by Charley Polachi co-founder of Boston-based executive recruitment firm Polachi, Inc. The views expressed are his own.

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We surveyed more than 1,000 venture capitalists last summer with one simple question: “Is the venture capital business broken? Yes or no?”. After 53 percent said “yes,” it got me thinking about what exactly is going on here. I reached out to 50 general partners of venture funds across the country from Silicon Valley to New York and Boston to gauge the state of the venture business.

I started the conversation by asking: “How does the venture business look on January 1, 2010, when the industry can no longer drag around the 1999 returns in a trailing 10-year average?”

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by Bain partners Michael C. Mankins, David Sweig and Mike Baxter
When performance is an issue, most executives focus on the income statement and cut costs. But tight management of the balance sheet often liberates more cash, preservers a company’s options and drives value for shareholders.
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by Bain partner Jorge Leis and Bain alum Kurt Zenz House
Most CEOs get the big picture on carbon competitiveness. Many attend industry forums and contribute their perspectives to the development of government policies. But few CEOs ask how they can use carbon competitiveness to gain an edge over their competitors. The right answer can ensure the longevity of a company in an increasingly regulated world.
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U.S. multinationals represent less than 1 percent of all U.S. companies, yet they contribute disproportionately to the U.S. economy‘s growth and health in many ways. U.S. MNCs contributed 31 percent of the growth in real GDP and 41 percent of U.S. gains in labor productivity since 1990. Their outsized contributions to productivity growth matter greatly because productivity increases have delivered nearly three-quarters of U.S. real GDP growth since 2000.
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Medvedev’s U.S. Trip Aids Push to Reset Economic Ties

June 21 (Bloomberg) — Dmitry Medvedev and Barack Obama will try to jumpstart economic links this week as Russia’s president travels to Silicon Valley and Washington, building on improved political ties after the U.S. “reset” relations.

Medvedev travels to California tomorrow to meet with technology leaders, including Google Inc. Chief Executive Officer Eric Schmidt, as he seeks support for his plan to build a Russian Silicon Valley. Medvedev moves on to Washington for talks with Obama on June 24. The presidents will also meet with company bosses such as Boeing Co. CEO Jim McNerney.

Since Obama called for a reset in relations with Russia last year, the countries have signed a nuclear arms reduction treaty and agreed to increase cooperation in Afghanistan. Russia also supported a U.S.-led proposal for sanctions against Iran. Both the Kremlin and White House say Medvedev’s visit is a chance to push that cooperation into the sphere of business.

“We’ve made progress on political and security issues of late and now we have a chance to make a parallel progress on some very important economic issues, an economic reset,” Robert Hormats, U.S. undersecretary of state for economics, energy and agriculture, said June 17 in an interview at the St. Petersburg International Economic Forum.

The $18.4 billion of trade between the U.S., the world’s biggest economy, and Russia, the largest energy exporter, doesn’t reflect the potential relationship between the two countries, Russian Economy Minister Elvira Nabiullina said.

Not ‘Mafia Central’

The U.S. is Russia’s eighth-largest trading partner, with crude oil, aluminum, titanium and fertilizers accounting for more than 80 percent of the goods shipped to the U.S., according to ministry statistics.

“We are interested in accelerating investment cooperation,” Nabiullina said June 17 at the St. Petersburg forum. “We are interested in attracting U.S. direct investment for modernizing and diversifying our economy.”

Medvedev must convince U.S. investors they can make money in Russia and the state will protect their interests, said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow.

“He needs to leave the U.S. having firmly planted the notion that Russia is, after all, not the mixture of Orwell’s vision of 1984 and Mafia Central that many Americans think it is,” Weafer said.

Diversifying Economy

The Obama administration has suggested calling this week’s visit “a summit of innovation,” Foreign Minister Sergei Lavrov said June 19.

The 44-year-old Russian president has made diversifying away from energy exports and improving the investment climate his primary policy goals. He named billionaire Viktor Vekselberg and Craig Barrett, former CEO of Santa Clara, California-based Intel Corp. as co-chairmen of his plan to build a technology hub in Skolkovo, outside Moscow.

U.S. technology companies will pledge to participate in the Skolkovo project during the Silicon Valley visit, billionaire Vekselberg said June 19 in St. Petersburg.

Emerging from a meeting with Medvedev in St. Petersburg, Barrett said Intel and Chicago-based Boeing are interested in Skolkovo. Vekselberg said talks are also underway with Google Inc. of Mountain View, California, Microsoft Corp. of Redmond, Washington, and Cisco Systems Inc. of San Jose, California.

‘Sharpen His Resolve’

“I suspect he will learn something, see some good examples there that will help to sharpen his resolve,” Barrett said of Medvedev’s trip. “Whether that visit does something back here in Russia I think you just have to wait and see.”

As Medvedev moves on to Washington, Boeing is expected to sign an agreement to sell more than $3 billion of 737s to Russia, Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, said in a June 17 interview. Shokhin heads a delegation of businessmen who will meet with their U.S. counterparts and both presidents June 24.

The CEOs of energy producers OAO Gazprom and OAO Lukoil, as well as metals companies OAO GMK Norilsk Nickel and OAO Novolipetsk Steel will accompany Medvedev to Washington, Arkady Dvorkovich, the president’s economy aide, told reporters today.

Moscow-based Russian Technologies Corp., which controls an alliance of six domestic carriers, this month chose Boeing to supply at least 50 narrow-body planes. Boeing will announce new initiatives for Russia during Medvedev’s visit, Dvorkovich said.

Sergei Kravchenko, head of Boeing’s operations in Russia, declined to comment on any future deals, saying that CEO McNerney will be among those attending the June 24 meeting.

WTO Talks

Russia is also seeking U.S. participation in the development and production of a heavy-lift cargo plane, an idea Medvedev raised during Obama’s visit to Moscow last July. The government needs funding and customers to resume production of the Soviet-designed Antonov-124, which carries outsized cargo for anyone from the military to pop stars.

The project could become “the largest cooperation effort between the two countries since the International Space Station,” Alexei Fyodorov, CEO of Moscow-based United Aircraft Corp., said in a June 16 interview.

The U.S. would have to lift restrictions on access to technology for a project of this scale to succeed, said Shokhin of the Union of Industrialists.

Medvedev has repeatedly said he is counting on the Obama Administration to support Russia’s bid to join the World Trade Organization after 17 years.

For a real improvement in trade prospects, the U.S. must drop the Jackson-Vanik amendment, said Mikhail Margelov, chairman of the Foreign Affairs Committee in Russia’s upper house of parliament. The 1974 measure, which penalized the Soviet Union for restricting emigration of Jews, still prohibits Russia from receiving most-favored-nation status.

“This amendment is somewhat anecdotal given the visa-free regime with Israel,” Margelov said. “Its abolition should be tied in with Russia’s entry in the WTO.”

To contact the reporter on this story: Lyubov Pronina in Moscow at lpronina

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Threat of Microfinance Defaults Rises in India as SKS Plans IPO

June 15 (Bloomberg) — Savita Ramesh Rathore stood at the door to her dimly lit workshop in Mumbai’s Dharavi slum, filled floor-to-ceiling with bundles of old clothes, and tallied up the cost of her son’s wedding last year.

“Jewels, clothes, food, the town hall,” said Rathore, 50, who makes towels from discarded clothes. She borrowed 30,000 rupees ($645) from moneylenders charging 60 percent interest and took additional loans from friends to pay for the wedding. Three months ago, she got a 10,000 rupee loan from urban lender Hindusthan Microfinance Pvt. to repay some of that debt.

Rathore is one of 25 million Indians who have taken so- called microfinance loans, often without adequate documentation or collateral, according to Micro-Credit Ratings International Ltd. As Hyderabad-based SKS Microfinance Pvt. plans to become the first such lender to go public in the country, an industry credited with helping alleviate poverty may come under pressure to tighten loan standards to avoid a pile-up of bad debts.

“Globally, microfinance is showing characteristics of the western financial markets before the collapse,” said Sanjay Sinha, managing director at Micro-Credit Ratings in New Delhi. “In the U.S., homeowners were given loans at 120 percent of the value of their properties. In rural India, people are being lent to at 150 percent of the value of their enterprises.”

The implosion of the U.S. market for subprime mortgages to people with poor credit histories helped trigger a financial panic and almost $1.8 trillion in losses and writedowns at financial institutions worldwide.

Nicaragua Crisis

Microfinance, which focuses on loans in poor areas largely shut out from traditional banking services, gained prominence globally when Muhammad Yunus won the Nobel Peace Prize in 2006 for his role in founding Bangladesh’s Grameen Bank. Yet the past two years have been marked by surging defaults in some countries.

Microfinance markets in Nicaragua, Morocco and Pakistan have seen default levels climb to more than 10 percent, the threshold that marks a “serious repayment crisis,” according to a February report from Washington, D.C.-based policy and research firm Consultative Group to Assist the Poor. Delinquencies in Bosnia and Herzegovina stayed below that level only because of “aggressive loan write-offs,” the report said.

While there has been no evidence of a “widespread repayment crisis” in India, “a number of industry analysts have highlighted industry vulnerabilities,” the report said.

Indian microfinance firms have reported bad-loan ratios of about 2.5 percent on average, Micro-Credit’s Sinha estimated. Actual levels may be higher, in part because some lenders roll over loans to struggling borrowers to avoid defaults, he said.

World’s Largest Market

Most microfinance loans in India range from 5,000 rupees to 20,000 rupees, according to an October 2009 report by Crisil Ratings, the local unit of Standard and Poor’s. The country, where more than 600 million people live on less than $1.50 a day, is the world’s largest microfinance market, according to a March report by CGAP and JPMorgan Chase & Co.

Interest rates range from 18 percent to 33 percent, according to Vijay Mahajan, chairman of Hyderabad-based Basix Group and president of the Microfinance Institutions Network, an industry lobbying organization. Indian banks typically don’t lend directly to microfinance customers.

Microfinance lending in India may surge by about 40 percent annually over the next few years, said Sinha, whose company provides ratings services to potential investors.

Sequoia Backing

SKS, betting the potential for growth will attract investors, sought approval from India’s capital markets regulator in March for an IPO and picked Kotak Mahindra Capital Co., Citigroup Inc. and Credit Suisse Group AG to manage the offering. The company hasn’t said when it will sell stock.

Sequoia Capital, one of Google Inc.’s and Yahoo! Inc.’s early investors, began buying shares in SKS in March 2007. It plans to sell less than a third of its holding in the IPO, according to the filing SKS made in March.

“The market is only 15 percent to 20 percent penetrated today,” Sumir Chadha, managing director of Sequoia Capital India, said in a May 6 interview. “So even though microfinance has been growing at stupendously high growth rates for the last four to five years since we first invested in the sector, we expect it to continue to grow at very high rates for the foreseeable future.”

SKS, which mainly provides loans to poor women in rural areas, said its number of borrowers climbed almost 20-fold to 3.95 million in the three years ended March 31, 2009. Loans outstanding increased more than 18 times in the period, to 14.2 billion rupees, and profit jumped almost 49 times to about 802 million rupees, SKS said in the March filing.

Commitment

Vikram Akula, SKS’s founder and chairman, sold all his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million on Feb. 10, according to the filing. Akula, a U.S. citizen, was paid 7 million rupees in salary for the fiscal year through March 2009 and holds 2.68 million stock options that he agreed not to sell within three years from the listing.

“While there is nothing legally wrong in the encashment process, it does raise a larger question” about executives’ commitment, M.S. Sriram, a former professor at the Indian Institute of Management-Ahmedabad, wrote in a working paper published in April.

Akula and senior SKS executives who have sold their holdings declined requests for interviews, spokesman Atul Takle said, citing a “quiet period” before the IPO.

Runaway growth at microfinance companies masks an erosion of lending standards and a lack of regulation that may help spark rising defaults, said Micro-Credit’s Sinha. India doesn’t have a nationwide system for tracking borrowers’ credit histories, making it hard for lenders to check whether clients have multiple loans.

IPO ‘Inevitable’

Increased regulation may force lenders to boost provisions, hurting profits, said Sandip Sabharwal, head of portfolio management services at Mumbai-based Prabhudas Lilladher Pvt.

If “there is more transparency, whether profitability will be the same remains to be seen,” he said. “From an investor standpoint, the risk is that the huge profitability we see today may not remain going forward.”

More microlenders will likely tap equity markets, said Basix Group’s Mahajan. Until now, they have relied on loans and grants from banks, insurers and foundations for funding, he said.

“An IPO is inevitable for any microfinance company that has crossed a certain size,” Mahajan said. “The money needed to maintain capital adequacy standards and finance future growth at that point is too much to expect from just the banks or private equity investors.”

IPO Candidates

Basix, which focuses on poor households in rural areas and provides loans averaging about 3,000 rupees, may sell shares in an IPO next year, he said.

Spandana Sphoorty Financial Ltd., Share Microfin Ltd., Bandhan Financial Services Pvt. and Asmitha Microfin Ltd. are among rivals likely to consider selling stock this year because of their size, Mahajan said.

While raising money from private equity investors is an option, “we are also keen to tap the stock markets by listing shares,” Padmaja Reddy, managing director of Spandana, said in an e-mail. Vidya Sravanthi, managing director of Asmitha Microfin, said in an e-mail that the company may seek a listing, “but not this year.”

Udaia Kumar, managing director of Share Microfin, and Bandhan Managing Director Chandra Shekhar Ghosh didn’t return calls seeking comment.

‘Irrational Exuberance’

“There is significant investor interest in microfinance companies’ public issues, but it’s being driven by irrational exuberance,” said Sinha. “Investors aren’t fully factoring in the risks involved in unsecured lending to an over-marketed segment that also becomes politically charged at election time.”

Former Finance Minister Palaniappan Chidambaram in February 2008 announced a $15 billion waiver for farmers’ debts, seeking to shore up rural support before general elections. The move was partly in response to almost 200,000 suicides among Indian farmers since 1998.

“Rural lending is more difficult than urban lending,” said Amit Kalokhe, a loan officer at Mumbai-based Hindusthan Microfinance. “If there’s a bad monsoon and the farmers lose their crops, our money can go along with it that year.”

Hindusthan Microfinance tries to reduce risk by making borrowers pay an 8 percent deposit and lending to groups of people rather than to individuals, founder Anil Jadhav said in an interview in Mumbai. “That way, if one person defaults, others can pay the amount,” he said.

The 10,000 rupee advance to towel maker Rathore in Mumbai was part of a loan to a group of women, according to the company.

Credit Bureau

Another proposed safeguard is the Microfinance Institutions Network, which was set up by the largest microlenders in India and represents almost 80 percent of the industry, according to a March 9 statement from the organization.

The entity, whose board includes Basix’s Mahajan and SKS Microfinance Chief Executive Officer Suresh Gurumani, created a credit bureau to improve risk management and “ensure multiple borrowing and over indebtedness is checked,” the release said.

Lenders’ efforts at self-regulation may not be enough, said Ramraj Pai, a director at Crisil.

“Central regulation is critical for the continued growth of the industry and to open new doors for funding,” Pai said.

In March 2007, the government proposed the Micro Financial Sector (Development and Regulation) Bill in the lower house of parliament, seeking to strengthen oversight.

Lapsed Bill

Under the bill, the National Bank for Agriculture and Rural Development would oversee the industry, and microfinance companies would be forced to set aside 15 percent of profit each year as reserves. The legislation lapsed when parliament was dissolved before the 2009 federal elections.

As the push for greater state oversight stalls, Rathore is already mulling how to finance the next major outlay: her 19- year-old daughter’s wedding.

“Once my present loans are paid off, I know there will be more,” Rathore said from the doorstep of her workshop, looking past the open sewage drains at the two-room home with a tin- sheet roof that she shares with four family members. “The cycle doesn’t end.”

To contact the reporter on this story: Ruth David in Mumbai at rdavid9

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Have you ever asked yourself any of these questions:

  1. Am I going where I want to in life?
  2. How am I supposed to keep track of everything, get everything done, and maintain my sanity?
  3. Can I trust my co-workers, employees, or contractors to be responsible with getting their stuff done?

Join us for free this Thursday, June 17th at 6PM at the Georgia Tech Alumni House as the Executive Entrepreneurs Society will be hosting experts Melissa Johnson, Leo Chang, and Ed Carreras who have solid answers to these questions. Read on to get a taste of their answers:

Event Preview

Am I going where I want to in life?

You may have lost your job, been burdened by debt, struggling to accomplish your dreams, burned out, or just confused as to what is the point to your repetitous life. It may be time to ask, “Am I taking the right steps towards building the life I want?”

Melissa Johnson, founder of Velvet Suite Marketing and the author of “Brand Me”, states that is it is critical that the internal is aligned with the external. She can help you focus on why it is so important to understand your core essence to decipher what are your next steps. She will be discussing Thursday on how to rebuild your vision, mission, objectives, and how these affect your self, the world around you, and your professional obligations.

How am I supposed to keep track of everything, get everything done, and maintain my sanity?

After listening to Melissa in person, you can’t help but get excited about getting your life jump started. But now that you’ve got perspective, how are you supposed to keep track of everything and consistently make progress towards it?

Leo Chang, founder of Shift90 and an application developer, can provide you a solution. To manage his responsibilities and others, he utilizes technology. Learning from task and project management applications such as RememberTheMilk, Things, OmniFocus, and 5PMweb, he developed a productivity application which he’ll be launching the Beta this Thursday! So come and check it out.

Can I trust my co-workers, employees, or contractors to be responsible with getting their stuff done?

Making real progess in your life requires the concerted effort of others. Putting the trust of your life in someone else’s hands can be difficult. Is there a way to have a productive team without micromanaging the whole process?

Ed Carreras, former Chief Intellectual Property Counsel for The Coca-Cola Company, has a simple answer. His secret is common sense practiced consistently – Find talent with the same values, invest energy into each person, eliminate unproductive people, be clear with your objectives, don’t have meetings that waste time. Learn more about these tips and others at our event this Thursday.

We hope this glimpse into Thursday will get you to come out and meet the speakers, and meet others that are consciously taking the effort to make a difference in their lives. If you have any questions please e-mail us at info@libreum.com, otherwise, we will see you on Thursday.