Start and sell: India’s new Valley success stories

Abheek Anand is no ordinary product manager working out of Facebook's California headquarters. The 32-year-old, along with fellow IITian Sohan Majumdar, sold the mobile-based customer loyalty startup Tagtile, which they had jointly launched, to Facebook last year.

Anand and Majumdar represent the new generation of tech entrepreneurs in Silicon Valley. This breed thrives by soaking up the Valley's can-do culture, and by turning ideas into startups that attract the attention of the big fish.

A recent study by Kauffman Foundation says 33% of the co-founders of engineering and technology startups in the US since 2006 are Indians, leaving other immigrant communities far behind. The past 18 months have seen a slew of startups — with at least one Indian co-founder — being acquired by the biggies. Others have tapped the US capital markets with successful listings.

These include Cisco's acquisition of cloud-controlled WiFi provider Meraki for $1.2 billion; LinkedIn's buyout of mobile and web newsreader Pulse for $90 million; GroupOn snapping up social media firm Campfire Labs; and GREE's purchase of Funzio that creates games for social and mobile platforms. Palo Alto Networks, which provides firewalls, raised over $260 million when it went public last year.

However, these new kids on the block have failed to attract the kind of attention drawn by Indian-origin entrepreneurs Sabeer Bhatia, Kanwal Rekhi, Pramod Haque, Gururaj Deshpande and BV Jagadeesh, who were stars of the dotcom era. One reason could be that most of these pioneers sold their firms for eye-catching figures in all-cash deals unlike the current lot, who are mainly going for share-swaps with small cash components.

Hotmail founder Sabeer Bhatia, an early poster boy for Indian entrepreneurs in the US, struck gold by selling the company to Microsoft for $400 million in 1998. Infosys co-founder Narayana Murthy's brother-in-law Gururaj Deshpande's networking products company, Sycamore Networks, had a spectacular IPO in 1999, with its market cap touching $14.4 billion on day one.

Some things, however, stay the same. Businesses are hatched over coffee and funding put up over a good lunch. Tagtile was born in Fatoush, San Francisco's Mediterranean restaurant, to mine repeat buyers and improve customer loyalty.

"We believed we had a cool technology aimed at a large market. And we wanted to start a company," says Anand. Tagtile offers a free hardware dongle to merchants to record customers' purchase patterns, tapping their smartphones to the hardware device at the checkout. Customers can install the Tagtile app on their phones to redeem loyalty rewards from retailers.

"Indians continue to be wealth creators. Even though they are no more than 5% of Silicon Valley, they are responsible for almost 20% of start-ups," says Rekhi, a serial entrepreneur and MD of technology venture capital fund Inventus Capital Partners. First-generation entrepreneurs like Vinod Khosla and Ram Shriram became the role models for immigrant startups whose validation could get angel investors and VCs to cut seven-figure cheques for ideas on a napkin.

Ex-Googler Sakina Arsiwala and her husband Naveen Koorakula's social media startup was lapped up by deals site GroupOn when it was still in a stealth mode. Rajiv Batra who listed Palo Alto Networks, Sanjit Biswas of Meraki, Akshay Choudhury and Amit Gupta of Pulse figure in the Valley's recent list of Indian wealth and job generators.

Vivek Wadhwa, fellow at Arthur & Toni Rembe Rock Center for Corporate Governance in Stanford University, says Indians show a burning desire to raise their social status in a foreign country. This means rewriting rules of the game to plug into the Valley's entrepreneurial ecosystem, where they are otherwise typecast as techies. "When they leave India, they are at the top of the social ladder; when they come here, they are at the bottom. They are highly motivated to regain their social stature here and, hence, work extremely hard and take risks by starting companies," says Wadhwa, author of 'The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent'.

With most startup buyouts structured in stock options with little cash take-out, figuring out the wealth of this generation of entrepreneurs has become tricky. Internet and social media biggies like GroupOn and Facebook have had see-sawing stock prices, while LinkedIn's price has held firm. The stock-cash ratio depends on the stage of maturity the companies are in, while the entrepreneurial fortunes hinge on the market behaviour.

While most immigrant graduates and mid-level professionals at internet giants Google and Yahoo who plunge into entrepreneurship normally play in the Valley ecosystem, there are others who are making a splash too. Lalit Kalani, a Wharton grad who hails from a family of liquor manufacturers in Mumbai, co-founded Bandar Foods that makes Indian chilli sauces. This story spins around blending mango pickles and mint chutneys into squeeze bottles at a time Indian flavours are finding their space at takeaway counters.

JD Sethi's company, Dahlicious, makers of Indian-style probiotic yogurts, funded by loans from Boston brewer Samuel Adams, is another case of Indian risk appetite expanding outside the Valley.

The fact that several Indian professionals are now in top management at GroupOn, Google, Facebook and LinkedIn — simply put, on the side of acquirers — probably helps their million-dollar dreams.