FLOOR OF TECHNOLOGY BOOM IN INDIA
By John Boudreau
Venture capitalist Vani Kola, center, is greeted by a village elder in Pali Antham, a rural village a few hours away from Hyderabad, India. Kola, who returned to India after two decades in the United States, was checking up on a start-up firm that her company, NEA IndoUS Ventures, is considering funding.
MUMBAI, India - The founders of newly launched Kreeda Entertainment come from New York City, Belgium and Bangalore.
Their headquarters in India? A garage.
The start-up culture is indeed coming to this South Asian country.
``We were concerned about bringing the venture capitalists here,'' admitted co-founder Quentin Staes-Polet standing outside the cramped and damp office of his online game company with a staff of 15.
Actually, the VCs who were invited by the founders to possibly fund their company felt right at home in the dilapidated structure: `` `Ah, this is what it's supposed to be like,' '' Staes-Polet recalled.
The Kreeda founders, whose company provides online games designed for India's community-oriented cafe culture, are part of a new generation of entrepreneurs that see India as the new Silicon Valley -- the place to be in order to cash in on the world's latest boom-time wave.
Rahul Khanna, a director with Clearstone Venture Advisors in Mumbai, recalls when it seemed the only reason to move to India was to do Peace Corps work. ``Now the elite are coming to India and it's not for charity,'' he said. ``It's for wealth creation.''
From Bangalore to New Delhi, Indians, returnees from the valley and foreigners are writing business plans they hope tap into India's growing middle-class -- now estimated to be 250 million people in a nation of roughly 1.2 billion -- and the country's sudden and explosive appearance on the global tech stage.
Even the socialist-leaning government is catching the entrepreneurial bug: It is sponsoring incubators around the country that make it easier for start-ups to get up and running -- and attract VC bucks.
``India doesn't just want to do call centers,'' explained Dayanidhi Maran, minister of communications and information technology. ``Call centers are the low end of the market. We want to climb the value chain.''
Much of the intellectual property of the technology work being done in India today is owned by Western companies, Suresh Babu, co-director of the government's Software Technology Parks of India, said as he gave a tour of its new Bangalore incubator to house 21 companies. ``We want to promote the culture of start-ups and develop IP (intellectual property) of our own.''
The entrepreneurial yearnings have not gone unnoticed among valley VCs. Dozens of funds -- anywhere from 24 to 44, depending on who's counting -- are being created to focus on the Indian market.
In the first nine months of 2006, VCs have made 53 early-stage investments in Indian start-ups worth $355 million -- nearly twice as much activity as the two previous years combined, according to Venture Intelligence, a Chennai-based research service focused on private equity and venture capital activity in India.
``There are a lot of VCs all over the place,'' said Azim Premji, chairman of tech services giant Wipro. ``The country is flush with funds. So anyone who has got a good business plan can get it funded. It's a good trend for young people.''
The concept of venture capital, though, is still new in India, just as it was a few decades ago in the valley.
``I was talking to a guy who said to me, `Are these guys just pulling wool over my eyes?' '' recalled Vani Kola, a valley entrepreneur who has returned to India as a managing partner with NEA IndoUS Ventures. `` `They want to give me money? They don't want me to collateralize my house? They must be up to some scam.' ''
But the learning curve cuts both ways, she added. While it's not uncommon for power struggles between entrepreneurs and the backing VCs, the tension could be more acute in India. That's because the laws favor the founders, not the investors, Kola said.
``Here, if there were to be a tussle, the entrepreneur would win,'' she said. ``So you have to be careful about how you choose your relationships. You don't want to come in and throw your muscle around.''
For the start-ups, there is a new swagger.
``We are not scared of multinationals. Let them be scared of us,'' said Rajjat Barjatya, chief executive of Rajshri Media, a start-up spinoff of the venerable Bollywood entertainment company, Rajshri, that is creating content exclusively for mobile phones. ``That's the attitude.''
Krishna Motukuri, a former Amazon.com engineer, was drawn back to India to start a company because of the talent pool as well as the ``mind-boggling'' growth of the newly minted spending class. He is now co-founder and chief executive of Ugenie, a shopping search engine that will focus on the U.S. and Indian markets. Ugenie has $5 million in funding from BlueRun Ventures and Sierra Ventures.
``It will be one of the first global consumer brand companies out of India,'' he said confidently. ``That's our goal.''
There is a hunger, coupled with abundant engineering talent at low costs, that makes the rise of a start-up culture in India inevitable, said Tinku Acharya, chief technology officer of Arizona-based Avisere, who is heading up a start-up subsidiary in Kolkata. His team of 20 Indian engineers, who have developed data-mining video analytical technology, costs about $30,000 a month; in the valley, the collective salaries would be $500,000.
``My company, if we do it right, has lots of potential,'' said Acharya, who returned to India in June after 17 years in the United States and is looking for about $6 million in VC funding. ``And the whole technology has been developed in Kolkata.''
India tech entrepreneurs, though, face numerous obstacles, such as a lack of infrastructure -- something as simple as well-equipped offices -- and attracting top talent.
``They want to make a lot of money,'' Manish Agrawal, co-founder of Bangalore-based Picsquare, an Internet photo sharing site, said of job candidates. ``They can easily get a job at a big company and make three or four times what we can pay them.''
Even when an engineer wants to join his start-up, his or her parents, who value a stable job over everything else, might object.
``In India, parents have influence over which college you go to, which girl you marry -- and which job you take,'' Agrawal said. ``The parents aren't risk-takers.''
Added Picsquare co-founder Kartik Jain: ``You don't hire the candidate. You hire the parents.''
India's start-up culture is like an early-stage company: It needs considerable care and feeding, observed Ravi Kannan, co-founder of TutorVista, an online mentoring service that allows Indian teachers to assist students in the United Kingdom and United States. The company, with $2 million in funding from Sequoia Capital, is based in the new government-sponsored Bangalore incubator.
``I can come up with a good idea in one hour,'' said Kannan, a co-founder of Santa Clara computer security provider McAfee. ``But you need mentoring. You need funding. You need the ecosystem.''
He added, ``In India, we need more success stories.''
It will also need some Silicon Valley-style failures.
``The first time they fail, the entrepreneurs are going to be brutalized,'' said Bob Kondamoori, an experienced valley entrepreneur who is launching a $100 million India fund, Sandalwood Partners. ``There is a stigma for failure here.
``So that will be the time to go out to lunch or dinner with the whole family and say, `It's absolutely fine. It's part of the natural evolution,' '' he said. ```Let's lift him back up, brush the dirt off his shirt and put him in his second start-up.''
'For now, though, the new wave of tech entrepreneurs isn't thinking of failure. Kreeda, which just celebrated its one-year anniversary (and survived the ceiling of its garage headquarters falling and destroying one of its founders' laptops), is getting VC funding.
The company now plans to move out of the garage.
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