Startup ecosystem in India | Reasons for the exponential growth
Harish Bahl, CEO of Smile talks about the startup growth in India and the growth parameters. During the chat, he also shares tips to startup founders for making it large in the growing startup ecosystem.
How has the start-up ecosystem developed in India in the last 3 years?
In one word — considerably - the startup ecosystem has matured significantly over the last few years . And, the biggest testament to this is the development of a strong layer of angels investors — that is a key ask for the growth of any startup ecosystem. Today, we see greater acceptance for starts ups from the angel investors — this could well be attributed to the standardization of processes on how the contracts are being structured between the angels and the entrepreneurs. That apart, relatively small but significant shifts in the form of inclusion of entrepreneurship as a part of most educational institutes’ curriculum paints a brighter picture, again. This can further be seen in the kind of healthier and closer collaborations brewing between founders, educational institutes and the angels. Additionally, a quick scan of the market will underline a positive shift in the overall sentiment indicating India’s readiness to create bigger companies going forward. Thus, addressing pertinent questions of any investor eyeing a startup market — that, can this country produce successful entrepreneurs and is this market ready and capable of building big businesses? Precisely, with the overall market maturing and becoming far more active; companies seeing exits and capital being returned to some of the early investors — reinforces the faith in the fact that India is a supple turf and a definite home to the next generation entrepreneurs who can produce big billion dollar companies.
What are the key factors aiding the growth of these start-ups and the investments coming into the system?
India is a hotbed for startups donning plenty of opportunities. There has been a wave of startup businesses across verticals since early millennium days. What started off with travel went on to then matrimony — spread cover across financial services, ecommerce, mobile economy, on-demand services followed by new media — clearly highlighting the umpteen opportunities that the Indian market offers (from time-to-time). Apart from the opportunity that the Indian ecosystem offers, there are various other factors that have aided growth of startups in India. To state a few, factors like the burgeoning Indian economy and rising consumer purchasing power have offered strong hooks for entrepreneurs to base their businesses on. That said, consumers appetite to experiment coupled with their enterprising disposition has also paved way for innovative startups to carve a strong niche for themselves. Yes, apart from creating conventional job opportunities, startups like AirBnB, Uber & Ola have created newer financial streams for people — an opportunity that holds a lot of water for future experimentation. Moreover, the opportunity that internet and most importantly mobile presents also underlines the vast prospects that startups can explore. Interestingly, early investors have come a full circle already witnessing returns on their past investments — instilling confidence in other investors to try their luck in the startup ecosystem. All these and more, have helped strengthen investor’s trust to fund innovative and idea-driven startups.
How is Smile Group helping in further developing the overall ecosystem? What have you done so far as a fund?
We at Smile Group have been consistent in our approach and are driven by our committed to promoting entrepreneurship within the digital industry. Our approach has been threefold — building, investing — early stage investments, partnering with international companies like AirBnb, WPP, Yahoo and helping them expand to emerging markets. All three are pointing to our single goal of evangelizing the space in India and helping create opportunities to churn out successful digital entrepreneurs. Since inception, we’ve endeavored to provide a suitable platform that can help entrepreneurs & founders to build scalable companies from scratch, expand operations and increase their footprint by rolling out internationally. Our commitment to encourage fresh talent with new-fangled ideas (even if that means backing a business model run by young founders just out of college) — stands strong as we aim to nurture the next-gen entrepreneurs within the Indian startup ecosystem. Speaking specifically of early stage investments, we have made 7–8 investments in the last 12 months alone and plan on closing 10–12 more in the next one year or so.
Which are some interesting segments that investors are betting on ?
Talking about Smile Group, our primary focus rests at creating successful digital entrepreneurs and we are betting big on that. That said, as a group, we are currently more focused on consumer and mobile-only businesses and encourage ideas and solutions that create more employment opportunities and have a large addressable market to explore. This is our investment theme.
What is your view about the Indian entrepreneurs? What do they need to learn from their counterparts in the Silicon Valley?
We are living in exciting times. Speaking specifically about Indian landscape, we are now experiencing a strong shift in the way entrepreneurs approach business, when compared to the generation before. This generation is equipped with belief, faith and with a risk appetite to churn out billion dollar global companies. New age entrepreneurs are far more aggressive and way confident while the previous generation believed in playing it safe (this may not stand true for various founders from the older Gen Y). To your point on learning from matured market like US, while every market experiences phases — the excitement levels are peaking locally. Three key learnings would be — to focus on building strong base on our home ground before venturing international. Second, India is going through a phase where capital is cheaper than what it could be in other market (which is cyclical). It’s important to remember that cash is king and the investment cycle is very sentiment driven — in the long run one must know how to judiciously manage cash flows and the perseverance to play-long even when the market is not so positive. And lastly, entrepreneurs must value and learn to be driven by the belief of introducing products or business models that solves customer problems, ensures the best customer experience and also completes a satisfaction survey. These are some takeaways from my experience of working in the Silicon valley.
How is the VC startup relationship at the moment and how has it changed?
VC startup relationship has certainly evolved! Today, it is seen more as a partnership where the value of an entrepreneur is recognized a lot more by the former, not exactly the case historically. The industry started off with a very skewed ratio of this association (VC: Entrepreneurs) — wherein the paucity of VCs built immense pressure on the entrepreneurs who ended up “chasing” only a handful (investors). Plus, there were fewer examples or little was spoken about successful returns reaped by VCs back then — which definitely weakened the sentiments to invest in entrepreneurs or new ideas. However, the picture is quite different now, today, VCs are keen on associating with entrepreneurs and are ready to take risks as well. Also, over a period of time, investors have started showing interest in the functioning of an invested company by offering their valuable contribution in key tactical and operational decisions — thus, becoming a close associate of the founders in achieving the goals and working together to success. Moreover, VCs are now more confident and convinced that finding the right entrepreneur will drive better chances of ROI. Both parties function as a single unit now with a common business interest — definitely on a healthier pedestal.
Several Indian start-ups are going global. What is your advice to these start-ups?
My advice is to FOCUS. Your business model should be strong enough to scale in India given the market opportunity this country offers — you have to invest focus locally before a brand ventures out. For reasons 1) it can be a huge and diverse market here 2) venturing out too early can be expensive and distracting (however, this advice will not be relevant for business models which might not have a large market in India) 3) and identifying right strategic alliances and partnering with the right talent that can help your business make headway into the international market. In short, build a big winner in India/home-market before you start looking at internationalization (basically time it right).
Excerpts published earlier with The Hindu Business Line.
