Indian start-ups growing strong on talent and funds

In India’s IT services outsourcing sector, local start-ups, often backed by US venture capital funds, are nipping at the heels of industry heavyweights. Reuters

Nine years ago Saurabh Aggarwal decided to pack his bags and leave Silicon Valley to return to his native home of Delhi. He had just sold off a start-up company he had launched in the United States called PDA apps, which was behind VeriChat, a mobile instant messaging service, and was eager to try his luck at setting up a mobile applications company in India.

His start-up, Octro, which offers mobile phone versions of Indian games, such as the card games teen patti and rummy, and has more than 2.5 million users a day, last year managed to raise $15 million in funding from the US venture capital giant Sequoia Capital.

“In terms of raising capital, even though Sequoia Capital has their own partners in India and it’s kind of independent, I think the process was fairly straightforward, just like you would expect in the Silicon Valley,” says Mr Aggarwal, who explains that the company really started to take off amid the surge in smartphone use over the past couple of years.

The ecosystem for start-ups in India is becoming increasingly favourable, with an ever-growing number of ventures launching and more investment flowing into them.

In a sign of the rise of the start-up sector, the Indian prime minister Narendra Modi, as part of his visit to the US, speaks today at the first India-US Startup Konnect in Silicon Valley, an event organised by The National Association of Software and Services Companies (Nasscom), TiE Silicon Valley and IIM Ahmedabad’s business incubator Centre for Innovation Incubation and Entrepreneurship. The event is aiming at showcasing the success stories of Indian entrepreneurs and Indian technology innovation.

“In terms of start-ups, we’ve seen a lot of traction,” says Rajat Tandon, the vice president of Nasscom’s 10,000 Start-Ups programme.

Start-ups are considered vital to boosting economic growth, as the country strives to create enough jobs with more than 12 million youths entering the labour force each year.

Much of the focus of start-ups in India has been in the technology sector.

In a report last year, Nasscom revealed that there were 3,100 technology start-ups and there were 800 start-ups launching annually, with about 300 venture capital and private equity deals and 225 angel investment deals worth $2 billion.

There have been about 20 start-up mergers and acquisitions worth about $1bn in the past three years.

Mr Tandon said that these figures would be substantially higher when the firm releases its latest edition of the report this year. It predicts that by 2020 there would be about 11,500 start-ups, employing more than 250,000 people.

The start-ups taking part in the event from India are not only from the technology sector, but include a diverse range of industries including agriculture and biotech.

“We’re really aiming to strengthen the India and US start-up connect,” says Mr Tandon. “With the prime minister’s presence there, he would be further able to strengthen the bridge between India and the US from the start-up side. We think the end result would be a two-way flow where we could see some investment coming into India and talent from India to the Silicon Valley.

“The start-up ecosystem in Silicon Valley is what everybody looks up to, so we are looking at how we can have the best practical expertise to support for the ecosystem here in India too.”

There has been a definite shift in India, experts say.

A growing number of Indian professionals are leaving their jobs abroad to return home to launch start-ups, and there is a trend of graduates looking to be involved in new start-ups rather than taking up corporate positions, according to Uday Salunkhe, the group director of Welingkar Institute of Management Development and Research in Mumbai.

“The meeting grounds for investors and entrepreneurs have also increased,” he says.

“When the recession hit the global economy in 2008 to 2009, the great Indian dream of joining an IT company as a lucrative career and settling abroad was shattered.

“This was the time for young Indians to think different. Although the cue came from Silicon Valley and its start-up culture, the growth in technology fuelled the idea of technology start-ups and this young country, with almost 65 per cent of the population in the age group of 25 to 35 years, began to dream the entrepreneurial dream.”

The nature of start-ups is such that many fail completely.

But there have been a number of high-profile success stories, including the online retailer Flipkart and the restaurant website Zomato, that have inspired others to take the risk.

“The hype about billion-dollar valuations and mergers and acquisitions has created a tremendous buzz among the Indian youth, breaking the fear of the unknown which held them back a few years ago,” says Mr Salunkhe. But there are various challenges that start-ups face.

“The challenges are around recognition of these start-ups, expanding into global markets and access to funds,” Mr Tandon says.

“Early stage investment is very prominent in Silicon Valley and if we could put a similar model across in India, it would be very supportive.”

He explains that the number of angel investors in India needs to grow to support the early stages of start-ups, which is lacking at the moment.

Another major issue is finding the right talent.

“There’s a bigger pool of talent available in Silicon Valley,” says Mr Aggarwal.

“But I think even that is changing. A lot of people from the Valley have moved back to India with all the learnings they have from over there, so the talent pool for technology companies is becoming stronger.”

He says there has been “a lot of talk” from the government about boosting India’s start-up scene, but he thinks that this may not necessarily be a positive shift.

“My view personally is that I would love the government not to start meddling with start-ups at all,” he says.

“I think Indian start-ups have been able to grow without the government coming in and meddling. Once you start touching them, you also have the potential of hurting them.”

Gautam Tewari, the founder director of SmartVizX, a virtualisation start-up based in Noida, in Delhi National Capital Region, says he has found the environment very supportive so far.

“The Indian start-up ecosystem has taken off in the recent years and to be a part of it is truly exciting as well as challenging,” he says. “We’re preparing ourselves to raise funds.”

Prukalpa Sankar is the co-founder of SocialCops, a data technology company, and one of the 30 Indian start-ups that participated at the conference in Silicon Valley.

Following a career with Goldman Sachs and Exxon Mobil, she moved to Delhi from Singapore two years ago to set up the company.

“Personally I think this is one of the best times to be in India,” Ms Sankar says.

“There’s a lot of growth, a lot of technology penetration. I think in the last year there has been a lot of capital infusion into India, which is providing part of the much-needed seed capital to grow. It’s pretty awesome to see how the Indian start-up is developing its own mark on the world and to be a part of that.”

Q&A

Shaffi Mather, an Indian entrepreneur and the founder and chief executive of the San Francisco-based company MUrgency, which has set up a medical emergency response app recently launched in India, talks about the environment for start-ups at home.

Could you talk about the importance of start-ups to India’s economy?

With one of the youngest populations in the world, there is no choice for India but to promote start-ups. The number of jobs from the traditional sectors and the established corporates are limited. Start-ups, both technology-based and in more traditional businesses, are the job creators and the engine of economic growth. The environment for start-ups at present is great. The ecosystem is booming with good ideas with good execution teams are being lapped up by mentors, angel networks and investors.

What does India need to do to grow this sector?

Policymakers have to create the right environment, making it easy for start-ups. We rank abysmally low in [the World Bank’s] Ease of Doing Business global rankings. We have to move quickly to the top 50 and then to the top 25. Nothing less than this aggressive target will be enough.

What are the biggest challenges for start-ups?

The lack of ease in doing business, the endemic corruption across the bureaucratic hierarchy, and ridiculous tax structures which often result in many of the successful start-ups moving their tax residency to more tax-friendly regimes.

Do you think that India could learn from the US when it comes to developing a favourable environment for start-ups?

India can and should learn not just from the US, but from the successful start-up ecosystems across the world, be it Silicon Valley, New York, Boston, Tel Aviv or Singapore. Simple steps can go a long way in changing the start-up environment and culture. The establishment of Startup Village Kochi in Kerala and the implementation of the student entrepreneurship policy in Kerala – which I was involved in bringing about as then economic adviser to the chief minister of Kerala – have unleashed a new force of start-ups to reckon with.