The Dawn of a Founder-led Startup Ecosystem in India: Mafias, Angels, Communities, and More
Over the years, there have been several reasons for the (still early) success of India’s now-booming startup ecosystem. Typically, these are some observations that are highlighted:
- Consumers today have affordable access to data, connectivity, and smartphones, courtesy Jio and other telecom companies slashing data prices, and various government policies to promote local smartphone manufacturing
- Positive macroeconomic metrics like the rising GDP per capita, India climbing the Ease of Doing Business rankings, increasing Foreign Direct Investment (FDI) etc.
- Creation of public digital infrastructure like the India Stack, that has ushered in UPI, e-KYC, Aadhar, and recently, the Account Aggregator, which enable seamless digital transactions and authentication
- The viability of exits, as demonstrated by the acquisition of Flipkart and the recent stellar IPO of Zomato (with more startups following suit), as well as Indian business houses like Tata and Reliance acquiring growth-stage startups
- More recently, a global trend of falling interest rates leading to more investments in the venture capital asset class, coupled with declining interest in China (due to the regulatory climate) that has propelled India to the forefront of every global investor’s “emerging markets” allocation
- And finally, some sectoral trends that have emerged - for instance, D2C companies are picking up due to solved discovery (via Flipkart, Amazon etc), tech-enabled fulfilment (Xpressbees, Delhivery), better software and payments (Shopify, Razorpay) etc.
However, a less-addressed reason that will catapult India’s ecosystem to the top over the next decade is the promising startup talent and human capital that has been (and is being) generated from it. The first wave of Indian startups brought in a can-do culture with flat hierarchies which empowered their employees to think out of the box and execute in a resource-constrained environment. They also enabled ownership in the literal sense via ESOPs. After a decade of growth, the first wave of Indian startups have matured. Today, we have a ~550,000-strong base of founders, managers, and employees with ample experience of working in startups, and this is estimated to reach 3.25 million by 2025. Crossing this critical mass of homegrown talent with real startup work experience has led to some talent-led tailwinds that will define India’s startup success going forward.
Mafias, Mafias Everywhere 👥
Let me begin by defining mafias. For the uninitiated, a “mafia” refers to the network of founders and employees of a company that go on to start new businesses. This was widely used to describe the core team of PayPal who then ventured out to start some of today’s most successful technology companies — Elon Musk (Tesla, SpaceX and many more), Peter Thiel (Palantir, Valar Ventures, Thiel Foundation), David Sacks (Yammer), Steve Chen (YouTube), Reid Hoffmann (LinkedIn), and several others on the startup and VC sides of the ecosystem (check out an interactive version here). An earlier “mafia” was the Traitorous Eight who emerged from Shockley Semiconductor in the 1960s and literally gave birth to Silicon Valley. They helped set up companies like Fairchild Semiconductor, Intel, AMD, and venture capital firms like Kleiner Perkins. Over the last 20 years, FAANG and Big Tech have created mafias of their own with hundreds of startups tracing their origins from there.
We’re seeing early signs of large mafias emerging from a plethora of Indian startups as well. Over the last decade or so, dozens of new startups have emerged from larger Indian unicorns and tech pioneers, and this trend is visible across sectors. The earlier unicorns have created more established “mafias”, with Flipkart leading the pack on the consumer side and Zoho/ Freshworks leading the SaaS group. Here’s an interactive visualization of some mafias (non-exhaustive), and how talent from these companies have now set up successful startups.
An interesting observation is that the founding teams of several spinoffs also worked on similar problems while employed at the parent companies. For example, the Paytm mafia has founded a plethora of wealth-tech startups. Many members of the Flipkart mafia are solving problems around new consumer products, B2B services, payments, and logistics — all of which address the needs of Flipkart itself but can be large standalone businesses on their own. Amidst these, we’re also seeing close strategic tie-ups as well as subsidiary spinoffs from the earlier unicorns — Flipkart has invested in GOAT Brand Labs, a digital brand consolidation play, and had acquired PhonePe earlier. FirstCry (a Vertex Ventures SEA and India portfolio company) has spun-off two companies — Xpressbees, that solves fulfilment and logistics for brands, and GlobalBees, another Thrasio-like play that could help FirstCry with product and channel diversity. Unacademy has also spun off separate divisions that are led by serial entrepreneurs (who also worked at Unacademy before starting their earlier ventures) — Graphy and Relevel. We’ve also seen our India portfolio companies that are beginning to create mafias (such as Licious or FirstCry mentioned above) and have emerged from large mafias, including Recko (ex-Flipkart, Grofers), Ayu Health (ex-Flipkart), and KukuFM (ex-Toppr). Mafias are also emerging in geographic clusters, close to their parents — the Flipkart mafia has established Bangalore as a base for several consumer startups, and the Zoho/Freshworks mafia has made Chennai a hotspot for SaaS.
Significant credit also goes to legacy companies for creating a learning ecosystem that led to several successful spinoffs. MBB alumni in India, like their global counterparts, have founded companies across sectors including Zomato (ex-Bain), Rebel Foods (ex-McKinsey), Kissht (ex-McKinsey, and part of our portfolio), and Urban Company (ex-BCG). FAANG and Big Tech alumni, again like their global counterparts, have set up stellar businesses here in India, with a few being Flipkart (ex-Amazon), Ola (ex-Microsoft), Apna (ex-Apple) etc. We’re also seeing mafias emerge from other business powerhouses, such as Unilever (Mamaearth, The Whole Truth), ITC (shown below), P&G (Karkhana, part of our portfolio), Goldman Sachs (Simpl, Refyne etc), and several others.
Angels, Syndicates, and Founder-led Venture Capital to the Moon! 🚀
Almost every single fundraising announcement in the recent past has the names of prominent angel investors who participated in the round. Due to the enormous wealth generated from startups, various founders and leaders are reinvesting this capital into new startups, many of which are part of the mafias shown above. Reinvestments from founders with a pay-it-forward mindset have also helped create a vibrant ecosystem for budding entrepreneurs.
The rise of angels, super-angels, syndicates, and founder-led funds has catalyzed the pre-seed/seed stage investing landscape. Founders who are just getting started now have access to a ‘capital++’ model, with angels mentoring them, opening doors to clients, VCs etc, as well as their companies becoming early clients.
While angel investing has been around for a while, we’re seeing a much larger participation, with startup-generated wealth reinvested into the early-stage ecosystem in a few models as below:
- Super Angels: Founders such as Kunal Shah, Girish Mathrubootham, Kunal Bahl and Rohit Bansal (via their fund Titan Capital), and many others are now aggressively investing in both early-stage startups as well as those in the late stage. Several other unicorn founders are investing either personally or via funds/family offices (more below), and typically cut angel cheques to companies emerging from their mafia.
- Syndicates, Funds and Family Offices: Some entrepreneurs who are more prolific in angel investing have also set up their own funds, and a few recent examples include Together Fund (Girish Mathrubootham, Manav Garg, and others), 021 Capital (Binny Bansal), Titan Capital (Kunal Bahl and Rohit Bansal), and VSS Investco (Vijay Shekhar Sharma). A hybrid model is followed by Razorpay’s Mars Shot Ventures that includes the founders and leadership too. With startup wealth also benefitting the management apart from the founders, we’re seeing more pioneers in the startup world (both founders and leaders) participate in angel syndicates such as First Cheque, Better Capital, and several others that are live on platforms like Angellist and LetsVenture.
- Strategic Startup Investors: We’re seeing more Corporate Venture Capital (CVC) flow into the ecosystem, with a large and increasingly growing chunk coming from startups. A pioneer here was Info Edge which has invested in a plethora of startups over the last two decades, and recently made a bumper return on their seed investment in Zomato. Other companies are ramping up their CVC/corp-dev functions as well, with Flipkart Ventures’ US $100m fund having invested in GOAT Brand Labs, Ninjacart etc, Zerodha’s Rainmatter Capital having a fairly deep FinTech portfolio, Dream11 recently announcing their US $250m vehicle, Dream Capital, and Lenskart’s Vision Fund of US $20m.
Founder-first Communities and Content 📢
The formation of founder-led communities is another notable trend that has gained momentum over the past few years, with COVID further accelerating this. This is the beginning of a post-accelerator era where founders can interact with and learn from peers, experts, and investors, with no strings attached. Moreover, founders also get to meet other professionals in their industries via these communities, attend formal webinars and conferences, and network with potential hires, angels, investors, and advisors. Here’s a short (non-exhaustive) list of some awesome startup-first communities based in India:
For a broader list on communities globally across topics, check out this awesome list compiled by the folks over at Threado!
And of course, huge credit goes to the publications, newsletters, and influencers who are educating folks on what’s happening in the Indian startup scene. Here are some of them focusing on India coverage:
We’re also seeing cohort-based courses and bootcamps in India that are focused on enabling people to build startups or work at startups across different roles — Scaler, Pesto, Newton School, and Masai School for developers, PM School and Nextleap for aspiring product managers, GrowthX for growth-focused teams and founders, Stoa School for a startup-focused MBA, Lancify for freelancers, and several more offered on platforms like Graphy, Bitclass, and Airtribe. Educators here also typically include startup veterans who pay it forward by helping more talent flow into the ecosystem.
What’s Next? 📈
The Indian startup scene is now fairly mature, and has thousands of homegrown founders and employees across sectors, experience levels, and academic backgrounds. Going forward, we should see a lot more action in the Indian startup world that will be defined by the talent cultivated from within, and their experiences/wealth. This could include more mafias from emerging unicorns, more community-led initiatives by founders for founders, and more serial entrepreneurs starting up again, and an increased capital flow for angel investing. However, as seen in the visualization above, while there are large mafias in E-commerce, FinTech, and SaaS (the more mature industries within startups), we should soon see prominent mafias from newer unicorns in emerging sectors too, such as B2B services, healthcare, EdTech etc. very soon.
Moreover, we could soon also see overseas mafias of Indian startups, particularly in the SaaS world, since most Indian SaaS startups focus on the US market. We’ll also see more VC funds initiating scout programs to identify talent within companies early on, with some of them already formalizing such initiatives.
All in all, it’s an incredibly exciting time to start a company today and have access to quality mentorship, no dearth of peer learning, and capital++. It’s just as exciting for VCs like us at Vertex Ventures SEA & India to work in a highly knowledgeable founder-first ecosystem that will exponentially grow over the next decade!
It will be great to curate more data points above and make this a helpful resource for everyone. If you wish to contribute to and add more data points to the visualizations and lists above, do reach out to me on Twitter or Linkedin.
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