Loading ...It is educational to compare and contrast the two tech. booms that this world is witnessing right now. Silicon Valley is going thru a mini deja-vu of sorts, what with the spurt of so called web 2.0 companies mushrooming all over the place. The buzz word this time around is “build to flip” - build something cool and innovative and hope it catches the eyes of one of the big three - Google, Microsoft or Yahoo (affectionately termed as GYM). The VC community can’t hide its excitement as well and funds have come up to focus exclusively on emerging technologies like RSS. Earlier this year, during my visit to the Valley, I happened to go to the Canvas cafe with Marc. We were able to spot half a dozen leading thinkers there deep in conversation and bainstorming ideas. In short, a boom in Silicon Valley means lots of new startups, exciting ideas, coolio conferences and most importantly small companies giving big companies a run for their money. Exciting times indeed!
Now, let us turn our attention to our own..ahem… IT boom. What we term as a boom is actually creation of behemoth billion dollar companies with tens of thousands of employees. This has led to rising salaries and growing concerns about attrition and employee retention. Don’t get me wrong - it is great that the software sector has been able to generate such wealth and employment. But, unfortunately, our boom has so far not been about technology or innovation. Our tech. industry has its head buried so deep down in servicing offshore clients, that we are taking no notice of the other boom on that side of atlantic. Everyday I still run into tech. savvy engineers who don’t know the silicon valley has already moved onto web 2.0. We are running way behind the curve and not making much of an effort to catch up. The outsourcing business is so huge and lucrative, that it has almost become an albatross around our neck. The big 3 - Infy, Wipro and TCS should be investing in creating more awareness and spurring innovation - but they are not. Why do we see no or few technology conferences? Why is this IT boom just about outsourcing? Where are the startups, I ask!
I think our VC community can play a big role in changing things. They need to make some big bets. Fund a risky idea. Bet a few million on something that is untested and never done before (of course easy to say for me coz it ain’t my money!) Encourage technology development for local market. Convince Indian engineers and entrepreneurs abroad to return back and do statups. Even during the dotcom boom we saw much more buzz and excitement in India (India World, Naukri, Jobsahead etc all started before or around that time). But since Y2K, its been all downhill.
This outsourcing thing killed the startup culture!
There was a fledgling startup culture emerging in mid-late 90s when startups like India World, Naukri, Bazee, Jobsahead, Indya.com and dozens of others were created. Yes, some of them were ahead of their time and some of them were just not good ideas. But they were all focussed on the Indian market, creating products or pure consumer plays. I agree there were very few pure technology companies selling technology even back then. Post Y2k, outsourcing has been the overwhelmingly dominant business model.
Here is my 2 cents on this:
As rightly pointed out by Gurave Indian IT boom so far has not been about technology at all , it was basically about simple arbitrage of low cost labour. Outsourcing essentially was an externality of the internet.
I think one of the reason why technology/innovation has not been big here in India ( unlike as in US) is because we as a country are not pre/mass adopters of technology. Lack of strong local market for technology is a significant reason IMO about the low number of tech startups in India. But things are changing especially now with accelarting PC/broadband/Mobile penetration rate.
IMHO VC’s won’t do anything about this, because as somone pointed they are only worried about their risks/returns. Look at it this way, ” How can you expect VC’s to understand it when you say that even techies themselves are blinded to cool innovation/technology that is happening in the rest of the world. ”
I don’t agree with you last statement though, “This outsourcing thing killed the startup culture!”
There was no startup culture ( the one focussed on innovating which is what you mean I suppose ) to begin with. Outsourcing is just not letting to allow creation of a startup culture.
Rajan
Sandeep - thats a very pertinent point. Similarly there are a lot of VCs focussed on startups like these - with markets and sales primarily in the US and most of the engineering/R&D done out of India/Bangalore.
The spurt might happen when enough people start working on ideas for local consumption - with a US/EU/APAC story to augment it later if that makes sense, AND if VCs focus on the India story - including focussing primarily on the Indian market/sales/operations. Entrepreneurship neccesiates a sense of where the market is, where it might go - and doing pure engineering plays here will not be too radically different (for someone considering the idea) from doing an awesome project, from product requirements to rollouts at some larger product company (MNC’s India Dev Centre). Trying to truly understand the market/customer brings in fresh excitement, challenges and rewards which may actually provide the glitz to ‘being an entrepreneur’ and such startups need to grow/be grown (Its a bit of a chicken and egg there)
There is another angle.
Indian entrepreneurs often go abroad and raise money. Which frequently means that the startup is based out of Silicon Valley, while the work is done here in India.
And I dont mean grunt work, I mean cutting edge R & D work. Have you taken note of companies that operate this way?
If you look at VLSI and other hardware startups, a lot of them work this way. Also, since the head offices of the large customers (Sony, Motorola, etc.) are in the US, it makes more sense to have a US based company … for the warm fuzzy feeling.
Anand, I agree investors need to use their head and not their heart when they make investment decisions. What worries me is that those crazy ideas which wont make money are not even getting talked about. Of course the onus for that is on the tech. community and not VCs per se. In particular, in the context of web 2.0, just throwing together an interesting web app takes maybe a weekend or two. We keep hearing about it all the time in the blogosphere. But India, which probably has the largest concentration of software engineers, is just not willing to catch onto the buzz. Our technical community really needs to get out of the slumber and get more passionate about their profession - only then can we really start blaming the VCs
http://www.milkeninstitute.org/publications/review/2005_12/26_35mr28.pdf
This is a good insight on our growth etc (not 100% related to the post, though).
My personal views resonate with what you’ve written, including the B-O-R-I-N-G bit. However, like any good professional, I cannot let them cloud my judgement at work. For this reason, VCs will NOT go out of their way to spur technology innovation in India. That’s the sad, but sane, truth.
Investors are guided simply by two things - risk & return. While there are some nuances (e.g. return is not just on money but time invested as well), this holds of all investors irrespective of the level of pretense they display. As on today in India, risk-adjusted-returns from boring stuff are better than that from cool stuff - both at a micro (i.e. for employees) and macro (i.e. for investors) level. This last statement is clearly my judgement (personally, I’d be delighted to be proved wrong), but made after many business plans (across boring & cool areas) in the last 9 months.
Dont get me wrong. VCs (including Bessemer) will invest in Indian early-stage technology startups (FYI, we already have). But, the magnitude and pace will continue to be governed by self-interest and risk-return, not personal views and passion. You’ll continue to see more US-led investments that have an India back-end than India-led investments, for this reason.
So, what can change this? Time (this sounds fatalistic)! Personal efforts of individuals and groups (such as the Band of Angels). At a system level, there are people raising very specific, focused funds whose mandate is defined as “INDIA, EARLY-STAGE, TECH”. Several of these people have the right background - operating, entrepreneurial, techie, networked etc. If (I hope this is more of a ‘when’) these funds are raised, we’ll see investors systematically investing in not-so-boring areas. Risk-return still holds, but these funds imply that large institutional investors have consciously added India-earlystage-tech to their global portfolio allocation. Clearly defining and segregating this risk-bucket at a macro-fund-allocation-level makes more sense than adding this in small chunks to funds whose purpose is different. Its easier to allocate $500 million from the global pool of institutional capital (trillions) to a few focused funds, than for a VC (or an individual investor at a VC firm) to bet $2 million after a long-shot that doesnt make business sense.
Views?
Mukund,
The article mentioned by you was written by a friend of mine whos co makes CNC machining software targetted towards SMEs. There also stands a large difference betwen invention and innovation which one needs to understand. Infy et al are not going to hedge their risks on a new technology but would rather concentrate on limited innovation regarding their practices. Also the article regarding WM and mom and pop stores applies to juntaa working at these cos. If they have the urge to make an impact, it would be obvious to note that they woould not want to hang around these places for long.
Just my 10p worth.