IDGVI News: Media Coverage 2010

Investors now dig for gold in tech product start-ups

TMCnet.com | 1 April, 2010

Mar 31, 2010 (The Economic Times - McClatchy-Tribune Information Services via COMTEX) - Bangalore, India
Over two-and-a-half million people worldwide, half of them in the US, are using word processors, creating slide-show presentations and doing their sums with the help of an online suite of software products built by technology start-up Zoho, located in Chennai.

In Bangalore, InMobi, a company that builds technology for mobile internet advertising, is helping global advertisers and publishers reach 175 million customers every month across Asia, Africa, the UK and the US.

In Kolkata, FusionCharts, a graphic data visualization tool created by start-up Infosoft Global is used by 1,500 organizations across the globe, including the US government. Across India, a slew of such start-up companies are creating and selling proprietary products as they script a new saga in the country's technology industry.

Software products are designed to be used by multiple customers, either businesses or consumers. They typically carry intellectual property that creates higher value compared to software services for a limited clientele that forms the bulk of India's $50-billion software industry.

So while it took Infosys Technologies 18 years to record its first $100 million in revenue, product start-ups such as InMobi expect to do so within five years. "In the next 18 months we will have revenues of $100 million," says Naveen Tewari, chief executive officer and founder of InMobi, which was set up in 2007 and has already built a direct sales force in seven cities across the world.

It is this ability to scale into very large companies in quick time that is making the technology product space attractive to entrepreneurs and investors. "Of the 11 investments we have made since 2007, seven are in technology product companies", says Sudhir Sethi, founder, chairman and managing director, IDG Ventures India, who has backed software product companies such as Perfint Healthcare, a medical devices start-up, and Apalya Technologies, which streams live television to mobile phones.

Another IDG Ventures investee company, 3D Solid Compression, builds three-dimensional visualization tools that can also be used on mobile phones. "In the next five years, $3-5 billion of PE and venture capital will be invested in start-ups building technology products out of India," says Sethi. Technology entrepreneurs are riding on a host of advantages that the Indian market offers for product companies.

These include the availability of technically trained people and the low cost of selling technology products online. Zoho's revenues of $50 million come from selling its suite of software that offers 21 applications to customers on the net.

"We will have 20 million users over the next few years as online application suites overtake and become more powerful than desktop-based applications," says Sridhar Vembu, founder and chief executive officer of Zoho, which competes with Microsoft and Google.

The ability to test products in the domestic market, especially in areas such as mobile telephony and medical devices, has also worked well for start-ups such as Mumbai-based Webaroo Technologies and Perfint Healthcare. Webaroo's SMSGupShup a Twitter-like closed group messaging product for cellphone subscribers, has 27 million users in India.

In three months GupShup will be available to mobile users in nearly two dozen countries. By the end of 2010, Webaroo expects the launch of pay-to-use services such as email-like-SMS products and the global roll-out to help it generate $10 million in revenues from $3 million now, says chief executive Beerud Sheth.

"When you design for India, you end up with a very cost-effective solution that can be marketed very effectively globally," says Sandeep Murthy, a partner at Sherpalo Ventures, who also evaluates deals for global technology investor Kleiner, Perkins, Caufield and Byers in India and has invested in InMobi and travel portal Cleartrip.

The return of highly skilled professionals with experience working in some of the world's largest technology companies too is fuelling the development of product start-ups. Perfint Healthcare was founded by five managers with work experience in GE Healthcare.

The Chennai-based start-up makes image guided tools that help radiologists use minimal invasive procedures for cancer detection and treatment. The two-year-old company has sold 50 units of the interventional oncological tool in India and will begin sales in the US in 2011, its CEO S Nandakumar says.

Apalya Technologies' CEO Vamshi Krishna Reddy returned to India after a stint at Cisco in the US. He says it would have been simpler to set up a software services firm but knew that the future lay in building a company with a clear differentiation and that had to be products for the mobility space. Apalya now has one million customers for its product MiMobiTV that streams live television onto mobiles starting at a subscription price of Rs 150 a month.

For investors there is already proof that it pays to back product companies in India. In 2007, the Mumbai Angels network was one of the investors when InMobi raised $500,000 in angel funding. Its return was 25 times the investment when InMobi subsequently raised venture capital.

"This was the highest value for an angel exit in India and also the quickest," says Sasha Mirchandani, a Mumbai Angels member who has also invested in Apalya Technologies. Other angel investors who back technology product companies include Silicon Valley entrepreneur Rakesh Mathur, who has invested in Webaroo as well as Vegayan, which is building software that increases the bandwidth of telecommunication networks.

"There are very promising signs, with technology product companies making the right choices in the markets they are addressing," says Rishikesha T Krishnan, Professor of Corporate Strategy and Jamuna Raghavan Chair Professor of Entrepreneurship at IIM-Bangalore.

He is the author of the book 'Jugaad to Systematic Innovation,' that discusses the challenges Indian companies will face in building products for global markets. The network of start-up incubators within India's premier colleges too is playing a part in driving the surge of product companies.

Earlier this year, Mango Technologies that was incubated at the NSRCEL centre in IIM-Bangalore sold two of its proprietary telecom solutions to handset maker, Qualcomm. "Building products for the Indian market is proving to be a commercial success," says its CEO and co-founder Sunil Maheshwari.