In February 1972, Nixon went to China. While American bombers scoured the Vietnamese countryside with defoliants and explosive ordnance, killing and maiming its inhabitants by the millions, Richard Nixon arrived in Beijing, where flashbulbs popped on the tarmac, and a giddy American press corps – already primed to call this ‘the week that changed the world’ – went into ecstasy. An avowed anti-communist, no less, this president – the first to ever visit the People's Republic – had crossed the Pacific to extend a historic offer. Officially, it was peace. The US and China were not to be friends yet, but cordial acquaintances agreeing to agree on future agreements, eventuating in normalized relations.

By positioning the US – at arm's length – on China's side, Nixon and Kissinger had turned the mutual suspicion cleaving Sino-Soviet relations into an irreparable rift whose parties could now be dealt with on more favourable terms (Strategic Arms Limitation Talks [SALT] I, for example, was inked three months later). But this was not just an exercise in geopolitical manoeuvring, meant to isolate the USSR. There were other motives afoot, motives concerning the future of the world economy and America's place at its centre.

With the global financial and monetary system of Bretton-Woods deteriorating fast in the 1960s, it had become urgent that US monetary imperialism underwent transformation. First, by suspending gold convertibility of the dollar in 1971, US Federal Reserve Chair Paul Volcker removed the cap that was placed on America's balance of payments by tying it to a finite material. Next, an ingenious reversion: instead of acting as the world's creditor (drawing on its now-depleted gold reserves), the US would become its chief debtor, exploiting to the hilt that old saying, ‘If you owe the bank $100, that's your problem. But if you owe the bank $100 million, that's the bank's problem’ (the dollar's value being kept afloat by the petrodollar). By greasing the wheels of commerce, and the palms of politics, with a flood of American treasury bonds, it would remain the world economy's ‘indispensable nation’, still capable of exercising outsized authority – but now through a more elastic financial instrument. The US, of course, reserved the right to threaten war should anyone get any bright ideas and try to call in its tab.

Introduction

The aim of this chapter is to analyse the supply (Ss) side of the VC ecosystem in India. On the supply side, the limited partners (LPs) and the general partners (GPs) constitute the key players governing the flow of VC funds. Among these, the LPs are the fund providers that determine the aggregate quantum of VC funds allocated to India. The GPs are the fund managers who raise these funds and invest them in fledgling investee companies (Gompers and Lerner 2004). In general, the flow of aggregate VC funds is impacted by the macro fundamentals of the economy and the conducive policy environment (Cumming and Macintosh 2006; Bonini and Alkan 2009; Cherif and Gazdar 2011). On the other hand, the fund-raising potential of the individual VC fund managers is the function of their historical reputation and performance (Gompers and Lerner 1999). The former set of factors are referred to as systematic influences since they tend to affect all the VC fund managers in a uniform manner. The latter set of factors are the nonsystematic influences since these vary based on the reputation and performance of each fund manager.

In this chapter, we first examine the systematic influences on aggregate fund-raising. We then probe the role played by the non-systematic influences in determining the fund-raising potential of the VC fund managers.

Supply of Vc Funds

The aim of this section is to lay out a plan for in-depth analyses pertaining to the supply side of the VC ecosystem.

Conceptual Framework on the Factors Influencing the Supply of VC Funds

A broad structure for analysing the supply of VC funds has been given in Figure 4.1. The key hypotheses based on the same have been outlined here.

Proposed Hypotheses

Hypothesis 1: Higher growth of real gross domestic product (GDP) positively influences aggregate fund-raising (in general, more funds are directed to growing economies).

Hypothesis 2: Higher interest rates on risk-free assets negatively influence aggregate VC fund-raising (since the opportunity cost of allocated funds to VC as a conduit of investing funds increases).

Hypothesis 3: Robustness of the stock markets positively influences aggregate fund-raising (since initial public offering [IPO] is known to be the most profitable channel of exiting VC investments).

On 23 April 2013, a national strike or hartal, called by the official opposition to Bangladesh's ruling Awami League, was in its third day and traffic in Dhaka was lighter than usual. Factory owners were under pressure to get their employees back to work. Only a few weeks earlier, the Bangladesh Garment Manufacturers and Exporters Association had reported that the combined cost of recent hartals was estimated at $500 million. Workers were scarce throughout the area's industrial corridors, but could still be found in Rana Plaza, a towering structure that loomed over the Dhaka-Aricha Highway. There, 20 miles from Dhaka in the town of Savar Upsala, on the main artery connecting the city to its garment districts in the suburbs, some five thousand workers worked on eight cramped floors, making clothes for Walmart, Primark, Mango, Benetton, and other Western brands.

Like a Bollywood villain, the man who owned the place could be seen driving around the town on his motorcycle, ‘as untouchable as a mafia don’, accompanied by several paid heavies. His name was Sohel Rana and he had acquired the land for his five-factory complex – which he humbly named after himself – through threats and intimidation, obtained building permits through bribes and graft, and constructed its top floors with no regard to government regulations. His position as Secretary of the local student chapter of the Awami League had enabled him to exercise control over local strikes and use them as bargaining chips. Rumours about guns and drug smuggling on the side had long been circulated.

The sound of an explosion echoed through Sohel Rana's third floor. Terrified workers ran outside and were told by supervisors to leave early. An engineer, Abdur Razzak, was called in to inspect the deep cracks that now appeared in the concrete pillars and walls. He warned that the building was structurally unsound, declaring it ‘vulnerable’. But Rana would not accept this verdict. As reporters arrived on the scene, he gestured at the damage, explaining, ‘This is not a crack … the plaster on the wall is broken, nothing more.

Background

The aim of this study was two-fold. To start with, we were interested in analysing the principal components of the Indian VC ecosystem. For this, we identified the key stakeholders, gained an insight into their operations, and analysed how these elements interacted with one another to advance the interests of the Indian VC industry. The other purpose of this study was to probe in detail the decision-making processes of the individual VC firms at each critical stage of their investment lifecycle – investment in fledgling start-ups, involvement with the funded entity, and exits from the same.

At the outset, we surveyed the theoretical and empirical literature in this domain in order to familiarize ourselves with the findings from the previous studies. The literature survey covered both VC ecosystem related aspects and the aspects pertinent to the micro-strategic VC decision-making processes. The VC ecosystem comprised three core entities: limited partners (LPs, or fund providers), general partners (GPs, or fund managers), and entrepreneurs (fledgling start-ups). The LPs and GPs made up the supply side of the VC ecosystem while the entrepreneurs constituted the demand side.

To gain an insight into aspects of the strategic decision-making processes of the individual VC firms (GPs) at a micro level, we reviewed literature pertaining to the entire VC lifecycle – investment decisions, portfolio involvement intensity, and exit related strategies. We probed how the VC firms address the risks arising from information asymmetry, namely adverse selection and agency risks, at each subsequent phase during their lifecycle.

Summary of Findings and Inferences

The findings and inferences from this research study have been discussed under two broad heads: one, those pertaining to the VC ecosystem related macro aspects and, two, those related to the micro-strategic decisions during the VC lifecycle. These have been discussed in detail in the next two subsections.

VC Ecosystem in India: Findings and Inferences

To start with, we modelled for the supply side of the VC ecosystem using ordinary least squares (OLS) regression models. Two sets of models were built here: a macro-level model to identify the nature of systematic influences on aggregate fund-raising (that is, the funds raised in aggregate by all VC firms [that is, general partners] operating in India) and a micro-level model to understand the nature of non-systematic influences that determined the fund-raising potential of the individual VC firms.

Leadership is an obsession – a national obsession, arguably even a global one. But while in response to this obsession has been the burgeoning, now half-century old, multibillion-dollar leadership industry, it has not been especially effective. The leadership industry has failed to live up to its original, high-minded intention, and it continues to resist changing in ways that are other than cosmetic.

Preamble

Venture capital (VC) is regarded as one of the most important financial innovations of the twentieth century. It has emerged as an important source of funding in modern times in particular, because it finances those companies that might not have received funding otherwise (Schwienbacher 2009). It has played a key role in the emergence of new economy industries, resulting in high economic growth (Dossani and Kenney 2002). Some of the world's most visible companies today, such as Intel, Apple, Yahoo, Google, Sun Microsystems, Facebook, or Cisco, would not have probably existed without VC support (Gompers and Lerner 1999). VC has been extremely successful in contributing to the development of innovation, and converting innovation into profitable technologies (Schwienbacher 2009). VC-led innovations are also known to have significant spillover effects on the rest of the economy (Van Pottelsberghe and Romain 2004). In fact, the aggregate impact of the companies funded by VC has been found to be far more important than the size of the VC market itself (Schwienbacher 2009). VC has had a significantly positive impact on short-term as well as long-term employment (Wasmer and Weil 2000).

VC as a source of financial intermediation primarily evolved in the United States. Among others, the advancements in the electronics industry and computer technology in the Silicon Valley are believed to have been the major catalysts contributing to the formalization of the VC industry there (Gompers and Lerner 2004). Later, in the 1990s, the VC industry spread to other parts of the world – Europe, Israel, Taiwan, and the other emerging economies in Asia. In India, VC as a source of funding to be reckoned with emerged only during 2006–7 onwards (Bain Consulting 2012).

Despite its late beginnings, the growth trajectory of the Indian VC industry has been particularly steep. As of the present time, there are more than 900 VC firms operating in India (Venture Intelligence 2019). India has emerged among the most favoured destinations for the allocation of global VC funds, and in 2019 ranked fourth in terms of global VC investments, after US, UK, and China (Ernst and Young 2014). VC has funded more than 10,000 deals since 2005 (Venture Intelligence 2019), and almost all unicorns operating in India as of 2019 have been VC funded (Bain Consulting 2012).

On 14 November 2009, Fruit of the Loom (FOTL), the world's largest producer of T-shirts to the US market and the largest private sector employer in Honduras (Doh and Dahan 2010; Anner 2013), announced that it would reopen its garment factory Jerzees de Honduras (JDH), under the name Jerzees Nuevo Dia (JND), or ‘New Day’. They had capitulated almost entirely to the demands of the union and international activists. The final deal, negotiated between FOTL workers and executives, included rehiring of 1,200 employees, a multi-million dollar payout to workers, and a commitment to extend union neutrality and access across its Honduran supply chain.

This is the story of a garment factory that was shut down by its owner in response to unionization, as so often happens. But in this case it is also the story of how FOTL, the factory's TNC owner, suddenly reversed course and, in so doing, fundamentally altered how it approached labour relations. The embattled union drive overcame retaliatory sacking, death threats, and a nine-month factory shutdown, while keeping up morale and high participation to win an impressive package of wages and benefits and create the political space for a new wave of labour organizing in Honduras and abroad.

The garment and footwear sectors are not monolithic, of course, and evolve in different and uneven ways, with a great deal of intra-sectoral variety. Previous chapters outlined how the particularities of garment and footwear production – fashion trends, seasonality, and so on – are made for highly fragmented, labour-intensive, and low-value industries. The top-heavy power balance in these value chains allowed buyers to exert persistent downward pressure on suppliers, who were less and less capable of capturing enough value to upgrade. And that pressure, like all downward market pressures, ultimately fell on workers, whose wages were further squeezed by employers with nothing more to give.

Since the production process depends on what is being produced, seasonality and fashion kept the garment and footwear GVC low-tech and vertically disintegrated, while the least seasonal and fashion-sensitive are the most valorized and vertically integrated. By way of illustration, my case studies focus on a few of the least seasonal and fashion sensitive products in the sector: jeans, casual shoes, and sports shoes; and this chapter's focus is on cotton T-shirts and undergarments.

The lust for money is no more, and no less, than the insatiable desire for more money. Some people want to accrue enormous sums of money for a larger purpose such as, for example, improving schools, enhancing the arts, or sending a spaceship to Mars. Other people want to accumulate money, and then more money, absent any larger intent. Either way, however high the pile of money, it is never high enough.

It turned out we were on to something. Lust matters. It might seem curious, but when we start writing a book such as this one, both of us know generally where we’re going and what we want to say, but not specifically, not exactly. In this case we knew generally that despite its being completely ignored in the twenty-first century leadership literature, lust has been of significance in the past and was certain therefore to be of significance in the present.