The ripening of the Indian startup ecosystem

By Saurabh Tyagi

2014 was a landmark year for Indian startup ecosystem.

With the second largest internet population at the end of 2014, more than 3,100 startups in India at present and more than 800 startups being set up in the country every year, the entrepreneurial ecosystem is buzzing and rapidly evolving as the third largest startup ecosystem in the world, behind the US and the UK.

And there are already strong indications that 2015 will be another exceptional year for the Indian startup community.

“The Indian startup ecosystem is rapidly evolving driven by extremely young, diverse and inclusive entrepreneurial landscape,” said R. Chandrashekhar, president of the National Association of Software and Services Companies (NAASCOM). “An additional driving force is a four-fold increase in access to capital through VCs, angel investment and seed funding for the Indian entrepreneurs.”

Google Capital, the equity funding arm of the mammoth tech company which invests in startups in the mid to late stages of growth, showed its own faith in the potential of India’s startup sector by setting up its first base outside the US in India. It has already invested around $12 million in Bangalore-based online real estate portal CommonFloor in early 2014.

“It made a lot of sense to focus a lot of attention here now,” said David Lawee, partner at Google Capital. “The companies that I’m seeing here have much more upside than most companies I’m seeing in the US.”

As Indian entrepreneurs race to build and establish the next big business, growing businesses such as FlipKart, Snapdeal and Zomato are quickly becoming a source of inspiration and motivation in entrepreneurial circles. From time to time, we do hear about the odd dorm-room type startup based out of Bangalore of Hyderabad getting acquired by tech bigwigs such as Facebook, Twitter and Google.

In January, Bangalore-based ‘missed call’ marketing startup, ZipDial’ became Twitter’s first Indian acquisition, ensuring that Indian startups began the New Year on a high. Amazon is also currently eyeing the growing startup ecosystem in India and is working to further its engagement with technology companies in the country.

Last year, Facebook acquired Little Eye Labs, another Bangalore-based startup that makes a software tool for analyzing the performance of Android apps, in a $10-15 million deal. Google bought cybersecurity startup Imperium to help improve its abuse monitoring efforts. Yahoo wasn’t too far from the action as it acquired Bookpad, the company behind the Docspad product.

These deals are certainly a strong indication of the promise and quality of startups in India and a clear-cut sign that India is already making its mark on the global startup scene.

According to the 2014 NASSCOM report, India’s startup growth is remarkably rapid, predicting an addition of another 8,400 startups that will boost the country’s startup total to 11,500 by 2020. The Wall Street Journal also mentions four Indian startups in its Billion Dollar “Unicorn” startup club, a collection of startups that have achieved billion-dollar valuation before an IPO.

Made In India: Government finally waking up to startups

Another reason why everyone is so upbeat about the growth of startup culture in India is the government’s change of stance and approach to the ecosystem. Earlier, SMEs and startups had a tough time navigating through the painfully long bureaucratic process and indifference. Today, the colors of apathy are quickly fading.

Finance Minister Arun Jaitley proposed a Rs. 10,000 fund in the Union Budget 2014 to support emerging entrepreneurs and boost capital flow to startups and SMEs. He also allocated Rs. 200 crore in his budget to fund technology ventures, in addition to announcing setting up a nationwide incubator for startups – – decisions that were widely lauded and appreciated across the entrepreneurial business community and fueling hopes of a brighter future for startups in India.

Some serious corporate backing

Ratan Tata, Chairman Emeritus at Tata Sons, recently made headlines when he invested a small chunk of his fortune in Snapdeal and an online jewellery retailer Bluestone within a one-month time frame last year, joining the elite club of tech czars investing their personal fortune in home-borne startups.

Some of India’s biggest corporate houses – Wipro, Tata Consultancy Services, Infosys and Cognizant Technology Solutions – are going a step ahead by allocating funds to invest in early stage tech startups.

“For these IT companies it is a matter of survival to open new markets and to invest in fresh ideas,” said Vivek Wadhwa, a fellow at Stanford University’s Arthur and Toni Rembe Rock Center for Corporate Governance. “It is very hard to do this in the confines of a big business because people are afraid of taking risks and challenging authority. But that is what startups do, and that is why they are investing in them.”

GenNext Ventures, Reliance Industry Limited’s venture capital firm recently signed a three year pact with Microsoft Ventures in India to set up innovation centers that would encourage and support entrepreneurs in the field of education, big data, digital media and health-care. Even Silicon Valley-based seed fund and startup accelerator 500 Startups has joined the party and is currently in the process of raising $10-20 million for its India fund, Startupwallah, due to launch later this year.

With startups thinking and innovating at a far greater pace than larger conglomerates, top corporate houses and software companies are eager to tap into these entrepreneurial ventures early on as they work on new ideas and disrupt established sectors and engage with them in a mutually beneficial way. While most IT companies in India have matured to a point where it is extremely difficult for them to innovate, disrupt and break against the conventional mold, investing in startups is an excellent way to gain new technology talent, beat the competition and acquire a diverse patent portfolio that, in a way, bridges the gap between young, innovative ideas and older, large scale technology firms.

The vibrancy of these investments and funding trends have also sparked a chain reaction in foreign investments, attracting the attention of incubators and venture capitals from the United States to Japan.

Job generation likely to see a boost, courtesy startups

Employment generation has never been a much talked about point when it comes to startups. However, that might change in the time to come. A survey by talent assessment firm MeritTrac reveals that the start-up ecosystem in India may hire almost 300,000 employees by 2020. In fact, around 80 percent jobseekers are willing to apply for jobs and join these next gen startups, according to the firm’s research. Even elite IIT engineers are grabbing job offers from tech startups, eager to ride the entrepreneurial wave and become a part of the big shift in the Indian technology space that could have a rippling affect on a global level.

“Start up is ‘democratising’ business,” said Rajeev Menon, general manager at MeritTrac Innovations and New Products Developmen. “Today, anyone with a good idea or capability can build a business. This is a surprising change from the past. There is a large pool of talent, awareness, guidance, funding and above all – a market where ideas can be experimented.”