“In India our strategic goal is to play the role of a catalyst and accelerate the growth of the overall market.”

Atul Vijaykar
Director, South Asia, Intel

“I think that the  biggest
value Intel has brought in, apart from the funds, is paranoia.” 

Anil Bhakt 
CMD, Eastern Software Services

In India, Intel has been in the news for more
reasons than its processor business. One of them has been its venture capital investments.
As of now, the chip giant has invested in about 6-7 companies and many more are in the
pipeline. One of its recent investments has been in Eastern Software Services (ESS), the
company behind Makess–an ERP product for the SME segment. Recently, ESS launched an
ERP product on the internet.

DATAQUEST spoke to Atul Vijaykar, Director,
South Asia, Intel, and Anil Bhakt, CMD, Eastern Software Services, to get both the
investor as well as the investee standpoints. Excerpts: 

What is Intel’s approach toward its
venture capital investments?
As one of the largest technology venture capitalists, our approach is consistent
across the world. There are two fundamental things we look for before making investments
in any company. Firstly, whether the company is in a strategic technology area, as this
blends with our strategic viewpoint. Secondly, companies which are uniquely situated from
a market standpoint to drive the market in any such direction that is consistent with our
medium-term vision. Also, in markets like India, one of our key strategic goals is to play
the role of a catalyst and accelerate the growth of the overall market. 

 A key factor of your venture capital investment is ‘strategic fit’.
Does this ‘strategic fit’ has to be in terms of application or technology?

It is usually a mix and match of both–application as well as technology. Let me give
examples for both the cases. As a company, our vision is to become the leading supplier of
building blocks to the internet economy. However, over and above the services and
products, we also work closely with software developers, who in turn deliver solutions to
the market place. This is the application part. In recent times, a lot of our investments
have been in internet-related companies, some of these are software companies. But there
are other examples also, not in India, where enabling broadband access technology to the
internet is a high priority for us. 

In the Indian context, how does ESS fit into your investment strategy?
We see the internet as something which is shaping and changing things. So, more and
more of our investments are–and will be–in internet-related companies which will
help in accelerating the net adoption rate. One of the other key goals in India is to push
the growth of the overall market and, given ESS’s focus of enabling SMEs, we feel
that this is the segment that is growing rapidly and also holds the biggest potential. So
from both the standpoints, the strategy they were on was of interest to us. 

How much does a venture investment from a company like Intel help a company like
ESS? 

I think that the biggest issue for a small software product company like us is answering
the question: “Are you going to be around five years from now if I am trusting my
data and my backbone to your software?” However, with an investment backing from a
company like Intel, the above and many more such questions are no longer asked. The fact
that we have a world technology leader like Intel backing us makes it obvious that we are
going to be here for a while. Another issue is that since we are bringing our own ERP on
the net, the biggest difficulty for us is to sell the concept to the various ISPs. And
telling them to host a small company’s application becomes a big physiological
barrier for the ISPs. 

Does being in the investment portfolio of a company like Intel imply certain technology
imposition on ESS? 

I think that the big advantage of working with Intel is that they don’t treat you
like a small company. At the end of the day they are more of our partners and less of
investors. After signing the agreement, they have opened up their labs for us, allowing us
to integrate their technology with our software without imposing the same condition on us.
What Intel is offering is a wide gamut of possibly 1,000 technologies and ask us to choose
the best five, seven, or ten or whatever we like and integrate it with our product.
Moreover, the best part is that they give us the technology even before the Alpha and Beta
testing stages. So we have their hardware in our offices and our software in their
offices. Their managers review our software and may suggest a particular technology
fitting well with our product, but again there is no question of them imposing the
technology on us. It is more of an equal partnership that we have. 

Regarding the terms of the agreement, were there any technology, developmental or
financial plans or milestones set for the company by Intel? 

At the end of the day, we are two independent companies. Moreover, since we are minority
investors and also our core competency is not in, say, ERP in the case of investments in
ESS, we cannot decide on the milestones for the company we invest in. But we develop some
tools, certain hardware technologies and we share this information with the companies if
we feel that they have an advantage of some of them. 

Like Atul has said, they are shareholders and
the first question is why we are working together. It is not the question of some plan or
milestones but of Intel’s strategic vision of a billion connected computers and we
fit into that strategy extremely well. We were saying we would have 10,000 SME customers
on the net by the end of the second year of our product’s launch. Intel is more
interested in this kind of thing rather than our balance sheet. On the other hand, they
would say instead of 10,000 get 100,000 customers and now you tell me what you want. 

How did the investment process take place for ESS?
We had heard about Intel’s readiness to invest in Indian IT companies. Since we
were looking for funds, we sent a fax to their Singapore office. Nothing happened for two
months, then somebody called up from Intel and wanted to meet us. During that time our net
initiative was just on the drawing board. We were not even clear as to what will be the
technology and other factors for our product on the net. That’s how we got talking
and, I guess, it made sense for Intel as we wanted to create a new market, as no foreign
ERP company was chasing this market. 

What benefits do a VC like Intel bring to a small company like ESS?
I think that the biggest value Intel has brought in, apart from the funds, is a sense
of paranoia in our company. When we were talking to them and had received the investment
from them, we told them that we are going to launch our product on January 1, 2000. They
disagreed with us on a simple rationale that the date is too far and as every room in this
country has a software company running who knows how many people may be working on ERP on
the net. We had to shave off a few months. They made us actually paranoid and we ended up
working overtime with a goal to launch our ERP product in September at the India Internet
World. 
And I feel that this paranoia really helped us as they know the world a lot better than a
small software company like us. Moreover, I think that the biggest thing for a company in
India with lack of access to funds is the inability to dream big. However, if you get a
partner like Intel, then it doesn’t matter if they give you a rupee or a million, but
I think they fan your aspirations and help you dream big. They tell you to focus on the
global market and not exclusively on the local market. Like for ESS, why should it be just
10,000 customers and not 100,000 customers. 
One of the first things we did after Intel came in as our partner was to put a structure
in place by which the company runs without my intervention while I take care of the
strategy. So paranoia, dreaming big and the ability to continue dreaming big despite a
shortage of funds are the luxuries that have come in with Intel.

So, can one expect to see more such investments in companies like ESS who are porting
on their applications on to the net and will that be the role model you are putting before
the other companies to emulate?

I guess yes. In fact, that’s where the strategic match lies between us and Intel.
Intel feels that there is a reasonably high probability that this would be the model for
the next few years to come. We also think that there is a huge value and probability of
success for companies who can port their applications on the net.
This is one of the trends. In fact, I don’t even want to suggest that this is the
only model but certainly it is the way the trends are visible. Another thing is that there
are always multiple things that drive a market successfully. One is the technology or the
computing model and the other is quality of the product. Even if you have the right
model—the product can end being driven out of the market. Also, you need the right
management team in place. That is a part of the due diligence procedure we would follow as
an investor—the technology part, the management part and the financial part—and
then you make the assessment of the overall fit. 

What is Intel’s venture capital corpus? And is there anything specific for
countries like India?

There is no finite bucket that’s defined and available for the VC investment. As of
date, the rough number in the current portfolio is about 200 companies with a market value
in the region of $4 billion. These are only our VC commitments and not our acquisitions,
which is not a part of the VC corpus. We don’t have any country-specific corpus. It
is completely driven by the opportunities that we identify in a region or a country. We
even don’t have a numeric target, it is more a question of finding the right
opportunity.

Intel has tied up with many small players like CAD/CAM design outfits and internet
solutions providers in the country. Do such tie-ups have some VC interests or is there
some other kind of arrangement?

As part of our strategic vision, in the last half-a-dozen years, we have worked more and
more with software developers. In the current phase, the internet solutions providers have
become more important for us. We are working with a few dozen ebusiness solutions
providers where there aren’t any venture capital investment, but we share some level
of technology and do some marketing or training activity with the company. 

Your tie-up or partnering with companies subsequently result in VC investments in these
companies or are they two different sets of relationships?

Any company where we have invested in has by definition already met our criteria of
‘strategic fit’. Moreover, unlike a banking firm, it is not our philosophy to
have a hands-off attitude in our VC investments. So certainly we would have a deeper
relationship with them. However, the reverse doesn’t necessarily follow. So if we
have tied up with some company for some program, it does not follow that we will also
invest in that company. But there would be some companies that we get in touch with and
get to know them through some other program and find them to be a good investment
opportunity for Intel. 

Do you think that India too can house as many start-ups as Silicon Valley? 
In the past, you must have heard stories about Indians making it to the big league in
the Silicon Valley. What’s special about Silicon Valley is not the technology access
but the abundance of venture capitalists and the general environment. The environment is
so charged up and the need to be entrepreneurial so widespread that one has seen so many
start-ups and success stories about Indians as well as the others. However, the good thing
which I see in India is that some of this fever is seeping in here too. People are no
longer just saying that their dream is to go to the US, but are saying that venture
capital is here and so are the opportunities. This is a very exciting trend. So I expect a
lot more start-ups in India, at least in the IT field, and this is a very healthy trend.


Arun Shankar, Abhay Singh and Yograj VArma 
in New Delhi

Leave a Reply

Your email address will not be published. Required fields are marked *