Like people, companies too evolve,
change direction, face rough times and grow. Sometimes they collapse,
at other times they maintain a steady and even boring pace —
but there’s always an interesting period during which the possibility
of greatness can be seen.
Whether that peak is achieved or not depends not just upon the organisation’s
ability to reach out and touch the future but also whether the timing
is right or the circumstances conducive.
e4e is at the stage of its lifetime when the future holds promise.
e4e started out as an incubator in 2000 — hoping to provide a
leg-up to start-ups by some initial funding and later by spreading
its protective umbrella, mentoring them till they were mature enough.
Four years on, some of the start-ups have died, but others are around
and doing pretty well. Perhaps, it’s serendipity but the survivors
now form a perfect ecosystem for the IT services value chain. Each
of these do provide point solutions but the real value lies in packaging
their collective offerings where the sum of the parts is more than
the total.
“We took a write off on some of the investments, which we thought
would not become a part of the ecosystem. We added to the solid management
bandwidth,” says KB Chandrasekhar, chairman of e4e, who is popularly
known as KBC.
With the Exodus Communications success behind him, KBC is present
to mentor the entrepreneurs whenever needed. With Somshankar Das as
CEO and Sridhar Mitta as president, entrepreneurs could actually be
spoilt for mentoring choice.
Despite this, the seasoned gentlemen have realised that experience
is precious — recently senior executives have been hired at Aztec
Software, the only company in the fold that went public and is listed
on the Indian stock exchanges.
“It was important to bring in folks like V Chandrashekar and
Murali Rangarajan, among others — people who have run companies
worth $200-$400 million, to strengthen the already existing DNA of
the company, and over the past 12 months, we have focused meticulously
to execute our inorganic and organic growth plans,” says KBC.
According to Somshankar Das, success will happen if “you are
able to provide the business development capability, while at the
same time provide a superior back office execution capability.”
Take the case of Vinciti Networks, a managed technical services provider.
Vinciti provides two types of outsourced, private labeled technical
services. One is level 1 to level 3 technical support. The other is
remote monitoring services for IT infrastructure. Among its customers
are SonicWALL, Microsoft, Jamcracker, Texas Instruments, Cadence,
Sitelite and Apple etc.
Last year, e4e brought in this company as a 100% subsidiary and started
filling out the holes in Viniciti’s strategy. Vinciti had a delivery
centre in Bangalore but having a near shore presence in the US would
rope in more customers. Vinciti therefore acquired Jamcracker’s
IT service arm located in Phoenix, US.
Business has been growing so fast thereafter that one more Vinciti
centre was opened in Bangalore. “We had a near shore capability
long before the rest of the industry started talking about such a
need,” says KBC.
Next, e4e took a controlling stake in iSeva. iSeva is a provider of
business process management services with a global delivery model,
serving the financial services and high technology industries. With
headquarters in the US, it has operations/delivery centres in India
and alliances in Ireland and the Philippines. It offers both voice
and data support to customers.
The scattered operating model has been discarded for a more focused
controlling stake model where e4e became operators rather than just
investors.
Despite the hiccups that some portfolio companies suffered, the average
growth during the past four years has been 60% year-on-year. If everything
goes as per plan, the group would touch revenues of between $125million
and $150 million by the end of 2005-06. This is after the write-off
of around $12-15 million on some VC-funded companies that e4e had
invested in.
Despite starting off as an incubator, e4e’s worldview of its
companies wasn’t as a venture capitalist but as a backer of
private companies. “We believed in the long term value creation
model. VCs have to return the money to investors, which means they
have to manage funds rather than contribute operationally to the
day-to-day activities of the firm.
As a result of this strategy we never went to pension funds to
raise money but to other people like Walden, who would invest more
in a company. VCs have two exit options — either through IPOs
or selling equity to other investors wanting to come in at a later
stage. We don’t have such compulsions,” explains KBC.
Raising money should be done on an opportunistic basis rather than
through compulsion, believe the e4e folks. Says Mitta, “Our
focus is on internal generation of cash. For example, Aztec is generating
around $3-$4 million in free cash flow which it can either return
to shareholders as dividends or use it to buy out another company.
If there’s a need we’ll augment it via external capital.”
One reason for this interconnectivity between small companies is
that the IT world has changed dramatically over the past four years.
It’s virtually impossible for small players to survive. On
the other hand, large players now have to offer everything that
a customer may need.
Thus, IT service giants like Wipro, Infosys and even IBM had to
go out and get BPO companies into their fold. “The customer
needs several vendors to satisfy all his needs. If he can source
all services from a single place, he’d rather go there. That’s
why Wal-Mart is such a big success,” says KBC.
Today, each of the portfolio companies at e4e are standalone companies
that can survive on their own, but “together they form a very
powerful combination”, says Mitta.
The consequence of gaining size is that the top brass is realising
the need to get all companies under a common brand. As one entity,
the company should employ about 5,000 people, a number large enough
for e4e to be considered a tier-II company in India.
With so many senior managers, isn’t there a risk of getting
to be too top-heavy? Not really, says KBC. “What we are creating
is an ability of the management bandwidth to grow. This allows us
at any point of time to do three to four acquisitions or undertake
major business development activity. This is how typically EDS,
IBM Global Services or any other majors run their business. You
should have the management power to take the company to the next
level,” he says.
So while the entrepreneur will have a say in what happens to his
company next, it will perhaps be overridden by business concerns
and overall roadmap of the group if it seems to be out of sync.
The strategic plan is to take the vertical approach. So, if Infosys,
TCS and Wipro are broadbased across all verticals and there are
companies like i-flex and Polaris dominating the banking and financial
sector, e4e wants to be the “gorilla” in the vertical
it is in. “Our goal is to become a dominant player in each
of the verticals that we play in, so that you are able to position
yourself as the best of breed or lifecycle provider and you use
acquisition to augment the lifecycle that you provide,” says
KBC.
He gives the example of the transaction services space, which is
growing — and the reason they bought over iSeva. “We are
hiring management on the front-end side of the business and you
will see us making acquisition announcements over the next 12 months
— acquisitions to round off the transaction services areas
and not call centres,” he says.
As for getting bought out, he dismisses it outright. “We have
no intention to sell out. Today we are in an acquiring mode.”
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