TiE-ISB Connect 2006, Indian School of Business, Hyderabad
September 20th to 22nd
Semiconductor Track
The theme of the Semiconductor track was about the opportunities and challenges in this industry, particularly from an Indian perspective. Surya Hotha from Broadcom, the track chair, started by talking about the TiE Hyderabad Semiconductor special interest group as a initiative to support budding entrepreneurs interested in pursuing this vertical. The question on everybody's mind was, "Is the opportunity we talk about, for real?" Does India have the potential, the talent pool, government support and the entire ecosystem to make this work?
The session started with a candid presentation from Bhavin Shah, an analyst from JP Morgan. He stated that the industry had evolved to a point where specialization was the means to success. While practically every south asian country has tried its hand at Semiconductors, only Taiwan and Korea have been able to create value. Korea focused on high volume memory chips and Taiwan has invested heavily in manufacturing, back end and foundry services. These being human capital-intensive operations, they have successfully used Employee stock grants to keep the labor force motivated. Another factor that contributed to their success is the return of US trained semiconductor experts to Taiwan in the 80s, which India is experiencing now. While he wasn’t convinced about the manufacturing boom, he did leave the audience on an optimistic note by pointing to opportunities in specialized services such as solar cell manufacturing and IC design. Aurangzeb Khan, the VP Market development from Cadence design systems, was the keynote speaker. His message was, 'Convergence drives integration'. In the competitive environment today, a silicon manufacturer has to be capable of providing a system solution inclusive of software, drivers and reference designs. The keynote was followed by a panel discussion. The panelists were Dr.Kumar Shiralagi (Intel Capital), Kishore Manghnani (Marvell), Stacy Fender (Xilinx), B.V.Naidu (STPI), Dasarath Gude (AMD), Venkat Vankayalapti (Cavera systems), Moderator: Surya Hotha (Broadcom). Following is a brief from this discussion:
Q. What are the opportunities and challenges for Indian Semiconductor industry?
Venkat: There are lots of opportunities for India in chip design and embedded design services, especially in the Communications, wireless, optical, applications.
Kishore: Do not restrict to India, look at it from a global perspective. VOIP services have grown tremendously in the last 2 years. The challenge is to figure out how these startups in India compete with others. Comparing to the Taiwan companies, they had no presence in the US, but their local market was strong.On the other hand in Israel, most of the semiconductor firms have a huge presence in US. In the current industry trends it is essential to have presence both in India and the US.
Aurangzeb: An upcoming area is Lighting technologies, thought it might not be as glamorous. That is yet another area which has huge growth opportunities.Naidu: India has done well in services. The growing Indian manufacturing industry, the local market and the design base that most MNCs have in India provides the semiconductor industry in India the triple advantage to succeed.
Q. Where do you see the funding coming from for these new startups in India? Naidu: To set up a semiconductor Design unit, it takes $20-25 million. The government provides aids in indirect forms such as exemption of corporate taxes. STPI has also taken up new programs such as the incubation program wherein the government invests up to 35% in building up of corporate infrastructure. Currently, Indian develop IP but don’t own it; we are encouraging Indian companies are also encouraged to file IP’s.
Q. What is the Xilinx Corporate VC fund about and how can it help entrepreneurs?
Stacy: We focus on areas where we can learn alongside the companies we support. We intend on funding ventures that are strategically aligned to our goals and that help propagate our ecosystem of programmable logic.
Q. On Building Industry and Academia relation.
Kumar: Intel plans to train a million teachers on IT by 2010. Centers of excellence have been set up at major institutes to improve the design curriculum and provide design tools.
Gude: Back in 1993, there was no VLSI talent in the country. I am proud to say that we established a college that focuses on design and produces the bst of the breed. Stacy: Xilinx has started a internship program with IIT. They also offer VLSI and SMDP programs. In 32 different institutions.
Q. What advice would you give to budding entrepreneurs
Kishore: The core team of any entrepreneurial firm is very essential. Apart from this, good source of capital and an established customer base is essential.Gude: One doesn’t need to have large source of money. One can build small subsystems or sell an idea at first, then reinvest the revenues to build larger businesses.
Aurangzeb: Try and develop skill sets that set you apart from others.
Kumar: Intel capital looks for businesses that pose as a good financial return opportunity and as a strategic opportunity. A few companies that Intel capital has invested in are Tejas networks, Insilica and Vignyani. Intel has also focused on educational and rural PCs.
The session ended on a positive note where everyone agreed that there is an opportunity, be it design services, testing services, manufacturing, etc. Problems such as building a talent pool, an ecosystem and funding need to be addressed to ensure the success.
Technology Track
Ashok Jhunjhunwala, Professor at IIT Madras, in his keynote address, spoke about the work that has been going on at the TeNeT Group. They’ve started over 10 companies in last 10 years, with about 1000 engineers to create products for the empowerment of rural India. The technologies, he said, are highly advanced and drive the connectivity and applications in rural kiosks. Among these technologies is the CorDECT technology, a WLL standard aimed at providing converged services at an affordable cost.TeNet launched Midas Communications to enable affordable connectivity in rural locations, setting a cost target of Rs.10,000 per phone line, as opposed to an earlier cost for the service provider estimated at Rs.40,000/line. It was first deployed in rural areas in February 2000, with around 65 villages in Kuppam Taluk in Chittoor District of Andhra Pradesh connected within a radius of 25 km. Midas now has a target of 200 million phone lines by 2008, mostly in rural India.Other TeNet companies include Nilgiri (Minnow ISP in a box), NMS Works(Network management) , CK-Shakti (Indian Language Office Package), OOPS (Multi-party multi-rate video conferencing), Vortex (Rural ATM Machine), Neurosynaptics (Medical Diagnostic kit). Prof. Jhunjhunwala believes that India is a huge market, but only at the right price point. Pradeep Gupta (CyberMedia, Band of Angels), Srini Koppulu (Microsoft), Vani Kola(NEA Indo-US), Raj Gollamudi (Bluestream Ventures), Joga Rao (Computer Associates), Ajit Deora (Light Speed Ventures) and Srikanth Sunjararajan (Persistent) joined Ashok Jhunjunwala for the panel disussion on Technology. Ajit Deora said that the entrepreneurs should sell out smart; there is no need for them to be logical and rational. One will make mistakes but it’s important to have fun while building a company. Sunjararajan while replying to an audience question on opportunities in open source said that companies like SpikeSource that use open source to provide custom solutions and services to SME are doing well, so there are opportunities is open source. Demand will increase in the e-governance and education sector. Three big enterprise software companies IBM, Oracle and SAP have open source strategies and have done buyouts in this field also.Gollamudi added that open source has commoditized software, and though it is possible to build services around open source, the results are mixed: JBOSS was recently acquired by RedHat for $350 million. On the other hand, MySQL has high adoption among the open source community, but low revenues. Koppulu said that community aspect of open source is great but things can get messy as many times companies don’t follow the clean license practices.Answering a question about what should be given more weightage while building a team - skills or attitude, Gupta, after giving an example from cricket, said that in a world where technology changes rapidly, skills become irrelevant fast; attitude is key. Gollamudi added that “you should surround yourself with people who are smarter than you.”Kola said that the team, including the early investors, is very important: In March 2000, Rightworks got an offer of $1.2 billion, which intrested everybody, including recent investors. The seed investors, who had larger equity in the company, but had put in less than a million dollars, were. They felt that RightWorks could have gotten a valuation of $5 billion down the line. The deadlock was resolved, and had they waited till September, no one would have paid more than $200 million for it.Someone asked about USP in software, since it can be easily replicated. Gupta, choosing Google as an example, said that it was the 11th search company; not everything can be copied.
Internet Technologies
Ajit Balakrishnan, CEO and Founder of Rediff began his keynote address with an assessment that though mobile users outnumber Internet users in India, you can’t do much with it: GPRS is still not easily useful, and bandwidth needs to improve for mobile phones to be really successful. On the Internet, over the last ten years auctions, messaging, email, classifieds and travel have worked.Auctions, he said, have changed the lifecycle of products: new products have great demand, and insufficient supply. Auctions are the best method for price discovery, particularly with the youth willing to pay. In the second stage of the life cycle, with competitive, similar products in the market, the consumer wants to compare them, and can be helped. Once a new variant is launched, price discovery for the original variant can be done again via auctions. In other words – let the consumer decide what price he wants to pay.Balakrishnan said that the true internet business model is The Long Tail. Sales from hit products are far lesser than those from others. At Rediff, 5% of sales were from ringtones of hits, while 95% were of others.Quoting Wikipedia and MySpace as examples, he said that the success of user generated content is another trend, though he has no clue what really works because there are still a thousand other sites with user generated content, and very little traffic or business.He spoke of a Rediff community called ‘Get Ahead’ where people get questions answered by experts and other users; it is monetized by contextual advertising at the bottom.He said that websites with network effects tend to get noticed, and get greater valuations on Wall Street. Addition of more users to the network add value to it, and local networks co-existing form a part of one big network.Micro-payment online, he feels, is a huge opportunity in India, and it is now up to the credit card companies to make it work. The present model of percentages cannot work in case of micro-payments online. Hitesh Oberoi (Naukri.com) , Sanjay Swami (mChek), Sandeep Murthy (Sherpalo Ventures), Raghav Kher (Seventymm.com), Samir Sood (Venture Investments and Google), Probir Roy(Coruscant & Paymate) and Ganesh Rengaswamy (Greylock Partners) joined Ajit Balakrishnan for the panel discussion, chaired by Krishnan Seshadrinathan of Motive.Oberoi gave a brief on Naukri, and that they were lucky to have raised funding just before the dotcom bust; Naukri had received a valuation of Rs.50cr. Sanjay Swami felt most entrepreneurs worry about the exit strategy, though they shouldn’t. The entire effort should go into building a large company, and exit will take care of itself. Sandeep Murthy said that though there are opportunities in the market, people are shying away from risk-taking.Kher, of Seventymm added that online movie rental has great opportunity, and they had raised $10 million in less than a year. Their survey had indicated that consumers were dependent on small shops with pirated movies; a highly fractured market. Their biggest problems were of collection of cash and inventory management.Probir Roy said that Non-Voice VAS includes Data Content and Mobile payment. The idea of mobile payment appealed to them, but they decided to launch a mobile content company (Coruscant), and incubate Paymate there because of the lack of a mobile payment ecosystem. Coruscant Tec’s positive cash flow from the first year itself, helped built an ecosystem for Paymate, over 2.5 years.Someone asked about whether Facebook or MySpace would work in India. Probir answered that Facebook has no relevance in India, and low Internet usage and lack of regional content is keeping volumes low.Oberoi said that with 65% of the Indian population below 30, India is the most MySpace friendly country in the world; 80% of Naukri.com staff is on Orkut. Today, the online classified business is bigger than traditional classified business. Ajit Balakrishnan said mobile operators think they’re in business primarily because of the apparent success of China Telecom, who started their VAS services at a revenue share of 25-75% in favour of the content company. Recently it was found that China Telecom automatically and permanently subscribed consumers to VAS services. Under orders from China’s Ministry of Information and Industry, this was stopped and dramatically affected the bottom line of VAS companies in China. In India, though, the mobile operators are smart, and the revenue share is in their favour.
Can You Scale A Mountain?
Conducted by Vani Kola from NeA Indo US fund and Sateesh Andra of Endiya fund.
If an entrepreneur has figured out an opportunity, he should ask himself whether or not he is the right guy for it; Desh Deshpande had told Vani Kola, when Sycamore went public, that “When a crackpot hits the jackpot, he is considered to be a genius”.Kola said that she works on gut instinct: if something excites her, then she gets on to it without much analysis. This led to questions on “prepare vs plunge” from the audience - how much one should prepare before taking the big plunge? Andra clarified here that just because someone has taken the plunge doesn’t mean that others (VCs) will do so too. Persistence is very important for an entrepreneur: Vinod Khosla, en route to creating Sun Microsystems, had told the VC that he would not leave the room until the VC write him a cheque. Also, Khosla sat the whole day in front of his customers office to show him Sun boxes.Andra’s suggestions for the audience: Do a reality check on your idea. What is my undue advantage in the idea? How long will it last? If it is just 2 or 3 months, or if your clients are CIOs of Fortune 500 companies, then forget it. Someone in the audience asked about why eBay had bought Bazee.com for (around) $50 million when eBay was running the same operation successfully abroad? eBay had paid for the localization. Kola suggested that though the companies she built till now could have easily been built by other companies, and she didn’t have patent or IP protection; timing had worked for her and created value. She chose Starbucks as an example of clarity of purpose, and recommended that the audience read Howard Schultz’ book on the company. She also elaborated on the “Entrepreneur in Residence” program that some VCs in India have started, with the entrepreneur getting some nominal money for sustenance. Those who have been considered for this have work experience, a network, and are able to convince VC’s that they can build something great.Answering a question on valuations, Andra added that entrepreneurs should focus on implemented value – on how much has been created till now. He then gave points that should be kept in mind before pitching to VCs: 1. It is important to make a decision on when you need external money. 2. Don’t pitch to 10 VCs. Pitch to only 3. Get their feedback. They might rip your plan apart, at which point you are better off analyzing why it got ripped apart. He also gave a 360 degree view of a venture from start to an exit.1. Founding team - Choose people who add complimentary value 2. Hiring team - Type A or Type B 3. Raising money - Big piece of pie or make the pie bigger 4. Getting first customer 5. Scaling the company - Right time to get the management team 6. Exit - Timing is crucial. Kola said that she sold her company RightWorks for 1.2 billion dollars in March 2000 and in September 2000 noone would have paid 200 million for it. On building a business, Kola said that all the players in a team are equally important, but they require a great leader. Either the entrepreneur fits into that role or an external CEO is brought in. A great leader is essential, and only they end up making great ventures
Financing Your Dream
This panel consisted of Mahesh Kanumuri of Aravali Partners, Ashhar Farhan of Packetcell Networks, Debashish Pattnaik of Goose Technologies, Lakshmi Akkaraju of Musecurity Inc. and Prasad Yelamanchili of Teleonto.
Mahesh Kanumuri, moderating the discussion, asked the panel to begin with answering the question on whether or not it is necessary to raise VC money. Pattnaik, the founder of Goose Technologies said that he believed in raising money from day one, and that entrepreneurs should always be on the lookout for money. Funding results in due diligence, which may expose weak links which would otherwise have been overlooked. Outside money also tends to keep you on your toes. He cautioned entrepreneurs against raising money from the real estate guys.Farhan, on the other hand, said that startups no longer need to raise money since costs are down and it is possible to run a company from a garage. A CEO can only do one thing – either knock on the doors of VCs, or reach out to the customers. Hence, at times, funding can end up being the sole purpose of the entrepreneur; you do not start a venture to raise money, but to build a business.Lakshmi Akkaraju agreed, saying that raising money can bring some destruction, and hence it is important to choose your VCs. The wrong VCs can reult in the venture failing. And VCs don’t just bring in the money – they bring with them the experience and the network for making the a success. But it is no cakewalk either: VCs.will come once a month for a board meeting, and thell you how to run your business. Prasad Yemanchilli said that we all look for wisdom from such sessions but it is mostly in hindsight, since there are no correct answers to the questions that the audience may have. While web startups may not require much money to begin with, but large product developments need big money. The customer is most important and if you solve his problems, you will get financing since VCs are equally desperate for deals. During the Q&A, someone in the audience asked about how much one should shell out for early financing? Pattnaik said that while there is no set formula for it, one should remember that an entrepreneur builds his business for the current shareholders, and it is necessary to generate returns for them. Farhan added that startups today have to be continuously on the ball – they may have to take important decisions in just a day, maybe even change their entire gameplan. This is not possible in case of VC funding because that need for approval from the VC can result in a loss of opportunity if the VC tajes time. Patnaik said that it all boils down to desperation; Kanumuri concluded the discussion with a mantra of 3Ds for success: Desperation, Diligence will bring Delight.
Preparing For The Journey
How should entrepreneurs evaluate opportunities? Dr K Ramachandran, Professor (Entrepreneurship), ISB offered some tools, while Raj Gollamudi asked and answered some questions. Dr. Ramachandran suggested that entrepreneurs analyze their product and how critical it is – whether customers are desperate for it or not: Is it high or low on criticality? Is it affordable? Does it have mobility?One example was that of ‘Good Night’, an electrical mosquito repellent which was a runaway success in India because customers had options which were inconvenient. It had a first year turnover of Rs. 91 lakhs. Cease Fire and Vaccumizer were launched by the same entrepreneur, and the latter failed because it was not customer centric.Also, past successes do not ensure success in the future.One way of getting new ideas is by observation – ideas are in solutions to complaints. People are lazy, pleasure seeking and comfort seeking – if you solve customer dissatisfaction, you have an idea that could work.Dr. Ramachandran also shared some issues related to new ventures:
1. A business plan is not engraved in stone. It is a dynamic document 2. Entrepreneurs tend to fall in love with their idea, and don’t do an objective evaluation 3. Entrepreneurs tend to lack real insight of the market. 4. Inadequate understanding of technical requirements can jeopardize the venture. 5. Govt. regulations can change the situation dramatically.
Raj Gollamudi, Founder of BlueStream Ventures then offered a VCs perspective, which resulted in a barrage of questions on VC funding: How should one make a plan for VC? What is the VCs exit strategy? Someone shared a bad experience he had had with VCs, which put the fear of VCs in people. Questions on whether the VC can fire the promoters, on stringent clauses in the termsheet, on veto powers on the board. Gollamudi, though, had questions of his own to ask, for which VCs seek answers: What is the need for your product, what pain does it solve? What are its benefitts? What is the maket size? Who is the customer and what is his buying behaviour? How do you reach the customer? What are the success factors?Gollamundi said that around 70% of startups get sold, and the rest get acquired. He mentioned that there are signs of an angel fund coming up, and one may even be created at ISB.
posted by hothas @ 11:19 PM
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