Chiratae News

Interview with Sudhir Sethi (Founder CMD, IDG Ventures India) @ NASSCOM Product Conclave


August 21, 2008

by Pradeep Chopra

Pradeep: From the investment point of view, how is a Software Product company different from an IT services company?

Sudhir: Software Product Companies are significantly different from IT Services companies in many ways. These include

  • Higher return potential.greater valuation multiple on product revenue
  • Higher risk
  • Product business is Hits and Misses oriented
  • Ability to scale revenue and non-linear profits from successful product is far greater than with successful service
  • Relatively much longer wait to establishing market presence, brand name, revenue.initial 18 to 24 months may see investments taking place without any returns or proof of it
  • India services brand is globally accepted; extremely early days for Indian software products.consequently related investments are higher
  • Revenue predictability lower in product companies
  • Skill requirement more rigid than in services
  • Team (both investee and investor) culture is different
  • Companies need to look beyond only India cost arbitrage in Products competition is truly global versus in case of services where India base is the single biggest advantage
  • Channel investments are higher than in case of services partnerships-selling products through partners is more challenging in the initial days until the product and the partnership mature
  • Product companies face greater risk of obsolescence than services cos.

Pradeep: What is your message to the young Software Product entrepreneurs?

Sudhir: My first message is that I would like to see more product companies coming out of India; we at IDG Ventures have funded 5 product companies in the last 18 months and expect to invest in more in the near future. In addition do not expect product companies to give results in a few months; product company build up is a long haul; be prepared for it

Pradeep: As a fund, what verticals do you focus in?

Sudhir: The key focus for us include

  • Software products and Services
  • Engineering and Electronics
  • Telecom, Semiconductors and Embedded
  • Digital Consumer (Internet and Mobile VAS)
  • Financial Services
  • Healthcare and Medical Electronics