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By Roop Karnani Prakash Bhalerao, 52, an angel investor from the Silicon Valley, has, in the last 10 years, 40 startups to his credit and his success rate has been 100%. In the last two years he sold just three of his companies, Armedia, Ambit, SiArc to Broadcom, Cadence, Synopsis respectively, for a huge sum of US$ 500 million. That's not all - in the last year and a half he has raised over US$ 400 million in capital for six of his startups, namely Alopa Networks, Amber Networks, CMOS Chips, Ishoni Networks, ECTone and Concio. Market cap of these companies run into several billions of dollars and they employ over 1500 people worldwide. Last fortnight he was in Pune to launch the Indian operations of Concio, which he started 9 months ago and is already profitable and has 300 people working for it in the US. It specialises in software development for telecom and financial services.
What do you feel is the future of new economy startups in India? I think the core competency of India is in services and I believe there is a huge run left for the next generation services companies from India. Because of the raw investment that the likes of Infosys and Wipros have made in creating a huge pool of talent, India has an edge. According to me the next generation services are those which require vertical domain expertise, like expertise in areas of health care, insurance, banking, telecom, etc. Companies which have a sharp focus and have domain knowledge of these areas will do extremely well. What do you think about VCs in India, which have invested in dotcoms and nine out of 10 of them have folded up? VCs cannot just invest money and be sleeping partners. They need to do hand-holding, provide operating expertise to the companies they invest in. Otherwise they are not VCs - they are just financiers. And then they get into statistics of nine out of 10 failures. I for instance have a 100% strike rate for being successful in all my 40 startups, because I invest in a startup and build it up with a good management team, technology team, client base, etc. If you look at the original VCs which had people like John Doerr and Don Valentine, they too have a 100% hit rate, because they spent time and effort in the companies they invested in. In the mid-80s, in the US, typically a VC fund had a corpus of US $50 million. Each fund would have five partners and they supported, typically, three to four companies. But all those five partners had operating experience in the past. They were Vice-Presidents, CEOs of multinationals and they put in a lot of time and effort in their start-ups. The result - their startups were huge successes and as a result the next fund swelled to US $400 million and in the third round it swelled to 1.5 billion dollars. When these VC Funds became so huge, there came a trend in the VC community to go hire fresh graduates from universities who do extensive research. But these bright, young kids don't understand what business is all about. Don't get me wrong - these kids are smart, have a lot of analytical knowledge. But that is not enough - they don't know the pulse of the market place and they don't have the gut feel of the business, which comes only from hands-on experience. What is needed for a successful VC is to have a combination of analytical expertise alongwith operating experience. Let me profile an Indian VC company - typically they are one year old, they are run by management graduates, they have small funds, they invest in 8 to 10 companies and they are on the board of directors of all these companies - but they have no operating skill or domain experience. What is required is that these VCs must have one or two analytical people and one or two industry heavyweights who have long experience in building companies. The profile I see in general in India of a VC is of bright young entrepreneurs who are relatively less experienced and the funds are small. And they have all got into dotcoms. And that was a wrong thing to do in my opinion. Do you think that Indian VCs should not have rushed into financing largely only dotcoms? I am not saying not to touch dotcoms. I have invested in dotcoms myself. But dotcom is a branding game and it needs a different kind of discipline and expertise altogether. If P&G does a dotcom I would write my check for it straightaway. But two or three people coming out of companies like Sun Microsystems and wanting to do a hospital supplies dotcom, does not impress me. Just because they have a technical background doesn't qualify them to get into dotcom business. But don't get me wrong - consumer driven dotcoms are going to be big in the future. If the people who already know how to sell into the mass market and how to do retailing get into dotcoms, they are going to survive. Do you say that B2C is going to survive? B2C will survive, but not with the business model it has today. It needs a different business model. Look at eBay - it is a B2C. Its taking a commission out of every transaction done on the site. It has a solid revenue model and therefore it's a profitable dotcom and it did not get hammered on the stock market recently and eBay has done quite well. Whereas Amazon could have done very well but in my opinion it went after market share and tried to grab market share and wipe everybody else out at any cost. And so every book they shipped, they took a loss. In such circumstances one will run into problems unless one has enormous sustaining powers. I feel that B2C portals can do well if they have something unique which is not easily duplicatable. What do you think about B2B? B2B has an enormous future. Look at my company, ECTone for example. It is a B2B company. CISCO, which is ECTone's client has 35,000 suppliers. Of these only 200 are electronically connected to CISCO's ERP systems. 34,800 of the remaining suppliers are all dealing with CISCO using papers, faxes, e-mails, invoices, in the traditional manner. ECTone is bridging the gap, eliminating the drudgery and integrating the systems of small and medium suppliers of CISCO with CISCO's ERP systems. Similarly there are other companies doing payment automation, some others doing RSQ in management and so on. These are all B2B companies and have a great future. Within B2B again, B2B infrastructure companies are more attractive to me because there is a clear path to profitability. I can tell you that there are so many transactions in the sequence for which I can charge a transaction fee or become a settlement agent, I can collect subscription fees, and so on. Therefore, I can develop a very concrete revenue and business model. Where do you think India's future lies in the next millenium? I think that India should dominate and focus on very few areas of its strength. Like Taiwan has dominated the PC industry. Every PC in the world has something manufactured in Taiwan. Similarly, India could become a very dominant player in three sectors, namely - telecom, genetic engineering and micro-electronics. In telecom networking solutions India is already going ahead in a big way. I am talking of WAP solutions, etc. In case of genetic engineering, there is a large amount of data which requires to be stored, managed, compared, etc. And India has the right skills for data-warehousing and data-mining in a big way. Lastly, micro-electronics - I am talking of things like video compression, video streaming, etc. These have a great future and Indians can, with their programming skills become dominant in these sectors. |
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