A company that my brother cofounded just got acquired for around $50 million in cash. It had 40 employees and found a use for some cool technology that they developed in providing a Zero Touch Fraud detection solution. This year revenues were around $3-$4 million and next year may touch $10 million. I think they started the company in 2003. It took them 3-4 years to get to $50 million.
The reason I posted this was to get Indian product entrepreneurs thinking.
Are there some Indian product examples similar to this ? Are there any barriers that prevent Indian entrepreneurs in doing a 40 turns 50 in 4. ? I am sure there are quite a few barriers but Indian ingenuity is supposed to get past them. Right ?
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There is no doubt that we will see Indian product companies flourish. And these will have to be companies that at least to begin with cater to the domestic market. A $50 million IPO for an Indian product company in the next 5 years sounds very much possible.
I know a lot of you might disagree but I think that lack of innovation and the availability of risk capital (especially through the government) has also kind of ensured that promoters think more towards setting up service oriented companies. Look at In-q-tel, DARPA, DST in the US and other similar bodies in Korea, Japan and Euroland. They have invested a significant amount of resources (some intelligently and some not) to not only create processes/funding mechanisms to fund innovation in the “valley of death” but have also set up large ecosystems to support innovation which have led to product oriented companies. What that implies is that BoA, VentureWoods are doing a great job but unless the government also gets involved to support private risk capital, things might take a much longer time to change.
Also, I want to mention the fact that we seem to be talking about tech. startups. I think that unless there is significant investment in pure research in India, India might continue lagging the developed countries like the US who invest over USD200Bn in research in a year. So lets not focus entirely on the tech sector. Look at Airtel, IndiaBulls, NIIT…they are all market leaders and they have grown on the basis of the domestic consumer demand. And these companies have a strong potential to become multinationals.
I think a lot of VCs in India are trying to catch the next google/skype in India. It can happen. Tough, but can happen. The focus on tech. should not mean that good India focused traditional businesses get below the radar for wannabe John Doerrs.
Krish/Sumant,
I enjoyed reading your comments. Though WebVan was a disaster the technology was considered very good which is why they did not have problems raising funding. They were also well networked. Most investors invest in people. I know that this company did not start out with a plan to build a fraud detection system. It evolved.
Krish points especially about timing and focusing on the right things are important.
Sumant,
There are lessons for emerging entrepreneurs to learn from this story. While founding a product company, various imperatives have to be identified besides the routine market research and other startup parameters.
Take a hard look at the report. Especially the techno-political and commercial imperative.
Technical – ENTRUST acquired BUSINESS SIGNATURES (BS) because of the strategic fit. The fitment is perfect to the award winning suite of products they had already viz. its own Authentication platform. While Zero Touch increases security, it minimises customer disruption. Good enough reason…!
Lesson : develop a product which could be a potential strategic fit to an existing well run company with sufficient cash flow.
Political – There is the Federal Law ( FFIEC deadline by December, 06) which acted as the major driver. Its enforcement would have rendered ENTRUST’s existing suite of products unsaleable unless it is FFIEC compliant. Acquisition of BS blunts that threat besides adding to the product portfolio muscle.
Lesson : Pick up early on weak political signals as might emerge and be fast on the uptake. All govts are famous for procrastinating on law making. This gives you time enough to release your product and ride the paranoia. The fear of the unknown would see you thro. ( Remember Y2K…? )
Commercial – As per the CEO’s statement, Entrust anticipates the acquisition to be ( earnings ) dilutive in 2006 and accretive in 2007. It means that the entire acquisition price is not being amortised in the year of purchase or next. The benefits including depreciation would be spread across several years and hence the income statement would look all the more attractive in 2007. Net Net – gain to investors.
This is pure professionalism. The entrepreneurs who developed the right product at the right time and the acquirers who scouted for and closed the deal..!
I enjoyed reading it since I learnt quite a bit from it…!
This is exactly what I have tried to seek answers for in my post – http://shabbirhusain.wordpress.com/2006/07/18/is-indian-it-there-yet/