What ails the Startup ecosystem in India?
When I moved back to India in 2004, I was mainly following my heart. I wanted to go back to my roots and build compelling companies and work with bright people. After spending 5 years in India I think it is time for a reality check. My first 2 years in India don’t count as real startup work. I was here on an expat gig for my Valley employer and I was using the opportunity to learn how to operate in India where I had never worked. My next gig Zimbra was an interesting well fed valley startup with big name VCs and a rockstar team. Now that I am starting to engage with the Indian startup scene to do an all Indian startup, I have started to learn some really important lessons about the business of startups in India.
Facts: (based on data from Dow Jones VentureWire)
- In 2008, the amount invested in Indian startups was US$945million while US startups enjoyed investments of US$30 billion (30X Indian investments)
- In Q1 2009, the amount invested in Indian startups was US$100M down from US$142M last year
- Of the US$100M invested in India in Q1 2009, US$89M was invested in IT companies
- 13 rounds of investments closed in Q1 2009 in India while in the US 477 rounds closed in the same quarter
- The median size of a round in Q1 2009 in India was US$4.24M while in the US was US$5.5M
From the data I can summarize the following:
The Indian startup industry is 1/30th of the size of the US and is following the global recessionary trend of declining capital invested(down almost 30% from 2008 while US is down 50% YOY). The US$4.24M median size of the rounds in Q1 indicates that the VCs are capitalizing the startups well. However, my guess is that the Indian VCs are not putting money into early stage startups and are only putting money into late stage startups or established companies.
When one looks at these numbers – does one feel encouraged? (or) discouraged?
Obviously this is not great news for the startup crowd in India. We did not have a strong startup industry in India to begin with and the trend this year seems to show a further decline to this already very small industry. So, what ails the startup industry in India?
1. Lack of Quality Professionals – I firmly believe that this is the number 1 issue faced by the startup industry. Having worked in the valley and with really high quality people most of my life, this is something I really miss in India. When I visit some of the startup networking events and watch the craze around Drupal and other CMS platforms and not many people really talking about serious hacking, I get the sense that the hacker culture has not caught on in India. Hacking drupal does not make one a hacker (with all due respect)! There are pockets of hackers I meet and it encourages me to see them but they are just few and far in between. This generation of startups need to embody and promote the hacker culture.
If you don’t recognize this emblem, you are not a hacker yet!
You need all types of smart people to create successful tech startups. But the breed that really matters is the one that writes code. If a group of really capable coders is led by one person that understands markets, customers, product and deal making then they can collectively achieve greatness. Most startups I see operating in India either don’t have great coders or are missing that one leader who understands markets, customers, product and deal making.
If you are not a hacker, start today. Stop wasting time on Drupal or other CMS platforms and start real programming. ASP and .NET don’t count either. Learn real programming languages like Java, C, C++, PHP, Python, Ruby. Start by contributing to open source projects to measure yourself against the best in the world. We need lots of this breed for the startup ecosystem to grow and thrive. We absolutely cannot rely on the government or our esteemed institutions like the IIT to produce hackers. Hackers are mostly self taught creative geniuses who code for pleasure.
Tech startup founders need to be people with very deep technology backgrounds as well. There is a reason our industry is called Hi-Tech. If founders lack this key ingredient, then they are going to hire duds who cannot deliver. I have a real world story here that will drive home this point. About 3 years ago there was major Industrial house / Telecom operator who started betting on the Internet. Hired a supposedly rockstar CEO from an Indian Internet Portal. They launched a gaming portal that was supposed to dazzle the country. This gaming company wanted to provide an embedded email service as a part of their offering. I got an appointment with their “CTO” where my agenda was to sell him a cool email product that we were building. The company had built the system in-house and were open to listening. However after sometime this “CTO” opens up to me and says that his company will never invest in a commercial offering as he believes they have built the greatest system on the planet as he personally hacked it. Cool! I was pretty impressed at the confidence of this individual at this point. Then came the shocker – “you know we did all this with just Borland Delphi!” Then he explains to me how he found that Apache could not scale as a web server and wrote his own on Windows and how well this thing works. I had to really use all my mind control skills to prevent myself from bursting out into laughter. Now, what is wrong with this picture? Obviously the company had hired a dud as a CTO. Even the most junior individual in the IT world can recognize that Borland Delphi is not the dev environment of choice for the Internet. What I learnt from people who worked for this individual was that the web server he had written on Windows was the weakest link in the entire platform and needed to be restarted about 72 times a day :) A year later the CTO was fired and India is still waiting to be dazzled by this gaming portal.
So, my message is simple – stop whining about how bad the VCs are and how you cannot get funded and start becoming great technologists and I bet you VCs will run after you with open checkbooks.
2. Lack of Capital for early stage financing - This I believe is the secondary issue with the startup industry. I was at a TiE event and heard one of the “so called” VCs talk about how their India strategy was only to do “C” rounds for companies in the US$10-20M in revenue range. I got the same sense talking to some of the VCs in India. If all they are doing is investing in late stage companies now, they are going to have to pack up and leave 3-5 years from now as there will be no late stage companies to invest in. Capital is vital to a thriving startup eco-system and devoid of capital, the industry cannot expect to see a lot of startups emerge. The large industrial houses in India like TATA NEN and the ET Power of Ideas, are really wasting money in Business Plan contests which is nothing but a big PR stunt. If they want to put real $$ into supporting early stage startups they need to just do that. Either fund an incubator like iAccelerator which provides a nice YCombinator style environment for young startups or create their own incubator. What early stage startups need the most now is the capital and support of the large industrial houses not PR and publicity. When startups do amazing things they will be noticed.