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Understanding the Mindtree Conundrum


NEW DELHI: Siddhartha’s association with the founders of Mindtree began well before the company started. Around the middle of 1998, a mutual good friend, K Jairaj, suggested Siddhartha and I meet for lunch. I had no idea of the agenda and was surprised when Siddhartha expressed I should start out on my own and whenever I did so, he would be happy to provide venture funding support. This was followed by a separate meeting with Lip-Bu Tan, chairman of Walden (venture capital firm), who left me with a similar offer. Accordingly, when I “met” my co-founders through Walden, the funding was assured. Most of the founding team lined up largely by Subroto Bagchi were current and past members of my team!

Mindtree’s launch in August 1999 with Siddhartha’s venture firm GTV and Walden as our partners was the beginning of an amazing, supportive, non-interfering relationship with both, which continued well beyond Mindtree’s 2007 IPO. Both Walden and GTV brought us leads for customers and Siddhartha was able to support us in multiple other ways due to his local presence, including keeping space available in his Global Village Techpark till Mindtree was large enough to move in with buildings built to our design.

While the relationship began with me, Siddhartha soon also built bonds with other founders, primarily Subroto and also Krishnakumar and Rostow, the current CEO.

In 2011, when I decided to leave Mindtree (and start Happiest Minds), Walden and I were the largest shareholders with about 22% of the company. When we both decided to divest, Siddhartha moved decisively to pick up most of our shares and become a “white knight” for the founding team. If not, Mindtree could very well have faced in 2011 a situation similar to what the remaining founders are now facing.

This turned out to be a winwin as the team delivered excellent returns for Siddhartha while they continued on the journey of building Mindtree.

At this juncture when the market has been abuzz with rumours regarding Siddhartha’s plans to divest, I empathise with both parties. It is logical for Siddhartha as an investor to divest since he obviously has other requirements to deploy his funds. Also, a 20-year investor relationship is as long as you will see and for which any management could wish.

At the same time, I also empathise with the founders who are ostensibly doing their best to raise funds and retain control. In their place, I would have done the same, only more aggressively. However, considering the market value, the founders would require a combination of financial strategies to retain control and I am sure they will actively explore multiple options.

A new win-win would be if Siddhartha is able to monetise his Mindtree investments and if the management is able to raise the money at a price which a strategic investor is willing to pay. The amounts are large and, as of now, it’s not clear if the remaining founders can make this happen. The matter has been making news for several months and I’d like to believe that the delay in effecting a strategic sale is due to Siddhartha giving time to the founders to provide an alternate solution.

However, this had to close within a finite period and it seems that a larger IT company is poised to make its moves to reach the threshold of 26% holding for an open offer. The new buyers will have to take several more steps before they acquire control. If this happens, they should also keep in mind that the Mindtree leadership has delivered excellent returns to shareholders since the 2007 IPO. Accordingly, they should do their best to retain the key team members by giving them appropriate leadership roles in the new integrated structure. However, the founders have also indicated that they will make a concerted effort to retain control. I wish them great success in this endeavour, though the odds seem stacked against them.

(The writer was the founding chairman & CEO of Mindtree. He’s now executive chairman at IT services firm Happiest Minds)

Source: Economic Times