FUTURE GAZERS

In the first issue of 2004, we are
happy to carry the interview of Sanjay Anandaram, Managing Director, JumpStartUp. JumpStartUp is a
VC firm that invests in early stage
and cross-border technology
companies.

This issue of confluence features an interview with Sanjay Anandaram, Managing Director, JumpStartUp.

1. What do you see as the trends for 2004 in terms of offshoring? In particular, how do you see the offshoring model work for product companies?

Offshoring is here to stay with both Indian companies as well as MNCs having a role to play. The labor arbitrage advantage is hard to ignore and I see offshoring only increasing. For companies with IP, there is this increasing trend of leveraging India in a big way. It started with development work, now design, product and customer support is anchored out of India. Companies are getting re-architected. The division of functions in US-India companies looks something like this:

Smaller companies are mirroring global companies and are becoming micro MNCs – micro because the younger “multinational” (in terms of talent, markets, customers, and capital) companies have yet to match the F500 companies in size, scope and scale. Also, smaller companies lack the management processes which include things like seamlessly integrating projects and processes across thousands of miles, handling time-zone differences effortlessly and so on. The need of the hour is a new breed of global managers who understand management processes, distributed product development, and different cultures. They are in short supply today.

Hygiene factors like technology infrastructure and so on have been taken care of. We need to ask ourselves, how can I create a HP or IBM like process and project management structure in these young companies. Infosys, Wipro and so on have made terrific progress towards creating this ability.

2. How do you see the VC activity in 2004? What are VCs looking for?

To start with, VC and private equity are two different things. There are very few pure play VCs here in India. VC activity has been low especially in the early stage sector as opposed to the private equity segment. India needs a lot more VC capital flowing in.

Going forward, VLSI, telecom and embedded systems are the areas to watch out for as more companies will operate in this space. However, India is not yet a market for technology and is more of a supply side player at this point in the technology domain. Indian companies therefore have to be married into the say, the US eco-system for access to markets, finance, customers. So, cross-border alliances will be formed– together they will add value.

3. At what stage should a company approach a VC firm and how should they approach them? What is your advice for companies which are aspiring to make it big? How should they treat the whole VC phase?

A company should go in for funding when they have a team in place, there has been some validation of their ideas either through customers or prospects. They should have some differentiator and not a “me too” kind of offering.

Entrepreneurs should realize that a company should be built with passion and it is a vehicle to create wealth. Shareholder obligation is high and maximum value should be extracted from wherever possible. The ability of the CEO to sell the virtues of the company is very important – he/she should believe in the company, good governance and transparency.

In India, we do not have the mindset of creating value for shareholders. It simply does not exist. That has to change. I think, it has to do with socio-cultural inhibitors where emotions dominate business sense. We Indians tend to identify the self with the company and are unable to distinguish between the two. Typically, entrepreneurs are reluctant to take up a good M&A opportunity.

4. What is the scenario in the US like? We read recently that Bangalore has overtaken the Silicon Valley as the hub of technology development. What are your thoughts on that?

There is no danger of Silicon Valley losing out its status to Bangalore. The rest of the world is well ahead of India and we are in the catch-up mode now. So, we have to discount the hype and carry on with our work. Silicon Valley will continue to be the epicenter of technical innovation in the foreseeable future. Satellite centers will grow in Bangalore, Israel etc.

5 What is your view on the whole BPO buzz?

Well, the whole BPO buzz has to watched with caution by investors. It is very good in terms of job creation, but we need to take a wait and watch attitude to spot companies that can be invested in. It becomes a commodity business when you are the back office dealing with existing processes. I do not see much opportunity to make money here - it is more like a manufacturing or factory environment with shop floors and assembly lines.

It is still early days to do genuinely high-end work like financial modeling, outsourced R&D work and so on. So, we will wait and see.

6. Any companies to watch out for?

In general, IP based companies that have cross-border operations should be watched out for. That will be the model for the next 2-3 years. Specifically, I would pick July Systems, Hellosoft, Netdevices and Meru Networks as companies to monitor. For the first time, India has become a market especially in telecom and wireless areas.