Sloka CEO on state of Tech Funding in India [Must Read]

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[Sujai Karampuri is cofounder and CEO of Sloka Telecom, which recently won NASSCOM Innovation Award for 2008 in the Startup category. Presenting a candid interview with him and his views on state of technology funding in India]

Qn: Can you tell us more about your company and technology?

We are a four-year old company based in Bangalore.  We make base stations for broadband wireless and cellular networks.  Base station is the electronic equipment that sits next to the towers transmitting and receiving radio signals that talk to your mobile or a wireless broadband device.  

Qn: What is so unique about technology that you developed?

We make world’s smallest and cheapest base stations.  This allows wireless operators to make profitable business out of rural deployments in emerging markets.  In addition, our small base stations are targeted residential users who want better coverage at homes in developed countries.

Our patent-pending design approach looks at the whole base station making from a different perspective, building it ground up, breaking away from legacy architecture, and emphasizing on software. This way we can use most commonly available hardware and chipsets bringing down the cost. It’s something similar to what PCs did to the main-frame computers.  Right now, we get a sustainable cost advantage of 4X in the current product and already working on technologies that gives 10X cost advantage in the near future.

Qn: What progress have you made in the last four years? Did you already sell your products?

We have developed and released Fixed WiMAX solution, consisting of base stations, CPE, AAA and NMS.  We have installed first 5.8 GHz WiMAX network of France, and currently we sell into few countries in Southeast Asia and Latin America. We are also collaborating with a tier-1 vendor to make world’s cheapest Femto base stations – these are base stations for homes and offices.

In addition to receiving Nasscom Innovation Award, we are winners of RED HERRING 100 ASIA 2008 and a finalist in the RED HERRING 200 GLOBAL 2008 awards.  We were listed as hot startups in India for 2008 by Mint Magazine.

Qn: What is in the future?

We are already developing world’s cheapest Femto base stations and 3G LTE/Mobile WiMAX equipment.  We are working on other ideas to keep the sustainable advantage in radio access equipment even five years from now.  We hope to become one of the leading wireless equipment companies in the world.

Qn: So, how did you fund your company?

So far, we have been funded through self, family-friends and some angel investors.  We have invested less than a million dollars to get to this stage. We have been making revenues since one year now.  Cash has always been an issue for us.  We could not do things we wanted to do because we were never adequately funded.

Qn: How come you were not able to raise money from Investors in India?

I think you should ask Indian investors why they would not want to in invest in us. [Smiling…]

Seriously, I think it is bigger problem endemic to India as a whole – nothing to do with Sloka or Indian investors alone.  Take a look at Indian roads.  It’s not that we don’t know if great roads exist elsewhere on the planet.  We know they exist and we also know that if we invest the right amount of money, we can actually make great roads, yet we don’t do that.  Why? I think it’s because we want quick-fix and easy solutions.  We want to just get by.  Invest little in, get little out. The same is true for Indian investments.

Most Indian investors want to do something that gives quick returns, though those returns are small.  I was talking to someone from Switzerland and we were comparing the startup landscape.  He admitted that the number of startups he gets to see in Europe is small compared to what he sees in India.  However he notes that startups there tend to be more focused on breakthroughs in fundamental research and technology that have extremely high barrier-to-entry.

In India, we celebrate the fact that we have zillions of entrepreneurs.  When we say that, we include rickshaw wallahs, roadside hawkers, and everyone else who is self-employedWhat we fail to understand is that such entrepreneurship is need based – if the guy doesn’t start on his own he will most probably starve.  Such entrepreneurship doesn’t give you scale and usually the barrier-to-entry is extremely low.

Unless the barrier-to-entry is high and unless there is scope for rapid scale, we will not create big stories.  One of the areas that we should invest in is technology.  We don’t see that happening.

Many of us use trains, cell phones and cameras, yet we don’t put research money into making better trains, better phones, or better lenses.  We are happy buying the new and better stuff coming from outside.  Often, we gloat over this behavior – that while other countries spend their money on expensive and futile research, making optic fiber, DVD players, cameras, cell phones, we just reap the benefits by just paying a small price at the counter.

We have not reached a stage where we invest in technology and research to build a business around it.  We are not ready to believe that big goals can be conquered through technology. When you see one company trying to build a technology company, usually it is an anomaly.  And nobody knows how to deal with anomalies.

Qn: Why do you think Indian VCs won’t invest in technology companies?

Indian VC firms are investing in many me-2 companies which are exact replicas of websites and other portals that have become successful in US. Many of these companies have low barrier-to-entry except in financing – and investors come in to take care of that.  When you know that those tried-and-tested formulae will work in India, now or in future, why experiment with anything else? 

Also, there have been precedents in exits for me-2 companies – some have gone IPOs while some have been acquired by US based web portals who wanted a presence in India.  I don’t blame them for not investing in other things right now – they are busy funding the models which are proven successful.

Moreover, how many high tech companies actually succeeded in India?  Without precedents, it is tough to believe that such companies can succeed in India.  What about exits?  If you are in US you can at least tell yourself that it will be acquired by a technology giant there – and India has none.  That leaves out IPO as the only option.  And again, how many tech companies in India have actually gone IPO?

In addition, there are not enough VC firms that we can classify as angel, seed, series-A, series-B, private equity, etc.  If an early stage VC firm takes a bold step to fund a big idea, that firm does not know if future rounds of funding will happen or not.  Only those companies that will somehow become sustainable right after the first round are funded – and they tend to be small ideas.

Qn: But there are so many VCs who insist they are going to invest in technology companies…

I guess we differ in how we define ‘technology’.  When they say Mobile, I think of actually developing and selling a handset, while they think of ringtones.

Usually the VC firms start out fine but then they slowly redefine the word ‘technology’ telling themselves that there are not many technology companies that are fundable.  Many a times, when filling a category on Business Plan competition, I have to choose ‘Other’ category, because there is no category for our company.  Indian investors are not geared to deal with companies like ours.  Common refrain is that they don’t have a partner who understands this business.

One doesn’t have to be a technologist to invest in a technology company.  One doesn’t have to be an entrepreneur to become a successful investor.  What we need a set of experienced investors who can take bets. 

There are many fund managers in the VC firms, but not many leaders.  They seldom carry a vision and rarely do they back a vision.  Many of them don’t exude confidence – they look confused and most often indecisive.  Some of them change their stance and decisions so many times completely contravening what they said in the last meeting.  If I ran the company like that most of my team would have abandoned me by now.  May be, leadership is also a desired quality in the investment community.

Also, the mandates given to these VC firms do not give them room to back big ideas.  Some firms have a mandate not to get diluted beyond certain limit.  That mandate limits them to look at extremely narrow area of companies – and those ideas naturally tend to be small.

The way Indian entrepreneurs are embracing different techniques to succeed in Indian conditions Indian investors too have to try out new methods.

This whole idea of funding first generation entrepreneurs is new to all of us – both investors and startups. We all need less teaching and more learning. Questioning the business plan should be done with intent to learn the business.  Investors can collaborate with the entrepreneur to hone the business plan.

All these meetings in a lookalike board room where the entrepreneur is grilled by an investor reeks of Indian college atmosphere where a student is grilled in viva-voce by imperious teachers.  How about meeting at a coffee place, or how about the investors actually coming to see the company, meet the team, see the products, or how about making a call to the customer to understand why they bought the products from such a small company? 

It will take some time before entrepreneurs and investors see eye-to-eye as businessmen working on a business plan – we are not there yet.

Qn: What about US based VC firms? Won’t they invest in India?

For the first round of funding, most VCs like to invest in a company which is quite close to them in proximity.   Also, those VCs who show interest in India have already setup a shop in India or partnered with an Indian firm. Eventually you have to go to firm in India.

So what do you think a technology company should do in India?  Where can they raise money from?

A technology company based in India is on its own.  I don’t expect them to be funded by Indian VCs in the near future.  Entrepreneurs should fund their organization through self, family-friends or do some other business to bring the money in.  Such an entrepreneur should prepare himself to the fact that such a process can slow down the things.

One can tap into Indian government funds geared to support technology companies – typically they are slow.  Though I have never raised it from the government I am working on it seriously now.

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