The Hindu Business Line : Horizontal services, key to sustain growth

Funding of start-ups has seen a lot of action the past few months, with venture capitalists backing several companies at various stages of growth. However, few VCs are active as incubators. But this model could actually be the right one for India, according to Mr Raj Singh, the legendary serial entrepreneur who founded Fiberlane (which was split to three companies that were sold for a total of $12 billion).

In an e-mailed interview to Business Line, Mr Singh, active as founder and Managing Director of Redwood Ventures, said: “Since entrepreneurship in technology is fairly new to India, the guidance by an incubator can definitely help pull entrepreneurs through the formative stage of a venture.” Besides, he added, incubators, academic institutions and industry need to work collaboratively for greater start-up success. “Any product innovation needs industry validation and academia’s technological contribution.”

His first venture was Redwood Venture Technology Farm in 1997, where he incubated three successful start-ups under one roof. At Redwood Ventures he took that route once, in the case of Comstellar Technologies in 2000. “It was not a successful venture as the market collapsed in 2001 and there was hardly any liquidity.”

India Opportunities

On opportunities in an emerging economy like India and his own plans for investment here, Mr Singh said that any emerging economy suddenly going through unprecedented growth needs horizontal services in order to sustain growth. “That will be my next area of focus in India. I have started work on specific projects, which may invite funding by growth funds such as Sequoia and Norwest or private equity firms such as Carlyle and Blackstone.” His first venture would be in the area of advanced education “so as to help the next generation of engineers in developing products out of India, as we are doing at Sonoa Systems in Bangalore.”

Sonoa, founded by him in 2004, is developing a system-level product for data centres to combine computing and networking into a single node and to create an overlay network for Web services. “We decided to develop the product completely in India, including a large part of product definition, while keeping the customer-facing product management team in the US.”

Bullish on India’s prospects of emerging a major R&D hub, he said that Sonoa initially found it difficult to spot the right talent. “However, we overcame that by introducing in-house training. A couple of experienced engineers from the US spent several months with local talent, and the engineering head moved from the US to India.” He is proud that Sonoa has had almost no attrition till date. “Once the reward system is realised through successful exits, it will create a new brand of entrepreneurs.”

According to Mr Singh, there are few sectors mature enough in India to justify multiple investments. “This means that venture firms cannot be theme-based. They have to invest across sectors in an emerging economy, unlike in the US, where most sectors are mature enough to provide opportunities for multiple investments.”

D. MURALI

C. RAMESH

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