Million Dollar Idea - Most of the would-be entrepreneurs in India wait for it to take the plunge in the wild start-up world. I have talked to many passionate individuals to verify this assumption and found it only partially true. Other reasons mentioned by most of them was a lack of great team and a missing ecosystem where entrepreneurship is supported.
Though I partially agree that a decent idea is some thing worth waiting for, but am not sure whether it necessarily needs to be a starting point. It can come with healthy discussions with the people you consider your core team. Great team is not some thing that we are born with. It can follow once you decide to take the plunge and start talking to people about your dreams -there are many people like us living around sharing the same vision.
Other reason which pulls the thought of entrepreneurship down - the current Indian ecosystem, is something that I found alarming since we need support from the industry veterans to change that. Everything said in newspapers seem like a marketing gimmick; we know the hard facts that the ecosystem to nurture entrepreneurs still don't exist in the country. There are VC/PE firms to infuse money in the start-up world but there are hardly any Angel investors/seed investors.
I had a chat with a VC some time back and his logic was that it's easy for us to invest 10 million dollars 5 times than 1 million dollars 50 times since it saves energy in hunting down the potential companies and later managing them. My immediate question was who needs 10 million dollars as a seed fund and he said "that's why we are not a seed fund" :)
Interesting, I guess management of time and energy of the VC firm is determining who needs to be funded today and at what stage. I am not saying that phase B or C funding is not required et al. All I am trying to mention here is that we need to nurture talent right from the start to make a Google come out of India. The very fact that most of the start-ups in India look out for $100k to $500k seed fund is because, in India, it's huge money and is good enough for a service company to sustain in the initial phase, but since the fund managers are interested in giving more money, they neglect these applications considering them trash or 'good but not interested' category.
We are missing the Indianized version of VCs - local money lenders or sahukars, who understand the Indian mentality and who could help in evolving talent right from the start. Narayan Murthy has taken a nice step in this direction though I am not sure about his targeted token amount.
We hope to see some Indianized VCs in the coming times who would help in cultivating the talent in more Indianized way. I hope we would get an answer to the 'No-Google from 1 Billion' syndrome, provided we get the right ecosystem.
India has been the hot new place for United States venture investors for a couple of years now, attracting billions of dollars in venture capital. Are there enough promising companies to use all that cash? Yes, said Parag Saxena, who runs the biggest venture fund on the Indian subcontinent. In an interview in his New York office, he said that the opportunities in India and Southeast Asia had improved greatly over the last year. Mr. Saxena is chief executive of New Silk Route, a $1.4 billion, one-year-old fund dedicated to investments in India, Pakistan, Dubai and Southeast Asia. He raised the fund after leaving Invesco Private Capital in 2006. He is also a co-founder of Vedanta Capital, which invests in companies in the United States. Many top venture firms in the United States are looking to Asia as well. Sequoia Capital announced this month it had raised a $725 million fund for investments in Indian start-ups. Accel, New Enterprise Associates and the Mayfield Fund are also investing there. The investment opportunities for all that money flowing east have become “very attractive,” Mr. Saxena said, but he said he didn’t feel the same way a year ago. Then, he said, the sums that entrepreneurs wanted for a stake in their companies were too high. He attributed the change to tightening credit markets worldwide, not just in the last two weeks but over the course of the year, and to Indian government policies to tighten interest rates and fight inflation. “There is less money around, and less stupid money around, which leads to an improvement in prices” for venture investors, he said. For the most part, the companies seeking venture financing in India have been middle- to late-stage companies, not true start-ups like those that get financed in the United States. There are simply not enough start-ups to absorb the capital, so investors have focused on older companies. That is slowly changing, Mr. Saxena said, as “a little trickle of start-up money is coming in.” Many venture-backed companies in Asia are not technology-focused. Those that are mostly produce products that use technology that has already been perfected in the United States, like digital cable and high-definition television. But that is changing too, Mr. Saxena said. Tech companies will start leapfrogging the United States, he said, producing cutting-edge instead of copycat technologies. He has already seen this happen with technologies like L.E.D.’s. Clean technology has the potential to be even hotter in India and China than it is in the United States, he said, but not for the same reasons. “It is not because it is cheap or noble — it is driven by necessity,” he said. For example, one of the biggest users of solar panels he has seen is in a group of primary schools he started in Indian villages, where they have no alternative form of electricity. In terms of clean technology, he predicted, “the cutting-edge stuff will still be done in Silicon Valley, but after that, big manufacturing plants will open in India and there will be greater utilization there.”
India might be better known as a software services outsourcing giant to most but if you look internally, there is a new revolution brewing–the product revolution. There are hundreds of startups in the software products space, which are throwing up some very interesting products in the market.
While i-flex, Tally and Subex might still be the most recognizable Indian IT product companies, there is a whole new breed of firms that is all set to conquer the domestic market as well as dent the international markets soon. According to a recently released Nasscom-Zinnov Software Product Study, Indian software product businesses are approaching an inflection point in their evolution.
“MNCs have created product development setups in India, which have spawned a new breed of product development professionals over the last few years,” says Sudhir Sethi, chairman & managing director, IDG Ventures India. These are the entrepreneurs of the new world today who are putting down their ideas to create product-driven businesses. In the last 22 months, the team at IDG has looked at over a 1,000 new startups of which 60-70% are product startups in the areas of security, digital consumer electronics, telecom, semiconductor, Internet, and mobile VAS. In 2004, this figure would have been less than 40%. IDG has invested in eight startups of which five are IT product companies.
While India’s role in global technology
IP creation has grown steadily, several challenges have constrained the growth of homegrown software product businesses. The domestic market was small and there was a lack of experienced product development talent. The venture capital firms were skeptical of funding product startups and of course the entrepreneurs who were launching these new companies lacked adequate exposure to international markets.
These are things of the past, it seems. Today, a lot of the local technology entrepreneurs have a better perspective on IT products and their demand, having worked on key technologies at large Indian IT companies. Others who have worked in global markets have a better understanding still. They comprehend the gaps, are a lot more networked, and hence sales and marketing is not such a tough nut to crack for them today.
“The domestic market is also developing, and with the Indian economy growing so is the size of the domestic business,” says Saurabh Srivastava, chairman, Indian Venture Capital Association. A number of products designed for the local market to cater to call centres, mobile companies, BPOs are coming out of product startups. Srivastava feels that most foreign VCs actually prefer product startups (product or IP based) because they know that model best. It also helped that in the last 7-8 years, lots of Indian startups in the US because successful. “This helped local Indian startups. VCs now understand that Indian product companies today are serious,” he says.
Interestingly, building a services company in India is hard today because of the kind of competition prevalent in the market. Unless you find your niche, which fits well, it is difficult to scale. As competition intensifies, the profitability and growth of services-based small companies is much lower than their larger counterparts. It is that much more difficult for a small services company to scale, though they can still survive.
In the product space though, things are a little different. There might not be great competition in that segment but the economics of product startups are challenging. While one needs scale to survive, it takes a lot more capital too. “The product play requires one to spend a lot more on R&D to keep it going,” says Srivastava. And that is where the VCs come in. Adds a Mumbai-based analyst, “A software service company requires scale and more employees unlike a software product company. If a product is good even a small company has great future.”
“The Indian market will demand more of intellectual property (IP) and start-ups and emerging companies can tap that. The next decade belongs to companies, which can create scalable IP, which has strong market adaptability,” says Gautam Patel, partner, Battery Ventures, a US-based VC fund, which has been investing mainly in IT companies. The fund plans to invest close to $200 million within two years. Patel says they would be investing in companies that have developed an IP, which has or can have an addressable market, a good management team and has the capacity to scale if need be.
Many companies in the IT sector are already preparing to take the opportunities that are being created in India as well as in other markets. Enterprise communication solutions company, Avaya Global Connect, is looking at introducing more products in its portfolio for Internet Protocol based telephony that caters to SMEs.
Last year, IT product companies received a total VC investment of $156 million, according to data released by Zinnov.
“Product startups are always more interesting higher multiple businesses to look at compared to services. We have looked at many Indian products but are waiting for the right venture investible deal to come our way,” says Mukul Singhal at Canaan Advisors.
Lalit Bhise, CEO, Mobisy, a startup that has developed a platform for Internet applications to work on mobiles feels that one thing that helped many Indian product startups is the lowering of entry barriers. His company is focusing on the Indian market as they know it the best. “When we started we had no clue. We thought of going to international markets but realized we had a chance to sell in India,” says Bhise. Today Mobisy already has a few large Indian clients, and the next jump would be to the international markets.
For Devang Raiyani, co-founder of Blink, the scenario is a little different. The retail market that Blink, which developed an intelligent interactive shopping cart, operates in is not mature enough in India. The firm plans to tap more mature retail destinations initially where the trends are fairly settled and retailers are looking at maximising their returns.
As lot of SMEs are trying to upgrade their systems or becoming more IT savvy, the domestic space for product-based companies is expanding. Kunal Upadhyay, CEO of Ahmedabad-based CIIE (Centre for Innovation, Incubation and Entrepreneurship) is very positive about the role product startups will play by offering unique solutions for SMEs. “There is going to be huge spurt in mobile and value-added products in near future. Collaborating technologies with value-addition has been growing in many SMBs due to globalisation. This increases the business opportunity for startups,” says Upadhyay.
At CIIE, startups get to work closely with specific industries combined with getting regular inputs from a strong mentoring team to help them in refining their thought-process and ideas. CIIE has nearly 15 start-ups in its kitty at various stages of their development. Across India, there are 38 incubation centres today, which are helping product startups refine their business model and develop their product prototypes.
Sangeeta Gupta, vice president at Nasscom feels that with the domestic market growing rapidly, startups today have an option of testing their products in the Indian market before launching internationally. It is like a large beta site to test your IPs. “As the domestic market is booming and IT penetration is growing among the SMBs in India, a large number of companies are starting to develop products to cater to this market,” says Pari Natarajan, CEO, Zinnov Management Consulting.
There are an estimated 35 million SMBs in India and the PC penetration in these is growing at a fast pace. The Nasscom-Zinnov report also says that by 2015, Indian software product business revenues would be more evenly balanced between domestic and export based sales and share of revenues from the domestic market would increase from 32% in 2008 to an average of 41% by 2015 to reach $4-5 billion.
“Key parameters such as proximity of Indian software product businesses to the local market requirements, excellent understanding on localisation requirements, and ease of adopting customised and targeted sales approach would fuel this growth,” says Natarajan.
(Ravi Teja Sharma with inputs from Anirvan Ghosh, Sachin Dave & Tapash Talukdar)
Yogen Dalal is the managing director at Mayfield Fund, in Silicon Valley. In an interview to Kamla Bhatt of "The Kamla Bhatt Show" (http://kamlabhattshow.com/pdcst/about), Yogen answers Kamla's tough questions, like what to do if your venture fails, and how to handle failure, generally.
Yogen currently sits on the boards of Affinity Labs, Consorte, Packet Design, PacketHop, Podbridge and Revenue Science. Yogen's past notable investments include Arbor Software, BeVocal, BroadVision, Concur, Nuance, OuterBay, Packet Engines, Snapfish, TIBCO, Vantive and Whistle.
Prior to joining Mayfield, Yogen was a founding member of two successful startups, Claris Corporation and Metaphor Computer Systems. Yogen was also a member of the original Star and Ethernet development teams at Xerox and a co-author of the TCP Specification while at Stanford University.
Yogen earned a Ph.D. in Electrical Engineering and Computer Science from Stanford and a B.Tech. in Electrical Engineering from the Indian Institute of Technology, Bombay where he was recently honored as a Distinguished Alum.
Yogen is a Charter Member of TiE and a board member of the Entrepreneurs Foundation. He also serves on the board of the Oregon Shakespeare Festival, a nationally acclaimed professional non-profit theater company in Ashland, Oregon.
In a blog post, Amar Goel, CEO and founder of Komli Media, has shared his thoughts, experiences and learnings in raising venture capital, how it works and what it’s like. An excerpt-
“If you are not sure about wanting to build a large business then do not raise venture capital. If you are concerned giving other people a lot of say in your business do not raise venture capital. If you never want to sell your company or go public do not raise venture capital."
“If you would like to build at least a $20M business over 3-5 years and ideally a $100M+ business over 5-7 years you are a prime candidate for venture capital. If you want to build a $3M business over the next 5 years do not raise venture capital."
“I find lots of people who seem to get really excited by the prospect of raising venture capital. Don’t be… The sexiness of a press release saying you raised venture capital from XYZ and ABC lasts about 1 day."
“VCs are not in the business of coming up with crazy ideas and then throwing them against the wall and seeing if they stick. That is the job of entrepreneurs. That’s why most VCs will be loathe to invest in some “idea” you have that will change the world that nobody has ever done before."
“Venture capital is a very expensive form of investment for your company. If you are the typical early stage startup you are going to give 20-35% of your startup for $1-4 million of investment.”
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