Sujai Karampuri sent me his recent piece, Ground realities from a technology product company in India .
Sujai’s company Sloka Telecom is building Wimax base stations, and recently, they have won an important validation in France at Saint Medard en Jalles (5.8 GHz Wimax deployment).
I know that Sujai is pounding the doors of the VCs to get Sloka funded. His frustrations are real, and reflective of the situation and ground realities in India.
The biggest problem I see in his case is that there is no VC who is operating in India today who knows how to invest in a Telecom Equipment deal.
“Many VCs find Indian entrepreneurs clueless. There’s great deal of truth to it. But I also find many VCs in India equally clueless.” – Yes, Sujai, but that’s because the VCs who are playing in India have not identified Telecom Equipment as a category to assign partners to. You cannot expect random people with no domain knowledge to invest in categories that they know nothing about. You HAVE to find domain expert investors, as I told you when you came to see me here in Silicon Valley. And, you may have to find them here in Silicon Valley or in Boston. Probably not in India.
Another issue I see with your article, Sujai, is that you have equated “technology product companies” with “telecom equipment companies”. My personal observation is that VCs in India can tackle “software product companies” much more easily than telecom equipment.
In my Incubator Fund thesis, this is precisely the kind of problem that I am suggesting we address. An incubator would have a bias in terms of domain expertise and market focus. Just like we need incubator funds in India for SaaS, we also need one for Networking / Telecom equipment. Without these funds which bring together both expertise AND money, we have huge gaps in the early stage startup market.
Dumb money cannot possibly invest in really sophisticated technology, and pretty much all we have in India right now is dumb money. Hence the surge in retail, real estate, and consumer internet.
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Just to add to the debate. I was recently watching an interview with Ratan Tata on CNBC and he made a very interesting comment. The comment is related to the current spectrum war for GSM. He said something to the effect that it is unfair that CDMA players got less spectrum than GSM players even though CDMA is a more efficient technology. And now Tatas are total participants in this bid/controversy of GSM spectrum allocation. Now, they want GSM spectrum because they don’t want to be “marginalised”. Why ? Because they see how ARPU for GSM is higher and their growth rate is also higher for the next 200-300 million customers. They are , in effect, acknowledging that CDMA bet was short. And its been what, 13-14 years since GSM launch and 5-6 years since CDMA launch.
That’s how complex and winding a bet is on any telecom/wireless technology.
Thanks to Sujai for this excellent post.
Bipin has summed up the VC’s reluctance well in his three points. I am not sure these apprehensions are square with the state of the Indian tech ecosystem. We can all go looking for “proof that India can produce a hit telecom product”, while in fact we are looking for “proof that India can product a hit telecom product without venture capital”. Maybe this just means product companies should wait for one of them to produce a smash hit or for the right type of VC to enter India.
I run a small product company in India myself after working nine years for a leading optical vendor in the US. I agree that a telecom component of equipment maker would find it tough going without major capital infusion. An Agilent or Ixia test box could set you back a cool million.
Thanks to my involvement with TIE Chennai and Proto, I have met quite a few VCs here as well. The match does not appear to be there. When I setup my company I assumed that one of two things would happen. (1) The right VCs would not be around in India and (2) I would find it ridiculous to pitch my company to a wrong VC and give up anyway. The two downsides are slow growth riding purely on customer sales and difficulty working with hardware vendors for making appliances. The latter one is a bigger problem.
I think it is quite remarkable that Sujai has managed to pull a 20 person team along for three years. The details about the WiMax technology are not critical IMHO in the larger scheme of things. Even small tweaks to the base product can have a major impact.
“Dumb money cannot possibly invest in really sophisticated technology, and pretty much all we have in India right now is dumb money. Hence the surge in retail, real estate, and consumer internet.â€
If money gets invested in technology, does it get *wiser* by default…?
I dig up some archived data for telecom /networking startup investments in the US.
Procket: Networking company Procket was once one of the most highly valued telecom startups in the U.S. It had $272 million in venture-capital funding and a valuation of $1.55 billion but was ultimately sold to industry behemoth Cisco Systems Inc. for a disappointing $89 million.
Caspian Networks: Caspian Networks, originally founded as Packetcom Inc., had a number of ups and downs, including a washout in 2002; the company finally shut down in 2006. Caspian Networks fluctuated from more than $300 million in funding and 323 employees to less than 100 employees and closed doors.
There could be many others. Some things were just never meant to be, but that doesn’t mean that investors won’t pile millions of dollars upon a bad idea — or even a good idea gone bad. I certainly won’t call them dumb.
My point is – money moves from one perception to another – where to put money is the prerogative of the one that has it.
Have a heart. Foreign funds that drive $ 2 billion a month into those surging sectors in India [ source: RBI weekly supplement ] can’t be all that dumb. Or are they…?
I think its very brave to even think of an equipment product company without first having long term funding in place. Technology is not the most difficult part here. People know how to build WiMax base stations, at least in the west. How do you manage risk ? Risk in WiMax competition and competing wireless standards like 3G/LTE. A country like India may not go the WiMax way at all if 3G rolls out well. These are very real risks and compared to the amount of investment that one needs to bet on WiMax, the risks are disproportionate. I don’t think the situation would have changed on this aspect even if you were in US.
I myself come from a semiconductor background and I understand the pain that you are going through. First problem is Indian VC’s for the most part are not real techie people. Second problem : There are lower risk opportunities available in relatively untapped retail and internet spaces. Third problem : No one has proved that an Indian product OEM/supplier can succeed. There is a Tejas Networks here and there but they had Gururaj Deshpande backing them.
For this kind of company, you need support from big shots who can not only pump in money but also penetrate the critical boardrooms.
Sramana
Worldwide incubation hasn’t taken off..there are a few interesting comment on this Sujai’s post here: http://www.pluggd.in/2007/11/ground-realities-from-a-technology-product-startup-in-india