The Hindu Business Line : An eye on India

Promod Haque, Managing Partner of Norwest Venture Partners, shares with eWorld his take on the VC industry, his company's investments, and plans for India. The firm currently manages more than $1.8 billion in venture capital out of its office in Palo Alto, California. It is known for investments in companies such as PeopleSoft, Vantive, Tivoli, Forte, Documentum, Cerent, Siara, Extreme Networks and Brocade.

The venture industry has been rebounding from a few challenging years where exits and IPOs were few and far between. For Norwest, exits seem to have been smooth. In early 2005, Cisco Systems acquired NVP's WLAN portfolio company, Airespace, for $450 million, and IBM purchased NVP's Corio for $182 million. Other recent exits during the last three years include the sale of Spinnaker Networks to Network Appliance for $300 million, Winphoria to Motorola for $179 million; and Resonext Communications to RF Micro Devices for $133 million.

Excerpts from a chat with Haque:

How do you see the global VC industry shaping up in 2006?

Norwest is currently seeking direct investments and hybrid investment opportunities in India, Israel and China, and we see this trend continuing in 2006.

We prefer companies to target global markets. With the spending and growth opportunities within the wireless industry in India, new markets are being created and therefore, we believe India-focused start-ups can also attract funding. Early stage venture capital in India is still in its infancy. Investment opportunities in India are enormous, and they will continue to increase over time. Sustainable venture capital models take time and this is a process that will need to become more mature in the next three to five years.

What have been the key trends this year?

As mobile users in India are increasing, wireless data services and products continue to be extremely interesting investment opportunities for our firm. India also has low credit card penetration, and we believe there are opportunities for companies to create alternate online payment methods.

There are also tremendous opportunities in the media/broadcasting sector. Broadcasting is changing. In the past it was done through satellite and cable. In the future it will be done over the Internet. This will be taken one step further than what IPTV providers are talking about when they say they want to control the content (as satellite and cable providers have).

The Internet will become the transport mechanism for delivering television, movies and news. You will see a lot of new channels that will start to use the Internet as the platform for communication like publishers did when they first used the Internet to deliver content.

Imagine a world where we will be able to watch any local channel from India, China, the UK or the US, using the Internet.

New technology also will change the way content such as news, reviews of information, breaking stories, research reports, opinions, is transformed, aggregated and distributed over the Internet. In the past, finding important news or information was limited to some Web sites. The landscape has changed and we are seeing more local, user-contributed, content. Building on the blog phenomenon, there will be more uses and models for this technology.

You recently invested in Persistent Systems. Is this a one-time thing or the beginning of heightened investment in India?

The investment in Persistent Systems is not an isolated instance.We have identified several more projects in India, and we will most likely be announcing one or two of these sometime in the first quarter of 2006. We cannot reveal more details at this time.

Norwest is traditionally an early-stage venture capital firm. We are interested in both seed and early stage investments in India (and creating new technology companies), as well as investing in successful later-stage companies such as Persistent Systems.

Do you see a greater India focus, what with most companies now preferring an Indian option in their development scheme?

We definitely see a greater focus on India as most companies are establishing a presence here. Our firm has made more than 16 hybrid investments (companies that are based in the US but have operations in India) to date. These companies include Airespace (acquired earlier this year by Cisco for $450 million), AmberPoint, Cast Iron Systems, CollabNet, Epiance, GXS, Lifesize Communications, Open-Silicon, Persistent Systems, Qumranet, Sonoa, TestQuest, Veraz Networks, Veveo.tv, Virtela Communications, Winphoria Networks (now merged into Motorola) and approximately three additional hybrid and/or direct investments that haven't been announced yet.

Do you see any specific trends in the Indian market in terms of funding and M&A activity?

The bubble has definitely hit in India and Norwest is approaching the market aggressively, but cautiously. We've been investing in US companies for 44 years, so we have been through the `up and down' of tech investment. We have also been building strategic relationships and establishing our ecosystem in India for the past three to four years so that we can help our existing portfolio companies who want to establish themselves in India, as well as add value to the new companies in which we invest in India.

There are tremendous opportunities in India, but the markets, when it comes to large enterprise customers, are still based in the US. Therefore, we have found that the smart companies in India that want to target global markets choose to work with VC firms that can open doors for them, and expand their markets globally.

One challenge that venture capitalists face when funding and building companies in India is that cities such as Mumbai and Bangalore are getting overcrowded and expensive. As a result, it is becoming more and more difficult for start-ups to find and recruit talented employees. This is causing employee retention issues for start-ups. Therefore, we are starting to see more start-up companies in India being seeded and headquartered in alternative cities and emerging tech centres. We see this trend only increasing over time.

Would you look beyond IT and technology companies into areas such as nanotechnology, biotechnology, and media?

Norwest is always open to interesting investment opportunities in nanotech, biotech and media if the business makes sense and we can add value as venture capitalists. In fact, we already have some existing portfolio companies in the nanotech and media sectors.

Have you made out a separate fund for India?

We have not earmarked a specific amount for India alone nor have we created a separate fund for India. We invest out of one large fund. We have other direct investments in the pipeline that will be announced next year.

vrishi@thehindu.co.in

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