TECH START-UPS: Indus Valley, Circa 2002



Right from University of California, Berkley professor AnnaLee Saxenian to
journalist Michael Lewis (author of such titles as Liar’s Poker and The New
Thing) many observers have made important points about the phenomenal success
that Indian entrepreneurs in the Silicon Valley have enjoyed. Lewis, for
example, calls them “ferociously, recklessly competitive”.

Saxenian, a sociologist, calls it a middle-class phenomenon. “These are
the hard working kids of the middle class,” she says. They are the most
talented engineers in the valley…” and they work their butts off,”
is how Jim Clark describes them. While a lot of statistics can be thrown up to
support the point, a simpler approach for removing any doubt would be to have a
glance at the member list of the Silicon Valley chapter of The Indus
Entrepreneurs (TIE).

In short, the success of Indians and the companies promoted by them, is
beyond doubt in the Silicon Valley.

So
what’s new?
That Indian-promoted companies account for the biggest chunk of Silicon
Valley start-ups is certainly not new. Neither is the success of Indian software
companies like Wipro and Infosys in the global market. Not, for that matter, is
the product development as a phenomenon in India. Though not too old as a trend,
today there is a sizeable number of multinationals whose products are being
developed fully in India–either by captive development centers or by Indian
companies, such as Wipro and HCL Technologies as an outsourced activity.

What we are charged up about is a new trend. It is the emergence of a new
breed of start-ups who are betting on India to develop their own products or
professional services capabilities (having their own intellectual properties)
for the global market, in the entire telecom value chain. These companies may or
may not be headquartered in India, but their product development happens largely
in India. Arguably, it is a result of all the three above-mentioned factors.

We have a list of such companies with briefs on what they are doing at the
end of this article. Each of the company in that list satisfies all the
following conditions:

l It should be
addressing the need of any player–equipment maker to service provider to the
end user–in the telecom value chain through its own intellectual property

l India should be
inseparable from its business plan

l It should be
addressing the global market. The product or professional service should have a
need in the international market, and not just in the local market

l It should be
pre-IPO

We feel these companies are India’s value leaders of tomorrow in the
technology space. The reasons are many.


For one, these companies are creating technologies or products or services
that bear the manufacturing stamps of these very companies. Their creation is
not anonymous. This is a big change from the way we have been doing business in
IT.

Two, by working on tomorrow’s technologies, they are making sure that when
the networks of tomorrow run, they will be controlled by Indian brainpower.

Three, by far the most important, they are sending a strong message to the
world–India is no more content being a backyard. It wants to take the
decisions and define the direction in which the technology moves.

So a Bangalore or Gurgaon is not a helper boy to, but a young cousin of, the
Silicon Valley. This is a big change. Just imagine the kind of impetus that it
could give to the entire Indian economy!

The
New I; It stands for India
For any technology start-up developing a product, there are three essential
stages that it should go through, says Dr Sridhar Mitta, partner at the venture
capital firm e4e. He should know. Both as a person building the strong
technology base of Wipro in its early days to spearheading it in the US, he has
done it all. According to Dr Mitta, these three stages are very, very
fundamental to a technology start-up company.

Stage 1, he says, is to clearly understand the market needs, which more often
than not would happen if one is close to the market.

Stage 2 is the longest. It is translating the market understanding to a
product that could address the needs. This includes understanding the needs,
finding a solution to the problem, designing the engineering specifics to build
that solution and finally actually developing the product.

Stage 3, of course, is to ‘market’ the product, conduct beta testing and
field trials and then go to the development team with feedback to improve the
product before it is ready for being ‘sold’.

Sanjay Anandram, managing director, Jumpstartup Fund
Advisors, another venture capital firm, that has invested in a few telecom
product companies including July Systems, agrees with Dr Mitta’s views. And
therefore, he says, “The core team of a technology start-up company should
essentially include a technology architect and a product marketing person.”

A technology architect is a person who understands the
problem technically, is able to think of the solution, and create a roadmap for
the products that need to be designed. He is ideally a person who is a
technologist but has worked in the industry, either in the segment of business
that the product is targeted at (in this case the telecom service providers or
equipment/semiconductor companies) or has the experience of designing the
product in a big telecom company. The key task here is to take the idea to the
design lab. It is this kind of a background that most of the successful Indian
entrepreneurs in Valley have–be it Pradeep Sindhu of Juniper, Mukesh Chatter
of Nexabit and Axiowave, Raj Singh of Siera and Comstellar or Romulus Pereira of
Riverstone.

A product marketing person is a marketing professional who
understands the problem in business terms, has excellent industry contacts,
understands technology and the solutions at a holistic level, though he may not
be knowing the exact specifications. His job is to take the product from the lab
to potential users for testing, and making it accepted. Typically, he has worked
in the user industry as an operations man or in the big product companies as a
marketing person. Examples include Vivek Raghavan, who shot to fame with Redback
Networks and Krish Prabhu, ex-COO of Alcatel America (now a VC).


Indians are succeeding in both these roles. So, Valley is
today full with start-ups which have at least one Indian member in the core
team. According to some guess estimates, they form about two-thirds of total
start-ups in the network equipment space.

Most of these new entrepreneurs are in the age group of
30-45. So they are still familiar with India. What’s more, in the last
seven-eight years, thanks to change in India’s business environment and its
new found status as a technology development base, these professionals have been
making business trips to India, as part of their employer companies and so are
familiar with the business environment here. This is in sharp contrast to their
predecessors in the US, who came to India ten years ago only on personal trips,
once in two years.

While this is a fundamental reason for considering India
seriously to build their products, this itself cannot be a reason for taking the
decision to invest. There are more tangible reasons. They are:

n Availability
of ready manpower:
This is different from trained manpower. A start-up
usually does not have the resources and time to train people. That kept them
away from India till yesterday. But today, thanks to the Indian companies like
Wipro and development centers of MNCs like Cisco, Siemens, Lucent, TI, and
Alcatel, there is a ready supply of people who have developed products. They are
not just conversant in technology, they also understand the dynamics of product
developments.

n Confidence
in handling remote operations:
All start-ups are taking a technology risk,
so usually they do not want to take a process risk as well. Today, the MNC
development centers have proved that it is not such a big problem managing
product development remotely. Some of these entrepreneurs have managed it
themselves as part of big product companies. That has given a lot of confidence
to the start-ups to do product development in India.

n VC
and angel money is flowing smoothly:
But why is it happening now? Though
Indian entrepreneurs have been succeeding in Valley for quite some time, it is
only recently that many of them have turned angels and VCs. A combination of a
willing VC and a willing entrepreneur–what more do you need? For example,
Prakash Bhalerao alone helped three companies funded by him–Alopa, Ishoni, and
Amber–to operate out of India.

n India’s
own open environment:
Environment in some places is also becoming open and
cooperative, a la Silicon Valley. That brews entrepreneurship. However, this
phenomenon is restricted largely to Bangalore so far. No wonder, more than half
of these companies are in Bangalore alone.

n Cost:
Last and least, the cost factor is in India’s favor. Still.

All this, of course, does not mean that all companies work on
a model that is US—India. There are companies that are headquartered in India.
That number is growing. Tejas Networks, for example. Though it is funded by US
VCs and Dr Gururaj Deshpande, it is headquartered at Bangalore. So is Ittiam
Systems. Lifetree Convergence is another company that has its entire team in
India. It is headquartered in Delhi.

Classifying the Companies
Broadly speaking, all the companies in our research can be divided into
three types–the companies that are developing solutions for the service
providers, the companies that have products for the device makers and/or chip
makers, and the companies that are providing professional services using India’s
human resource.

n The
Carrier Equipment Companies:
These are the developers of systems and
software for use in the service provider networks. Maximum companies in our list
fall in this category. There are two types of models that these companies
follow.

The first set of companies, that follow an India—US model
are incorporated in the US but have development in India. These are companies
that mostly target the North American market and hence want to be closer to the
market. Almost without exceptions, these are started and/or funded by
angels/investors from Silicon Valley. Examples include July Systems, Bay Packets
Technologies, Aplion Networks, UshaComm, iPGen, iPolicy Networks, Ishoni
Networks, Alopa Networks, Winphoria Networks, etc. One point worth noting about
these companies is that more than three-fourths of these companies–like July
Systems Bay Packets, Ishoni, and Alopa–have been started with India-centric
business plans, right from day one.

The other set comprises of companies that are headquartered
in India. These companies are more open about targeting at geographical markets
and are looking at North American as well as Asian markets, specifically China,
India, and Southeast Asia. Examples include Tejas Networks, Lifetree
Convergence, WDC Solutions, Phonologies, and Cygnet Software. Tejas, for
example, has already closed deals with Chinese and Indian carriers. WDC has
deployed in Malaysia and Lifetree in Hong Kong, Italy, Madagascar, and India.

n The
Component Companies:
These are companies that design embedded solutions for
use by system developers and chip manufacturers, protocol stacks, software
products to be used by other system developers. Most of them are home-grown and
headquartered in India. These are started typically by technologists, and do not
spend big marketing dollars. However, it should be clarified that they are not
the typical contract developers. They retain their own IP. However, many of them
also do some amount of custom development for their big clients.

Examples of this type include Ittiam Systems, Ionic Micro,
TeleSilikon, Mistral Software, Sasken, and Futuresoft.

n The
Professional Services Companies:
These are the companies that provide
professional services to telecom service providers. Though only two companies–namely
Glow Networks and Peak XV Networks–exist in this space, the reason why we have
included them as a separate category is that they are different from the product
companies and yet sell to the end user, the service providers. This is a space
that is expected to see a lot of action, though the market at this point of time
is slow. Expect activity in India, China and South East Asians markets.

Can We Create another Silicon Valley?
That, of course, is the next logical question.

On being asked this question in a book about successful
Indian entrepreneurs, AnnaLee Saxenian says: the most important thing is to
create an open environment. “It should be one that encourages horizontal
flow of information and joint problem-solving across traditional
boundaries.”

“Silicon Valley is to the US what the US is to the rest
of the world,” notes Michael Lewis in his book, The New New Thing. It’s
not about technology, it’s not about venture capital, it’s not about the
market. It’s about an open culture. That is the reason why it attracts the
best talents from around the world.

Theoretically speaking, India is probably the only country in
the world, apart from the US, that is a big, pluralistic society.

Bangalore today attracts the best technical minds from around
India–Ahmedabad to Bhubaneswar, and Jaipur to Thiruvanantapuram. While Silicon
Valley has seen many success stories of Indians and Chinese, Bangalore has
probably more technology professionals from Andhra Pradesh than Karnataka.
Bangalore, which houses the best of software companies and multinational
development centers, and more recently the technology start-ups, looks the best
bet to be another Valley.

That is the theory part. Practically, it requires a few
components.

A thriving technology development base is a must. And it does
exist to a great extent.

One of the most important attributes of Valley is the
industry-academic collaboration. Never forget the contribution of “father
of silicon valley”, as many call him, Fredrick E Terman, the former dean of
engineering, at Stanford University, who envisioned a community of technology
scholars. In India, the base is there. We have excellent academic institutions,
the IISc, the IITs. But we have to go a long way in terms of building a thriving
relationship between them and the industry, even though it has begun of late.

Financial reforms and changes in our company laws that would
make it easier for our companies to tap the markets are also a must. It is
debatable whether many of these companies would ever be listed in India,
considering the way Indian stock markets operate. Frankly speaking, in a
globalized economy, that’s not a must. A company can still create wealth for a
significant community in India by being listed at Nasdaq.

And finally, the development of domestic market is something
that has become crucial. With developed markets almost saturated, it is India
and China that are leading the global telecom growth. Most start-up companies
have so far targeted the US market. In a mature market like that, a start-up is
more equal to a big company than it is in a developing market. It will probably
be the toughest challenge for all these companies. Because, their core strength,
apart from technology, is the smooth networking that they have in the US. In an
Asian market, on the other hand, they have to market much more formally and put
in a lot more effort. Early success signs of companies like Tejas, WDC, and
Lifetree are encouraging. This could turn out to be the trickiest part in the
whole game.

The Wonder That Would Be India
India, according to Anandram of Jumpstartup, is a positive factor in a
business plan today at a Silicon Valley start-up. Many of the entrepreneurs that
we talked to agree to the view. In the age of judicious spending and lack of
good manpower, the I-word certainly finds a chord with the VCs in Valley. Quite
a few of them are from India, anyway.

According to Anandram, it is compelling business sense for
any company that requires more than 30 technical proffessionals to bring the
development to India.

Now, for a moment, forget any company. Just take into account
the companies that have been started by the Indians in Valley in the last three
years. Divide it by four. That would be a fair guessetimate of companies that
can potentially bring their technology work to India. Add to that the companies
that would be started from India by Indian entrepreneurs, the technologists
working at the MNC development centers and big India companies like Wipro and
Sasken. And consider the multiplier effect in terms of flow of VC money and the
new tech euphoria.

That would give you a fair idea of Indus Valley, Circa 2006.
An India that would be home to all the intelligence that would flow in the
nerves of global networks.

Are we ready?

Snapshot
of 30 Tech Start-Ups

Shyamanuja Das and Ch
Srinivas Rao

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