Thursday November 18, 9:59 pm Eastern Time
FEATURE-Tech boom fuels venture capital in India
By Y.P. Rajesh
BANGALORE, India, Nov 19 (Reuters) - Conventional wisdom in India perceived capital as a scarce resource and labour as
abundant and cheap. Globalisation and software have changed all that.
With the global boom in software, labour -- the skilled variety -- is in short supply. And there is no dearth of capital for people
who have the right skills and killer ideas.
Venture capital is the flavour of the year in India, with a host of foreign funding agencies being joined by old-fashioned
behemoths like the state-run mutual fund, Unit Trust of India, in launching venture capital funds across the country.
India is seen as one of the most promising sources of skilled labour and a probable place for innovative software applications and business ideas because of its
vast and fast-growing community of well-educated entrepreneurs.
Those entrepreneurs have perfected the fancy jargon which was until recently the preserve of Silicon Valley -- VCs (venture capitalists), startups, business
models, exit strategies, angel investors...
In April, two officials of the Indian unit of Lucent Technologies Inc (NYSE:LU - news) met executives from the Walden International Investment Group in San
Francisco, looking for venture capital to fund a software consultancy.
Walden not only brought in the investment, it also got the entrepreneurs -- Subroto Bagchi and Rostow Ravanan -- to join hands with Ashok Soota, then the
vice-chairman of Wipro Ltd , the country's second largest software export firm.
Soota was himself looking for VC funding for a startup with the same business focus as Bagchi, his former Wipro colleague.
With a $9.5 million investment and Walden playing priest, their ideas were married to form MindTree Consulting, which is a typical example of how startup firms
are being created.
Venture capitalists say they are looking for strong entrepreneurs, rather than the business plans they offer.
FUNDS CHASING ENTREPRENEURS
``There is a tremendous amount of activity happening on the entrepreneurial side in India ... and VC funds come in when this activity is good,' Sudhir Sethi, chief
representative of Walden International in India, told Reuters.
``We get to see one new business plan every day in the infotech sector and that is just a third of the total activity,' said Sethi. His sector-specific India fund has
invested $30 million of the available $63 million since its inception in April 1998.
``Even a year ago this was unimaginable,' Sethi said.
Among the big names operating in India are Draper International and eVentures, formed by Rupert Murdoch's News Corp (Australia:NCP.AX - news) and
Japan's Softbank Corp .
In its annual report for 1998 released in September, the Indian Venture Capital Association (IVCA), which has 21 members, said the pool of funds available for
VC activity rose to 29.88 billion rupees ($687 million) from 25.59 billion rupees in 1997.
Investments made during the year grew to 12.56 billion rupees in 728 projects from 10 billion in 691 projects in 1997. And the infotech sector got the largest
chunk of 3.24 billion rupees of the total funds invested.
Figures for 1999 are almost certain to show a big jump.
``Firstly, there is an incredible amount of un-invested offshore money that just does not know where to go,' said Paraj Kakkar, business development manager
with Graycell Applied Technologies Pvt Ltd.
A three-year-old firm specialising in wireless technologies to link pagers and mobile phones to the Internet, Graycell expects to become for the wireless Internet
world what free e-mail service provider Hotmail -- founded by Indian-born Sabeer Bhatia -- became to the wired Internet.
CALIFORNIA DREAMS FLOWER IN INDIA
Last June, Graycell, which was launched with an initial investment of 400,000 rupees ($9,195) in 1996, received a much-needed $1.7 million investment after its
idea was snapped up by Walden, Draper and K.B. Chandrasekhar, co-founder of Exodus Communications (NasdaqNM:EXDS - news), a leader in data
hosting.
``VC Funds in general have seen the returns made by the software-infotech boom on Indian stock markets and want part of the future pie,' said Kakkar.
Fast-growing Indian software firms, led by Nasdaq-listed Infosys Technologies Ltd (NasdaqNM:INFY - news) , Wipro Ltd and NIIT Ltd , have fuelled a bull
run in Bombay.
With optimism in the air, venture capital funds are courting young companies involved in developing niche software products, e-commerce technologies, modems,
Internet products and portals.
The entrepreneurs are fired by the success of people like California-based Chandrasekhar and Bhatia and Seattle-based Rakesh Mathur, who joined three other
Indians to found junglee.com which was sold to Amazon.com (NasdaqNM:AMZN - news).
``If the same Indians can succeed so well in Silicon Valley, they certainly can do it here,' said A.J.V. Jayachander, president of ICICI Venture Fund
Management Co Ltd, the country's oldest and largest venture capital fund. |
