India Starts Up (Upside)
February 22, 2000
by David James
Ganesha is on the minds of many Indian software companies and IT entrepreneurs these days. This Lord of all Beginnings and Remover of Obstacles in the pantheon of Hindu gods is worshipped by 80 percent of India's population. He is the elephant-headed god who gives support and encouragement to new undertakings and is a source of strength in times of rapid and uncertain change.
India's software exports grew by 68 percent in 1998/1999, totaling $2.65 billion. Furthermore, some $200 million of venture capital is currently available for Indian technology startups.
For Indian technology industries, Ganesha's support is in high demand. India's dominant business model is changing rapidly from one focused on Unix computer platform services to one focused on a growing number of Internet-related services. Indian software developers are finding that their engineering strengths are opening a wide array of opportunities in the development of Web- and Internet-based activities, such as business-to-business e-commerce, data centers, application hosting and medical transcription.
Back in the mid-1970s, the Indian government, then the purchaser of about half the computers sold in India, standardized on the Unix platform. Indian software companies subsequently built a solid reputation for Unix-based software development. Motorola (MOT), Texas Instruments (TXN), Hewlett-Packard ((HWP) and other multinationals established engineering centers in India to take advantage of India's large pool of low-cost, capable engineers. In addition, Indian companies such as Wipro and Infosys Technologies (INFY), grew wealthy by exporting software engineering talent (a practice called "body shopping") to provide on-site services to customers in the United States and Europe.
Despite the huge obstacles facing IT development in India, Indian software companies are experiencing a boom. IT entrepreneurial activities are picking up and venture capital and foreign investment are pouring in. According to India's National Association of Software and Service Companies (Nasscom), India's software exports grew by 68 percent in 1998/1999, totaling $2.65 billion. Furthermore, some $200 million of venture capital is currently available for Indian technology startups.
Starting up India. Indian software and IT leaders such as Infosys, Wipro, Satyam Infoway (SIFY), and NIIT are not only enjoying record profits but also are rapidly expanding at home and overseas to translate their software strengths into Internet capabilities. In addition, industry observers believe that strong gains in the market value of their shares will enable market companies to expand into IT-related businesses by acquisition.
In October 1999, Satyam, India's leading private sector Internet service provider, listed American Depository Receipts on the Nasdaq with spectacular results, of more than $74 million. Satyam's chairman, B. Ramalinga Raju, says that Satyam will use its new funds to expand its Internet network and international gateway in India.
Earlier, in March 1999, software developer Infosys, had equally good results and became the first Indian company to list its shares on the Nasdaq. With an offering price of $34, its stock commenced trading at $47 and the company managed to raise more than $70 million against a high-side expectation of $53 million. Infosys, now with first-half 1999 pre-tax profits up 134 percent and high value stock to trade, is reportedly on the hunt for acquisition opportunities in the U.S., presumably to gain new IT-related technologies or market share.
"The success of these technology companies has ignited a new-found entrepreneurial spirit in India," claims B. V. Jagadeesh, co-founder and chief technology officer of Exodus Communications (EXDS). Jagadeesh is one of many India-educated engineers who migrated to the U.S. and built a successful technology company. "Five years ago, Indian entrepreneurs at home were focused on starting consulting firms. Now they see the rewards of taking greater risks and developing new technologies and products."
Jagadeesh recently gave the inaugural address to the new Bangalore chapter of The IndUs Entrepreneurs (http://www.tie.org) , a Silicon Valley networking organization. "The excitement of these young entrepreneurs is vibrant, a real change from five years ago," he says.
A helping hand. Jagadeesh says that he and other U.S.-based Indians are personally helping to fund technology startups in India. In addition, Indian and U.S. venture capital firms are investing in young companies there. Examples:
? Walden-Nikko India Management, an affiliate of San Francisco's Walden Group, and U.S.-based Draper International, has joined Exodus Communications CEO K. B. Chandrasekar in backing Gray Cell, a Bangalore firm. Gray Cell has a Web-based product that links mobile phones with the Internet and can collect requested information from multiple Web sites into one package.
Pramati Technologies of Hyderabad, a developer of Internet and middleware software products, recently received $1.4 million in first round financing from Citibank N.A. Private Equity. Jay Raghavendra, Pramati's founder and CEO, says, "With venture capital now available in India, there has never been a better time to build software in India."
William Draper, head of venture capital firm Draper International, believes there will be many such investment opportunities in the next five years. "In the past, India has provided the grunt work -- the code-crunching -- for software that was designed in the U.S. But in the next five years there will be more and more technology design work done in India, and this will require a lot of venture capital."
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