The Silicontrepreneurial Surge
Date: Thursday , February 01, 2007
The high-flying bug has bitten the Indian semiconductor industry veterans big time. Over the last two years as many as 10 semiconductor start-ups have taken wings, with erstwhile senior managers of MNC semiconductor firms in the cockpit. ISA Chairman and former Broadcomm India chief Rajendra Khare, ex-NXP honcho PVG Menon, Vivek Pawar and Ganapathy Subramaniam (Gani) both ex-TI are a few of the people driving this new entrepreneurial wave, which is to a large extent an outcome of the realization of India as a market.
Their amble in the cocooned corridors of the big firms has been replaced by a swagger down the path of making their own companies find more than just a foothold. The reasons for their quitting secure jobs, and moving into the relatively volatile entrepreneurial space are varied; ranging from, in the words of Sankalp Semiconductor CEO Vivek Pawar ‘a desire of creating jobs for India’ to, as Uma Mahesh of Indrion puts it ‘showing the world that a global semiconductor product company can be built in India.’ And for some like ex-NXP business development manager PVG Menon, currently putting together a semiconductor-consulting firm, a candid realization: “Beyond a certain point in an MNC, you run out of elbow room, and you want to make your own destiny rather than doing something and waiting for clearances from sitting 10,000 miles away.”
Whatever the drive, and the desire to create and own a technology seems primary here, senior executives are chalking their own path in a big way. One of the early movers in this space was Ittiam, which creates IP in the DSP space. The company was started by Srini Rajam, ex-managing director of Texas Instruments India, along with his motley group of six colleagues from the same company in 2001. At that time, the pool of experienced professionals in India in the semiconductor space was low and it made sense to reach out to people in the same company while contemplating a start-up. Today, with the experience pool having increased, entrepreneurs are increasingly cutting across company lines while launching their vehicles. Vivek Pawar of Sankalp Semiconductor, for example roped in Alok Pugalia from Cranes Scientific Lab and Prabhat Agarwal from Infineon Technologies to launch his semiconductor services firm. Khare, on the other hand started Indus Edge Innovations in August 2006 with former Nokia India head Ravi Bhat and ex-Aztecsoft manager Anant Ghansal.
Despite such criss-crossing, putting the senior leadership in place remains a big challenge. Resultantly, many like Pawar are offering the senior management a stake in the new company to buck the short supply. “That way, I don’t have to bother about retaining them either,” notes Amit Kapur, CEO of two-month old design services and IP firm Seed Silicon, which is also adopting a similar approach. Also, most of the executives who have quit their jobs to join the start-ups have come for the excitement, at the cost of, as Gani of Cosmic Circuit puts it, probably half the remuneration.
Money Crunch, Talent Punch
Once the leadership hurdle has been crossed, or probably before it, the question of funding dogs the mind of the entrepreneurs. Though there is a lot of VC money floating in the market, and U.S. VCs being increasingly India bound, there is not much enthusiasm among the community for funding semiconductor product start-ups. Says Mahesh, who has been negotiating actively with many VCs for the past five months without having been able to close the deal, “The VCs here still have a software services mindset, and are unwilling to bet in the chip product field.”
Gani has a different viewpoint, “There is no dearth of money, what is lacking is a sound business plan.” In accordance, the skepticism on part of the VCs is understandable, also given the fact that this space involves more risk, and a higher capital. As opposed to a typical software services firm, where money is required for paying salaries, in the silicon space, technology development takes up a big chunk. Also, most investors are keen to see a proof-of-concept before they bet on a technology, since the burn-rate here is much higher, and it takes a minimum of 8-9 months to come out with a silicon prototype.
“Despite that, had I been based in the U.S. they would’ve funded me,” reckons Mahesh, the sourness of a five-month VC-hunt palpable. Khare agrees, “Basically, we do not have many Indian VCs and the U.S. VCs don’t quite believe that a semiconductor product company can be built in India.”
“Even among the Indian VCs, most have a background in the IT domain and don’t understand the silicon space much,” notes Samir Kumar, Managing Partner, InvestusCap. Though he says that investments in this space are ‘beginning to happen’, and over the next 12-24 months will see a lot of activity in the fabless silicon, embedded IP and analog and mixed signal space.
To beat the current fund crunch, many start-ups are following the IP play model. Typically, it takes around 12-18 months to create an IP, and once it is ready, these companies license it out for a healthy return. The process of IP creation calls for an investment of around $5 million as against 3-year product development cycle that costs around $20-25 million.
Some companies have also chosen to be incubated to weather away the tribulations. Mahesh’s Indrion, working on sensor network technologies is one such firm that functions out of the STPI (Software Technology Parks of India) incubator. In fact, realizing the industry need, STPI started a semiconductor-special incubation center called Orchid in June 2006.
But that is not enough, reckons Khare. He envisages many such specialized semiconductor incubation centers, on the lines of in China and Taiwan.
Many of the start-ups viz. Pawar’s Sankalp and Dr. Mahant Shetti’s KarMic have chosen to locate in tier-II cities, instead of having their facilities in the metropolises. While one of the reasons for this is definitely cost-cutting, tapping into an entirely different talent pool seems to be the other major factor.
Says Pawar, “In the initial phases when we were in Bangalore, people who were coming to us for jobs were all MNC rejects. As a result, only 15-16 out of 500 were employable.” Sankalp is now based in Hubli and has a tie-up with B.V. College; typically, it takes college students as interns for a period of one year, and watches them during that phase. By the end of 12 months, the passions of quite a few are ignited and they choose to stay back full time, owing to the opportunity of creating and owning a product.
While tying up with the academia and putting students through internships is one way of drinking from the source, some companies, like KarMic, a mixed signal design services organisation, have chosen to open their own training centers. Over and above addressing the lack of trained manpower, it enables, as Dr. Shetti puts it, effective team building. “There is no way you can build a ‘team’ by picking up experienced professionals from varied MNC backgrounds. For the feeling of oneness so essential for the success of a small company, one has to zero in on freshers, train them from scratch and ignite the belongingness.” KarMic’s eight and half year old training institute has seen 240 students pass through its ranks, out of which 220 have been absorbed in the company. Students don’t pay any fees upfront, since most come from lower-middle class backgrounds. Four years of service is all they have to offer to the company to absolve them of the Rs. 2 lakh training charges.
Incidentally, Shetti decided to locate his firm in Manipal not only to beat the attrition and cost issues typical of a metro, but also to enable the creation of various small politics-free companies headed by some of the early pass-outs of its institute.
Though the likes of Gani, Shetti, Mahesh and Khare have heeded to their internal drive and launched their own ventures, there are many such prospective entrepreneurs waiting in the wings; in the form of people who have 15 plus years of experience of working in the semiconductor industry, and have managed end-to-end product lifecycles. They have the right blend of experience, expertise, and financial cushion necessary to drive product companies, which have the potential to hit the global marquee. It’s time they seized the day.