Cover Feature - Indian Institute of Management Bangalore ... Cover Feature (StartUp... · Cover Feature business indiauthe magazine oF the corporate world s ... “there’s a lot

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February 3 -16, 2014

busi n e ss i n di a u the m aga zi n e oF the cor por ate wor ldCover Feature

startups in israel are a rela-tively painless process. Folk-lore has it that when yotam levin, the ceo of nanopass technologies, approached

israel healthcare Ventures for fund-ing, he was the only employee of his company. despite that, nanopass had already achieved us Food and drug authority (fda) approval for its product, a relatively painless micro-jet needle for intradermal injections. “that’s not quite correct,” clarifies levin. “we were a small group, but more than a single employee.”

a one-man show wouldn’t have been an impossibility, however. “there’s a lot of infrastructure in israel to support young and tiny

startups. this includes a massive incubator programme, many early-stage venture capitalists (vcs) will-ing to take relatively high risks, and service providers working with small outfits where you can outsource your production, operations, quality assurance, legal, accounting, cfo, ip and services,” says levin.

contrast that with india. Founder of tutorVista K. ganesh (see inter-view: ‘india will rule the world’) says that when he started his business process outsourcing (bpo) venture

customerasset, power supply was extremely erratic. so they had to get generators and diesel supply and a licence to store diesel and nearly start a power generation business. there was no effective public trans-port or place to eat. so two more businesses – transport and cater-ing – followed. “india is one of the tougher countries in the world for a startup to flourish, due to immense bureaucracy and rigid and unpre-dictable regulations,” says bundeep singh rangar, chairman, indusView, which advises mncs looking for business opportunities in india.

but customerasset was two decades ago. since then, there has been significant change. particularly

CRITICAL MASSCRITICAL MASS

The startup ecosystem in India has reached

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busi n e ss i n di a u the m aga zi n e oF the cor por ate wor ld Cover Feature

over the past couple of years, things seem to be falling into place. it takes a lot to create the right environ-ment for entrepreneurship. so is it just wishful thinking or has the tech startup ecosystem in india really reached critical mass?

“critical mass is a point in the reaction where it cannot be stopped,” says mahesh murthy, partner, seed-fund, an early-stage vc fund. “the startup genie has definitely been unplugged, and is not going to go back into the bottle. i certainly think we have crossed critical mass.” coun-ters his partner at seedfund, pravin gandhi: “For a country of india’s size, critical mass is far away.”

“the start up ecosystem has emerged and is reaching critical mass,” says ashish Kashyap, group ceo of the ibibogroup. “the key constituents have come together. First, we have a large number of ear-ly-stage investors and platforms such as accelerators. this has resulted in a very healthy supply of startups. sec-ond, startup costs have come down thanks to the open source world and various cloud services. it’s easy and cheap to get a startup going. third, there has been a transformation in

the mindset of talent.”critical mass or not, there are

enough people to be critical. enter the argumentative indian. “criti-cal mass? absolutely not,” says rajat tandon, senior director in charge of the national association of software and services companies (nasscom) 10,000 startups project. “according to nasscom research, as of 2011-12, there were 2,500 startups in india of which 450 were tech startups. in the same period, the us had 15,000 tech startups. so our numbers are nothing to talk about.” says rangar: “there are more startup deals done in the us by 11 in the morning daily than india sees in a year.”

“absolutely not,” echoes ronnie screwvala, founder of the unilazer group, which invests in businesses that are part of the india consump-tion story. “i would say we have not even got started.” adds harish mehta, cofounder of nasscom: “there are lots of missing pieces in the ecosystem.”

on the other hand, there are those who believe that high noon is approaching. “we are way past crit-ical mass,” says ganesh. “we are in the top three in the world, after the us and china.”

what has sent a fris-son of expectation down every entre-preneur’s spine is the recent acquisition of bangalore-based lit-tle eye labs, which makes performance anal-ysis products, by Facebook. there have been takeovers earlier; online bus ticketing company redbus was acquired by naspers of south africa last year, but that was regarded as one swallow in a somnolent summer. the fact that Facebook has picked up an unknown indian company has got other promoters prettifying themselves as targets. “what is posi-tive is that redbus has happened; lit-tle eye has happened,” says gandhi. “this means somebody is looking.”

not necessarily. Kumar rangara-jan, cofounder of little eye, says that he is not aware of any Facebook scouts in india. the takeover proposal came through a different route. “in may 2013, we were invited to google’s annual developers’ conference,” says rangarajan. “it’s a prestigious event and we got a lot of visibility there. many companies visited our stall and Facebook was one of them. Facebook

Incubators & accelerators

500 StartupsAngelPrimeCitrix Startup AcceleratorGINSERVGSF AcceleratoriAcceleratorIAN IncubatorIndia Internet GroupKyronMicrosoft AcceleratorStartup Village The MorpheusThe Startup CentreTLabsUttishtaVenture Nursery

Prominent Angel Networks

ah! VenturesBangalore AngelsChennai AngelsHarvard Angels IndiaHyderabad AngelsIndian Angel NetworkMumbai AngelsSeedersProminent Individual AngelsK Ganesh- Founder of TutorVistaRajan Anandan- MD at Google IndiaRajesh Sawhney- Founder of GSF IndiaRavi Gururaj- Founder of UberWorksRehan Yar Khan- General partner at OriosSandeep Singhal- Co-founder of Nexus Venture PartnersSasha Mirchandani- Managing partner at Kae CapitalSharad Sharma- Entrepreneur-in-residence at KannanVijay Shekhar Sharma- Founder of One97Vishal Gondal- Founder of Indiagames

MENTORS AND MONEYMEN

*Includes VC funds that also participate in seed deals. Source: Venture Intelligence

Seed Funds*

5ideasAccel IndiaBlume VenturesEpiphany VenturesIDG Ventures IndiaIndia Innovation FundIndia QuotientInventus CapitalKae CapitalMatrix Partners IndiaMercatus CapitalNexus VenturesNirvana VenturesOrios Venture PartnersQualcomm VenturesSAIFSeedfundSequoia Capital IndiaVentureast Tenet

CRITICAL

The startup ecosystem in India has reached

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How does one define critical mass when it comes to a startup ecosystem?You should have multi-ple players creating and/or addressing many differ-ent market needs, not just in it, but also in every aspect of our lives. There needs to be heightened invest-ment flows (both local and international); active inter-est from vcs and pes in the country, media and the ana-lyst community; growth of industry bodies; and, more importantly, success stories and examples from compa-nies that started greenfield, scaled, created value, and exited (through billion dollar ipos, etc). Indian examples include Justdial, TutorVista and redBus. There needs to be certain vibrancy in terms of the number of such com-panies being kicked off, a strong desire amongst youngsters to start compa-nies or join startups rather than go for stable secure jobs, the willingness to take risks, the willingness to fail and wear such failures as a badge of honour and start again.

Do you think the startup ecosystem in India has reached critical mass? What would you say are some key indicators? Absolutely. Look at the growth and revenue of companies like InMobi and Mu Sigma. Look at the next wave of growth companies (BigBasket, Fresh-desk, Firstcry, Yepme) that are already above `100 crore in revenue and growing at more than 100 per cent per annum. Look at the size of the domestic market (50-plus cities with a population of more than 1 million, with expanding wallets). Look at world class global compa-nies built out of India (Tutor-Vista, InMobi, Mu Sigma, and Freshdesk). We are way past critical mass. We are in the top three in the world, after the US and China. InMobi is valued at more than a bil-lion dollars, as per some esti-mates. redBus and TutorVista were sold at over `600 crore and `960 crore respectively. Justdial ipo’d at more than a billion dollars in market cap. Do we need more proof?

I would say the key indi-cators are exits and great val-uation; lasting brands and

business models being cre-ated; world majors paying a premium to acquire Indian startups; and large-scale businesses like TutorVista, Portea Medical and redBus solving major pain points of Indian consumers.

You had mentioned that when you started your first venture, it was difficult getting people to join. What is your experience now?Earlier, people were look-ing for safe, highly-paid jobs at mncs. Now, the trend is to do a startup yourself, encouraged by the growth of angel funds and accelera-tors. Something that I always tell youngsters is that to be entrepreneurial, you don’t have to be an entrepreneur. Join one of the well-funded companies started by proven entrepreneurs. Learn from them before you start your own company. There have been more successful start-ups from ex-Googlers than from any accelerator. Work-ing at Portea Medical is better than a few weeks in an accel-erator programme. There is a lot of opportunity to be

‘entrepreneurial’ in your job and role, if you choose the right place and have the right attitude and ecosystem. Par-ticipate in hackathons, build an app, seek opportunities to volunteer and contribute to new initiatives and new proj-ects till you are ready with the passionate idea that you want to spend your life on.

When I started it&t 20 years ago, we hired fresh engineers and groomed them. But they would leave and the most common rea-son was that they were work-ing for a startup and did not have societal acceptance or status. One of the most com-mon refrains was they were not getting good marriage proposals since they were not in a so-called ‘stable job’ as in a psu or reputed com-pany. We even had people who quit, married and joined it&t at a later stage. Today, this is no longer a big issue with stellar success stories of early-stage startups. It is not just for early core employees in startups but also for the entrepreneurs themselves.

When I started it&t, there was a lot of drama and emo-tion in the family. My mother and my mother-in-law asked why anyone would leave a nice, highly-paid corporate job and attendant perks to be on his own. This was 1990; there were no vcs in India, no funding, no ecosystem. Exits were unheard of. Entre-preneurship was not a com-mon word. Business meant you were from a business family. New ventures meant you were pursuing manu-facturing. We have come a long way now but a lot more needs to be done before we become like the US or Israel.

Is the serial entrepreneur being accepted in India?vcs love serial entrepreneurs,

‘India will rule the world’Meena and K. Ganesh, India’s best known entrepreneurial couple, created waves when they sold their online education firm TutorVista to UK-based Pearson, the world’s largest education company, at a valuation of $213 million in 2011. Between them, the couple has raised total capital of $69 million across 11 companies and have had five successful exits, including TutorVista, at a valuation of around $300 million. Their current venture is Portea Medical, a home healthcare services firm. Meena and Ganesh are also strategic investors/promoters of 10 e-commerce startups. These include Must See India (travel Information), BookAdda (books), Delyver (neighbourhood services delivery), Bluestone (jewellery) and BigBasket (online grocery). Their vision is to invest in and promote 100 startups over the next 10 years. In an interview with Meenu Shekar, Ganesh, who was one of the investors in Little Eye Labs, talks about why he is bullish on startups in India. This decade, he says, will demonstrate the innovations from India, like the past two did for services

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people who have built compa-nies before, even if the com-panies failed eventually. Serial entrepreneurs get better with each company – better at hir-ing, raising money, growing the company, getting an exit.

Is there a lot more money in the system? Are there new kinds of investors? For instance, N.R. Narayana Murthy has Catamaran; Azim Premji has Premji Invests. All the Infosys founders have such vehicles. What is driving this?Money won’t be a prob-lem once you have a few billion dollar ipos in the next 12-24 months. Capital will come rushing into the Indian startup ecosystem; I am not sure there will be enough good companies and founders to absorb all the capital productively.

The money flow goes through phases and cycles. Right now, there are too many angels, accelera-tors, incubators and the like pumping early-stage money

into almost any-thing. Too much of anything is bad. But this too shall pass. Two to three years ago there was a major gap in angel money, with vcs insisting on more proven concepts. But that has changed now. With many of these people burn-ing their fingers, caution will return and equilibrium will set in at least for a few years. Then the euphoria will start again.

On the flip side, what is still holding back Indian startups?A few good exits. Also, lack of enough companies/founding teams that focus on sustain-able growth (most found-ers/companies burn through their capital hoping that they will get a larger next round of funding. They build nothing of value). Finally, there’s too much focus on US startups and copying them mindlessly. The US is a highly-developed country while India is like the US in the 1950s. In India, one can build huge companies by

providing reliable, high-qual-ity products and services in healthcare, education, hous-ing or any other big sec-tor. The domestic market is humongous. Stop copying ideas from the US, stop build-ing apps, start building the giants of the future by solv-ing fundamental problems that Indians face in their daily life. Think big and not niche. Take risks. In cricket parlance, go for the four or six and play ‘to win’. Typically, largely

due to our culture, upbring-ing and the lack of a safety net in terms of social secu-rity benefits, we are conser-vative. We try to be defensive and don’t play to win. We play ‘not to lose’. This makes startups go for service plays, grow at a slower pace, copy proven models and do mar-ginal improvements rather than attempt something big-ger and bolder. Of course, I am generalising but this is the largely true.

Is lack of government support a big problem?The best thing government can do is to stay away.

One area where the gov-ernment has woefully failed is in basic infrastructure. When we started Customer-Asset, one of the first call cen-tre/bpo companies in India in 2000, we had to compete

with Manila and other des-tinations that were already doing work for the US mar-ket. We were at a severe dis-advantage; we had to have a generator and a backup generator and diesel storage facilities and a diesel storage licence. We became a power producer rather than focus-sing on the business. Precious entrepreneurial bandwidth and a lot of capital got used in addressing what should have been the government’s job – to provide reliable power.

The same thing happened in transport. There were no safe means of transport and we had to hire vans and buses to transport employees door to door. We deployed over 1,000 vehicles; we became a transport company.

We had to provide food as it was not safe for employ-ees to go out and eat late at night; we became a catering company.

Now, our competitor in the Philippines does not have any of these challenges or pressures. This makes us uncompetitive. So it is not a surprise that we have lost our competitiveness and voice-based bpo to Manila.

Are Indians not innovative enough?I would argue the opposite. Indians are the most innova-tive people in the world. A disproportionate number of patents in tech companies or vc-funded companies in the US are from Indians from India. With enough capital and no government interfer-ence, we will rule the world. But from a constrained econ-omy we have now moved into a fast-growing, liberalised era with technology levelling the playing field. This decade will demonstrate the innovations from India, like the last two did for services. u

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started off as our customer. they used our products.” the negotiations took six months. From a cafe cof-feeday table, where little eye was visualised in may 2012, to the deal table, it has been less than two years.

little eye is keeping a low profile as is phanindra sama, co-founder and ceo, red-bus. while being unwilling to comment on the strategy at the naspers-redbus com-bine, sama agrees that crit-ical mass for the ecosystem is fast approaching. “the past three-four years has seen a fresh crop of entre-preneurs solving a number of consumer and business problems and we expect this will continue at a good pace,” he says. “given a good idea, young entrepreneurs are find-ing that funding is not very difficult and consumers are more and more willing to adopt new ideas. so, yes, we can expect a whole lot of new startups and business models.”

stirring some more excitement are reports that Flipkart and myntra, both online retailers, are heading for

a merger. the brass at Flipkart went into hiding when the news broke. but myntra was not amused. “it’s an absolute rumour. i don’t know who is making it up. there is no truth in it,” says mukesh bansal, co-founder and ceo.

bharati Jacob, partner at seedfund, doesn’t see the proposed merger as good news. “if the merger happens between Flipkart and myntra, i am not sure how it will play out. i don’t

think it will be very good for the ecosystem. From what i hear, myntra is doing very well in terms of path to prof-itability but that is not the case with Flipkart. Flipkart is doing very well in terms of total sales revenues but profitability is a question mark. so, essentially, one is bringing profitability and the other is bringing size. both are doing very well in their respective areas so what will make them merge is the capital inefficiencies of the e-commerce model. if both could find capital on their own, they would have no reason to merge. i can’t

think of any other reason they would merge.” it is not good news for the ecosystem, she repeats.

what is this ecosystem that seems to be emerging? how close is it to critical mass? there are different per-ceptions depending on where you are on the entrepreneurial spatial map. “there are three things needed for a startup ecosystem to reach a critical mass – entrepreneurs, early custom-ers and capital,” says sunil gaitonde,

THE PE PLAYERSTop PE investments*

Baring Asia vaulted to the top of the value charts for 2013 investing about$676 million across Hexaware Technologies and Lafarge India. The previous highestinvestment reported for the firm in India was a $100 million minority investment in2008 in RSP Architects & Planners India. KKR, which has been active in providingdebt financing to large Indian corporate houses, invested $660 million across twoequity transactions (Alliance Tires and Gland Pharma) in 2013. Apax came in thirdwith its $420 million buyout of GlobalLogic. Other firms that made large ticketinvestments during 2013 included Partners Group ($270 million) andGoldman Sachs ($265 million).

*By reported size. Source: Venture Intelligence

Company Sector Amount Investors Date ($ million) 2013

Alliance Tire Group Off-road tyres 460 KKR AprHexaware Technologies IT services 443 Baring Asia AugGlobalLogic IT services 420 Apax Partners OctCSS Group IT services 270 Partners Group JunLafarge India Cement 233 Baring Asia Jul

If you walk into the corner office of a startup – if you

can find a corner office, that is – you may be pardoned for thinking you have entered an algebra class by mistake. Everything is in terms of ‘x’. It is the same at the offices of the moneymen and mentors. Exits are at 3x; a new round is at 2.5x.

y?To the man on the street,

the startup is still very myste-rious and everyone involved in the process would like to keep it so. It’s like freema-sonry; the language and idiom falls in the same tri-ple X bucket as Fifty Shades of Grey.

“We are X for X,” says the

mentor to the team. No, this is not an excursion into Donald Rumsfeld’s known unknowns and unknown unknowns. It is simply an exhortation from the Gardener (the offi-cial designation of chairman Subroto Bagchi at Mindtree) or the Big Cheese (the job title of myTab founder Heddi Cundle) to the entrepreneur to define and refine his Big Idea. Every startup needs to be set in these terms to attract attention. It must be the “Facebook of the Indian diaspora” or the “Google of Chinese dissidents” – any eyeball-heavy global constit-uency – to attract funding.

Sit in at a startup blamestorming session – if

you can find a chair, that is – and you will hear about the burn rate (the rate at which you are spending the inves-tors’ money); the run rate (the result of extrapolating recent financial results for a period shorter than one year) and the acceptance rate (the low chances of being accepted by a startup factory). If the proj-ect is Internet-based, you will encounter spiders and bugs. The latter (defects in the pro-gram) you eliminate. The for-mer (robots sent by search engines to categorise your site) you game to get the best results.

If you don’t master all this (and there’s a lot more of it), you will be forced to boot-strap your startup (spend your own money) and hire grey matter (older, Internet-

incompatible people). You may have to pivot (change plans midstream) and give up hopes of being disruptive (game changing). And suf-fer the ignominy of having a post-valuation lower than your pre-valuation. That’s when you will see an angel with love to hatred turned.

u p s

X marks the spot

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co-founder and ceo of pune-based great software laboratory. gaitonde is a serial entrepreneur who straddles both worlds – the us and india. he set up and sold internet Junction to cisco and, later, sarvega to intel. “i think india has a lot of entrepreneurs with good ideas. even more impor-tant, we are seeing many of them emerge from the middle class and not just traditional business houses. there is very little venture capital in india which makes it hard to start high-investment businesses. this is not due to lack of money but, rather, the unwillingness to take the risk on early-stage startups.”

if we are to get down to the nuts and bolts of the ecosystem, it has several parameters. they fall under the broad heads of:

u money;u exits – for both promoter and inves-

tor to cash out;u people – every startup needs

talent;u risk-taking ability – for both inves-

tor and entrepreneur;u acceptance of failure;u mentors – the debate on who makes

a good mentor continues;u talent staying at home – if the

graduates of premier engineering colleges visa-hop to the us, that’s where the action will be;

u academic talent returning – phds are coming back to teach in india;

u academic involvement – a change in the earlier mindset that you cannot conduct business in ivory towers. professors abroad are often mentors and founders of excit-ing startups. in india, they write boring textbooks;

u networks – angels, to start with.after his big idea, money is always

the first stop for the entrepreneur. the numbers show that last year was not a good time to raise funds. according to Venture intelligence, a research service focussed on private company financials, transactions and valuations, vc firms invested about $805 million over 206 deals in india during the 12 months ended decem-ber 2013. this was about 18 per cent lower compared to 2012 which had witnessed 252 transactions worth

$898 million.“the vc scene in india is not very

healthy but seed investors are suc-ceeding in getting good returns,” says arun natarajan, managing director of Venture intelligence. “people are able to take less capital, use it effi-ciently, scale up rapidly and attract the attention of foreign investors. we have been very reliant on foreign money. the good change now is that we have rupee money coming in from the angel investor groups and high networth individuals (hnis).”

most people agree that there is money in the system. but there are gaps in the funding requirements. “angel activity has swelled,” says gandhi. “but there is no pre-series a capital. (series a funding normally happens when the startup is gener-ating some revenue but is

yet to show a profit.) angels will do, let’s say, `1 crore or `2 crore. but the startups need the other `3 crore to `5 crore before a series a. either angels should step up to `5 crore, or other investors need to step down.” adds murthy: “i think we have too much money and too little talent.”

rangar doesn’t agree. “a core strength of the country is the abun-dance of talent,” he says. “not only are indian entrepreneurs generally well-educated and highly skilled, they are also able to hire from a pool of talent in the market.”

your view of talent may depend on which side of the bed you have got up from. but it is difficult to dispute that more and more entrepreneurs are springing up from the unlikeliest of places. “ahmedabad, pune, Jaipur, chandigarh and many others are the potential future hotspots for startups in india,” says rakesh basant, pro-fessor of economics and chairperson of the centre for innovation, incu-bation and entrepreneurship (ciie) at the indian institute of manage-ment (iim) ahmedabad (see box: the startup diaspora).

the indian angels network (ian) has spread its wings even further. “we have invested in companies across six countries,” says president padm-aja ruparel. this includes the us and canada; capital flow is no lon-ger a one-way street. ian companies – some 60 at last count – have raised about `100 crore from within the network since inception, and over `300 crore from external sources.

Financiers include the mncs, which have been much more active than the indian majors or (until recently) the government. intel cap-ital india has invested more than $330 million in 90 companies across 10 cities. “intel invests in strategic technology; focussing on companies that are developing interesting tech-nology or those that are using tech-nology in an innovative way,” says

pradeep tagare, director of intel capital india. in bangalore,

microsoft runs an accel-erator programme. retail giant target corporation and coca-cola are both planning incubators in

Source: Business India research

VALUATIONS

Starting priceValuation above $1 billionFlipkartInMobiJustdialMu Sigma Inc. Between $500 million and $1 billionEka Software MicromaxSCIO HealthSnapdealBetween $100 million and $500 millionBharat MatrimonyBluestoneBigBasketBookMyShowCapillary TechCaratlaneDruvaKomli MediaBelow $100 millionAmagi MediaBirds EyeForus HealthFreshdeskFusionChartsHealthKartiCreateIttiam Systems

ManthanMakeMyTripMyntraNetMagicOne97Perfint HealthredBusZomato

Knowlarity Mistral NowFloatsPractoQuick Heal SalorixShaadi.com Unmetric

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The raspberry is a fruit. It is also, the dictionary tells

us, “a noise signifying deri-sion”. So why is the big noise at Kochi’s Startup Village – ceo Sijo Kuruvilla George – giving raspberries to schoolchildren? “We want to get them inter-ested in innovation from a very young age,” he says.

The raspberry in ques-tion is something quite dif-ferent, of course. Raspberry Pi is a credit-card sized com-puter that plugs into a tv and keyboard. It has been created by the Raspberry Pi Founda-tion of the UK and is targeted at kids. The Startup Village, the first technology business incubator in India funded by both the public and private sector, hopes to create a gen-eration of entrepreneurs amid the coconuts and cashewnuts in God’s Own Country.

The Village has set a tar-get of launching 1,000 startups over the next 10 years and to “start the search for the next billion-dollar Indian company”. “We have received over 1,425 applications and are currently extending incubation support to 532 technology

startups which includes 188 campus start-ups,” says Meera Radhakrishna, cura-tor of the Village. The Vil-lage started operations in April 2012.

Thinking on a much bigger scale is the National Associa-tion of Software and Services Companies (nasscom). Its brief is the entire country and its targets are 10 times higher. Started in March 2013, the 10,000 Startups Programme is designed to incubate, fund and support 10,000 technol-ogy startups in India over the next 10 years. Some 4,000 applications came in almost immediately. In November, applications were reopened and another 3,000 propos-als came rolling in. “The pro-gramme has engaged with over 20,000 entrepreneurs and wannapreneurs and has built a social community

of 75,000-plus,” says Rajat Tandon, senior director of 10,000 Startups.

More important than the numbers is the geographic spread: the applications have come from 85 cities and one out of every four applications is from a small town. The Dho-nis of the tech world want batting time at the crease.

Like the Startup Village, programmes to encourage entrepreneurs are spring-ing up all over the place. Far away from the coconuts of Kerala are the camels of Rajas-than. Here too entrepreneur-ship is flourishing, courtesy the Birla Institute of Technol-ogy and Science (bits). Sabeer Bhatia of Hotmail fame is an alum. He was an early entre-preneur. More recent is Phanindra Sama, ceo and co-founder of redBus. Wedged in between are Sanjay Meh-rotra, ceo and co-founder of Sandisk and Vinod Agar-wal, founder of LogicVision. “I

think the ownership and the freedom given at bits to stu-dents is what is making them take ownership in the outside world and start companies,” says Sama.

bits at Pilani and its Tech-nology Business Incubator (tbi) at Hyderabad have been in action for a few months; the tbi was inaugurated on 15 August 2013. “Four incu-batees – Nabler, Shri Krishna Research, ssk Bio and Idea3d – have signed incubation agree-ments,” says Bijendra Nath Jain, vice-chancellor, bits Pilani. Four students are to soon flag off their ventures – Trippify (a travel portal), Kloudisk (ver-sion control for designers), iCue (gamification for edu-cation) and a mobile app ecosystem for the blind.

Pilani has one thing going for it that many smaller towns don’t have – an abundance of talent. Jain says that prac-tically everyone is thinking startup; if you don’t have an

idea of your own, you can join some-one else. The same is true at the Indian Institute of Management Ahmedabad (iim-a), which has produced

The startup diaspora

REGIONS IN DEMANDPE investment in 2013 VC investment in 2013

12 months ending December 2013. *May include overseas investment. Source: Venture Intelligence

Region Companies Amount (No.) ($ billion)

South 148 2.7West 127 2.7North 84 1.8Other* 25 0.3

Region Companies Amount (No.) ($ million)

South 82 442West 60 230North 49 193Other* 15 40

the country. “big companies have a lot to learn from startups,” says a coke spokesperson.

the entry point to entrepreneur-ship in india is starting to resemble a mumbai marathon; everybody and his wife are lining up to participate. what about the exit; how many will go the course? that’s where the big-gest hitch has arisen. “the ecosys-tem in india is not complete,” says gandhi. “the whole business of pub-lic market exits remains a dream. both the bombay stock exchange and the national stock exchange have launched platforms for small

and medium enterprises (smes), but nobody wants to join that platform.” according to gandhi, exits last year were only about $2 billion. this includes redbus, globallogic and the Justdial initial public offer (ipo). that’s chickenfeed.

but it’s a first step forward. “we are beginning to see home-grown com-panies demonstrating exits and value creation, thereby encouraging more and more people to plunge into start-ing up,” says Kashyap. “ibibogroup’s acquisition of redbus and Facebook’s acquisition of little eye labs are all the right signals.” says rangar: “From

barely 10 incubators in 2011, there are nearly 50 venture incubators and accelerators today.”

money will come and exits will speed up. but are there enough peo-ple to handle the culture of entrepre-neurship. if you go by the numbers applying to, say, nasscom or the startup Village, there would seem to be no shortage of entrepreneurs. there are two issues here. First, has the brain drain been reversed? are indians no longer enamoured of dollar dreams. anecdotal evidence from the iims shows that there are a lot more b-school grads going into

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scores of entrepreneurs in recent times.

“iim-a’s support for entre-preneurship in the country has been led through its Cen-tre for Innovation Incubation and Entrepreneurship (ciie),” says Rakesh Basant, professor of economics and chairper-son of the ciie. “ciie has played a critical role in bridging vari-ous gaps in the entrepreneur-ial ecosystem over the years. At a time when entrepreneur-ship wasn’t the most glamor-ous subject, ciie published Stay Hungry Stay Foolish to inspire India’s future entrepreneurs. Apart from actively incubat-ing and seeding over 80 ven-tures through partnerships, ciie has provided acceleration. In 2008, it set up the Internet-focused iAccelerator, India’s first accelerator programme. In an effort to take incubation and entrepreneurship support

to smaller cities, a Startup Oasis has been established in Jaipur in partnership with the Rajasthan government; in Goa, an incubation centre has been launched with the Central Institute of Brackishwater Aquaculture.”

Still in Ahmedabad, entre-preneurship is flourishing at the Mudra Institute of Com-munications. Anshul Agar-wal, a second year student, has been shortlisted by Cohe-zia, an innovation-led group that helps clients succeed in the new digital age. The UK group will invest in Agarw-al’s project, the Daily Vocab. This is a Website for learning and developing vocabulary through memes (funny visu-als) “While the site currently deals with vocabulary, I plan to introduce English grammar, as well as foreign languages,” says Agarwal. “The project

is scalable.”At iim Ban-

galore, the N.S. Raghavan Cen-tre for Entrepre-neurial Learning has been incubat-ing enterprises for over 12 years now. Its tally so far: 45. It also holds work-shops, training programmes, open mentoring sessions

and business plan compe-titions for wannabe entre-preneurs. An iim-b tag is not a must.

The key disadvantage of entrepreneurship in a small city is that there is often a shortage of talent. This is not so big a problem when the effort is centred around an institute. But customers and clients are normally in the bigger cities; even the best of projects can remain under the radar.

The money men are also sceptical. Vineet Rai of Intel-lecap, feels that the action is still focussed only in four-five cities. Sasha Mirchandani, founder and managing direc-tor of Kae Capital and co-founder of Mumbai Angels,

says that majority of Kae’s investments are in Gurgaon, which is booming, Mumbai, Bangalore and Chennai.

“We need to have more things happening in the coun-try – more angel investors, more accelerators, more incu-bators,” says Tandon of Nass-com. Adds G. Sabarinathan, associate professor and chair-person of the N.S. Raghavan Centre: “Look beyond Ban-galore and the tech startup rate falls off as if from a cliff. There aren’t enough start-ups beyond Delhi, Chen-nai, Hyderabad and Pune. I recently looked at the spatial distribution of angel investing and there is one investment in Nagpur and one in Kolkata.”

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CITY SCORESTop cities attracting VC investments, 2013

City Investments Amount (No.) ($ million)

Bangalore 49 214Mumbai 49 164Delhi 24 69Chennai 21 105Gurgaon 15 55Hyderabad 8 36Pune 4 4

(No

ore 4i 4

2i 2

entrepreneurship these days.at iim bangalore, the n.s. ragha-

van centre for entrepreneurial learn-ing has been incubating enterprises for over 12 years now. g. sabarina-than, associate professor and chair-person of the centre, is sceptical of all critical mass claims. but he is proud of what the centre has achieved. “our incubation is open to all and not lim-ited to those associated with iim-b,” he says. “we look for the 3i criteria – ideas that are innovative, impact-making and implementable.” iim-b has so far incubated 45 enterprises; among them are amagi, mango

technologies, Just books, meta eye, brain league, wifinity and mesh-labs. “less than 10 of the 45 enter-prises have had to shut down because of poor business performance,” says sabarinathan.” at iim-a, basant talks of many success stories. “we pushed entrepreneurship when it wasn’t fashionable,” he says.

at the indian institutes of tech-nology (iits) domestic entrepre-neurship has been a bit slower off the block. the folks out there would have it that they are not as good as mar-keting themselves as their

mba brethren. but the reality has been that the cream of the crop went abroad. their role in silicon Valley has never been disputed. as michael lewis wrote in The New, New Thing: “the definitive smell of a silicon Valley startup was of curry.”

the curry crunchers are return-ing home these days. some, like gai-

tonde, are starting ventures here while retaining their base in

the us. others are mov-ing lock, stock and moth-erboard. according to a study by evalueserve, a provider of business

Inspiring future entrepreneurs

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and technology research, iitians prefer to stay – or return to – india these days. the inflexion point was somewhere around 2002.

but even while engi-neers and man-agers are staying on in india, the key question is whether there has been a change in mindset. “but for some top busi-ness schools in the country, most educational institutions do not help students to become entrepre-neurs,” says rangar. “entrepreneur-ship comes from creative thinking, risk taking and a desire to change the world, none of which are outstand-ingly promoted by india’s rigid and memorise-and-regurgitate-oriented

education system.”“most indians are hesitant to take

the leap into entrepreneurship for myriad reasons,” says screwvala. “the fear of failure in india is unreasonably high. the ecosystem and the friends-and-family circuit are to blame for this.” Failure is viewed as a dead end rather than a stepping stone.

not everybody agrees. “as start-ups and their services become more main-stream, india is seeing more will-ingness of peo-ple to join them,” says sama. “we’re seeing this not only at the entry level, where some youngsters join startups straight from campus, but also in middle and senior lev-els from the cor-porate side.” says

gandhi: “risk-taking ability has def-initely improved.” this year, startups like zomato and Flipkart made big offers during placement season and found many takers.

other people taking risks are aca-demics returning to india. a study by b. Venkatesh Kumar of the tata

If you come across an angel’s list of startups, it

reads somewhat like a Poke-mon trainer’s battle line-up – Pikachu, Qwilfish, Sabl-eye, Shinx, Silcoon, Vibrava... They all seem close to mean-ing something, but fail by a letter or two.

Check out Rehan Yar Khan, founder of Flora2000 and vsg India. He is an angel inves-tor in Druva, Groffr, Jigsee, Kwench, Olacabs, Polama...

Or Vishal Gondal, who describes himself as “God-in-chief, foodie, geek, traveller, entrepreneur, investor & stu-dent”. His portfolio includes Babuki, Betaout, Examify, Hireplug, Skift...

A tech startup needs an identity on the Net, even if it is not actively leveraging the Internet for its business. So the first thing to do is check

what domain names (prefer-ably.com) are available. You can go the long way by mak-ing a list and looking each one up at Whois, a query and response system that tells you if a particular domain name has already been registered. Or you can go to a domain name generator and checker like Panabee.com. If Arvind Kejriwal wants a domain that reflects his own name and his crusade against corruption, he needs to feed the words into the widget at Panabee. He will get a wide choice from the mundane Arvindkejriwal and Arvindkc to lawjerk (a Manx anagram) and noitpur-roc (a mirror image). Perhaps it makes sense to put your thinking cap on, after all.

A short name is always better than a long one even if the latter is more explicit.

However, Croation startup WhoAPI reports that all four-letter words (from aaaa.com to zzzz.com) have been reg-istered. Longer words that make sense have also been taken. So you need to try some distortion.

One way out is to drop the vowels. Twitter started life as Twttr because twit-ter.com was registered and too expensive to purchase. Later, when Twttr hit the big time, they were able to “buy the vowels”.

One way out in India is to

go in for vernacular names. Rajesh Jain had a bouquet of such sites – Samachar (news), Khel (cricket), Khoj (search) and Bawarchi (food) – which he sold to Satyam Infoway for $115 million in 1999, a huge amount in those days. This deal was the catalyst for Inter-net entrepreneurship in India.

The “vernacular” sites that have succeeded include shaadi.com and makaan.com. Gharpay.com, a door-step delivery network, has been acquired by delhivery.com. Both sites are a play on names. But none of them have a future outside India or the diaspora.

Eventually, of course, the product decides the suc-cess or failure of the name. Google has become a house-hold word because of what it does. It doesn’t matter that the promoters didn’t know how to spell googol.

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Names people play

THE VC DEALSTop VC investments in 2013

Source: Venture Intelligence

Company Sector Amount Investors ($ million)

Barbeque Nation Restaurants 20.00 CX PartnersOlacabs Online taxi booking services 20.00 Matrix Partners India, Tiger GlobalVini Cosmetics Personal care (Cosmetics) 17.77 Sequoia Capital IndiaCloud Nine Clinics (Maternity care) 16.30 Sequoia Capital India, Matrix Partners IndiaCardekho Online car buying information 15.00 Sequoia Capital IndiaHealthkart Online health supplies retail 14.00 Intel Capital, Sequoia Capital India, Omidyar Network, OthersRhea Healthcare Clinics (Maternity care) 13.50 Peepul Capital

orss

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institute of social sciences says that there is a will-ingness to return amongst indian phds in the us. but they are very selective about the sort of institute they want to come back to. “i also see a trend where people have been coming back from good institutions abroad and setting up social enterprises,” says Kumar. “a lot of people are coming back from the us and taking up teaching positions.”

they might perhaps help to galvanise the teaching community in india. even in the best of colleges, most of the teaching staff soon sink into apathy. publishing in the popular press is looked down upon. writing in peer publications is too troublesome; besides, you are making yourself vulnerable to criticism. most indian profes-sors don’t do any research. so they have nothing to write. they don’t even interface with industry too much. corporate projects have not taken off in some places because of disputes on how the professor and the institute will share the fee. but that too is changing – albeit slowly. in some top b-schools, for instance, indian management thinking is becoming popular.

it is easy to be critical of india’s startup ecosystem. one standard theme is to look at the west or israel and talk about the distance we still have to travel. “if you compare us to israel or china, the amount of acqui-sitions that take place is nothing,” says gandhi.

“military, defence and hi-tech technologies in israel find ways to converge,” says levin. but india is not surrounded by aggressive neigh-bours (though there may be some to dispute that statement) and mili-tary service is not compulsory. there has been no great influx of scientific brains. (the Jewish diaspora has one home; the indian diaspora is even comfortable selling ice-cream to eskimos.) you can’t replicate those set of circumstances here.

there are times when it is not

correct to make comparisons. “every-one wants to become like silicon Val-ley but that is an elusive dream even for many cities in the us,” says gai-tonde. “but the good news is that one

can still have a healthy entrepre-neurial environment with-

out becoming another silicon Valley.”

“what we’re learn-ing very slowly is that the indian venture ecosystem

is very different from what people thought it would be,”

says murthy. people felt that the us model would be replicated here. but that will not happen. what indian entrepreneurs need to do is explore the white spaces where us companies do not have a presence, because they don’t need to be there. “if you want to apply us formulas in india, you will fail,” says murthy.

What are the key differences?according to murthy:u it takes much less money to start up

in india than in china or the us;u it takes longer in india (Facebook

went for an ipo after eight years; Justdial took twice as long);

u it takes more mentorship and guid-ance in india; a lot of osmosis hap-pens in the Valley;

u india is going to see more hybrid companies (For example, Flip-kart has cash-on-delivery; redbus has 12 brick-and-mortar offices and takes orders on the phone).today, bangalore

is ranked 19th among

startup cities by the startup ecosystem report 2012 pro-duced by startup genome, a platform for collecting, curating and analysing data about startups. silicon Val-ley is on top with tel aviv, los angeles, seattle and new york city following. banga-lore is sandwiched between melbourne and santiago.

this is what the report has to say about banga-lore, which would probably reflect growth centres such as gurgaon and pune. entre-preneurs in bangalore are a

trifle older than those in silicon Val-ley (37 years vs 34). they work harder (10.86 hours per day vs 9.95 hours). the education levels are about the same. the start-ups have 39 per cent fewer mentors. the promoters pay themselves much less.

the world startup report, a social project, has this to comment on bangalore’s infrastructure: roads – poorly planned; logistics – ineffi-cient; internet – slow and unreliable; water – numerous outages; electricity – frequent power cuts. but the advice to entrepreneurs is: stay in india. there are lots of unfilled opportu-nities waiting to be tackled. “if you must come to the us, remember that many us startups have indian co-founders (rumoured to be up to 62 per cent),” alerts the report.

“while nearly all high-growth technology startups have historically emerged from no more than three-four startup ecosystems, namely sil-icon Valley and boston, this trend appears to have reached its end,” says the startup genome report. “simul-taneous with a global explosion of entrepreneurship has been an explo-sion in the rise of new startup eco-systems around the world, and a newfound maturity in others.”

india is clearly climbing the entre-preneurship ladder. the startup

ecosystem has reached critical mass or is very nearly there.

but the last people to rec-ognise it will be indians in india.

u p a r t h a s a r a t h i s w a m i ,

m a n s i m e h t a and m e e n u s h e K a r

TOP M&A DEALS OF 2013

By disclosed value. *Asset sale. Source: Venture Intelligence

Target/Seller Acquirer Amount ($ million)

Holcim India Ambuja Cement 2,452Strides Acrolabs* Mylan Laboratories 1,750Jaypee Cement* UltraTech Cement 590Cipla Medpro S Africa Cipla 512Alliance Tire Group KKR 460Virgo Engineers Valves 450Hexaware Technologies Baring Asia 443GlobalLogic Apax Partners 420IVRCL* TRIL Roads 405Elder Pharmaceuticals* Torrent Pharm 323

ment

rs

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Cover Feature - Indian Institute of Management Bangalore ... Cover Feature (StartUp... · Cover Feature business indiauthe magazine oF the corporate world s ... “there’s a lot