Technology and the Indian VC

Exercise1 : Look at the array of companies that Indian venture capitalists are investing or have invested in India. Name one company which truly excites you as innovative. And when I say you , think of a hard core risk taking technologist.

Let me try to explain it with a comparison.

Sequoia capital is a very respected global VC firm. It has teams set up to invest in 4 geographies, US, India,China and Israel.

Exercise 2: Check out two observations - for India and for Israel.

• How many partners of Sequoia have technology focus in India versus in Israel?
• How many Israeli investees versus Indian investees do you believe focus on a technological innovation versus business/services innovation?

I wouldn't go into numbers here since I personally don't know these people or companies. But let me just profile one Israeli investee for you. It is called ScaleMP.

http://www.scalemp.com/

ScaleMP has developed the versatile SMP (vSMP) architecture, a unique approach that enables server vendors to create industry-standard, high-end x86-based symmetric multi-processor (SMP) systems. ScaleMP and its industry-leading partners team-up to deliver vSMPowered™ systems with superior performance at x86 server prices.

Mind you , this is just a software company. But look at how it can fundamentally change the rules of the data center game. This is hardcore technological innovation.

Let me also profile the Sequoia partner who led this investment.

Benny Hanigal

Benny Hanigal is a Partner with Sequoia Capital Israel and focuses on semiconductor and systems investments. Prior to joining Sequoia Capital in 2001, he was a Partner in Star Seed, where he led the investment activities in Israel and abroad. Before establishing Star Seed, Benny was Founder and President of Lannet until it merged with Madge Networks where he continued as a SVP for Product Development and Marketing. Earlier, Benny was Co-Founder and Chairman of Alvarion (ALVR). Benny has BS in Electrical Engineering from the Technion - Israel Institute of Technology.

What is the point you might ask? After all, Israel and India are apples and oranges. But my question is very simple - why are such companies not getting funded in India? Is it the case that Indian engineers are not capable of such innovation? Or is it that they are , but such startups have absolutely no hope of getting funded in the short to medium term? I think the answer is latter. If VC's are funding me-too travel portals and e-commerce websites ( I have no grudge against them; Infact, I think they deserve to be funded for creating value) then what do you expect the brightest engineers in India to go after?

Are the Indian VC's fundamentally risk averse when it comes to technological innovation? Will this be the major obstacle in preventing India from becoming a technology leader ? Is that good or bad?

The ountrepreneurs

The frontpage news of KPO/BPO/LPO companies doesn't tell the complete story about outsourcing. Revenue projections or the tom-tomming of India's leadership doesn't tell it, either. The real story , in my opinion, is unfolding in the small by-lanes of Bengaluru,Hyderabad,Pune,Noida and Gurgaon.

Silicon valley in the early-to-late 90's was probably similar. Everyone , from the retired pensioner to the school going teenager, thought he/she could build a hotmail and walk away with 400 million dollars. People who went through the tech bubble and subsequent bust talk about an invisible force , a certain madness, which had gripped everyone who knew anything about technology.

A similar scene ,albeit in outsourcing, is unfolding in India. "Show me a business model and I will show you where outsourcing fits in" say the ountrepreneurs. From editing to teaching to hiring to intellectual property , everything is up for grabs - for the right price. Having personally seen the kind of talent pool (and growing) we have and the kind of money they are willing to work for - it really borders on the insane. I looked at the Mckinsey report on Indian consumer projections and even by 2025 , only about 2% of Indians will earn more than 10 lakh INR per year. And the average annual income in US is today 16 lakh+ INR at today's exhange rate. Do you see the boom now?

And who is cashing in? Answer - everyone you dismissed as a nobody - housewives, college dropouts, second generation family businesses, also-ran graduates etc etc. These are the ountrepreneurs - who have understood the power of outsourcing and are using it to generate real value. Big outsourcing firms have their place under the sun , but these small operators , with 10-50 employees at maximum, will be the real drivers of the Indian outsourcing juggernaut. And they are distributing wealth much more than the bottom heavy , top light big Indian multinationals. Ironically, the word "outsourcing" still carries a largely negative connotation atleast in the circles I have been - you get into outsourcing because you are not good enough for the top IT MNC's. If you have a degree from premier institutes like IITs/IIMs , outsourcing is a complete no-no. Guess who is having the last laugh now?

iPhone uncensored.

The sight of humans in all shapes and sizes camping in front of an AT&T store for days , waiting for their beloved iPhone, was as amusing as I have ever seen in recent times. It reminded me of queues that Indians are ( or were ) quite familiar with - ration shops, community taps and voting. But few Indians would queue up for what is essentially a luxury item. And to buy luxury items, people (all over the world) typically want a luxurious experience. With one exception. If you a self-professed cool dude/junkie/geek/tech analyst , you will walk over hot charcoal to get first to that next bleeding edge technology product.

But wait, is iPhone really a bleeding edge technology product? People have their opinions on this but largely the answer is no. Still , People will buy iPhone because it is made by Apple and it has a catchy name which rhymes with iPod which most of them would already have. Some of them would even have iMacs. Or Powerbooks. Or some such expensive , sleek looking accessories. This is yet another feather in the marketing acumen ( some call it gimmickry) of Steve Jobs and Apple. They have perfected the classic art of mass marketing in the guise of niche marketing.