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FEBRUARY 7, 2000 VOL. 155 NO. 5

Or, You Can Just Sell Out
Eschewing an IPO, an Indian entrepreneur gives up his portal for a quick pot of cash

The big names in the Indian business world--Tata, Godrej, Modi--are hard to avoid because they're stamped on products the companies make: trucks, soap, copying machines. Rajesh Jain's name isn't on anything--except one of the biggest business deals of 1999. Before that, Jain operated a website listing local news and sports scores, IndiaWorld, designed to appeal to Indians living overseas. His 20-person staff was squeezed into a 90-sq-m warren in downtown Bombay. Profits were minimal. But in November, Jain sold his portal company, IndiaWorld Communications, to Satyam Infoway, an Indian Internet service provider listed on New York's NASDAQ. The $115 million deal--one of the biggest Internet transactions involving two Asian companies--gave Jain, 32, instant celebrity.

Jain taught Asia what Silicon Valley has known for a long time: going public may be the most celebrated way to cash in on the Internet, but selling out can be a sure-fire moneymaker. Satyam Infoway wanted content popular with overseas Indians to complement its own domestically oriented portal. IndiaWorld was up, running and racking up most of its 13 million monthly page views from outside the country. Jain got an unusual windfall because Satyam Infoway is paying the entire purchase price in cash, not in its own stock, more typical in such deals. For Jain, the sale was like a lottery win: his initial investment had been $50,000.

    ALSO IN TIME
Cover: Dotcom Mania
As Asia's Internet start-ups race toward lucrative listings, investors have dollar signs in their eyes
First, Create the Hot Start-up: Helloasia.com's founders think they can make their red-hot site 'sticky' and profitable
Then Pray for The Angel: After a midlife career change, investor Jim Mellon is looking for a few good ventures
Next, Call in The Venture Capitalist: AsiaTech takes high-stakes gambles on Internet firms
Cozy Up with The Incubator: A Hong Kong financier and his British partner hope to nurture the next big things
Now You Are Ready for The Listing: Hong Kong debut endures rough ride on the market
Or, You Can Just Sell Out: Eschewing an IPO, an Indian entrepreneur gives up his portal for a quick pot of cash

Beijing Tries to Build Barriers
Regulating the Internet

Viewpoint: New Eras All Too dot.common
What's pumping up Internet-company valuations? Hot air

Viewpoint: The Sound of Asia Booming
In this online exclusive, Bob Davis, president and CEO of Lycos, gives his take on the growth of Asia's Internet economy

It's a classic Internet story of a little idea that turns to gold. Jain, a Columbia University-trained engineer, actually benefited from an initial bout of e-adversity. In 1995, Ravi Database, the software-services company he founded in 1992, went broke; Jain was forced to close up shop. Chastened, he embarked on a soul-searching sabbatical in the United States. What he found was inspiration: Jain noticed the vast number of Indian expatriates with little access to news about the subcontinent. He figured the Internet was the ideal delivery system.

The shy, bespectacled Jain boldly set up IndiaWorld the same year with money he had saved from two years working in the U.S. It was a modest start-up, proof positive of how diminutive the barriers to Internet entry can be. "I wrote my business plan on Post-it notes," he jokes. The IndiaWorld site was built almost entirely using public domain software, such as the free Linux platform, and it was maintained on widely available Apache servers. "In our entire five years, we have bought only three software packages: Windows, Office and Photoshop," he boasts. To cut costs, Jain wouldn't return long distance calls when he thought the other side might call back. And he avoided taking calls through his expensive mobile phone service.

The first two years were spent convincing advertisers that an online company had genuine potential. "In a small business, there is no such thing as a small mistake," he says. "We always knew our first mistake could well be our last one." With its healthy online traffic, IndiaWorld has evolved into one of the most extensive general sites for information about India, though its profit last year was an imperceptible $5,800. But a buzz had developed, and Jain was courted by "angel" investors, foreign venture capitalists and banks eager to lend. In the end, he went with the Hyderabad-based Satyam Infoway, deciding he had "maximum comfort levels" dealing with an Indian buyer.

Satyam Infoway is one of the largest Internet service providers in India, which doesn't allow competition from such global giants as America Online. "We already have a substantial audience in India," says chief executive R. Ramaraj, "and with IndiaWorld we have acquired an India-interest audience globally." Satyam Infoway now claims 30 million page views a month, and its share price has doubled since the IndiaWorld purchase. The deal also helped kick off an Internet frenzy among Indian entrepreneurs and financiers, especially in Bombay, Bangalore and Hyderabad, fanned by the central government's recent commitment to develop India's information technology sector. Dotcoms are sprouting across the country, spurred also by the entry of big international investment funds. Some Indian-born Silicon Valley programmers and engineers are finally coming home to put their skills to use. Says Vijay Angadi, the Bangalore-based managing director of U.S. venture capital fund ICF Ventures: "There is a significant change in mentality among people in the last few weeks. It's as if the creative juices have been suddenly unleashed."

That ferment will undoubtedly produce more buyouts and bonanzas like Jain's. There is, however, a potential downside to selling your e-baby for a bucket of cash. Sabeer Bhatia, a Silicon Valley engineer, started Hotmail in 1995 with the inspired notion of offering free e-mail to the world. So successful was Hotmail that Bhatia sold it to Microsoft two years ago for $400 million. Perhaps he was rash: one analyst recently valued Hotmail at more than $6 billion. But Jain says he has no regrets about his sell-out: he's planning to put his money in the bank--and still penuriously avoids his cell phone.

Reported by Saritha Rai/Bangalore

COVER STORY
First, Create the Hot Start-up
Then Pray for The Angel
Next, Call in The Venture Capitalist
Cozy Up with The Incubator
Now You Are Ready for The Listing
Or, You Can Just Sell Out

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