stockholm. “I feel quite international, and London is the international hub of Europe.”
Vital statistics
Born: February 16, 1966
Marital status: married, with no children
School: Katedralskolan, Uppsala
University: Uppsala
Salary package: undisclosed, but took a likely $390m from the sale of Skype to Ebay
Home: Kensington, London
Car: ‘I don’t have one’
Favourite book: Shogun
Favourite music: alternative rock
Favourite film: The Godfather
Favourite gadget: Bose headphones
Last holiday: Sweden
Interests: sailing, skiing
Working Space
NIKLAS ZENNSTROM works from one of a line of desks in an open-plan office on the second floor of a rented building in Lexington Sreet, Soho. The room is wide, light and functional, with a long, glass-walled meeting room to one side.
Zennstrom’s desk is next to the wall, under a window that looks out over a narrow space on to the frosted glass of the lavatories opposite. His assistant sits at a desk facing him. “We have two floors of this building but we are looking around for a bigger space,” he says. “It’s difficult to find offices in Soho. We want to stay central but we don’t want to be too corporate.”
He shares the desk with others, who use it when he is away. Six of his senior colleagues sit in the same line of desks, with more seated round the corner.
Skype: Reflections for European Venture Capital
Stop Press. European VCs will be discussing Europe’s most successful exit? Correction – European VCs will be discussing Silicon Valley’s most successful exit.
Bundeep Singh Rangar [IndusView] | POSTED: 10.14.05 @07:00
In a few days time, most of Europe’s technology-oriented venture capital leaders will be gathered in Athens along with their U.S. and Asian counterparts and the heads of top global technology companies at the European Technology Roundtable Exhibition (ETRE).
The year’s most successful European venture-backed exit, Skype, will be high on the agenda with its co-founder and CEO Niklas Zennstrom making a keynote.
Stop Press. European VCs will be discussing Europe’s most successful exit? Correction – European VCs will be discussing Silicon Valley’s most successful exit.
The reason for the rectification is quite simple. It was the Draper juggernaut under Tim Draper and Howard Hartenbaum that made Skype a phenomenal VC investment. This was classic venture investing that’s made Silicon Valley the mecca of venture capital today.
This is not to take away the critical participation of European VC firms like Danny Rimer’s Index Ventures and Mark Tluszcz’s Mangrove Capital Partners or a pivotal role we played at Ariadne Capital in its early days. But I also give credit where it’s due – if it weren’t for all-singing and dancing Tim Draper who put Skype’s intrinsic disruptive technology on steroids, Skype would have been a “nice, interesting – and small - European company proving that it make early, if only small, profit.”
When I first met Niklas Zennstrom on Day 2 of his arrival in London in the fall of 2003 following an introduction by Howard, we discussed the self-defeating process of most European VC analysis.
The calculation they made followed a method similar to the two highlighted below:
Calculate a value for the company today based on a 5-year discounted cash flow analysis with a 25% discount rate. Do a Net Present Value and Terminal Value calculation and see if you can get the IRR on an investment our Fund promised to our LPs ; or
Rate the company from 1-5 for each of the following: management team, market opportunity, technology robustness, defensibility and intellectual property, sales and growth strategy, profit horizon, etc. If it gets a median score above 3.5, take another look at it.
There’s nothing inherently wrong with either analysis – but they remain a sub-set of what’s required to evaluate an early stage deal for its true future value. If early-stage technology investments were so predictable for their returns, they would be an asset class indeed.
In “Beyond the J-Curve,” Thomas Meyer and Pierre-Yves Mathonet state that an asset class is a group of investments where they have similar risk and return but are different from those of other asset classes. Skype failed the narrow tests indicated above used by most European VCs. Its P2P technology was deemed not robust enough and the founders’ Kazaa past was seen negatively. And they questioned whether it would ever make money. Yet, Niklas’s (and co-founder Janus Friis’s) return to investors has been way out of the league of all early stage 2003 investments worldwide.
Skype is a thunderous reminder to European VCs of the beta value of VC returns when compared with a basket of European VC investments. The historic share price of UK VC firm 3i’s public stock perhaps serves as the best benchmark against which to measure a European venture investment return. Be my guest, go ahead and do a calculation!
The reminder here -- it’s time for us to be in the Venture business, not just the Fund management business.
European VCs might want to sit down and analyse why it took a Silicon Valley VC to spot and deliver on that opportunity in their own backyard.
A few European VCs did have a chance to see Skype in its embryonic form. Their decision not to invest came down to a fundamentally different approach to investing. In contrast to Niklas’s experience in Europe, his dealings with Silicon Valley VCs (and those with offices in Europe such as Accel and Benchmark) were remarkably different.
They generally follow three logically inductive phases of thinking:
Phase I of Thinking
Does the company have a simple, easy-to-use product that can be easily adopted by consumers? Can this product be marketed directly to consumers so that its channel to market is not dependent on clunky corporates? Does the product fulfil a basic modern human need that users get excited about and tell others about and therefore, create a “viral” effect? If the technical, product development and market strategy are executed well such that it achieves scale and mass adoption, can it make lots of money through “economies of scale” once a “purchase price/revenue-profit model” switch is flicked on?
An introduction by me between Niklas and Sabeer Bhatia, an investor in Ariadne Capital and another example of an entrepreneur backed by the Draper juggernaut and vision of “viral marketing” leading to its Hotmail success, led to a fascinating meeting between Sabeer, Niklas and myself in the spring of 2004. While the contents of that conversation remain confidential, it confirmed that Niklas had gotten the right investor DNA on board.
Phase II of Thinking
What’s the cost of carrying the company until the point that the “switch is flicked on?” Do we, i.e. the VC, have the pockets to support it, the vision to encourage it and the networks to propagate it? Will the company’s product be so disruptive that its true value might be a calculation of money saved at the bottom line for doing the same utility using today’s technology rather than just money made at the top line at some point in the future?
I can hear Niklas’s voice telling me how Tim pushed them toward viral adoption and minutes of voice traffic rather than a false economy of early profit.
Phase III of Thinking
Do we, i.e. the VC, have the networks among decision makers in large acquisitive corporations that will value the company by calculating how its own cost of building the start-up’s new product, acquiring its customer base, scale, reach (particularly in new markets and demographs), traffic and brand will vastly outweigh the price of purchasing the start-up today. And that upon acquiring the start-up, can it flick on its own “much bigger switch” (i.e. revenue model) and see a much greater generation of revenue and profit? That’s the trade-sale argument to be made and won. And that will give a start-up today a multi-billion valuation tomorrow rather than just one worth tens of millions.
The proof of that lies in the spectacular $2.5 billion-$4.1 billion exit of Skype to eBay.
Many European VCs like to believe that they do operate and “think” this way. Evidence suggests otherwise. Not counting U.S. VC firms in Europe, very few actually do. Maisy Ng of Add Partners, Ajay Chowdhury of IDG Ventures and Richard Irving of Pond Ventures come to mind, among others such as Index and Mangrove.
In Skype’s case, European VCs did bring value. Index brought in a critical Cisco relationship and Mangrove did critical early due diligence that led to an investment. Working with Skype from its early days, we at Ariadne Capital did some of its critical early business development deals that led to its software being bundled with headsets and carrier agreements with PSTN operators that allowed for Skype In and Skype Out to materialise. We also placed four key individuals in an early team.
But we followed the Silicon Valley VC lead. By the time Draper invested, almost every European VC wanted to put their money in too. Why did Europe’s VC’s not take the lead in the first place? This was after all, Europe’s biggest venture-backed exit, right?
Perhaps that question ought to be pondered at this year’s ETRE. We might even get an honest answer.
Bundeep Singh Rangar
A board member for IndusView (www.IndusView.com)
and a senior advisor at Ariadne Capital (www.ariadnecapital.com)
Indian VC Investments Total Record $528 Mln in Q3 2005
India’s venture capital and private equity market hit a record high in the third quarter this year with more than half a billion dollars in new investments, according to information provider Venture Intelligence India. The six times increase over the same quarter last year indicates growing investor interest in the world’s second fastest growing economy.
A total of $528 million was invested in 28 companies during July to Sept. 2005 compared with $90 million in eight companies during the same period last year. Late stage investments dominated, including 15 Private Investments in Public Enterprises (PIPEs). IT and IT-enabled service (ITES) companies won new favor with six investments totaling $55 million. Eighteen companies raised $10 million or more.
With Goldman Sachs predicting India’s economy to become the world’s third largest by 2032 and Deutsche Bank stating that target might be achieved by 2020 if economic reforms were pursued more aggressively, it’s easy to see the attractiveness of the Indian market among venture capitalists. India’s GDP is expected to grow 7.2 percent this year, the second fastest after China that’s expected to grow 8.5 percent, according to the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
India’s high growth sectors include the IT and ITES industries predicted to grow 34 percent this year, followed by the automotive industry at 29 percent, telecoms at 22 percent and media at 18 percent, according to New Delhi-based corporate finance advisory firm IndusView Advisors Private Ltd.
“The Indian VC industry is still in its infancy and a lot of growth still lies ahead,” said Saurabh Srivastava, Chairman of the Indian Venture Capital Association (IVCA). “We’re still just making baby noises on the global stage.”
Venture capital and private equity investments represent only 0.15 percent of India’s GDP, compared with 0.28 percent in Europe and 0.54 percent in North America, according to Pricewaterhouse Coopers.
The largest investment during the quarter was $100 million by Newbridge Capital in truck financing company Shriram Holdings based in Chennai. The second largest deal was ICICI Venture’s $59.8 million buyout of Mumbai-based Associated Cement Companies, the first buyout of a publicly-listed manufacturing firm. Two investments of $45 million tied for third place. This included U.K. venture firm 3i’s first Indian investment into Mumbai-based entertainment software firm Nimbus Communications.
VCs also enjoyed 11 exits during this period, including three public listings. Newspaper publisher HT Media’s sold $86 million worth of stock. Its Initial Public Offering, subscribed 18 times available shares, was the largest venture-backed IPO during the quarter. It had raised $45 million in two financing rounds from Henderson and CIFC (Citigroup) in 2003 and 2004. Other IPOs included financial services firm IL&FS Investsmart backed by Japanese VC Softbank and U.S. stock broking firm E*Trade, Inc. and telecom research and development services firm Sasken Communication Technologies that had been invested in by Intel Capital, Nokia Growth Partners, New Enterprise Associates and Nortel Networks.
Mergers and acquisitions were led by Essar Group’s $1.56 billion purchase of mobile phone services company BPL Communications and Oracle Corp.’s $593 million purchase of Citigroup Venture Capital’s (CVC) 41 percent stake in banking software firm i-flex Solutions. CVC had invested just $400,000 in the firm more than a decade ago.
Exits earlier this year of Indiabulls, Yes Bank, Suzlon Energy and Indiagames made Ashish Dhawan’s ChrysCap and Saurabh Srivastava’s Infinity Venture the top two performing vintage 1999-2000 Indian funds. Both have embarked on raising new funds, along with other survivors of the previous boom in venture investment in India in 2000 when almost $1.2 billion was invested.
The raising of new funds seems well timed as investment and exit activities have generated heightened interest in India among potential Limited Partners and VCs alike. Draper Fisher Jurvetson announced a $200 million Indian fund earlier this month joining other Silicon Valley VCs in India such as Sequoia Capital and Bessemer Venture Partners. More than $3 billion in new capital is expected to be committed to Indian venture capital firms this year, according to the IVCA.
Indian funds already closed this year include ILFS’s $125 million Leveraged India Fund, the $200 million Westbridge Capital II, $425 million Actis India II and $150 million GW Capital II funds. These do not include India-specific buyout funds such as Carlyle, Blackstone and KKR – each earmarking a $1 billion or more toward India.
- Bundeep Singh Rangar, Board Member, IndusView (www.IndusView.com) & Co-Founder & Senior Advisor, Ariadne Capital (www.ariadnecapital.com)
- Bundeep.Rangar@IndusView.com
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