“What Is Important Today Is Generating Value for the Shareholder”

–Prakash Bhalerao, investor in IT start-ups. 

How are Indian

companies perceived today in terms of competence and

compensation?



On the competency platform, ITI and other defence research
organizations had shown their mettle as indigenous developers

with good research skills. Until eight-nine years ago, India was

seen as a muscle or body shopping center. Very few were known in

the IT sector. However, the first generation computer "techies"

did quite well in the US and got well placed and trained in the

computer, telecom, aerospace, and other markets. This is evident

if one looks into research papers published by IBM, NASA, or

Bell Labs. Today, we have a situation where in almost all the

start-ups in the Silicon Valley have at least one, if not

multiple, Indian founders in telecom/networking and internet

companies. In other words, Indians have made a difference and

people around have recognized their expertise and virtues.

Earlier, India was

primarily seen as a destination for cost reasons. The Indian

companies were seen using their talents to do custom jobs in the

US. But today things seem to be changing. MNCs are going to

India because of quality of service, and not because of cheaper

cost of service! It is perceived now that the talent in India is

nearly qualified, abundant, and the Indian operations would give

them the engineering capabilities to create "complete

products" and their derivatives. This is a marked change.

And today one would see a lot of companies in areas such as the

network management, last mile access field, routing, service

management, and carrier class network systems. Alopa Networks,

Ishoni, and Amber Networks prove that point. This will also help

in bringing the compensation very close to the global levels. We

have allocated stocks to all employees in India and the US.

Though the salaries may reflect local market conditions, the

stock options give them the same wealth.

Is dot.com the

next wave of opportunity for India?



Dot.com opportunity is real and massive. It can transform India
in a similar manner the PC revolution transformed Taiwan. The

overall infrastructure is weak in this area. Telecom access and

environment play a very important role. The government is keen

on improving it and is pushing up investments. However, to

facilitate the conditions, it has to not only evolve the

infrastructure, but also come up with regulations that not only

help in growth but also promote competition. B2C now has become

the game of "branding".

Opportunities in B2B

commerce are limitless at this point. Unlike in PC/chip

revolution, capital and resource requirements are within reach

of a number of companies this time around. Moreover, a number of

very successful, recognized, NRIs and their companies have

already laid the foundation.

In the US,

funding entrepreneurs is a well-established trend. What do you

feel would be the trend here in India and what do you feel are

the stumbling blocks? What would be the funding model in India?



The entrepreneurial drive has finally arrived in India. Earlier,
what was hindering the entrepreneurial push were factors like

knowledge and access to global markets, scarcity of funds, and

risk taking ability. Mostly, it had been the game of big

business houses in India. The business houses were amassing more

and more power. If you see the US scenario, technologies bled

into commercial arena through defence, aerospace, and university

research projects. Although the access to world markets was

open, the funds required to complete the products and to

establish distribution channels were substantially reduced

because "prototypes" were already developed in these

institutions. As a matter of fact the first generation of these

"products" were prototyped in these institutions.

There has been a close cooperation between businesses and

universities. It has not happened in India. Also the growth

through mergers and acquisitions has been a part of the

corporate strategy. There has been a social stigma and a

"loss of c
ontrol" associated with this scenario

in India. A company getting acquired or merged may be related to

as being in the red. The US, too, did not see it for some time.

But now it is an accepted norm for growth, leveraging on

complementary strengths. One should also remember that the

Indian capitalization structure for traditional companies is

different. In some cases, a whopping 80 percent of the equity

and 100 percent of the top management is family owned/related.

But today the scene is

changing. As not only are the venture capitalists keen on

investing, but also the NRIs, who have established themselves in

the entrepreneurial race elsewhere outside the country, want to

give a push to the spirit. The trend is that the capitalization

is distributed. Most significant step for the success is

creation of value within the company as there would be takers

and building a leading position in technology.

Today, funding is

available and "the time to money" has been reduced to

as close as



15 days. Creation of wealth in US started from the grassroots
and those who have received the funds and created wealth are the

ones who will and are seed funding start-ups. Initially, the

funding will not come from business houses, but such places

mentioned above.

Typically,

when would one become an investor?



Take for example, the case of Armedia. Broadcom Corp. acquired
it for $70 million and today its value is $450 million. Armedia

had about 28 engineers and I suspect every one of them,

probably, is now independently wealthy even in US terms! I would

not be surprised that after some time a few of them may invest

somewhere else in start-ups. Same scenario goes for other

companies like Infosys. It happened in US, it happened in

Taiwan, and will happen in India.

When do

companies get sold or acquired?



It
typically can happen one of three times in the company’s life.

The first being what I

profess as the Law of Thirty applicable in US (I am not sure the

equivalent parameters in India), i.e., if the founder of a

company is 30 plus years old, he has 30 plus percent holding in

the company, he drives a $30,000 vehicle, and he lives in a home

with a view of 30 degrees. In other words, he worked very hard

with a normal salary and is a bit frustrated that his friends

have made it and he has not and he is still struggling. When he

is offered $30 million for the company, he will sell it and with

this newfound cash is now ready to fund.

The second time in the

life of a company, an acquisition happens when the company has

filed for S-1 registration (A pre IPO process term). A strategic

customer or a competitor will make a move to acquire.

And the third time, it

happens is when public companies are ducking it out for market

leadership.

How do you

envision yourself in the role of investing?



Typically, I do not just invest. I like to help build companies.
There is a difference between investing and building a company.

There are two types of angel investors– "sleeping

angels" and "active angels". While the former

wakes up when exit time comes, the latter is involved in

building a company. I belong to the second category. That is why

I have been active in all the companies, be it Sage, Armedia,

Amber, Ishoni, Alopa, Silicon Architects, or C-Cube. I am

typically a co-founder in the start up. I am employee # 2 or 3

right behind the founder. I work with all my operational

expertise to help hire the rest of the team, help in positioning

the company, attract financing, BOD members, advisors, sometimes

key customer relationships, you name it. Once the team is

complete and the product definition and execution is on its way,

my role changes as more or less an active advisor. The thing to

remember is that we are creating differentiation. For a start

up, the mantra is "Give me differentiation or give me de
ath".

What is also important to

remember in all this is to keep generating higher and higher

value for the shareholders. For sure you do that by creating a

market segment and dominating that market segment. If you do

that well, you will get an exit either through IPO or an

acquisition.

Which are the

market segments that you are focusing?



Broadband communication. Ishoni Networks is developing
next-generation, integrated gateway platform that provides easy

voice and Internet services over a single broadband connection.

Broadband gateways allow end-user customers to combine high

speed "always on" Internet access with their telephone

service and media-rich content over a single connection. The

Ishoni platform will allow third-party OEMs to significantly

shorten their time-to-market with Integrated Access Devices (IADs),

and residential broadband gateway products. The Ishoni platform

will combine technologies such as xDSL, cable modems, voice over

IP, home networking over phonelines (using HomePNA

specifications) and wireless HomeRF technologies, to provide

shared Internet access throughout the small business or home.

Amber Networks’ focus is

on developing a family of carrier class specialized high

performance intelligent IP edge systems. Amber’s products

allow carriers to strategically deploy end-to-end services using

IP or IP/optics core networks. Delivering orders of magnitude

increases in bandwidth, offering transport capabilities for all

voice/video/data services and enabling next-generation

value-added network services. Uniquely, Amber allows carriers to

transition from today’s highly-layered, costly, overlay

networks to feature rich IP networks offering



a complete set of services from legacy to the emerging, rapidly
growing data services.

Alopa Networks is focused

on providing state-of-the-art Subscriber Service Solutions (SSS)

for broadband service providers across the cable, Digital

Subscriber Line (DSL), and wireless domains. With the

convergence between traditional circuit-switched voice networks

and IP-based data networks, service providers are looking for

ways to deliver various types of voice, video, and data

applications with guaranteed quality of service. Alopa’s

solutions will allow service providers to control and manage the

subscriber services life-cycle by continually



enabling dynamic creation of subscriber services, delivery of
services, and assurance of availability and reliability of the

services. Alopa products will help the service providers offer

differentiated services, resulting not only in increased

subscriber revenues, but also increased customer retention and

loyalty.