STVP-2005-010 [Rev. Feb 2, 2006]

Rise of the Global Entrepreneur: Leveraging the India-U.S. High-Tech Corridor

It was a bright warm day in Bangalore on January 15th, 2005. The aftermath of the catastrophic Tsunami disaster was still unfolding and people all around the Indian Ocean were grappling with the uncertainty of life. The high-tech industry in India however hadn’t missed a beat; the Mumbai stock exchange was still healthy and the average Bangalore resident was contemplating new ways to succeed in India’s burgeoning high-tech economy. Kumar Ramachandran1 knew that his life had changed forever. He had just resigned from his position as Managing Director at Applied Materials, India and was ready to start a company of his own. The future would be full of new challenges he thought. As he sat in his chauffeured car on his two hour, 30 mile commute, he started making a list of people to call. He was glad to be following his heart. After all, life was too short to not pursue your passion. Although Kumar did not know what awaited him on the road ahead, he was determined to leverage his past experience and network of working relationships to launch a new venture of his own. Given his professional background and his knowledge of the new areas of growth in India’s services industry, he firmly believed that the best opportunities for him laid within the realm of engineering services outsourcing. India had pioneered the outsourcing of Information Technology Enabled Services (ITES) and Business Process Outsourcing (BPO) starting in the 1990s. Several Indian companies, such as Infosys, Wipro, and Tata Consultancy Services had become important global players by 2005. In the future, Kumar knew that companies would leverage the Indian workforce not only for software design and back office work but also for product engineering and innovation. His instincts told him that this process would generate incredible opportunities and wealth for those who dared to execute on their dreams. The time was ripe for a company that offered world-class product engineering services at a fraction of the cost to companies anywhere in the world. He chose to call this company “Vignani” – the Sanskrit word for scientist. Kumar had met a number of global entrepreneurs and venture capitalists in the emerging ecosystem that linked India with Silicon Valley and other high tech hot spots around the world. He was eager to learn how into tap this corridor of mentorship, financing and business best practices. Learning

1 Kumar Ramachandran’s biography is provided in Exhibit 1. This case was prepared by Aparna Bhatnagar and Rishi Manocha, Graduate Students at , under the supervision of Thomas J. Kosnik, Consulting Professor, Stanford School of Engineering as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Success stories outlined in this case were derived from interviews with a number of key individuals from the entrepreneurial and community. The authors would like to acknowledge their support and thank each of them. They are in no particular order: MJ Aravind, Professor M. Balakrishnan, Sanjeev Bikchanandani, Joydeep Bose, Somshankar Das, Vinod Dham, Sridar Iyengar, Surendra Jain, P.V. Kannan, Dr. Sridhar Mitta, Professor Sangeneni Mohan, B.V. Naidu, Sanjay Nayak, Anu Parthasarathy, Gunjan Sinha, Suvir Sujan and Sunil Verma.

Copyright © 2005 by the Board of Trustees of the Leland Stanford Junior University and Stanford Technology Ventures Program (STVP). No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Stanford Technology Ventures Program.

Rise of the Global Entrepreneur: Leveraging the India-U.S. High-Tech Corridor STVP 2005-010 from prior successes and failures would be an important first step in launching his own entrepreneurial venture. Kumar understood that launching a global high-tech start-up was a risky proposition. Managing those risks required that he successfully execute four main tasks: raising start-up capital, building a global team, identifying an unmet need in a large potential market, and creating a disruptive product or service. As he continued his commute, he reflected on new developments related to all four of these tasks to the high-tech corridor that had been developed between India and the U.S. in the last few years.

Why Consider India?

In 2005 India and China were widely viewed as two prominent regions of new economic opportunity. The excitement around India stemmed from two related factors. First, India had proven to be a viable off-shoring destination for a variety of software and IT related functions (see Exhibit 2 for a list of attractive destinations for offshore IT services). Second, the growing economic prosperity of India was creating a potentially very large new market for all types of products and services.

Nascent Market Poised to Grow In 2005, India was home to over one billion people of which approximately 64% were within the working ages of 15 - 64 years old, with a median age of 25. These people would be future consumers of all kinds of goods. India’s GDP was U.S.$692 billion, making it the tenth largest economy in the world (see Exhibit 3 for the largest economies in the world). Its GDP on the PPP basis was U.S.$3.3 trillion, the fourth largest in the world, just behind China. The unemployment rate was 9.2% but approximately 25% of the population still lived below the poverty line (Exhibit 4 provides key information about India and lists the country’s high tech hubs). Given the large population, the rise in employment and the 6% growth rate of the economy, India was considered by many as a large market poised to grow rapidly over the next few years. However, because the majority of the population was poor and rural, only products and distribution networks that were well adapted to those conditions were expected to succeed.2 This process of designing the correct type of low-cost high efficiency products for the emerging world was expected to spawn innovation3, which could in turn impact the availability of such products in developed countries. Based on these arguments, a presence in the nascent Indian market was important not only because of its size but also as a source of strategic competitive advantage. The opportunity presented by the lower segments of the Indian market was explained by Prof. C.K. Prahalad as “The Fortune at the Bottom of the Pyramid4”. In fact this approach was already being adopted by technology companies such as AMD which had announced in 2005 that it would launch a low-cost (less than U.S.$200) internet-ready computer system by the end of the year, to bring 50% of the world’s population online by 20155. A domestic market with strong buying power in India presented opportunities for innovation and investment that would also possibly alter the type of services and products exported from India in the

2 Kuldeep P. Jain, Nigel A. S. Manson, and Shirish Sankhe, “The right passage to India,” McKinsey Quarterly (February 2005). 3 John Seely Brown and John Hagel III, “Innovation blowback: Disruptive management practices from Asia,” McKinsey Quarterly 1 (2005). 4 C.K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (Upper Saddle River, NJ: Wharton School Publishing, 2004). 5 “AMD tries unique marketing for cheap PCs,” The Washington Times, April 29, 2005, http://washingtontimes.com/upi-breaking/20050429-065018-3694r.htm, accessed on July 2005.

2 Rise of the Global Entrepreneur: Leveraging the India-U.S. High-Tech Corridor STVP 2005-010 future. This had already begun to occur in the automotive sector by early 2005. Increased domestic demand for automobiles had led to cost effective manufacturing plants in India, which not only catered to the domestic market but also exported automobiles to Asian and European countries. The domestic demand for electronics could in the future create a similar trend in high-tech manufacturing where Indian companies thus far had no significant global competence.

Burgeoning IT Services Industry India’s software and services industry flourished partly through planning and execution and partly due to timing. In the early 1990s, the Department of Electronics (DoE) in India set up the Software Technology Parks of India (STPI) scheme, which was explicitly designed to enable the export of software services from India6. The STPI provided reliable telecommunications links, basic computer and office facilities, and tax incentives for the export of software services. These parks were the starting point for India’s IT service firms, which established themselves during the 1990s by achieving global standards in quality while delivering services at lower cost to their clients. The timing was also right because the demand for IT and software services continued to grew dramatically during the decade that followed. Indian companies were well positioned to meet this demand because they had access to a large well-trained workforce and the processes required to utilize it effectively. Every year, nearly two hundred thousand IT engineers graduated from India’s engineering schools and private software institutes and many migrated to Silicon Valley in the late 1990s (see Exhibit 5 for the number of IT admissions and graduates in India in the years 1992 - 2004). After working in the U.S., many of them returned to India following the dot-com crash in early 2000s. The economic boom which followed them to India changed their perceptions of what they could achieve back at home. Many more global companies opened branches in India, including Juniper Networks, Applied Materials, AMD, America Online and Google. Quite often the Indian branches were headed by repatriated Indians who were previously employed with these companies in the U.S. Starting the Indian branch of a global technology company proved to be quite entrepreneurial and empowering for these returning Indians. Meanwhile, India’s IT industry also expanded into ITES and BPO services7. This new category included banking and financial services, technical support, customer service, insurance claims processing and other services. Services were a lucrative sector and many new Indian and U.S. companies were started to fill immediate needs and anticipate new ones. As a result of continued growth, the environment, particularly in Bangalore and Hyderabad, became very entrepreneurial and energetic. The ingredients for success existed: several precedents of successful Indian service start-ups that were billion dollar global companies in 2005, strong ties to Silicon Valley, and a period of high growth and optimism. India attracted entrepreneurs and venture capitalists from Silicon Valley to the country’s high-tech cities, especially in 2004 as the U.S. economy began to recover. “Cash smart” Silicon Valley start-ups with a software development team in India were quite common. In addition, by 2005 global entrepreneurs and venture capitalists were visiting India in search of some or all of the following: new start-ups, new technologies, and new markets. On the flip side, Indian start-ups were visiting Silicon Valley in search of funding, mentorship and access to markets and resources.

6 Annalee Saxenian, “Bangalore: The Silicon Valley of Asia?,” Working Paper, 2000, http://www.sims.berkeley.edu/~anno/papers/bangalore_svasia.html, accessed July 2005. 7 BPO stood for Business Process Outsourcing. It was the leveraging of technology vendors to provide and manage a company’s critical and/or non-critical enterprise applications. ITES meant IT-enabled services.

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Kumar Ramachandran’s Four Challenges as a Global Entrepreneur

Kumar had built the Indian operations of Applied Materials from scratch in Bangalore. The experience of building the India office of a global company meant that he quickly set up a physical office, and found a trustworthy lawyer and accountant to help him incorporate his venture. What he had never done before was form a start-up. He had never written a business plan or raised funds. In Silicon Valley entrepreneurs commonly learned these skills through the guidance of other entrepreneurs and the advice offered by famous Silicon Valley venture capitalists such as Vinod Khosla8 and John Doerr9. “Entrepreneurship is about… those who dare to dream the dreams and are foolish enough to try and make their dreams come true” was Vinod Khosla’s message to future entrepreneurs. He portrayed entrepreneurship as a noble pursuit that required countless personal sacrifices, a strong appetite for risk, and courage in dealing with uncertainty. If successful, this pursuit offered amazing rewards: wealth, fame, passion and the opportunity to change the world. But what did Kumar need to do for Vignani to be successful? As was mentioned earlier, he needed: to raise start-up capital, recruit and retain a global team, identify a large potential market, and a create differentiated product or service. These needs were based on four areas of risk that John Doerr told entrepreneurs that they needed to manage to launch and grow a world class new venture: financial risk, people risk, market risk and technology risk.10 How would he get all of this right? Part of the solution was to study and learn from organizations that had leveraged their networks in India and Silicon Valley successfully in the past to win on these four fronts. As he reviewed the stories of entrepreneurs and companies related to each of his tasks, he also had to decide which individuals and organizations he should follow up with to gain support for Vignani in the months ahead.

Start-up Capital Typically money for an early stage company was raised through angel investors, or seed stage institutional or corporate venture capitalists. In addition to money, these investors were critical to a start-up as mentors. Their experience and reputation often gave a start-up the guidance and credibility required to attract a talented team, future investors and initial customers. Careful evaluation was required when choosing investors because they would own a share of the company and influence critical decisions.

Angel Investors Angel investors were typically private wealth holders who in many cases were also seasoned entrepreneurs. These investors performed due diligence themselves as well as in association with venture capital firms prior to investing a small to moderate amount of money ranging from tens of thousands to a million dollars. In addition to providing critical seed capital, angel investors played a hands-on role in mentoring new companies. They typically sat on the board of the company and offered advice on everything from business strategy to planning the next fund raising round.

8 Vinod Khosla was a co-founder of Daisy Systems and founding CEO of where he pioneered open systems and commercial RISC processors. Most recently, he was a partner at leading Silicon Valley based venture capital firm Caufield & Byers. 9 John Doerr was the founding CEO of Silicon Computers. Most recently, he was a partner at leading Silicon Valley based venture capital firm Kleiner Perkins Caufield & Byers. John had served on the boards of Google, Intuit, Amazon.com, HomeStore.com, Palm, and Sun Microsystems. 10 John Doerr, Entrepreneurial Thought Leaders’ seminar series presentation, May 5, 2000. Stanford University, Stanford, CA.

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“Angel money” was raised most commonly through personal networking rather than through formal pitches. In India, it was common for friends and family to provide angel funds. One of the most well known ways to find angel investors internationally was through membership or participation in The Indus Entrepreneurs or TiE.

The Indus Entrepreneurs (TiE) TiE was founded in 1992 in the Silicon Valley as a global not-for-profit organization that fostered entrepreneurship. Since its founding, TiE had formed forty-two chapters in nine countries and had played an important role in the founding and growth of thousands of global companies worldwide, such as Exodus Communications, Hotmail, Junglee, Versata and Selectica (see Exhibit 6 for a distribution of TiE chapters around the world). The organization had three main objectives: mentor, network and educate. A large number of TiE members were angel investors for start-ups. The organization helped create an ecosystem for entrepreneurship in India, and at the same time served as a conduit for knowledge transfer between Silicon Valley and India. Entrepreneurial education was one of TiE’s most important missions. To mentor aspiring entrepreneurs, TiE offered all its members the ability to sign up for one hour meetings with charter members, many of whom were seasoned entrepreneurs, angel investors or venture capitalists. These meetings gave entrepreneurs access to expert advice on their ideas and business plans at no or low cost. To assist with networking, TiE hosted regular educational events, special interest groups and an annual conference called TiECon where a broad spectrum of thought leaders spoke about entrepreneurship. TiE was active in building an ecosystem for entrepreneurship in India. They had launched the AAA campaign, which stood for Advocacy, Awareness and Assistance. The advocacy initiative sought to work with the Indian government to remove impediments to the development of an entrepreneurial culture. In this context, TiE was working closely with the National Entrepreneur’s Network11 to study the factors affecting a paucity of seed capital in India. In the area of awareness, TiE was developing a showcase of successful local entrepreneurs in India to publicize their achievements and inspire the next generation. Finally, TiE was developing programs to assist entrepreneurs. An example was the launch of the Entrepreneurship Nurturing program in TiE’s chapter. Through this program, a select group of entrepreneurs were given the opportunity to attend weeklong entrepreneurial boot camps where they were coached closely by TiE charter members who helped them validate their ideas, define their market and refine their strategy. Since its early days, TiE had been a breeding ground for angel investors. Serial entrepreneurs and wealthy private investors actively sought aspiring entrepreneurs looking to start new ventures through the TiE network. Angel investing in India-grown companies followed the Israeli model wherein investments were made in U.S. corporations that had wholly owned subsidiaries in India. The reason for this structure was that exits were more likely to occur in U.S. stock markets versus Indian stock markets for a variety of reasons such as valuation. Since angel investors were typically hands-on and had a need to carefully manage risk, they leaned towards companies in which most or part of the senior management team was located in the U.S. even if most of the company’s operations were located in India.

Venture Capital Firms The venture capital industry in India was on a roller coaster ride from 1995 to 2005 (see Exhibit 7 for the venture capital investments in India). After Draper International12, the first foreign venture fund launched in India in 1995, numerous institutional and corporate venture capital firms increased focus on the burgeoning Indian IT industry. Some international venture capital firms set up local offices in India, while

11 The National Entrepreneurs Network was formed by the Wadhwani Foundation in 2003 to strengthen the network of academic institutions in India performing research, and delivering world-class education. 12 Draper International invested in companies in India and in U.S. companies which were doing business in India. The firm was an arm of leading Silicon Valley based venture capital firm Draper Fisher Jurvetson.

5 Rise of the Global Entrepreneur: Leveraging the India-U.S. High-Tech Corridor STVP 2005-010 others made flying visits through Bangalore. Venture capital firms invested in numerous companies in India prior to the slowdown of the industry in late 2000 through 2002. By 2005, venture capital had regained momentum, with the majority of investments focused on mid to late stage companies (Exhibit 8 offers a distribution by stage of venture capital investments made in India in the years 2002 and 2003. A similar distribution existed in 2005). With the acquisition of Spectramind by Wipro, Daksh by IBM and Ygyan Consulting by Cognizant Technology, the estimated U.S.$5.1 billion13 ITES and BPO services industry had become a strong area of focus for venture capital firms and angel investors looking to invest in India. A notable example of this phenomenon was the investment by angel investor Ram Shriram14 and top tier venture capital firm Sequoia Capital15 in 24/7 Customer. In addition, high-tech product companies in India had begun to emerge by 2005. Until the late 1990s, primarily multinational corporations like General Electric had leveraged India as a location for product development and R&D. By 2005, this trend had gained substantial momentum and many large and mid-sized technology companies had set up their product development centers in India. However, start-ups that leveraged India for product development were still relatively few compared to the flood of start-ups that leveraged India for software and IT services16. The product trend was just beginning, but many venture capitalists and entrepreneurs saw high-tech product development and innovation as the next big thing on the Indian technology landscape.

Intel Capital Capital was one of the largest global corporate venture capital entities with a worldwide fund of U.S.$700 million in 2005. The firm actively sought out and invested in companies that were strategically aligned with Intel and in a broad sense helped to generate further demand for Intel solutions. Intel Capital invested in four types of companies worldwide. The first type was companies that developed innovative technology. The second was companies that built products around Intel’s chip sets. That meant companies developing WiMAX, telecom, digital, optical and WiFi technologies. The third type was companies that bridged the divide between the first two types of companies. The final type was companies that created new markets of interest to Intel, such as handheld devices. In 2004, Intel Capital shifted nearly half of its worldwide investments to Asia signaling a strong interest in the continent. Headed by Director of Strategic Investment, Dr. Kumar Shiralagi, Intel Capital India invested in ventures that were aligned with Intel India’s three pronged strategy to create an Indian market for semiconductor chips, push for regulatory changes, and build products for the global and Indian markets. Intel Capital worked closely with other venture capital firms such as JumpStartUp 17 and Westbridge Capital Partners to invest in the telecommunications, broadband and wireless sectors. They were particularly interested in start-ups that helped increase technology usage in rural areas and healthcare. Intel Capital India employed only a handful of people but enjoyed a strong reputation because of its association with the Intel brand. Since its inception, Intel Capital India had funded a number of highly

13 NASSCOM, “NASSCOM – Facts & Figures,” NASSCOM Web site, http://www.nasscom.org/artdisplay.asp?cat_id=811#1, accessed July 2005. 14 Ram Shriram was a leading angel investor in Silicon Valley having seed funded Google, Friendster and Elance. He had been the vice president of business development at Amazon.com and president of Junglee. 15 Founded by Donald Valentine in 1972, Sequoia Capital was a leading Silicon Valley based venture capital firm that had funded and nurtured companies such as Apple Computer, Cisco Systems and Google. 16 Artiman Ventures, a leading Silicon Valley based venture capital firm with a branch in Bangalore, noted that 95% of its deal flow in 2005 comprised of service companies while 5% of it was product companies. 17 Founded in 2000 and operating through offices in Silicon Valley and Bangalore, JumpStartUp was an early stage technology venture capital fund that was uniquely focused on investing in both geographies. The firm focused on investments in the software, semiconductor, services and communications sectors.

6 Rise of the Global Entrepreneur: Leveraging the India-U.S. High-Tech Corridor STVP 2005-010 successful companies in key strategic areas. Tejas Networks, Sasken Technologies, and FutureSoft (acquired by Flextronics) were examples of successful investments. In addition to providing funds, Intel Capital India helped its portfolio companies leverage Intel’s best practices and its worldwide stature. Portfolio companies could tap into a network of alliances to create and penetrate the global and Indian markets. Assistance was also provided in hiring experienced management talent and developing core technology. Intel was one of the leading multinational companies doing product development in India. In fact Intel’s next microprocessor was being developed entirely by its engineers in Bangalore. Intel India also had a strong R&D record in algorithms and software for computer networking. Their patenting system was highly streamlined. All of this served as a source of knowledge about best practices particularly for start- ups funded by Intel Capital that aimed to do product development in India.

WestBridge Capital Partners WestBridge Capital Partners was a leading Indian venture capital fund primarily focused on Outsourced Services and Information Technology companies. WestBridge was formed when Sumir Chadha and KP Balaraj, two Harvard Business School alumni left their private equity careers in Goldman Sachs to form the partnership in 2000. They raised a U.S.$140 million fund from blue chip financial institutions and private investors. One of the differentiating features of the WestBridge partnership was that it was a cross-border venture firm located in Silicon Valley and Bangalore and focused entirely on businesses which leveraged India’s service capabilities and targeted global markets, with a special emphasis on the U.S. market. Their specific focus distinguished them from international venture firms like Walden International 18 which operated worldwide, and also distinguished them from local Indian venture capital firms which had no or minimal presence in the U.S. For WestBridge, investing in Indian service companies and helping them find markets abroad was a core competence. They believed that having a presence ‘on the ground’ in India was crucial to identifying the best investment opportunities. It was also important for understanding local nuances, such as what motivates people in India and how the regulatory and financial structure works. These nuances were quite different between Silicon Valley and India. At the same time, having a presence in the U.S. was crucial to understanding the market and helping make customer introductions, since for many of their portfolio companies the U.S was the primary market. WestBridge typically invested U.S.$2 million in early stage companies and up to U.S.$10 million in late stage companies, in addition to providing non-monetary support. The partnership offered guidance on strategic direction, financing options, best practices and assistance in recruiting key senior management talent. They also helped portfolio companies close large customer contracts and structure strategic partnerships with value added alliance partners. WestBridge had focused intensely since 2000 on funding and mentoring many successful cross- border U.S.-India technology companies. Their portfolio companies spanned a wide variety of services including testing/quality assurance software (AppLabs), BPO services like contingency collections (Astra), leading BPO companies (ICICI OneSource), transaction processing (Indecomm), healthcare BPO (Integreo), financial services (Tarang), E-learning services (Brainvisa) and others. Their vision in 2004 was that India would also be offering innovative products to the rest of the world19. According to the founders, the high volume of patents being filed in major Indian R&D centers for companies, such as Texas Instruments, Philips and GE was just the beginning of this trend, which would eventually percolate to start-ups. WestBridge foresaw Bangalore being the epi-center of such innovation in

18 With over U.S.$1.5 billion under management, Walden International had established itself as a first tier global venture capital firm. The firm’s investments were focused on four key industry sectors: communications, electronics/digital consumer, software & IT services, and semiconductors. 19 Tony Nash, “Tech Outsourcing in Asia,” AlwaysOn, January 13, 2004, http://www.alwayson- network.com/comments.php?id=P2408_0_4_0_C, accessed on July 2005.

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India20. In 2004, the partnership funded StandGenomics which provided products and custom high-end software for the biotechnology and pharmaceutical industry to address productivity bottlenecks in drug discovery & development, and diagnostic research. StrandGenomics came out of research projects at the Indian Institute of Science (IISc), the premier PhD granting science institute in India. Going forward, WestBridge forecasted that three major trends would occur. First, the partnership believed that India’s share in global services would continue to grow and there would be a move away from a cost to a quality driven model. Second, there would be an increasing number of companies focused on the domestic sector. The partnership believed that the explosive growth in the Indian telecom industry would be an example of this trend. Third, the partnership predicted a continued change in the mindset of Silicon Valley venture capital and technology firms. While India had in the past been viewed as a low-end testing and QA partner, it would play a critical role in the new product development strategies of global start-ups in the future.

NewPath Ventures Funded by NEA, CMEA Ventures, IFC and Chrys Capital, NewPath Ventures was a hybrid India- U.S. venture fund headed by managing directors Vinod Dham21 and Tushar Dave22. The NewPath fund was U.S.$85 million and the firm’s goal was to invest in companies with an “Indian angle”. Vinod Dham and Tushar Dave had formed NewPath as a new model of investment for venture capital firms in the U.S. since they firmly believed that investing in India required a hands-on approach that most U.S. investors could not implement. The challenges, in their opinion, stemmed from differences in Indian companies and Indian tax laws23. Specifically, NewPath Ventures LLC was focused on funding cross border start ups that utilized India’s talent for developing chips, systems and embedded software. Their mission was to leverage India’s talent pool to provide leading edge technology solutions to global markets. This mindset was different from most venture capitalists and entrepreneurs who viewed India simply as a source of inexpensive administrative and technical talent. While tapping into low cost talent was attractive (Exhibit 9 shows a comparison of salaries in the year 2003), Vinod and Tushar believed that India’s talent pool could be extended into areas higher up in the technology “food chain”. This belief was so strong that NewPath did not fund companies with a U.S. office only but instead used a ratio for their companies having about 30% of employees in the U.S. and 70% in India. In addition to looking at India as a technical hub, they viewed India as an important market. Since it’s founding, NewPath had invested U.S.$10 million each into InSilica Semiconductor, Nevis Networks and Telsima. InSilica was a fabless semiconductor company funded by NewPath and Flextronics. They delivered system-on-chip designs in a variety of application areas such as wireless, networking, and digital. InSilica was a cross-border start-up with headquarters in Santa Clara and R&D centers in Bangalore, San Diego and Slovenia. Nevis Networks was building an enterprise network security solution and was funded by NewPath and Nokia Ventures. Vinod Dham commented on Nevis’ R&D center in Pune, India: “The Pune R&D center is a critical asset for building complex enterprise security solutions and a remarkably effective use of the start-up capital.” Telsima was a provider of optical networking hardware but was similar to the other two in that it was headquartered in Santa Clara with R&D centers in Bangalore and Boston.

20 R. Raghavendra, “From service provider to innovator,” Business Standard, August 18, 2004, http://www.business-standard.com/search/storypage_new.php?autono=164451, accessed on July 2005. 21 Vinod Dham was well known as the “Father of the Pentium Processor” for his work at Intel. He had also built a company called Silicon Spice which was acquired by Broadcom. 22 Tushar Dave had co-founded and funded a host of successful cross border companies including Arcus, Armedia, V-engines and Platys. 23 T Radhakrishna, “We have an Indian angle in all our investments,” Sify News, April 22, 2004, http://sify.com/news/thethursdayinterview/fullstory.php?id=13459473, accessed July 2005.

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Vinod and Tushar had played an active role in the companies they funded, all of which were headquartered in the same building as NewPath Ventures in Santa Clara, CA. NewPath continued to attract attention from the U.S. venture capital community and was frequently looked upon as a partner to recommend and perform due diligence on new entrepreneurial ventures in India.24

Global Team One of the most important factors venture capitalists considered when evaluating a start-up was the composition of the founding team. Both John Doerr and Vinod Khosla put ‘team’ at the top of their list of reasons to invest in a company. Raising start-up capital was therefore somewhat contingent on assembling a great team. On the other hand, venture capitalists often added to the team, both through board memberships as well as through referrals from their network. In the global context this could be more challenging. Few U.S. venture capitalists had a network of people they had worked with in India and similarly, their ability to judge the quality of a team outside of their geographical area might be limited. Additionally, having a board member in a different country might or might not be useful to a start up depending on its needs. In such context, having work experience in different parts of the world could prove very useful. Also, having been associated with a well known educational institution or company could be an advantage.

Board of Directors Every team needed a coach. The board of directors of a start-up was one set of coaches. Many companies in Silicon Valley had a board of advisors distinct from their board of directors. The board of directors had the responsibility to provide oversight and corporate governance on behalf of investors, whereas the board of advisors provided guidance based on their specialized expertise with respect to the science, technology, and markets that were critical to the start-up’s success. In Bangalore, some companies followed a similar model of having two distinct boards in managing and guiding the company.

24/7 Customer Even before P.V. Kannan co-founded 24/7 Customer in April of 2000, he had his first coach picked out. Ram Shriram was a powerful coach to have in Silicon Valley. He was a founding board member of Google and had been an executive at Amazon.com, Junglee, and Netscape. Ram provided angel funding for 24/7 Customer in 2000. He also introduced P.V. to Mike Moritz25. Mike eventually joined the board of directors in 2003, when Sequoia invested U.S.$22 million in 24/7 Customer26. Later on, 24/7 Customer attracted George Shaheen, CEO of Siebel and former CEO of Accenture, to their board as well. How did P.V. Kannan earn the confidence of coaches like Ram Shriram and Mike Moritz? P.V. was born and raised in Chennai, India and trained as a chartered public accountant. He worked at Tata Consultancy Services (TCS)27 in India. The flat hierarchy and quality focus at TCS left its imprint on P.V. In 1991, P.V. migrated to the U.S. and worked as a contractor for Oracle Consulting before starting his own company, Business Evolution, in New Jersey in 1995.

24 “VCs on Indian Trail,” Siliconeer, January 2005, http://www.siliconeer.com/past_issues/2005/january2005.html, accessed July 2005. 25 Mike Moritz was a partner at Sequoia Capital. He had served on the board of directors of Flextronics, Google, RedEnvelope, Saba Software, Agile Software, Link Exchange, Neomagic, Paypal and Yahoo! 26 24/7 Customer was Sequoia Capital’s first investment in the ITES/BPO industry. 27 Tata Consultancy Services (TCS) was an Indian IT consulting, services, and BPO organization. TCS was Asia’s largest IT services firm in 2004 with revenues of U.S.$2.28 billion in 2004 - 2005.

9 Rise of the Global Entrepreneur: Leveraging the India-U.S. High-Tech Corridor STVP 2005-010

P.V. met Ram during a sales call. At that time, Business Evolution (BE)28 was trying to sell software to Amazon.com. Ram was vice president of business development at Amazon.com and was sent to figure out how much of BE’s stock Amazon.com could have in return for being their customer. P.V. refused to part with any stock. This display of character made an impression on Ram and they decided to keep in touch. When BE was sold to Kana, Ram called and in early 2000, P.V. moved to Silicon Valley enlisting Ram’s participation on the board of his next start-up, 24/7 Customer. The relationship with Mike Moritz was built over a two year period. Ram provided the initial introduction in 2000 but the relationship blossomed two years later when P.V. found himself sitting near Mike Moritz on a flight from London to Silicon Valley. By the end of the flight, Mike was convinced of the value proposition of 24/7 Customer and asked if he could invest. P.V. related later on that Mike Moritz knew what questions to ask and how to read people given his years of experience building companies. Mike believed that P.V. was dedicated and that 24/7 Customer would be built for the long haul. In the short term at least, 24/7 Customer had started to be successful. A June 2005 NASSCOM29 rating ranked 24/7 Customer as the 11th largest third party ITES company in India based on revenues. 24/7 Customer was headquartered in Los Gatos, California with customer support centers in Bangalore, Chennai and Hyderabad and offices in the U.K. and Canada. The company employed 4,500 people and provided BPO and customer support services to clients all over the world. In early 2005, 24/7 Customer received significant media attention. In addition to their NASSCOM ranking, the company was featured in award winning New York Times author Thomas Friedman’s book, “The World is Flat” and was one of five winners of the Emerging Star award at TiECon 2005. What role did the board of directors play in making 24/7 Customer a success? The board helped build customer relationships. For any company, access to customers was important, but to a services company, it was crucial. Mike Moritz commented in a press article about 24/7 Customer30 that, “You can save time if you approach the right people at the beginning. We help cut the bureaucracy at the customers’ end. We also try and build a prospective customer list – but meeting the right person can be a massive competitive advantage.” The board also provided inspiration. All of the board members had traveled to India and addressed the company. Ram Shriram spoke at the company’s anniversary celebration, and Mike Moritz met with the entire management team. Their presence reinforced the culture of the company as one that was built-to-last; the board members had previously helped create such companies. For example, Mike Moritz had been a board member at Flextronics, an electronics manufacturing service (EMS) provider. In the early days of EMS, investors had been skeptical about the business model but eventually the industry flourished and Flextronics became a multi-billion dollar company. Mike saw many parallels between the EMS industry and the BPO services industry. In addition, the board also provided advice. Formally, the board of directors met at least 4 times a year but practically, they provided coaching on a weekly basis via emails. During the initial stages, the board members helped build and validate the management team, and also helped attract other investors. Above all, P.V. Kannan felt that his coaches were great because they gave the management space to operate. His advice to entrepreneurs was, “You want coaches. They aren’t the best players. They don’t play, but they get the best out of you. Assemble a board with people who are not only smart but they allow you to be the star.” He also warned against recruiting a board of directors who didn’t feel like coaches, “…have the courage to say no to people who don’t have the right chemistry.”

28 Business Evolution (BE) was a CRM software company based in New Jersey. P.V. Kannan founded BE in 1995 and sold it in December 1999 to Kana Communications. The idea for 24/7 Customer originated from discussions with BE’s clients (banks and insurance companies) who were interested in off-shoring their business processes and having call centers. 29 NASSCOM stood for National Association of Software and Services Companies. NASSCOM was an Indian chamber of commerce that served as an interface to the Indian software industry. 30 Kalpana Shah, “24/7 Customer to double headcount,” The Economic Times, January 20, 2004, http://economictimes.indiatimes.com/articleshow/433800.cms, accessed July 2005.

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