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