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February - 2008 - issue > Entrepreneurship
Challenges to start a technology company from India
Ram Gopalan
Friday, February 1, 2008
Silicon Valley, California has been the hotbed of entrepreneurs since the Fairchild days and it continues to be so, as measured by the number of startup companies that continue to come up there and the amount of venture funding it attracts. Entrepreneurship is a recipe that requires a number of ingredients that are found in abundance in the valley, hence is a second nature here, while in any other part of the world there are challenges to overcome.

With the enormous changes in the Indian technology arena, especially with its successes in the IT industry, there is a brewing storm of entrepreneurship parked overhead. In fact during my trip to India last summer, I ran into many would-be entrepreneurs, discussing their ideas at the local Barista’s. I was inundated with requests from many would-be entrepreneurs wanting to learn from my varied experiences as an entrepreneur and most recently from building small product companies from India.

Dr. A.P.J. Abdul Kalam, while inaugurating the Global PanIIT’s ‘Entrepreneurship Movement’ program, advised the IITians to ignite the torch of entrepreneurship in India. He urged the IITians to share their experiences and mentor young entrepreneurs so that instead of being mere ’job seekers’, more ’job creators’ come up. This program conducted in association with TiE (The Indus Entrepreneurs) and NEN (National Entrepreneurship Network) involved simultaneously mentoring 1000 entrepreneurs in 16 different cities of India on the same day.

A true entrepreneur is one who passionately believes in an idea that will satisfy a market need, has a technological edge that provides market differentiation and a barrier to entry. This passion usually drives the entrepreneur to take the risk of diving into establishing the premise without the trappings of conventional work environments like normal working hours, salary, support structure, access to information etc. Such an entrepreneur then needs to nurture the idea and provide the market validation so that he or she can then convince and build a team around it to address all aspects of the startup entity – Management, Marketing, Business Development, and Engineering. Engineering is only 25 percent of the equation. This is an important criterion as no single entrepreneur is capable of covering all aspects of the business. Once the team is identified they need to jointly come up with a business plan. It is only at this stage that the entrepreneur can think of approaching the investor community to get the investment to execute the business plan. All this requires a lot of work (sweat equity) and could take anywhere from a couple of months to a couple of years. Having the gumption to stick through this is what it takes to be an entrepreneur, and Indian entrepreneurs are slowly rising to the occasion.

Historically, the Indian work environment has always bred financial security. It has traditionally discouraged radical ideas, thinking out-of-the-box, and the tardy societal acceptance in general have been big negative aspects to the promotion of entrepreneurship. However, with the ‘perfect storm’ in the technological arena, the new generation workforce in India is experiencing exposure to the Western markets, the Silicon Valley culture, and it achieves unforeseen financial stability and societal acceptance much earlier by Indian standards in life. Hence entrepreneurship in the technology sector is slowly but steadily making its way in India and the coming decade should see more of the job creators than the job seekers.

Despite all the claims, the United States is still the place where most of the leading edge technological innovation is taking place and they continue to keep up the pace. Doing a semiconductor startup from India poses a set of additional challenges. The complexity and technology requirements to do a leading edge product have to be state of the art, like the 0.13 micron technology, and the 5+ million gates chip. High cost of prototyping and low finished good costs are also hurdles to overcome. Due to the still infantile state of semiconductor technology in India, there is a significant international component (translates to cost), e.g. purchase of the latest generation tools from the U.S., fabrication in Asia, dependence on the U.S. for experienced talent as it is still concentrated there, etc. In the technology world (semiconductors and systems) the United States continues to be the biggest consumer of the chip products as well (design-in), even though the systems manufacturing is done overseas. Additionally the biggest challenge for an entrepreneur starting out in India is that he needs access to the customers in the U.S. to get ideas, validate them, and then market to them. Building the business heavily relies on networking and access to senior folks in the U.S. These factors present investment size and affordability challenges, further accentuated by the current dollar-rupee arbitrage, especially during the unfunded stages of an entrepreneurial dream. My experience tells me that at this juncture the probability of success may be higher to do an analog mixed signal chip startup from India rather than a large digital consumer SoC or processor SoC (System on a Chip).

Despite all the claims of venture investors flocking to developing countries like India and China, the reality of the situation is that in the technological arena, they are mostly investing in later stage companies with significant revenue, which are poised for an imminent exit. Hence in this decade, early stage companies from India will have to resort to local angel investments to reach a significant level of de-risking before they can attract venture investment. Of course, there are a few exceptions which are mainly based on the past relationship between the entrepreneur and the investor. Investors look for someone they can trust their money with and hence an entrepreneur should look to find such a person to bring him on their team, thus making fund-raising easier.

Successful entrepreneurship is all about achieving the end goal. Doing whatever it takes to reach that goal should be the mantra of the principal entrepreneur. The Indian entrepreneur needs to forget some of the traditional ‘Indian’ entrepreneurial philosophies, like single owner with significant ownership, planning to build a large company in a single stroke, and resisting the idea of selling a smaller company to start a new business, etc. and embrace many of the Silicon Valley entrepreneurship ideals. I wish the best of success to the many budding Indian semiconductor entrepreneurs who are bound to make a mark on the landscape.

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