One Success Can Energise The Whole Society

The Indus Entrepreneurs (TiE) was born when a group of Silicon Valley entrepreneurs with roots in the Indian subcontinent met by chance in 1992. Out of the meeting came the idea of an organization that would bring together high achievers in the IT sector of the Indus region for the purpose of networking. From this simple concept evolved TiEs mission: to foster entrepreneurship and nurture an entrepreneur.

Rekhi himself is a classic TiE product. He co-promoted a networking company, Excelan, which was later bought over by the US major, Novell, for $ 200 million. Currently president of TiE, he was in India recently when he met Department of Electronics (DoE) secretary Shyamal Ghosh. Rekhi is in the process of preparing a paper for the DoE, outlining ways in which the TiE concept can be replicated in India. Rekhi talks to Rakhi Mazumdar about his plans for the Indian software sector. Excerpts:

 

Q: The Indian software industry has earned its reputation on the basis of its service orientation. Do you think it is now mature enough to be able to deliver software products of world standards?

A: Absolutely. But in order to move from a service-based industry to a product-based one, a number of things have to happen. For one, if you develop a product, you move up the value chain, and the worth of the company goes up tremendously. In that case, you can command a price that is much much higher that the market perception.

The Indian software sector is ready to make the move. I say this because a sizeable number of professionals have been exposed to technology. A lot of young people have technical savvy and are thus in a position to absorb technology and ideas. They can become entrepreneurs. One hit makes all the difference. Thousands try; out of that maybe 10 succeed; and that can make all the difference. One success can energise the whole society.

The first wave is waiting to happen. All the conditions exist for it to happen. They just need a little bit of help from government and people like us.

Q: How could you help?

A: Young entrepreneurs have a lot of energy but not much experience or wisdom of doing business. They need mentors, advisors, to further the spirit of entrepreneurship. That would help in minimising the risk in a such a high risk game like information technology.

People like us can be of help. We can be on the board of their companies, and help them leverage our association with them to raise funds.

Firstly, because we have passed through a similar phase and have learnt to create a highly successful venture.

Secondly, and more importantly, entrepreneurs have very little money. Our association with them can help them raise the seed capital. Otherwise they only have an idea as a prototype. We understand the technology as well as the nitty gritties of business. This can be utilised by them to gain experience and create something tangible, and perhaps valuable.

Q: Where will the funds for such ventures come from?

A: Risk capital is an important part of the whole thing, though not the most important. The government cannot give the venture money. And obviously, the funds cannot come from banks who use savings of widows or pensioners or from financial institutions. It has to come from people who can afford to lose money and not worry about it. Venture capitalism is a game played by high net worth individuals.

Software is an idea over the wire. Indians have a good reputation as software developers. The basic idea is to create wealth out of it. That way there will be surplus funds to invest in other ventures and ideas...In a sense it will initiate a self-sustaining process.

Q: How can be the government be of help in initiating such a process?

A:The government can be of immense help if they create an environment conducive towards formation of risk funds. For example, they can exempt risk capital from tax. Risk capital, by its very nature, is already exposed to high risk. If it is being utilised to fund a new venture, it is also producing jobs and wealth. Subjecting it to tax distresses the process.

Fostering entrepreneurs is a rapid way to energise and transform the society. They can change things overnight. It was information technology that was mainly responsible for the resurgence of the US economy in the eighties. It is risk capital that can make ideas practical. I can vouch for that based on my own experience.

Q: Can you mention some of TiEs success stories?

A: Most recently, Hotmail, the internets free-of-charge e-mail service was bought over by none other than Microsoft. TiE was associated with Sabeer Bhatia, the young entrepreneur behind Hotmail. Another success story is Srikant Chari of Los Angeles-based CyberMedia, which makes software for Windows, and is now valued at $200 million after a successful IPO.

Q: Could you tell us about your own experience?

A: I came to the United States way back in 1967 after graduating from IIT Mumbai. A number of jobs later, I found myself at the top of my profession in 1979.

I looked around to see that all others were setting up on their own. Silicon Valley has a long history of entrepreneurship. Yet it is difficult to get venture funds there. Somehow we managed to start Excelan with venture funding of $ 2 million. The company was into networking, both hardware and software. It did very well and we went public in 1987. Two years later Novell acquired us at a price that was many times the money that went into it. Others like Suhas Patil of Cirrus Logic which made new chip designs also blossomed.

So we had a proven recipe. Some of us decided to get together, and TiE was born essentially out of a need for networking to form a common pool of resources, a common pool of experiences and wisdom that can be passed on to future start-ups.

Q: Who are the others associated with TiE?

A: Vinod Khosla, co-founder of the $ 8.5 billion Sun Microsystems, Safi Qureshy of AST Research, Prabhakar Goel of Gateway Design, Desh Deshpande of Cascade Communications, Hatim Tyabji of Verifone Inc, Umang Gupta of Gupta Corp, and Suhas Patil of Cirrus Logic are some of the charter members of TiE.

Q: And you realised you could be of help to others without government help in terms of funds...

A: Yes, it is both public service and money making. But one has to understand that it is a science in the sense that it works on a set of principles.

Q: Can you elaborate?

A: For one, there has to be deeper understanding of the process. There has to be a technical assessment of the idea or the venture. Experts have to be brought in to understand the nature of the risk. Apart from the technology aspect, which is no doubt crucial since we are dealing with a technology-driven highly competitive area, the legal and the detailed financial viability of the venture also has to be examined.

We are not just talking about a partnership of individuals who are willing to pool in their risks. That is only a part of the whole thing. What really matters is the expertise needed not only to assess the viability of the venture but to nurture its probability of success.

For that to happen, the government has to do away with laws that come in the way of investing risk capital, for example, and approach the problem from a scientific way. For instance, it has to understand the risks involved with a start-up...

Q: What are the risks associated with a start-up?

A: One, whether it is technically feasible or not. Two, whether it will have market acceptability. Three, whether or not there is a financial risk that is, whether there will be enough money to proceed with the idea or not, understanding the cash flow etc. And lastly, but more significantly, the execution risk that is, whether the team of people will be able to carry it off or not.

A venture capitalist, in a way, has to have each one of those qualities. He has to minimise the risks. There has to be team of experts in technical and marketing matters who can perceive well in advance whether or not a start up will be able to add value to the concept. In fact, their share depends on it. In case a technical expert fails to understand the technology- related risks involved in the project, he stands to lose his share if the venture does not succeed.

Q: Is the Indian industry then ready for this burst of entrepreneurship?

A: I think the time is ripe; the people are ready; and the government is willing to nurture those professionals and not stand in the way. In fact, when I met the secretary at the DoE, he asked me to prepare a paper on how the venture capital system works in the US and how it can replicated in India. We have also signed an MoU with the National Association for Software and Service Companies (Nasscom) to identify and work towards producing potential winners.