India has just discovered gold dust in the alleys of the Net and it is mighty excited about it. But it may not be thrills all the way.
MOST of them will fail. Most will see theirdreams remain just that dreams. Most will have to one day come to terms with thefact that their ideas weren't good enough, their execution not swift enough,that somewhere along the way they took their eyes off the ball, that theirdestinies diverged quietly at some point from what they were supposed to be.
No matter. They will still remain the rollickingflag-bearers of a revolution that has already put India at the forefront of anepochal tidal wave transforming global business, economies, nations, life. Atidal wave of individual entrepreneurship and innovation, a tsunami of ideas.The Internet business.
Ask Ashok Jain, 42, who recently quit as ceo ofCadbury Schweppes after 19 years of impeccable corporate climbing, to get intothe Net business.
Ask 35-year-old Subroto Bannerjee, who quit ajob, stock options and 'lots of money' at Microsoft to e-venture out.
Ask T.S. Rajesh, 28, whose Gray Cell (www.graycell.com),set up in his parents' garage in 1996 with a borrowed computer, is today a worldleader in technology that allows people to access the Web through mobile phones.
Ask your 12-year-old daughter. She'll tell youall about it.
Onstage in the Indian Merchant Chambers hall inMumbai last week, surveying a crowd that would have done a rock concert proud inits zip and zest, Kanwal Rekhi, a US-based millionaire leading The IndUSEntrepreneurs (TiE), a team of investors that wants to invest in and nurtureIndian e-start-ups, was forced to exclaim: 'I feel the same energy here that Ido in Silicon Valley!'
And why not? As much as 20 per cent of start-ups inSilicon Valley are by Indians, and many of them have reached folk hero status.You haven't heard of Vinod Khosla or Sabeer Bhatia, Rakesh Mathur or Ram Shriram?Welcome back from Mars; how was the weather up there? If there were postersavailable of these men, they would have replaced Shah Rukh and Sachin on manycollege hostel walls by now.
If your thinking's still rooted in the IndustrialAge, you'd probably say, so what's the big deal? There's never been a dearth ofrich nris, right? Well, it's only that on the Net, an entrepreneur, even ifbased in the metaphorical Jhumritalaiya, has a fighting chance of being a globalplayer, if not the yes, seriously biggest in the world in his category. Or atleast sell his firm for millions of dollars, if not billions.
That's what India's brand new dreamers aregunning for. Their dreams may be gossamer, but they're planet-sized. 'I want mysite contests2win.com to be the world's largest customised contest portal,' saysAlok Kejriwal. Says Ashish Goyal, 25, whose egurucool.com launched last weekwill provide distance learning for iit, medical and management entrance examsand career counselling: 'We'd like to take egurucool.com to its logicalconclusion as the world's largest education and career site. Today, a new age isstarting. Another chance to create the Fords and GMs of tomorrow.'
Yes, on the Net, it doesn't matter where you arelocated physically. Rediff-on-the Net, headquartered in Mumbai, has built up avast and loyal user-base across the world, as has Indiaworld. Graycell.com is aglobal Web pioneer sitting in Bangalore. Says Rahul Singh, ceo of Dhun-Carr, andcharter member of TiE: 'The beauty about it is that it is totallymeritocracy-oriented you don't need contacts, your upbringing and backgrounddon't matter, what matters is a good, workable idea. So hop on.'
No wonder then that India is probably the hottestWeb destination today after Silicon Valley. No wonder then that as many of theseIndian e-ntrepreneurs are coming from high-powered boardrooms and corner officesas from fresh college graduate lists.
Six Bangaloreans, three from planetasia.com, twofrom Wipro and one from the navy, set up fabmart.com in September. Says K.Vaitheeswaran, vice-president, merchandising, Fabmart: 'We walked out on verylucrative stock options, worth a few crores even to set this up.' Why? 'Becauseif Fabmart clicks, what we left behind can begin to look like peanuts.' Similaris Neeraj Roy's case, who quit as head, equities group at Prime Securities, tolaunch hungama.com, an e-promotions website.
But Indian industry was really shaken up inAugust, when Ashok Soota gave up his high-profile job as ceo, Wipro Infotech, tolaunch MindTree Technologies. Says his start-up team member Subroto Bagchi, whoalso chucked a fat paycheque at Lucent Technologies: 'We gave up those jobsbecause at some point in life we all begin to hear the call of a differentdrummer. We chose to answer that call.' Then Jain announced his e-plans. And nowcomes the news that Raj Agnihotri, the man who built the infotech backbone forAsia's largest refinery, Reliance Petroleum, has quit to float his owne-business.
Says Vivek Agrawal, former srf Finance managerwho is Goyal's partner in egurucool.com: 'You always crib in big business. Youcrib about boss, pay, job content, blah, blah, blah. You do only 40 to 50 percent of what you can do. The Internet gives you an opportunity to do 150 percent of what you are capable of.' Feels ex-Microsofter Subroto Banerjee: 'Nomatter what your job, it gets boring after a while. The Net, on the other hand,gives you the power to create; a brief of playing god as it were. Net businessis limited only by your ability to dream and think.' Clearly, to these men, thenet offers a sort of freedom that no other medium does.
Dewang Mehta of the National Association ofSoftware and Computer Companies (nasscom) estimates that every day, two or threenew Indian sites appear on the Net. There are more than 23,000 India-specificsites out there on last count and more than 100,000 domain names registered byIndians. Obviously, competition is white-hot. How many will survive the firstflush of enthusiasm? For how many will the sacrifices be worth it? One thing issure, for those who do make it, the rewards could be stupendous. Says VeereshMalik, who along with Shailesh Khanolkar set up motoring site cybersteering.com(on the way, selling off his shipping business to concentrate on the Net): 'Itwas a typical broken-table zero-plan start-up. But today, I am saying no tofantastic sums of money being offered for an 8 per cent stake in the site. Theoffers have gone up 30 times in 45 days and I am not accepting.'
Till vsnl started giving Net connections onAugust 15, 1995, your knowledge of the Web would very likely have been limitedto Time cover stories. Even after vsnl launched its service, nothing muchhappened for about two years. And then Sabeer Bhatia sold his free e-mailservice Hotmail.com to Microsoft for $400 million. We sat up and took notice.Then came a flurry of deals involving Indians, the most high-profile beingjunglee.com sold to amazon.com for $280 million. And a couple of more thingshappened.
About the same time that Silicon Valley investorsrealised that in the infotech/Web business, Indians were some of the smartestkids on the block shift, Indians living in India suddenly found new role modelsin a borderless cyberworld, whose power and sweep they were discovering everyday. Indeed, many of today's e-ntrepreneurs had life-changing experiences prettyearly on the Net. This dragged them into an obsessive life@www. Kejriwal, 29, ofcontests2win.com, still remembers the day he faced financial mayhem in hisfamily's hosiery manufacturing business: four hi-tech Siemens machines importedat a cost of Rs 50 lakh, had ground to a halt. Siemens India's office wasunfamiliar with the equipment. So Kejriwal got on the Net (he had just got aconnection in office) and hit the Siemens website. 'In three clicks of themouse, I had reached the right man. Eight hours later, I got a reply from himthat I should replace a particular washer in one of the machines.' The washercost Kejriwal Rs 8. The machines started running again. 'I thought, man, the Netis god!' he recalls. 'It was like being reborn.'
What these dreamers from Guwahati to Gurgaon alsorealise was that setting up an e-nterprise doesn't need vast capital. Kejriwalstarted with an investment of Rs 5,000 of which Rs 3,000 went into registeringthe domain name and contests2win in which icici Ventures and e-ventures have nowtaken equity stakes was born, with the simple but powerful idea of allowingpeople to participate in corporate promotional contests on the Net: nopostcards, no mailing, no postage stamps, just 'click here to submit entry'. Itturned out this was the first website of its kind in the world!
For that is what drives these e-ntrepreneurs.Start up, get venture capital, grow the business and sell. It's the SiliconValley model, what Bhatia did, what junglee.com did. And when, last fortnight,Mumbai-based Rajesh Jain sold indiaworld.com to Satyam Infoway for Rs 499 crore($116 million), in one stroke, he wiped out the difference between Santa Cruz,Mumbai and San Jose, California. 'When I heard the news,' says Ashok Jain, 'Ifelt Silicon Valley is here.' 'I thought this is the launch of the Internet inIndia,' says Ashish Goyal, a 25-year iitan, and one of the minds behindegurucool.com.
Valuation'. That's the mantra the Net businesslives and dies by, the pot of gold at the end of the vibgyor, the Holy Grail innumerical form. It determines at what price you can sell your shares, either inthe form of a public issue or privately to investors. In Web businesses, with noconcrete assets, no plant and machinery, no product being manufactured that youcan touch and smell, it's a task as tricky as it can get. And to a lot of peopleit also seems as much based in reality as the tooth fairy.
American stock exchanges today trade in dozens ofinfo-stocks at very high prices with many of these companies running up largelosses every quarter, indeed some of them with no apparent chance of making aprofit in the foreseeable future. 'Some of these valuation figures may seem highbut look at the investments made in biotechnology in the early to mid-'80s andthose figures, then huge, don't seem so now,' says Rekhi of TiE. He mentionsMukesh Chatter, a TiE member, who sold his company, Nexabit, for $1 billion toLucent Technologies before it made a single cent of profit. But, Rahul Singhexplains, that is because Nexabit has developed a terrabit router the fastestcomputer networking gadget on earth a technology which can open up unbelievablemarkets. A technology that keeps a company like Lucent ahead of rivals for sixto eight months can earn it billions of dollars. Similarly, when Satyam pays topdollar for Indiaworld, it gets immense traffic on its site overnight, instead ofhaving to build up over months and years.
So how is valuation decided? How is it that 30per cent of Calcutta's first private isp, Caltiger, a Rs 1 crore company, butwhose equity was valued at an astonishing Rs 100 crore recently, has beensnapped by a capital market firms? 'Valuation is based on the traffic,intangibles like promoter's background any successful ventures behind him, anyrevenue channels in place even potential, if not in place. Recent deals alsoaffect the valuation process. For example, Indiaworld would affect valuations inthe future,' says Sanjay Mehta, whose site, he claims, gets 10 million hits amonth. His homeindia.com was built on a brilliant idea, that nris may love aservice that takes their e-mail addressed to their un-e-mail-enabled relativesin India and post a hard copy to them. Since then, the site has grown to offerseveral other services. 'We get a lot of feelers from companies with money whowant to jumpstart,' says Mehta. 'But I can see ourselves growing on our own andadding value to our business. Later on, if we see someone else can take it muchfurther we could look at it.'
His sentiment is echoed by others. Says Kejriwal:'Net business is like a relay race. No one runner can run the 400 metres. It'sstupid not to pass on the baton. Then the race will not be run.' Entrepreneursmust not get married to their property, he philosophises. 'A Net venture is likea daughter in whom you inculcate refinement and finesse and then marry off tothe best groom in the world.'
Manu Agrawal teamed up in April last year withfriend Amar Sinha on sawaal.com, 'the most comprehensive search engine onIndia'. Using indigenously developed web crawlers and almost a year of extensiveindexing, sawaal.com offers to search more than one lakh sites for the closestmatch to the India-specific information desired by its users. Will he sell outif he gets the right price? 'Sure. It would make immense sense for a media firmto acquire sawaal.com.' Create, sell, move on to the next big idea. And keepmoving.
Only a few e-ntrepreneurs say they are notwilling to sell out. Roy of hungama.com gives an unambiguous 'nope'. So didGeorge Thomas and Dharam Vakharia, who plan to launch mykindasite.com, a portalfor children and young adults, on the last day of 1999. 'What is that strata ofsociety which involves everyone from Big Blue ibm to the Coca-Cola red?Children. So we decided to start a portal for kids.'
Thomas and Vakharia are exceptions to the rule;they are neither looking for venture capital, nor do they wish to sell out. Theportal is being sponsored by their existing software company, Omega InteractiveTechnolo-gies. 'Over time, mykindasite.com will cover kids from all over theworld with content translated according to the requirements of children in US,Europe and other countries,' says Vakharia. That is, they're trying to build theworld's most successful kids' portal.
THE one factor that delayed the flowering of avibrant Internet industry in India was the absence of venture capital, which hasacted as the detonator for the Silicon Valley explosion. But when Silicon Valleywoke up and noticed India, its venture capital firms too moved in and set upshop. And boy, are they inundated with proposals!
Vijay Angadi, managing director, icf Ventures, a$20-million India fund, has looked at 700 deals this year, that is, almost threeper working day! 'Today, every engineering graduate we meet is asking us howhe/she can make money,' says Rahul Singh of TiE. Comments Atul Vijaykar,director, South Asia, and head of Intel Asia's venture arm: 'The upsurge ininterest and quality of business deals coming to us is tremendous. Of the 12countries that Intel invests in globally, India is in the top six and growingreal fast.' In the one year that Intel began venture funding in India, it hasclosed six deals, typically in the range of $5 million.
But what's the hit ratio? 'Typically, in infotechservices, of all the deals that come to a venture capitalist, just about 4 percent get funded but of the Internet deals, a significant 10 per cent, at least,will be funded,' says Angadi. 'Internet start-ups with a strong team and freshideas will get funded the pay-off is enormous.'
Kiran Nadkarni, partner, Draper International andco-founder of Jumpstartup, a recently launched $30-million seed-stage venturefund, however, sounds a cautionary note. 'There is no doubt that we venturecapitalists are looking at a huge upsurge in business plans, but a high dealflow does not necessarily result in an equal number of deals being done,' hesays. 'There is no question that as venture capitalists, we would be moreinterested in talking to a senior, experienced entrepreneur with thorough domainknowledge. Youngsters do have the brightest ideas but they also need to have agreat team that is equally excited and believes in them ultimately we are nothere to fund one-person teams.' After all, it's the venture capitalists' money,and they want it back, and if possible, 10- or 20-fold of what they lent.'Remember that 70-80 per cent start-ups fail. Of a thousand biz plans, we'd fundfive. Of these, two will really provide returns that justify the investment,'says Singh.
Even the cautious Nadkarni says that 'what we areseeing currently is only the tip of the iceberg in this Internet boom'. Absurdvaluations? No way. 'Valuations work on demand and supply. Internet companyvaluations in India are influenced by nasdaq trends, which is influenced by thetremendous bull run in the US economy, so the demand is there.' As he speaks,Bangalore Labs, working out of the business centre at the InternationalTechnology Park, announces that it has tied up first-stage venture funding worthabout $4 million. Last month, this start-up, which is yet to sign on its firstclient, was appointed the training partner of global software giant ComputerAssociates for networking services.
What's going on? Leave the pro to answer. 'TheNet is knowledge-driven and we have plenty of knowledge in India,' says HarishMehta, who heads the Mumbai chapter of TiE. 'The Net can be for India what oilwas for West Asia.' And next time you hit Bangalore, check out that hoardingfrom start-up Aztec Technologies: 'For some guys it's beer, for me it issemantic caching.' Or you could call it e-drenalin.