India Rising
Erika Brown,
Forbes, NY

Promod Hague grew up in the old India and resettled in Silicon Valley. Now the venture capitalist revisits his homeland in search of the next great tech company.
Promod Haque was born into a lower-middle-class family in India, but he was lucky enough to attend a school in New Delhi for the children of wealthy dignitaries. His father was a bureaucrat; his mother took a job as a teacher elsewhere to cover his tuition. "I was very fortunate to go there," he says, "but I was an outsider."

After he graduated in engineering and started selling medical gear in India, he proudly bought his parents their first refrigerator. Two years later, in 1972, he arrived in the U.S. for grad school at Northwestern-and was stunned to see that every student apartment had its own fridge. "I was amazed by all the affluence." Haque (pronounced "Hock") went four years without talking to his folks, who had no phone; they wrote letters. He never returned to live in India. In 1978 his parents joined him in Chicago.

But Haque goes back to India a lot these days, in search of high-tech gold. India is on the rise, a booming supplier of-and a thriving market for-backshop software, wireless infrastructure, chip design and more. Haque, 57, is the managing partner of Norwest Venture Partners, a $1.8 billion fund in Palo Alto, California; 12 shops in his portfolio, one-third of the active total, have links to India.

U.S. venture firms will raise $1 billion for India by the end of this year. Soft Bank Asia Infrastructure Fund has earmarked $100 million of its new $650 million fund for India. WestBridge Capital Partners is closing a $200 million India-only fund. "We're seeing tons of competition for deals. It's a huge opportunity, and everybody knows it," says Rob Chandra of Bessemer Venture Partners.

Haque returns to his homeland once a quarter, meeting with fledglings he might fund, hawking his portfolio to India's tech giants and preaching a blunt message to the locals about the promise of wealth creation-and the risk that India will overprice its services and get undercut by other developing nations.

"We need to think about where the technology centers of the world will be in ten years and make sure we're there now," says Haque. "The reason Silicon Valley is a mecca for startups is that it has the entire ecosystem in place. If it is not developed where we want to do business, we need to build it."

He recently let Forbes tag along on a trip back home that covered 15,926 miles in nine days, hitting eight cities, to hold 47 meetings with people stoking India's high-tech boom. Clashes and contrasts abound. Sprawling corporate palaces arise in the midst of shantytowns; multimillionaires are besieged by frightfully frail children in tattered clothes who beg for rupees and dive into trash bins for food; world-class technology is accessible only by driving for hours over rutted, dirty, stomach-churning mountain roads.

India produces four times as many engineers as the U.S. but is one of the poorest nations on earth, with as many as 70% of its people living in poverty and per capita income of $500 (set to reach $750 by 2010). The countryside remains savagely primitive in some ways. Air-conditioning is scarce, though temperatures exceed 110 degrees (giving this reporter heat stroke-twice). Traffic jams contend with sacred cows, ambling camels and rickety rickshaws. Monsoons wash away power lines, cars and people.

Haque's trip begins at 8 a.m. in San Francisco on a Tuesday. After a 26-hour flight (San Francisco to Chicago to London to Mumbai), he lands at 1:30 a.m. local time on Thursday. He rises for a 7:30 a.m. meeting with a Norwest manager, then hops into a chauffeured BMW (no one in India drives themselves; chauffeurs work for $100 a month). The streets are mobbed with mopeds, rickshaws and taxis.

We drive out of the city and over rugged mountain passes to Pune, a university town that Haque says one day will rival Palo Alto in Silicon Valley. It takes four hours to go a hundred miles. At 1 p.m. he arrives at a hotel to speak with a dozen reporters, touting the benefits of Pune over Bangalore, India's much-hyped tech center. "Pune is the hot city to watch," Haque tells them. "It is where the Silicon Valley was 20 years ago."

Haque says he encourages all of his portfolio companies to expand to Pune. Amberpoint, which makes software that manages Internet-related applications, opened an office there in May. Veraz Networks, which helps telcos replace old circuit switches with sleeker software-based switches, plans to double its Pune staff to 130 by year-end. Haque hopes to take Veraz public in 2006.

At 6 that night Haque gives the keynote at an event sponsored by TiE (The Indus Entrepreneurs), a schmooze group for India's techies. He hopes to persuade them to embrace the Valley's key currency: stock options. It is a hard sell-options have been legal here only four years, and most large companies don't offer them. "There needs to be a culture of not looking for a quick fix of salary but the opportunity for greater wealth. Otherwise," Haque warns the crowd, "India will get left behind by other countries." The room is silent.

He gets mobbed by entrepreneurs. He balances a plate of curried chicken while standing and listening to hear whether someone here might be worth a visit. At 11 p.m. we drive three hours to South Mumbai and check into another hotel.

The next morning, a Friday, Haque has breakfast with people from International Justice Mission, a nonprofit that each year rescues 120 girls from sexual slavery. He meets one of them: Simran, 22, who is learning English and works as a receptionist. The aides don't let Simran see the menu for fear she will learn she was pimped for the price of a cup of coffee. Haque agrees to host a fundraising dinner at his home in September.

After two more meetings we head to Tata Consultancy Services, a $2.2 billion (revenue) arm of Tata Group, an $18 billion conglomerate and one of the oldest companies in India. Based in a musty building in South Mumbai, TCS has an entrance secured by metal detectors and uniformed guards. On the walk from the car to the door a pack of street urchins descends on Haque, tugging at his jacket.

Inside, Haque launches into his spiel of the week. "You have great vision into the shortcomings of companies like Oracle and PeopleSoft, and your consultants have a good idea about pain points," he tells the TCS guys. "If you see a need we would be very interested in hearing about it." They agree to pursue a development deal and leave the details to later. At 2 p.m. Haque meets with TCS Chief Subramanian Ramadorai. Servants bring in tea and coffee on delicate china. Haque and Ramadorai chat about the world economy, but not much happens. This is the dance of powerful men in old India: You don't do business until you've had a few chats.

Next up: a visit to Reliance Group, a glittering example of modern India. It takes the driver 90 minutes to go 7 miles. Reliance has $23 billion in annual sales in finance, energy and technology. Tall gates protect its campus of pristine roads and mirrored offices from the cardboard shacks across the street. Haque has long been pushing Reliance to use software from his Veraz startup. His host, Bhagwan Khurana, the wireless chief, tells Haque that when he mulls offering a new feature he asks: "Can we do it for the price of a postcard?" Weeks later Reliance inks a multimillion-dollar contract with Veraz.

We drive to the airport and fly to Delhi, where it is 110 degrees at 11 o'clock at night. Saturday morning Haque meets with Venkata Chalam, the pal of an old college classmate. Chalam proudly shares his résumé, but Haque interrupts: "Let's move along." Chalam has just formed a shop to make software for wireless carriers, but Haque doubts he can beat the giant incumbents. Beads of sweat gather on Chalam's forehead. He says he wants to set up in Bangalore, and Haque asks why, given high costs and high turnover. "I'm very confident I can retain the people," Chalam says. Wrong answer. Chalam says he will need $15 million to get to revenue. Wrong again. "That sounds low," says Haque. They shake hands and agree to meet when Chalam visits the U.S.

Haque later heads to Daffodil Software, a database startup in a rundown building. A black cow naps in the dusty, unpaved lot. Haque knows Daffodil is a long shot. It was founded in 1999 but still has puny sales. Yogesh Agarwal, chief executive, fidgets in his seat as Haque casts doubt on his plans: "What makes you think Microsoft isn't already working on this? ... Why won't customers choose IBM?" It ends like a bad date. "I'll think about it and call you," Haque says. Weeks later he tells Agarwal they aren't a good fit.

Then comes a visit to Gurgaon, the tech hub of Delhi, to see My Oxigen, which sells prepaid vouchers for cell service. Pramod Saxena, formerly of Motorola, tells Haque 95% of the 55 million cell users in India pay in cash. My Oxigen sells in 12,000 retail outlets in India. Haque prefers companies with global ambitions but sees potential in this local push. They set a meeting in the U.S. for next month.

We fight through traffic to get to the airport by 7 p.m., then fly to Bangalore, where we check into our next hotel at 11.

At 8:30 the next morning Haque speaks to 50 employees of an outfit he has funded-Open Silicon, a chip-design house hatched by three former Intel engineers. Open Silicon takes a customer's chip design, tweaks it and sets up manufacturing and shipping at half the cost of traditional chipmakers.

Haque, who has invested $8 million in the venture, is worried. Open Silicon needs to increase staff in India by 90% to 85 people this year, but employee turnover now typically runs a daunting 20% in Bangalore. Trying to lift morale, Haque talks up revenue projections. "We achieved close to $10 million in revenue last year and want to triple that this year." And he dangles out the best scenario of all: "We just hired a chief financial officer from a public company to gear up for an [initial public] offering next year." The message is clear, but Haque says it anyway: "There are opportunities for the growth of your career and wealth."

He spends the next seven hours meeting with a nonprofit a multinational and seven reporters. At 5 p.m. he has afternoon tea with "the two Ravis"-Ravi Krishna and Ravi Chandra. They run Sonoa, a startup Haque funded in April with $12 million from Norwest and Bay Partners. Krishna is guarded about describing his company beyond saying it is designing software that will help servers run faster by hosting applications on the network. Whatever that means.

Krishna left Redback in July 2004, cofounded Sonoa and moved back to India a month later. Thanks to a new tech boom, in three years 25,000 India-born engineers have returned home from stints in the U.S. Last October he recruited Chandra, a pal from Redback, as chief operating officer. They have just signed a lease for a new office in Bangalore that can hold 100 employees, up from 5 locals currently. Haque is here to help them sign two prospects, who listen as he touts Sonoa's strengths.

Afterward Haque walks upstairs to deliver a speech at another TiE event. He steps up to the lectern and tells the audience of 200 people, "India is a great place for development and innovation, but any company that is serious must set up its headquarters in the U.S., where the early adopters of technology-a startup's first customers-are based." Next slide, please: It shows that while India spends $13 billion on information technology each year, the U.S. spends $490 billion.

Then Haque strikes a nerve. He launches into a diatribe on rising salaries in India. Previously five engineers in India could be hired for the cost of just one in the U.S., but now that ratio is down to three to one. "People in Bangalore have to wake up. If costs keep rising, China, Israel and eastern Europe begin to look more attractive," he warns.

The next morning, Tuesday, Haque has a three-course breakfast in the private dining room of Azim Premji, chairman of Wipro, a thriving services company in Bangalore. He tours the campus with its rolling hills, man-made rivers and lecture halls. Not much business gets done, though Haque and Premji agree to talk more in the future about joint ventures.

At 11:30 a.m. Haque arrives at the downtown offices of Silicon Valley Bank. Its bankers advise big companies that want to set up in India, and they also match venture capitalists and startups. Haque is here to meet two startups, Sloka Telecom and InstaColl, but he has only a few minutes for each.

Sloka, founded by a few young guys from Alcatel and Nortel, makes base station boxes for next-generation wireless networks. But Haque believes they need more experience. InstaColl sells software that helps people in far-flung locations work together on Microsoft Office applications. Haque's take: This seems more like a product than a company, and Microsoft is likely to do this on its own.

The rest of the afternoon is a blur, as Haque plows through four meetings before boarding a flight to Israel. One face-to-face is with Rajesh Reddy, president of July Systems, which helps wireless companies sell videogames to mobile phone users. July is based in Santa Clara, California and has a staff in Bangalore. Haque is intrigued: July is at $1 million in revenues and predicts soaring growth over the next few years. He later checks with some July customers but remains unconvinced. "It is a burgeoning market, but I'm not clear how these guys will differentiate themselves."

Promod Haque will repeat this grueling trip back to his homeland every three months for the foreseeable future, traveling thousands of miles over multiple time zones and rutted roads in search of venture gold. India is on the rise, and Silicon Valley wants a big piece of the action.

Yuan, Rupee Rise at Record Pace as China, India Fight Inflation
By Bo Nielsen
Bloomberg

Oct. 15 (Bloomberg) -- Asian currencies from the Indian rupee to the Chinese yuan are rising at a record pace as central banks turn to the foreign-exchange markets for help in fighting inflation.

The rupee's 11 percent gain this year is its biggest since 1974 and surpassed the predictions of all 26 economists surveyed by Bloomberg News at the start of 2007. The yuan has climbed 3.8 percent, its fastest appreciation since China ended a peg to the dollar in 2005. The Singapore dollar has reached a 10-year high after its biggest monthly gain since 2001.

By allowing their currencies to strengthen, Asian countries are attempting to reduce the cost of importing coal, iron ore and wheat, ingredients essential to their booming economies. The risk is that the goods they produce may become too expensive. In China, consumer prices rose 6.5 percent in August, the most since 1997. Singapore consumer prices hit a 12-year high in August, and India's inflation rate this year reached the highest since 2005.

``Asian central banks are balancing tremendous pressure from exporters to keep exchange rates cheap while keeping an eye on inflation,'' said Kenneth Rogoff, an economics professor at Harvard University in Cambridge, Massachusetts, and the former chief economist at the International Monetary Fund. ``They must let their currencies go before they suffer too much from inflation.''

Coordinated Effort

Some members of the Group of Seven industrialized nations, including the U.S. and Germany, may propose a coordinated effort to boost Asian currencies at their meeting in Washington starting Oct. 19, Rogoff said. European Union Monetary Affairs Commissioner Joaquin Almunia on Oct. 12 said China should allow its currency to appreciate more against the euro.

Asian central banks are finding that raising interest rates and selling debt aren't enough to soak up the cash that generates higher wages and fuels inflation, said Lawrence Goodman, head of emerging market foreign-exchange strategy at Bank of America Corp. in New York.

``The response will be stronger currencies because they'll buy fewer dollars,'' Goodman said.
The People's Bank of China increased rates five times this year, while the Reserve Bank of India has boosted its target seven times in two years. China's money supply still has expanded more than 18 percent in the last three months. Salaries in India will climb an average of 14.5 percent in 2007, the most in Asia for the second year in a row, according to Hewitt Associates Inc., a Chicago-based human resources company.

Singapore Takes Action

The Monetary Authority of Singapore said Oct. 10 it ``will increase slightly'' the pace of appreciation for its dollar against a basket of currencies to curb inflation. The Singapore dollar rose 2.4 percent in September, and reached S$1.4610 on Oct. 12, the highest in a decade.
``Currency appreciation addresses the inflation problem and reduces the cost of intervention as well,'' said Rajeev De Mello, who helps manage $600 billion as head of the Singapore office of Western Asset Management Co. in Pasadena, California. He predicts the rupee will strengthen 5 percent by year-end and the yuan will rise 10 percent by the end of 2008.

Central banks intervene when they buy and sell currencies to influence exchange rates. China's purchases of dollars pumped yuan into the economy, where foreign-exchange reserves climbed $101 billion in the third quarter to $1.43 trillion, the most in the world; India's climbed by a record $34.2 billion in the period to $248 billion.

Scaling Back

Central banks in Singapore, Taiwan and Korea have scaled back intervention in recent months in what may signal a move toward stronger currencies in the region, said Jens Nordvig, a strategist with Goldman Sachs Group Inc. in New York. The firm estimates that the Malaysian ringgit and Taiwan dollar are 15 percent undervalued, the Indonesian rupiah 11 percent.
Goldman on Oct. 11 raised its forecasts on six Asian currencies, saying the Philippine peso will gain 6 percent over the next 12 months. It previously estimated a decline of 2 percent. The same day New York-based Morgan Stanley boosted its forecasts for six of the region's currencies, including a 11 percent jump in the Singapore dollar to S$1.30 by the end of next year.

``These countries have become more confident about the growth of their economies and that allows them to loosen the grip on currencies,'' said Gabriel de Kock, chief currency economist at New York-based Citigroup Global Markets Inc., a unit of the biggest U.S. bank by assets. ``And if they are seeing everyone around move at the same time it's not such a big deal for them.''

Growth Forecast

Asia's economy, excluding Japan, will expand 9.3 percent this year at almost twice the global average, helped by a 15.7 percent rise in exports, according to Deutsche Bank AG. The U.S. will slow to 1.9 percent, the Frankfurt-based bank said. Investors have since mid-August poured money into Asian equity funds at the fastest pace since at least 2000, data from world- wide fund tracker EPFR Global show.

Currencies in Asia are rising so fast that manufacturers in Asia are demanding reassurances from policy makers that their exports will remain competitive. India's export growth slowed to an average 14.4 percent in the first eight months of this year, compared with 22.4 percent in the same period in 2006, according to data compiled by Bloomberg.

``If the rise in the rupee continues, people will lose their jobs,'' said Ganesh Kumar Gupta, president of the Federation of Indian Exporters in New Delhi last month. ``The government's measures to curb the rupee have thus far been half- hearted.''

India's Example

In Malaysia, exporters met with the central bank and concluded the exchange rate wasn't a concern because ``the ringgit has strengthened at the same time as other currencies,'' said Paul Low, vice-president of the Kuala Lumpur-based Federation of Malaysian Manufacturers.
India's currency climbed 2.6 percent last month, even though the Reserve Bank of India said it purchased the most dollars since 2000. Asian countries added $2.1 trillion to reserves in the six years ended in 2006, New York-based consulting company McKinsey & Co. said in a report this month.

The yuan's 3.9 percent appreciation in the first nine months of this year was the most since it started trading on currency markets. The 12.6 percent gain in the rupee is the most since a peg to the British pound ended in September 1975.

Elsewhere in Asia, the Philippine peso has gained 5.7 percent the last month and Malaysian ringgit 3.6 percent, the fastest increases since at least 2001. Last week, the peso climbed to a seven-year high of 44.015, while the ringgit reached 3.3545 and the rupee 39.27 per dollar, both the strongest in 10 years.

`Massive Underperformance'

The rupee's surge helped cut India's inflation rate to an annual rate of 3.4 percent in September, from a two-year high of 6.7 percent in January. Price increases will rebound to 5 percent by March next year, according to the median estimate of 9 economists surveyed by Bloomberg.
Asian central banks that want faster appreciation in their currencies are getting some help from international investors, who are pumping money back into emerging markets after pulling away in July and August. Stock market indexes in India, China, the Philippines, Indonesia and Singapore rose to records in the last month.

``People are waking up to the fact that there has been a massive underperformance of the Asian currencies,'' said Paul Barrett, chief foreign-exchange trader at JPMorgan Private Bank in New York, which oversees about $430 billion. ``Asian currencies are cheap.''