Building Tech Startups in India: Summary
The Good
It is a matter of time
The local market for technology products is nascent; the VC model for financing startups fairly new and some issues will work themselves out over time. The current vicious circle – relatively inexperienced entrepreneurs and risk-averse VCs – needs just a few hits to break the cycle.
The Bad
Distance to the market
Startups that aim at the US market (or even those targeting domestic market but want to go global eventually) are hampered by not being close to the market. This can be and is being bridged by cross-border operations or channel partnerships.
The Surprising
The Funding Gap
As we talked about, while there is a lot of money flowing into India in total, there is still dearth of capital at the seed stage. This is primarily because of the fund economics and alternate opportunities available to the investors. Given that, it is unclear to me if the situation can improve in the short-term.
Product versus Service
The issue here is not as much about lacking a “Product DNA” as is usually talked about, but more about investors and entrepreneurs recognizing the different characteristics of product and service firms – e.g. cash flows, funding needs, product development lifecycles, etc.
In summary, there is a lot of entrepreneurial energy and excitement in India. Some issues, such as motivating employees to join startups or finding mentors and role-models, are temporary challenges that will resolve over time. Others such as bridging the funding gap and accessing the market need action on the part of investors, professional organizations, and entrepreneurs.
Note: I will continue to explore these issues in the project and plan to share a follow-up post in a few weeks. My contact info: aparnac at mit dot edu.
This segment is a part in the series : Building Tech Startups in India
. Introduction . Observations . Observations (Contd) . Summary
Good piece, apt for the times and something that I am currently tracking.
I look forward to the final report. I am interested to see if it expands upon areas that I see separate India from other enterpreneur-friendly countries such as the US, namely:
1. Market effects due to legislation / regulation (after all, India is still far from being completely free-market driven)
2. Money sources role other than ones mentioned such as debt
3. Mentors from society/community taking into account a different social fabric that India presents
4. Manpower from non-traditional sources
Maybe the above are not part of the critical mass yet, but curious if your findings touched upon any of the above.
Bharat
bgovinda@umich.edu
I agree with your assessment. The major issue is that the service based culture is not the same as the start up software culture. With over 2 million IT / ITO-BPO workers of different capabilities, about 200k quality IT /ITO-BPO staff that could work in software corporations doing the lifecycle of releaseware. The real issue is that the 100′s of service companies that are positioned to build software are not investing anything capared to their market cap.
My prediction is that when the market cap falls by another 50% (it has fallen by 40% already) the IT offshore industry will start to build customware and begin the slow industry investment cycle (10 years or so) to get enterprise software off the ground. The issue is will they use local market people (non-indian nationals) it is a major issue.
India will be a IT service powerhouse (5 million IT / ITO-BPO workers), but if they cannot get a software industry off the ground they will only be a service sector and lose to other regions US, Russia (which seems to code – a leftover from the space / defense programs) which means India’s space program could be a major catalyst to the growth of software if they build it vs. buy from Russians.
Well written article but somehow doesn’t provide a clear picture of what’s the true story in India!
Perhaps a few case studies would have helped!