Alok Kejriwal On The Different Shades Of Money.

Some interesting observations from Alok Kejriwal :

“After my first round of VC funding, I ran into my uncle at a dinner. He had read about the financing in media and cornered me. ‘So you’re rich! Why are you looking so gloomy?’ he said. ‘Huh’ I asked? ‘My Company’s the one that got funded, not me! No one got rich. The VCs got poorer and a long arduous road lies ahead of me to return the money to the VCs many times over’. He chuckled and said’ ‘What nonsense! The first rule of the funding game is to siphon out 25% of the funds and make yourself-rich. Investors can be dealt with later’. Shucks… hadn’t I heard that story before? Many of my relatives have floated public issues that were nothing short of scams and they still boast about it!

This ‘get rich, siphon out’ philosophy left so many old industrial houses bankrupt. They were never capitalized to take advantage of acquisition opportunities and punished their shareholders so harshly that they could never raise capital again. Think Mafatlal, Dalmia and many more.  Even today I meet embarrassed professional managers working in ‘family’ firms who get paid salaries in ‘half white and half black’ to avoid taxes!

It takes a Tata DNA to create a TCS, Tisco, Telco + 100 other Companies with massive cash reserves on their balance sheets. This was especially tough during the Indira Gandhi emergency tax regime when the Income Tax rate was over 90%. Almost everyone gave up and resorted to siphoning off money from the Balance Sheet, but the Tata Companies hung on.

When you build a cash war chest, and deals like Corus or Land Rover come your way, you have the ability to execute.

On a depressing note, look at the state of Hindustan Motors and Fiat India today. Even though they dominated Indian roads for decades, they are bankrupt today. Even the mighty Bajaj could not build a Nano (the natural progression after a scooter). It took the Tata group to do it. Of course, on the flip side there are the Mittals and Ruias who have built massive empires in the past 20 years.”