Conversation with a Reader: Technology Entrepreneurship in India
Dear Sramana:
I have a different take on some of your notes. (Ref. Too Much Money, Too Few Deals)
While I do agree that there are not many technology companies in India which makes VCs shy away from making such deals to rather invest in what-India-is-known-for, there are some companies out there which are fighting to stay alive in technology domains looking for VC money that is not available.
According to my experiences, most VCs who visit India are not serious about technology companies. They are only scouting- it’s more like a reconnoitering trip. They come, they see, and then they leave. Unfortunately, they have not made up their mind, not because they don’t see much action, but because they make direct comparison between the startups in India and startups in US only to get disappointed. Such direct comparison based on Silicon Valley based parameters done in those short trips will indeed result in such disappointments. I can go on to say that as long as the same parameters are used to judge Indian companies, no technology startup which has organically grown in India will ever get invested. Unfortunately, Bangalore (India) is not Silicon Valley. Even if one were to beat it to death it will never turn into one. The parameters that work in India are different. A completely different mindset that has grown organically in India is needed if one wants to see technology companies out of India- they have to rely on local knowledge on how Indian entrepreneurs and Indian markets operate.
Most partners of Indian offices of Silicon Valley VC firms do not share the attitudes of their partners in US. Most of these partners in Indian offices have come from non-technology domain. They invest in companies they know best. If the most experienced bankers, ex-entrepreneurs, industry veterans who comprise VC firms in India are coming from services and dotcom companies, they continue to invest in the same. Their risk-averseness for technology companies turns out to be very high. They do not take chances in unfamiliar domains and continue to perpetuate our status as services/BPO/dotcom industry. In addition, most Silicon Valley VCs operate with more lax attitude compared to their Indian counterparts. Indian offices seem to have narrow criterion in their choices, more restrictions, and strong expectations in returns.
If Silicon Valley VCs are serious about investing in technology companies in India, they should hire ex-entrepreneurs, bankers and veterans from this field. If none are available in India, they should ask someone to move from US to India to LIVE here. No visiting VC who makes three tours per year can make an investment in a technology startup- logistics won’t work out. In addition, they should allow these offices to run independently allowing them to make mistakes the way they do in US.
Indian technology companies can be spawned only by Indian VC firms- those firms which have organically developed here in India. If Silicon Valley VCs wish to develop such VC firms in India, they need to sow the seeds, not bring the whole tree from US to plant it here.
Sujai Wednesday, September 27, 2006 at 5:42 AM PT
Dear Sujai,
I don’t disagree with you, but I too have a different perspective on what entrepreneurs in India should do. You guys will need to seek out the money in Silicon Valley, the investors who DO KNOW how to invest in technology, if that’s your area. I don’t necessarily agree with you that only Indian investors can invest in India. There aren’t that many Indians who have been in the venture business, and very few who have been successful, especially in technology venture - Vinod Khosla, Promod Haque, Yogen Dalal, to name a few. Ram Shriram has been very successful, but is more a dotcom guy. Then there were Angels like Raj Singh & Raj Parekh, Asha Jadeja & Rajeev Motwani, Prabhu Goel, a few others, who actually have had success investing in technology.
So if you do, indeed, have a decent technology idea, you are MUCH better off working with VCs in the US. You are absolutely right, most of the VCs who are operating on the field in India, are either Bankers, Services or Dotcom guys. They will not know how to do technology investments, and hence, India will not build up any technology entrepreneurship core competency.
Sramana Mitra Wednesday, September 27, 2006 at 10:38 AM PT
ps. I want to add a follow-on comment. For the longest time, entrepreneurs have used the technique of doing service projects to generate enough cash to build a technology product. This achieves one more thing, beyond cash: market experience. Technology entrepreneurs in India should look seriously into using this methodology of building a business, go after US customers, and in parallel build relationships with US VCs who understand technology investments, if that’s your goal. The likelihood of the investors coming to India is small. You will first have to come to the investors, convince them that you are worth setting up shop in India for. Until there is evidence of successful technology entrepreneurship out of India, you will otherwise continue to get only the services, BPO & Dotcom deals funded.
Dear Sramana:
I welcomingly approve your suggestion that a technology company should look at services as an option to achieve three things: manage cash flow, get market experience and achieve investor credibility.
However, we did not follow the services-path in our company (though we struggled for the last two years in our product-path and now we see some faint light at the end of the tunnel) for the following reason, which may or may not be valid for other technology companies, but is worth examining before embracing this option.
I believe that software-services and product-making companies breed two different kinds of company cultures. It’s more like creating generals suitable for two different kinds of warfare. (More on this at my blog: “Why Infosys cannot become a product-making company?â€) One has to be careful when making this choice of embracing services-path. One has to put in place a conscious and concerted effort to manage both options without diluting the cause. In my experience, I have seen many companies which have embraced services-option taking that path forever. I did not see them change their direction into product-making. Its short-term gain vs. long-term goals in action here- the intense pressure and the need to survive in a startup phase may push you into services-only path. You may want to ask yourself- “Is this why you got started in the first place?â€
Also, understand that you will be seen differently by the VCs of silicon valley when you are known for your design/software services- your value of the company depends considerably on how you project your company. Do not underestimate the brand image of your company. One should also examine this- Will VCs tend to invest in you to perpetuate your services-path rather than allow you to steer away from it? [Sramana may be able to throw some light on this]
When survivability is the key, and if services-path is the only option available to generate cash-flow, one should embrace it rather than risk death. But entrepreneurs should be aware that it is not going to be a simple next-step approach to transform yourself into a product-making company. Not many examples (that I know of) suggest this can be done. [And I don’t profess to be an expert on this topic. Hence, one should take my message with a pinch of salt].
Your points are absolutely true. It is not easy to manage the service culture and product culture in parallel. However, early-stage product development is very much like professional service. You speak with customers, understand their pains, needs, etc. and build soltions. The smart and experienced pick the RIGHT customers, so that they can identify a solution path that applies to a LOT of people.
That is what I suggest. Not blanket services, but services in the context of your product roadmap. If you are trying to build a Wireless Radio product, don’t go about doing service projects in Search Engine Optimization. This would be a kiss of death.
Interesting topic and discussion.
I run a services business in US that has India operations, so I spend some of my time in India. But, I have always been a product entrepreneur at my heart as I have started few product companies prior to this one. I have a couple of onbservations on this topic.
From my own experience, I find that it is possible for product-centric entrepreneur to successfuly run a services business. This is particularly true if you have experience with products that have services component to them. I think the converse is more difficult. It would be harder for a pure services person to transition into start ing a product company. I think shortage of product entrepreneurs could be an issue in India. The other thing I notice is that most people in India prefer brand name large companies to small startups. This poses a huge scaling problem to get the kind of talent needed to build and grow a product startup.
I would love to hear others’ thougths on this.
Yes, but there are entrepreneurs that have done this successfully. I incubated Intarka inside DAIS, and built the first product in that mode. Ajoy Bose, CEO of Atrenta, incubated Atrenta inside of his service company, Interra. Webex started off as a service company, and then became a highly successful SaaS company.
It does depend heavily on the entrepreneur, of course. Sounds like you have the DNA to do this.
As a person who works in a startup in a EDA industry I would like you guys to look at things from a different, i.e. employee perspective. The Indian psyche has always been attracted to foreign brands, some say that it is the post-colonial hangup at work. Nonetheless, this becomes a serious issue when you work in a startup which does real cutting edge work and yet you, the employee, dont get the coveted recognition amidst your peers while the guy doing some low end BPO stuff with a foreign brand or some biggie like Infy/TCS gets a much better clout. This almost always causes startups in India to be devoid of the best talent; and in the long run this is very severly damaging India’s chances of being a true blue R&D hub.Your comments on ways to circumvent this problem is highly appreciated.
I Agree with the topic and have some observation to prove the point further.
you need to feel the need,gap among people before coming up with a product.which can be more easily done when you are living among those people.
people like Sabeer Bhatia,Vinod Khosla did so after living in the us .so if your looking for a tech startup you got to be living in tech land.
further opening a company like IntuIt,Youtube can be done easily in an U.S. environment were almost everyone has internet access but not in a country like India.where the number of people having both computer and broadand connections is limited
i think the Indian consumer is not that tech savvy,and mobile phones are more accesible than computers.
indian technology success so far has been in dotcoms like matrimonial sites,job websites .
I would love to see some one disagree and support their points with examples of indian tech stratups.