''All Dotcoms Will Have To Become ASPs''

INTERVIEW: K.B. CHANDRASEKHAR, FOUNDER, EXODUS
"All Dotcoms Will Have To Become ASPs"

Fortune considers his newest venture Application Service Provider- Jamcracker-one of the coolest companies in the US. Red Herring believes the story of 'how he founded Exodus' is a case study in tech-entrepreneurism. In the 10 years he's spent in the US (he landed there in 1990, with just around $5,000 in his pocket), K.B. Chandrasekhar, once a customer support engineer in Wipro, has, if you could pardon the cliché, come a long way. Exodus-he's hired professionals to run the company now-is worth over $30 billion. And like the venture capitalist who first funded Exodus, Kanwal Rekhi, Chandra (as he insists on being called) has taken his job of playing angel seriously. He is one of the investors in Chrysalis, a veecee firm focused exclusively on India. In early October, Chandra was in Bangalore to announce the launch of e4e (entrepreneur for entrepreneur), touted as India's first technology holding company. e4e (Chandra is Chairman) is patterned on the US-based CMGI-which either operates or has holdings in 70 companies including Altavista, Egroups, Lycos, Productopia, and uBid. Already, e4e, has attracted partners like Somshankar Das (who was with veecee firm Walden), Lakshmi Niwas Mittal Internet Ventures, William Melton (founder of Verifone and Cybercash), and Peter Howley, CEO, IPWireless. Chandra spent some time with BT's S. Venkatesha Babu, detailing his plans for e4e. Excerpts:

Q. Why a tech holding company? You're an angel, and there's Chrysalis...

It's really the process of evolution. I do not think I've been able to make my investments in various companies work in an institutionalised fashion. In the future, there is going to be lot of inter-dependency. And after my experience with Aztec Software and Unimobile (previously Gray Cell), I decided that India as an investment destination was coming of age. And there was a huge opportunity waiting to be tapped.

But all these companies operate in the services sector and face the threat of technology-obsolescence. Thus, the level of investment and support required by them is long-term in nature. And the returns start happening after a few years. I felt a technology holding company was the ideal vehicle. We intend to take a stake with a larger time horizon. Unlike a veecee fund which would have to necessarily liquidate its investments to return them to its investors, e4e will help us to, say, maintain our stake even after an IPO.

And if you look at the kind of people we have managed to attract, most of them do not come from a veecee background. They are people who have run big companies themselves-been entrepreneurs. We are looking at dividends and other forms of returns rather than immediate capital appreciation.

Does this mean all your investments in India will now be routed through e4e?

Most will be. e4e currently has a fund corpus of $125 million. And we are looking to invest $300 million in various Indian companies over the next three years. As a part of my contribution, my stake in Aztec Software has already been picked up by it. However, since e4e will focus on areas like network management services, wireless data services, high-end Customer Relationship Management (CRM), value-chain integration, and managed infotech services, I will continue to fund opportunities outside these areas that I find attractive. One example of this is my recent investment in ehealthindia.com, a portal addressing the requirements of hospitals. However, depending on synergy, my other investments could become part of e4e.

Your investment in ehealthindia. com is your first in an Indian dotcom. What is your reading of the dotcom scenario in India?

I think we have a tendency to over-react: we either hype something or dump it. A few months ago we couldn't get enough of dotcoms. Now, nobody is ready to touch them. True, several useless dotcoms were funded by greedy investors. But I still don't see a problem with dotcoms. The problem is with their business models. When companies are set-up on a flaky business model, and do not even know how they are going to make money, it does not matter whether they are dotcoms or not.

My investment in a dotcom is in a company which is trying to integrate hospitals with pharmacies and to help patients by providing a total integrated solution. This is a real need. Therefore, I am excited by that investment. But I won't be surprised if nine out of ten dotcoms do fail, as most have been funded by simple greed. And the comeuppance for greed is just around the corner.

What are the sort of dotcoms that you think will weather this storm?

In all my investments, the first thing I look for is the people. They are the key drivers to the success or failure of an organisation. Any company which has the right mix of people, a sound business model, a clear path to profitability, and fulfils a real need will eventually survive and flourish.

Are there any vertical segments in dotcoms that excite you?

I believe all dotcoms will have to become Application Service Providers (asps) if they have to survive. They have to be both transaction and application-oriented.

You are the chairman of the veecee Recommendations Committee set up by the Securities and Exchange Board of India (SEBI). What is your reaction to the latest announcement by SEBI that veecees must liquidate their holdings in companies within one year of making investment to escape double-taxation?

This is a serious issue. I spoke to the PMO in this regard. The government is favourable to re-examining this issue. More than anything else, these irritants send the wrong signal to all investors.

India also has problems in a number of other areas. I believe that we have taken too much time to open up our infrastructure sector. Our legal system leaves a lot to be desired. For example, I had to justify why I wanted to invest in ehealthcareindia.com to the FIPB. That's insane (laughs).

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