Venture Capital in India: Ashish Gupta (Part 4)

SM: There was a wave in the category of mobile value-added services. What is your synthesis of that at this point?

AG: The biggest challenge for most of the companies at this point is that the carriers choose to keep 85% of the revenue. They expect the startup to put in the capex to get the service going. In large measure, it resembles a crapshoot. If you hit on a service that takes off like wildfire, then you have something going, but the number of flame-outs far outnumbers the number of successes. It is not unlike a Facebook app business, except the costs of experimentation here are very high as opposed to Facebook apps.

We went through a phase in which there there were a lot of companies out there. I think that we are past that phase. Now there are a few established players who have figured out how to and have the ability to experiment with taking on more-value added services. The number of people who can take new value-added services has consolidated. The men and the boys have been separated, so to speak. Established players now have more liberty.

Now, many of the carriers want to upgrade their technology platforms around the services, which were built which look like spaghetti. One type of next generation company coming in is going around and cleaning up the technology platform. It is more like an infrastructure play at this point.

Will the economics meaningfully change? I think that they will start to, because there is another type of value-added services company that is emerging: mobile commerce and payments. These companies are not relying on the carrier, just the data. The reason the carriers were able to charge disproportionate amounts is that there was no other way to bill other than through the carrier, and there was no other way to get to the customer other than through the carrier. By taking a data approach they are not relying on the carrier.

SM: Where are they getting the data from?

AG: They are basically offered as a downloadable app. If you have a data connection on your phone, you can download the app and start using it. That class of company is a new area, and there are many more companies coming around there. Data availability in India is increasing significantly. I think that this will convince the carriers to change their business models.

SM: Have you seen anything in the hardware or chip side that is of interest?

AG: We see very few of them, for a number of reasons. There is not an ecosystem where you can cut the deals needed to go do high-volume ASIC business. The few that we have seen have been around WiMax space or multiple modems in one. It was carrier equipment at the very edge of the network. I don’t know of any meaningful examples of hardware or chip companies doing meaningful stuff. I could also be missing a few jewels because they are not in large-volume deals.

SM: India needs a big “one success” story before it can really pull off that market.

AG: One of the other things that we tend to find hard for these companies is that they are very much an improvement over state-of- the-art-type companies. They come out of an established ecosystem rather than something external to the ecosystem. You really need to have a very good handle on state-of-the-art in order to be able to significantly improve it. Then you need to be close to the ecosystem of state-of-the-art in order to flesh out the details. That just does not exist in India.

This segment is part 4 in the series : Venture Capital in India: Ashish Gupta
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