Innovator plans to keep the pot boiling

IN THE GARAGE/ Mistral aiming for RFID frontier by 2005

Mistral Software, the product realisation and design services company in the embedded space, is in a halfway house. It is half out of the garage, that is it is both an innovative startup and a conventional ongoing business at the same time.

It is innovative because its heart is in being on the technology frontier and it offers high-end product development and design services.

But it is a beginner in this as its revenue from its own innovations, the intellectual property (IP) it has created, was only 6 per cent of total revenue last year and slated to go up to 9-10 per cent in the current year.

But it has to do some non-risky business, offer services, in order to keep the pot boiling and pay for the R&D effort. This is particularly essential as it has to mostly live on its own money.

Its promoters started off in 1997 with only Rs 5 lakh in their pockets and grew into a Rs 7-8 crore business by 2000-01 entirely on internal surpluses. Then it brought in $3 million of venture funding in 2001, against a 20 per cent stake, largely to finance the infrastructure to enable further growth.

Today it is targeting a jump in both its innovative and conventional businesses by pursuing both organic and inorganic growth. While the goal of achieving organic growth is at hand, inorganic growth will necessarily result from an M&A deal which is being actively pursued.

In the first quarter of the current financial year (2004-05), Mistral has clocked over 100 per cent topline growth, thus making the projected Rs 32 crore revenue for the year quite realisable. (Turnover in the previous two years was flat at Rs 22 crore.) In keeping with the revenue upswing, headcount is likely to go up from 160 in the first quarter to 200 by the end of the financial year.

Some sort of lesson seems to have been learnt from the 2003-04 experience. To have predictability and stability in revenues in the future, the company has changed its revenue model from fixed price to a time and material one.

The latter now account for over 65 per cent of revenue, with 15-20 per cent coming from R&D and development work. For steady future growth, the company is "looking at a couple of long-term Fortune 500 customers with scalability", says president and CEO Anees Ahmed. Texas Instruments and Analog Devices are existing key customers.

"We are also exploring M&A possibilities as organic growth, though revived, will be slow by the standards of our appetite. We could join with a complimentary company which will bring to the table customers, markets and domain access," adds Ahmed.

Simultaneously, Mistral has a clear product vision "" in the wireless and radio frequency (RF) space. To realise this, it could follow another route "" "spin-off a product idea, get funding and deliver the product by 2005-06. We are starting off work this year as the RF space will really boom by 2006. To bring to market such an idea, we will need $ 5-10 million. Whatever be the level of inducted funding, Mistral will be one of the promoters and an integral part of the new venture."

RFIDs (radio frequency identification) will eventually replace bar codes. Major retailers like Wal Mart and J C Penny will shift to RFID by next year.

With every item in a store RFID tagged, a shopper's bill will keep getting recorded as she puts items in the cart and payment for the totalled amount made without pause at the moment of checkout by the swipe of a card.

While this will reduce checkout time and help the shopper, the business will additionally gain through real time update of the supply chain. As soon as a shopper picks up a tube of toothpaste, a replacement order will be placed with the toothpaste manufacturer.

While trial runs for use of RFID in retail are already on, Mistral wants to get into use of RFID in security systems and tracking which is still considered innovative.

Tracking what is in the hold of a ship or underwater oil rig or the different ammunition and weapons using diverse materials in a defence store, pose challenges which still need to be overcome. "We feel it will be a big boom market and early adopters will have an edge," adds Ahmed.

On the R&D front, in the last few months Mistral has done a few innovative designs. It has designed a radar scan converter for the advanced light helicopter being developed by HAL and data acquisition and signal processing for radar on behalf of DRDO.

"The whole idea of doing these things is to show we can do it and use this to get global customers," explains Ahmed. Mistral has also produced a hand held device used in navigation systems in marine applications (ships). Plus, it has designed a voice based advanced car navigation system with built in mobile communication (GSM) capability and MP3 player.

"These are reference designs, with a lot of our IP in them, slated for production in 2006. Revenue will come from customising these for different manufacturers. Again revenue for the radar device will come when the helicopter will go into production," says Ahmed.

So this part of Mistral is a classical high-tech startup, putting bits of its own money in developing new things, hoping that people will start using them soon and creating royalty and licensing fee cash flows.