ENTREPRENEURSHIP SPECIAL ...............The Network Effect

The Network Effect 
 

Relationships built during years at college are proving to be invaluable to those setting out on a career in entrepreneurship

    Across the Indian startup sector, growing networks of alumni from some of the best-known colleges in India and overseas are helping entrepreneurs find money, hire talent and grow businesses. Drawing from the success of similar global groupings that have helped spawn large corporations, these professionals are banding together to promote the entrepreneurial ambitions of college-mates. “The network effect always counts in entrepreneurship,” said Parag Arora, cofounder of multi-lingual application developer, PlusTxt, who graduated from IIT Delhi in 2008. Two years ago, the 26-year-old teamed up with another IITian, Pratyush Prasanna, 34, to launch the company. They sold PlusTxt earlier this year for an estimated $2 million ( 12.2 crore) in cash and equity to mobile application company One97 Communications. “Team members are on the same page when they have been through similar experiences. Often cofounders may have gone through the same ragging (in college),” said Prasanna, now a vice-president at One97. Such bonds forged during the formative years are proving to be critical assets as young entrepreneurs seek money and mentoring to grow fledgling ventures. “IITians from Silicon Valley often jet down to India to meet their juniors and invest in their ventures,” said Arora, whose first job after college was at a startup launched by his senior in college. Experts said this is a globally validated trend that is gaining ground as India’s startup ecosystem matures. The total mar ket capitalisation of the companies that were started at Stanford rivals the GDP of several countries, said Yossi Feinberg, a director at Stanford Ignite, the global innovation programme from the US-based University, which began its entrepreneurship course in Bangalore this year. Entrepreneurs said they often turn to college-mates when they are hiring, even when they know there is more talent to choose from outside of elite colleges. “When you hire from your college you have the advantage of knowing the person and his history,” said Ambarish Gupta, who returned to India in 2009 to start cloud telephony startup Knowlarity. The IIT-Kanpur graduate has packed his senior and second level management cadre with fellow collegians. Raising money is another critical factor that startups seek from college networks. Global venture fund Canaan Partners found that about three out of four entrepre neurs who raised funding in Delhi is from a blue-chip college. “Yes the affinity does work. If a professor or a batchmate refers an IITian startup, I do take time out to mentor them,” said Alok Mittal, managing director of Canaan Partners India. Mittal, a graduate of IITDelhi, had cofounded Jobsahead.com with a fellow IITian in 1999. Often senior professionals are also happy to help out juniors with no financial stake even. “They give them frank advice,” said Ravi Gururaj, cofounder of the Indian chapter of Harvard Business School Alumni Angels. The old boys network extends is not limited to just IITs. Graduates from the Birla Institute Technology and Sciences (BITS) have spawned their own angel network known as Bitsspark. This alumni association was born out a tragedy. Vamsi Pendalya, a BITS alumnus was on the flight that crashed into the World Trade Centre in 2001. His collegemates created a memorial fund in his name and five years ago they grouped together to form an angel network. “We get almost 60-80 companies in our pipeline every year now, and almost 10 of them end up getting funded by our band of about 50 angels,” said Sundi Natarajan, who mentors a number of startups launched by his college-mates, including robotics technology company Grey Orange. The network has helped setup companies such as education software maker Tabtor, telecom services firm Exotel, and a slew of online ventures such as Zivame, Gharpay, and OnlinePrasad. “Our mentors, angel investors, employees and even many customers came out of the Bitspark network,” said Vijay Sharma, 25, cofounder at Exotel Telecom and a graduate of BITS Pilani. “It has helped in understanding term sheets, to getting customers and even revenues,” said Sharma. US-based serial entrepreneur and BITS alumnus Raju Reddy mentored and coinvested in the company. Networks are also useful when wealthy alumni want to invest together. In 2011, when Harvard University’s alumni association wanted to spread its wings overseas, it chose India after setting up chapters in London and Paris. The network invests in early-stage companies seeking up to $500,000 ( 3 crore), not necessarily founded by its alumni. “We will invest in larger rounds beyond $250,000 ( 1.5 crore), but will likely do so as part of a syndicate with other angel groups and venture capitalists,” said Gururaj. The HBS graduate, who also runs a technology accelerator in Bangalore, Frictionless Ventures, is of the view that in an alumni angel fund there is greater trust amongst investors. “I would do even more due diligence before presenting a company to the network than I would have done if I was investing my own money,” said Gururaj. The network has so far invested in startups such as Explara, online lingerie company Pretty Secrets and access management provider Tuebora since it started operations in January 2012. The global reach of such networks is also proving to be a big boost for Indian startups. “It helps in branding if you are taking your company global,” said Santosh Panda, cofounder of Explara.com, an online ticketing company, which received angel funding of about 4 crore from Harvard Angels and others this year. Explara plans to expand to Singapore, Indonesia, Philippines and West Asia. “In foreign markets, people instantly recognise a global brand name such as Harvard or Stanford. It adds credibility to a new face,” said Panda, 39. Industry members said the growth of such networks goes a long way towards deepening the ecosystem for startups. Subrah Iyer left India when he graduated from IIT Bombay in 1981. The California based entrepreneur worked at Intel, and then founded WebEx which he sold to Cisco Systems for $3.2 billion ( 19,500 crore) in 2007. “In my time students would leave the country. It is not the case now as the tide has turned and more IITians are starting their own companies in India itself.”
Harsimran Julka (With inputs from Krithika Krishnamurthy) ET131018