The last two years have seen the rise of the Indian startup ecosystem, mainly in the technology space. Unlike their global peers, Indian companies have a captive market —1.2 billion people — and the necessary talent pool. The missing piece was funding but that too has started to fall in place. The next big question is: will India create the next Google or Apple or Amazon? We are already on our way, say industry players.
According to Harish HV, partner at Grant Thornton India LLP, the sectors that could see significant traction next year are e-commerce, travel and related services, finance-related services and healthcare. Over the next three or four years, India will have its share of ‘unicorns,’ he says. Though funds seem to be flowing freely, there is no bubble in the startup space as yet. “This is how it develops; only one in 10 succeed.”
The companies that are touted to be the ‘unicorns’ from India are the usual suspects — Flipkart and Snapdeal from the e-commerce space; MakeMyTrip and Yatra in travel; BankBazaar in finance and Portea and Practo in healthcare. Ola, Paytm and Zomato are also probable contenders. However, for now, the worth of the companies is gauged based on the funds that they are able to attract from domestic and foreign investors. Most entrepreneurs and investors seem to be in favour of burgeoning ticket sizes of startup funds though there are a few who are bothered about losing control of their companies.
For investors such as R Ramaraj, senior adviser at Sequoia Capital India, the country is nowhere near the ideal startup-funding paradigm. The more the better and the fittest will survive, he adds.
“If you look at the AngelList (a website for startups and investors) in the US, it will have 15,000 startup companies listed against 17,000 investors. That is the kind of environment we need to boost entrepreneurship — more investors than companies. In 2013-14 over 160 companies got angel investments in India. That number is increasing but we should be focusing on improving the base (number) upon which it is growing,” he adds.
IT product companies are the current VC favourites that have been attracting most of the investments. The growth of the software product industry in recent years has signalled a transformation — in India and across the globe. With increasing numbers of active users becoming consumers of e-commerce solutions and the related marketplaces, Indian startups today are building global digital solutions to capitalise on this rapid growth. Hyper-growth, capital availability and acquisitions are the leading drivers of the growing startup ecosystem in India.
This has led to startup valuations skyrocketing beyond imagination. Even some pre-revenue stage startups have attracted millions of dollars of funding in recent times. “There is nothing to worry about overvaluations. It shows the potential in the market and the interest that foreign investors show in India,” said Ratan Tata, chairman emeritus of Tata Sons, in a recent interview with FC. This is necessary to create global giants from India, he added. However, there are strong detractors who feel that excessive funding changes the course of companies and does more harm than good. One such believer is Sridhar Vembu, chief executive officer of Zoho Corp. The company has been avoiding external funding to stay independent and on course, he says. “There seems to be no end to raising VC money in the market. Product companies wait till their product gains some traction in the market and then raise funds to market it. They end up spending about five to 10 times more on marketing than what was spent on product development. Essentially, the company becomes a marketing firm as opposed to a product development one as marketing people begin to run it,” he points out. The company’s culture changes from nurturing talented young hackers to employing suit-clad professionals. There are several examples in the market where successful product companies that raised funds never had a promising second product, he says.
“To keep the growth going, you must have the second, third and the fourth product. Apple did not stop with Mac; it created iPod, iPhone, iPad etc. However, these days, you will hardly recollect the name of a VC-backed product company’s second product because in most cases it does not exist. Salesforce.com is a poster child of this fund-raising model. They have now put themselves up for sale (rumoured to be up for sale; Microsoft’s bid failed in June),” he adds.
In a highly digital world, it is extremely difficult to stay out of the clutter. Companies strive hard to differentiate, scale and stay relevant in the market, says serial entrepreneur Ravi Gururaj, who is also the chairman of Nasscom’s product council.
“For example, 99.9 per cent of the apps fail. In many cases, even the developer’s own family members don’t use the apps let alone the developer himself. Space on the users’ phone home screen is becoming the costliest real estate in the world. Every company is fighting for that space to put in their apps. However, there are four critical issues: entering the market is easy; competition is ubiquitous; it’s super hard to scale, and lastly, loyalty is zero.”
The apps may be well received but users quickly move on to others because they have too many options, he adds. Better versions are released every day and customers are not compelled to stick to certain apps. The same is the case with other products as well. India has just begun the journey in that direction.
(With inputs from Verghese Chandy)
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