Indian Start-Ups Become More Attractive to Venture Firms by Claire Cain Miller

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.”

The new breed of Indian startups

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)

Role of Media in today's Indian Scenario

This blog is written and owned by Saurabh Gupta
This sensitive topic was in my mind for quite some time now but I always got busy with other things - Media in today's world, today's Indian scenario, plays an integral role to ensure smooth functioning of the country and it was most evident during the Mumbai Massacre (26th-28th November 2008), that continued for ~60 hrs. Media crew (Reporters, Technicians, and Cameramen) tried their best to get the most updated news to the viewers throughout the world.

I have heard people saying that it's all business and hence each news channel wants to increase its TRP; I would say that these are people who are doing their jobs in the best possible manner. When a soldier fights at the border his selfish interest remains that he wants to perform his best for the country and so remains the selfish interest of the reporter. When it comes to the crisis situations like Mumbai Massacre then Military and Media come to the rescue of the trapped people and the people who are worried about their loved ones. They were the bold media personnel who brought home continuous news and events - hats off to them.

It’s said that Media has got the power to turn around thrones and that's evident in the tough times like this Mumbai tragedy and the follow up. Media could have asked the questions (how, why and what next) to the Government when the rescue operations were on but they behaved responsibly that time and ensured that latest news were brought to the loved ones of those who were trapped in the hotels. Now when the time is right, they are questioning the governments (both Central and State) about the casual approach that government took for this whole tragedy.
Warnings were given by IB and RAW to the State Government and after that there was so less security in the South Mumbai area. Above all, Maharashtra Deputy CM Mr. R. R. Patil says that these small things happen in the big cities. This approach clearly reflects that this massacre means nothing to him and his allies. Media is doing its work and it is doing its work too well by ensuring that these questions are asked in front of the country so that faces of all corrupt politicians are shown to the people.

Everything seems to be in place when we talk about Media but there is one thing which is missing - an active regulatory body to monitor the news content shown to the country. There is a regulatory body but it functions only when there is conflict of interests between two parties. When I said we need the body I have got my reasons for the same.

• Content Regulation - There should be regulations to edit disturbing pictures shown over television (news, special reports etc) like Cigarettes are banned to be shown on TV. Today we are asking every one to remain united in this difficult time and fight against terror, but think about the kids who see the scary pictures shown in the news channels. They would grow up with terror within them. Some might get mentally disturbed due to these pictures. Channels like AAJ TAK and India TV should be given serious warnings regarding their content.
• Ethical behavior - The news channels should not be allowed to bias the ongoing judicial cases by using the extreme terms like faces of death etc. These terms just bias Junta's viewpoint towards the case and the convicts. Incidents have been reported when media has pointed fingers over people and they were declared innocent by the court but in the eyes of Junta, they remained criminals. As an example - each convict in the Arushi murder case was at one time or the other was declared criminal over the news channels.
• Rating System - Sensitive news channels should be rated Adults and every program should come with serious age range warnings. There should be strict laws to ensure that children are not allowed to see adult content to ensure that they don't get scared from within.

There are some news channels that assume this responsibility and are the right picture of Media in the country today. Most of us know the channels that show responsible content, debates and viewpoints.
Today, India is moving in the right direction and Media is one of the strong pillars to ensure that. Media has helped in providing transparency and accountability in government operations. The latest challenge to the government which is New Age Terror would be addressed properly by the government and if not, then Media would help in providing the channel to question government.

What does India need today?

This blog is written and owned by Saurabh Gupta
India has 1/6th of world's population, best technology institutes and biggest democracy in the world. We have lots of other things to feel good about and we are in the direction to make this country best of the places to live in the world. There has been numerous preachers, thinkers and philosophers existing for thousands of years who have given directions to the countries.

What have we got today? We have got the work force, the energy and the zeal, not to compete or think relative w.r.t. other countries, but to evolve at an absolute level, at a level much higher than any other level existing, much broader than anyone can imagine. What we truly need today, is a leader and its not anymore the ancient Roman empire where everything can be governed by a Church.We truly need first generation entrepreneurs, who have the vision and appetite to eat the world.

If I ask the honorable Prime Minister of India that where is our country heading, he will very humbly say 'to the future', but he can only provide us the means and show us the direction. What we truly need is a thought, a virus (keeda) which can lit up millions of souls in this country to create business and to sell it through out the world. Its not because it would solve the employment, infrastructure, literacy and growth problems of the country; but it would provide a platform for innovation and excellence to cultivate. Innovation that can take us to the next millennium, to the next level.

I have always believed that we live not in our times but in our dreams. If we can dream the future and help thousands of other people do the same then we, the country of India, can contribute a ton, for the growth of the society.

Whose responsibility is it at the first place to redefine what is already defined? Or, let me reframe the question, who is expected by the common man to redefine what is defined? India invests crores of rupees on the Technical institutes, Management institutes (IITs/IIMs/NITs) and its our responsibility to not crib about the system but deliver and preach what we have learned.
I have heard thousands of people all over the world cribbing about the social conditions, economic policies, infrastructural issues etc existing in India. If its a way to justify yourselves that you don't want to contribute in the corrupt system, then you were never destined to do that anyway. But if you have slightest doubt that you will feel sorry for not paying this debt back, then its not worth a life.Thousands of IITians and IIM grads move out for everything that they curse don't exist here. Who would the government look up to solve these problems?
It has happened forever that some people crib about the system in their entire lives, while others go out and solve the problems. We are born in a time when we have the freedom to choose and think about our futures. At least use it to contribute and not to crib and plug in negative energy in the system. If you can't do anything about it, then at least support the people who are willing to do the same. That would be better than sitting in your balcony and cribbing.

Remember one thing, if you choose this or ignore this, don't mean a thing to anyone. Its bound to happen in the coming time, you would feel good in the end if you work for it.

This is what they call Gunda Raj

Date: 21st Oct. 2008, I woke up in the morning and like everyday, I switched on my TV. It was some news channel with its “Breaking News”. To my surprise, news this time was indeed breaking news. It said 'MNS Chief, Raj Thackeray arrested in Ratnagiri at about 2:30 AM'.

Raj Thackeray has addressed the issue of growth and opportunities of Maharashtrians (“Marathi Manoos”) all the time which according to him meant growth of Maharashtra. It's good to see that he cares about its local people much more than most of our leaders who visit their constituencies once in a while just to ask for their support. Somehow I am not quite convinced about his intentions and approach. In his campaigns, I see same old tactics of politicians to misguide voters and common men, just to grab power and public wealth.

Just to mention, political career of Raj Thackeray started when he quit his Uncle’s (Bala Saheb Thackeray) party (Shiv Sena) and started his own political party “Maharashtra Nav-nirmaan Sena (MNS)” to gain some power and establish his own identity. Most of us already know how a virtually non-existent leader of Shiv Sena grew up to become one of the most popular leader of Maharashtra almost overnight. Since then he is trying to prove his superiority over his counterparts in Shiv Sena.

Now my concern is that if this is someone’s personal matter then why common men is being dragged into all this. How can anybody expect to show his superiority by openly challenging law and order? It’s certainly not possible in an educated society, but I guess it’s baseless to assume such things in our country where you can convince anyone to fight and even kill others for incentives that can be as small as a bottle of liquor and meal for one time.

These leaders (I do believe MNS chief is not the only one. Almost 90% of our leaders are doing this) make use of this population and misuse their powers, resources, infrastructure and above all man-hours. All of above mentioned things are to a large extent tax payer’s money. So directly or indirectly it is affecting all of us.

Let us analyze few incidents that happened in the recent past:

At the time when our popular leader got arrested recently the very first reaction of his own party workers (who I assume share same feelings for their very own state) is to torch buses, taxis, bus stands, toll plaza. What are they doing now? Is it a agitation against North Indians as half of the labor employed in these places are North Indians, or is it agitation against the system which did not take any action against their leader till it became inevitable. I assume, in the end, that it's nothing but agitation against growth and progress of wealthiest state of the country.

In the end they are doing same things against the reason for which they are fighting … poor people!!! Or maybe they have been ordered by their chief to destroy everything that has any association with North Indians. :)

Secondly, let’s go back to from where it all started? How is it possible that our dedicated leader has realized that this state is being dominated by North Indian population just when state elections are close? Why is he doing all this? If this is just to be in power, I have a different opinion on it. Assuming MNS might come into power by all of this. What next??... Raj Thackeray will become new Chief Minister of the state. He will have few more powers to influence local people or maybe he can go ahead and ban North Indians from working in the state so that his very own “Marathi Manoos” get a preferential treatment in their very own state. But wait!! He is doing all this right now and maybe he is doing it much openly and effortlessly than he will be able to do when he is in power.

What else might be the reason to do all this? Next thing which I can think of is monetary gains. But in common man’s language we call it corruption. Oops!!! Knowingly or unknowingly quite a few of us have supported a potentially corrupt leader in this case.

Huh!! Not again. It’s hard to believe so much blind followers of a person who has indicated his greed for money and power. If this is even 10% true, I simply feel sorry for the future of this state. There should be a law that can impose a life time ban on political careers of people with such intentions. But, we are living in a democratic country where anything is possible if you have power. :)

There is no doubt that standard of life and opportunities in few cities in Maharashtra is much much better than any other city in India. Having said that, we can’t deny that it's a collaborative effort of more than 50 years rather than efforts of a particular community or group. So it’s my sincere request to our Marathi friends to not get carried away without any reason and collaboratively contribute towards the growth of the state.

If incidents like this keep on happening, I, being an employer, don’t find a reason to continue creating jobs here when I don’t feel safe and I am forced to employ workforce on the basis of their origin rather than their abilities.

This is just my personal opinion and everyone is free to agree or disagree. I chose this platform just because I could not organize a rally in some huge ground or gain media attention like our esteemed leaders to express my opinion.