Volume 14, Number 1 Article by G Sabarinathan March, 2002
Round Table Discussion: VC Investment Trends in IT Businesses in India :
How are venture capitalists reacting to the boom-and-bust IT business scenario? Has there been a shift in entrepreneurial activity from the traditional software services to products? Is Intellectual Property creation possible out of India and what do Indian companies have to offer to the global market? How would ?Silicon Valley Angels? affect the competitive paradigm for Indian VC funds? What is the possibility of germinating a venture in India and transplanting it overseas? How can Indian business schools and institutes of technology contribute in the vital field of R&D?
Entrepreneurs, venture capitalists and academics participated in a round table discussion on VC investment trends in IT businesses in India, at IIMB last year, the discussion being anchored by G Sabarinathan.
While there have been promising developments in the pre-requisites for building intellectual property, said Kiran Nadkarni of JumpStartup, there are constraints to IP creation such as poor understanding of market dynamics, the lack of a supportive ecosystem, absence of time to market pressures, and a continued VC focus on services. The challenge for VCs now is to develop the ability to assess technology business plans and to transform investee companies into global companies. He sees potential funders as US based angels, early stage VCs and strategic investors. India?s attraction to services, according to Siddhartha Das of Intel Capital, was because it was the low hanging fruit. But the historical lack of focus on product-focused initiatives has been because of the lack of a product mindset, of the market and of risk-capital. Corporates like Intel invest in order to create an ecosystem. If companies want to succeed in the current environment, they should take on board investors with complementary strengths.
Pradeep Kar, Founder & Chairman of the Microland Group, who moderated the Q & A session of the round table, spoke of the group?s venture into telecom convergence space through Net Brahma Technologies and the challenges of trying to build a telecom software business. He spoke of the difference between software services space and telecom space, his understanding of the market and the opportunity in telecom space. Companies here will have to play ahead of the game, take chances well in advance, be smart enough to see which companies will survive and whom to ride on, and which network processors and new equipment makers will come in. Vinod Chandran of Ind-TeleSoft emphasised that products have a separate value chain starting with components, going on to sub-systems and overall systems. For a product company to move up this chain, it would have to score high on the competency traits of innovation, technology, product management, marketing, forming alliances and partnerships, and sales and distribution. Indian companies could build products in the lower end of the value chain, products for which there is a local market, incubate the product and then migrate to the largest market or simply set up shop in the largest market.
Subhash Reddy of e4e Labs brought to bear his substantial experience of building companies to say that India could build something in between product companies and software services companies with the characteristics of both. While India may create innovative technology, software successes conceived in India would be rare given the changing value chain, the changing markets for products and technologies and the inertia of the services-driven IT sector. The software opportunity for India in the coming days is to build XSP businesses like e4e, build to sell, be a backend R&D centre for a US or European company, and develop and license patentable technology. Abhay Havaldar of Connect Capital stressed that all technology companies have to be global, disaggregating different processes and locating them in the best geographical locations. Companies will become Indian when Indian investors start buying them. The issue of products and services is primarily a mindset issue. Services companies live in the present while products companies live in the future and the difference between the present and the future is how you manage uncertainty.
Other issues that were thrown up in the course of the discussion were - whether any discernible trends existed as far as patents were concerned, whether Indian VCs were positioned to make larger scale investments required of higher-risk products, whether institutes of learning were contributing to R&D, whether Indian companies have strong advisory bodies closely allied with them, as in the US, why Indian companies still look to angels in the US, and what role founders play in the eventual success of a technology company. The panel agreed that patents were still an academic or publication issue in India with companies lacking the motivation to go after one. M R Rao, the Director of IIMB, spoke of the link between VC activity and endowment funds in educational institutions, from his experience of IIMB?s NSR Centre for Entrepreneurial Learning and the incubation centre.
Reprint No 02106b
