Pentium guru hopes to produce more Indian startups

Vinod Dham, father of Intel’s Pentium Processor, became a venture capitalist to give back to the country that educated him at nearly no cost: India. “This is really sort of payback time for me,” he says. “I came back with the conviction that we had to create more entrepreneurs there. I decided the best way to do that was to become a VC.”

After 16 years at Intel, Dham jumped into the venture business in April 2002, co-founding NewPath Ventures with Tushar Dave, who had been a vice president of business development at Broadcom Corp. The duo helped launch fabless semiconductor company InSilica, enterprise security company Nevis Networks and telecommunications company Telsima. “The first fund was small because I didn’t know how to raise funds,” Dham says. “Then, when I found out how to do it, I found out I didn’t like doing it.”

But Dham’s new firm hasn’t had any trouble fund-raising. NEA-IndoUS Ventures expects to hold a final close on an inaugural fund of $175 million in mid-April

NEA on board

The new firm focuses on early stage opportunities in India. New Enterprise Associates is the fund’s primary limited partner and has lent its acronym as a prefix. “Most of the money is from friends and now from VCs that made money off the first fund,” Dham says.

(VCJ was unable to determine the status of NewPath. Dham did not respond to a follow-up question via email.)

I came back [from India] with the conviction that we had to create more entrepreneurs there. I decided the best way to do that was to become a VC.”

Vinod Dham, Co-Founder, NEA-IndoUS Ventures

Dham co-founded NEA-IndoUS with Vani Kola and they later brought on Kumar Shiralagi as a managing director. The firm, which has offices in Bangalore and Santa Clara, Calif., plans to invest in consumer-related technology, IT-enabled services and companies that provide business process and knowledge process outsourcing.

“India is a really fertile land,” Dham says. “Everything you touch there is growing.”

The explosion of cell phones, for example, has given rise to lots of startups delivering unique Indian content. Dham says he met with a startup run by “young peple” who are making “millions of dollars by sending hymns each morning to mobile phone subscribers.We have 10,000 gods and everyone can pray to which ever ones they like, so there’s a big market for it. I thought, wow, this is cool, I should invest.”

As of this writing he has yet to sign a check for the startup, but the firm has invested in three other startups: InSilica, Minekey Inc. and Obopay Inc.

InSilica, which was launched by NewPath, has raised $52.4 million to date from various VCs, including $18 million in July 2006. Dham sits on the board of the Santa Clara, Calif.-based company.

Search me

India is a really fertile land. Everything you touch there is growing.

Vinod Dham, Co-Founder, NEA-IndoUS Ventures

Minekey Inc., based in Sunnyvale, Calif., offers a personalized Internet search engine. It raised $600,000 from NEA-IndoUS in December, according to Thomson Financial.

Obopay, based in Redwood City, Calif., offers mobile payment services in the United States. NEA-IndoUS wants to see it expand into India. Obopay has raised $17 million over three rounds from a variety of VCs, including $7 million last September.

NEA IndoUS complements NEA’s efforts in India. In February, NEA announced it had opened an office in Bangalore and had appointed Ben Mathias to lead what the firm hopes will be between a $125 million and $200 million effort in the country. NEA will invest in mid to late stage opportunities in telecommunications, media, alternative energy, technology-enabled services and infrastructure. It hopes to get exposure to the most promising early stage companies through NEA-IndoUS.

Still, for all the money NEA and NEA-IndoUS are planning to put into Indian companies, the area is not without its problems. “The weakest link in India is the management,” Dham says. “They have a tremendous amount of raw talent and visionaries at the top, but they’re missing this layer of middle of management. When I was at NewPath Ventures all four of my companies suffered from that. Now we have returnees who are going back [from the U.S.] to the country to play this role, but it still remains a tremendous frustration.”

Political pressure

India’s political climate could also pose a problem. “Most of the growth is happening around centers of excellence,” Dham says. “Some are growing at more than 20 percent. The majority of the population lives where the growth is low and they are more represented in the parliament.”

The weakest link in India is the management… When I was at NewPath Ventures all four of my companies suffered from that.”

Vinod Dham, Co-Founder, NEA-IndoUS Ventures

These under-developing areas may pressure the government to redistribute some of the wealth from the high-growth areas. “Where the technology has gone, the manufacturing is going as well,” Dham says. “The states that are contributing less have significant representation in politics. Those states are demanding a lot more for themselves.”

The government has already thrown one monkey wrench into the startup world this year. Minister of Finance P. Chidambaram announced a 35% tax on options at the end of February. The rule went into effect at the beginning of April.

“This has been a huge problem,” says Nishith Desai, founding lawyer of Nishith M. Desai Associates and counsel to NEA-IndoUS. “In the U.S., you are taxed on the exercise of options,” he says. “In India, the employer is taxed on the difference between the offer price and the market price. There are many ways you may be able to get around this, such as immediately put stock options in a trust.”

Problems like this seem to be an endemic part of doing business in India. “India has the world’s largest bureaucracy,” Dham says. “When you have that many people in the bureaucracy they have to come up with new ways to stay busy.”

Putting one of India’s largest early stage venture funds to work will no doubt keep Dham busy, as well.

NEA-IndoUS Ventures

LOCATIONS: Santa Clara, Calif., and Bangalore, India

FUND: Closed on $175 million for its first fund.

TEAM: Executive Managing Director Vinod Dham, Managing Director Vani Kola, Managing Director Kumar Shiralagi, Venture Partner Bhaskar Menon, Investment Associate Sampath Pudhukottai

SAMPLE LP: New Enterprise Associates

FOCUS: Early stage startups with Indian talent, an Indian market base or Indian operations.

CO-INVESTORS: Has yet to syndicate with the same VC firm twice. It has worked with Intel Capital, Onset Ventures, Redpoint Ventures, QUALCOMM Ventures and others.

SAMPLE DEALS: Fabless semiconductor company InSilica, personalized Internet search engine company Minekey, and mobile payment services company Obopay. So far, each of the firm’s announced investments is based in Silicon Valley.

Source: VCJ reporting