Mumbai/Bangalore: In the last 10 years, French-American venture capitalist (VC) Larry Glaeser has watched numerous engineers join companies such as Infosys Ltd and Wipro Ltd, get attached to the security of a regular job, and grow leery of striking out on their own, held back by the fear of failure.
“It was really difficult to fail here. If you failed in your job, it meant you failed as a person, and there’s matrimonial value attached to it, too,” said Glaeser, who has settled in Bangalore.
As he prepares to launch India’s biggest start-up accelerator along with Indian technology industry veteran Lalit Ahuja and Swiss VC John Cook, Glaeser is betting that has changed—that there are now next-generation entrepreneurs ready to experiment and fail.
“Access to new entrepreneurial icons, social acceptance, technology, money are creating a perfect storm,” he said.
To help these wannabe entrepreneurs ride the storm, Ahuja, Glaeser and Cook are launching Kyron with a corpus of $50 million (around Rs.260 crore).
Start-up accelerators help entrepreneurs turn promising ideas into viable businesses; they run mentoring boot camps, and offer office space and seed money in return for an equity stake.
Unlike traditional VCs who mostly back start-ups with firm business plans and pilot customers signed up, start-up accelerators such as Y Combinator in Silicon Valley are known for backing very-early-stage start-ups.
Founded by Paul Graham, Y Combinator has turned unknown coders into geek celebrities by offering seed funding of around $18,000 on average, apart from helping them connect with potential investors. File-hosting service Dropbox, which enables users to share photos, documents and videos; digital documents library Scribd; and social news website Reddit are among the around 300 companies funded by Y Combinator.
Accelerators typically offer three-six months of mentoring programmes that include vetting a business idea and getting it validated as well as an infusion of capital and introduction to investors.
At Kyron, the first batch of 10 companies with no more than four founding team members each will receive $100,000 in seed funding and access to an in-house team of legal, financial and technical resources, food, La-Z-Boy couches and even showers. All this will be provided in return for up to a 10% equity stake in the start-ups.
The trio of Glaser, Ahuja and Cook is hoping to create entrepreneurial heroes from India, starting from their very first batch in February next year.
“We are going to be pampering them. The idea is to free them up from any distractions and get them to work on their ideas,” said Ahuja, who incubated US retailer Target Corp.’s technology captive in Bangalore and turned it into a profitable venture.
Over the next five years, Kyron aims to graduate 125 companies. There will be two batches of around 10 start-up teams every year starting February and July.
In a first, Kyron will also have entrepreneurs from Europe and other Asian locations such as Hong Kong, who will relocate to Bangalore to undergo the four-month accelerator programme.
Kyron’s inspiration is Y Combinator. So, what’s called Demo Day in Silicon Valley by Y Combinator will be known as Heroes Day in Kyron’s Bangalore office, when the first batch of start-ups pitch to potential investors next year after four months of boot camp.
Accelerators rev up
From just two such accelerators five years ago, there are already a dozen gearing up to identify and fund the next big idea. The increase in the number of start-up accelerators in India is a sign that there will be more money backing ideas that could potentially fail, experts say.
“Accelerators are the new e-commerce business,” said Sameer Guglani, co-founder at the Morpheus, one of the oldest accelerators in India, which has been associated with 67 start-ups so far. Guglani said the sudden increase in the number of accelerators has various reasons.
For one thing, experienced professionals from the information technology industry and other sectors are now quitting their full-time jobs and using their money to start new accelerators.
Entrepreneurs such as Anshuman Bapna, founder of travel planning service Mygola.com, said the good thing about the accelerators is that they are being run by industry veterans and hard-core entrepreneurs. “Their insights and mentoring will help start-ups avoid common mistakes and leapfrog,” he said.
Jazeel Badur Ferry, one of the three founders of Eventifier, which organizes all communication around an event that is being shared on social media platforms, can vouch for that.
In his 20s, the entrepreneur says that had it not been for his first rejected pitch at In50hrs Hackathon, he would have been grappling with a product that would not have found any takers. In50hrs Hackathon is a quarterly 50-hour event organized by accelerator the Startup Centre in which people pitch ideas, get them validated and create a working prototype.
If an entrepreneur’s pitch is rejected, he or she would have to think up another plan. Ferry and his two partners pitched the idea of an SMS service targeted at stockholders that would alert them to movement in the price of their shareholdings. Encountering a tepid response, they pitched the idea that developed into Eventifier.
“Our biggest learning is that an entrepreneur needs to validate an idea first and then build a product,” said Ferry. “We have no skill-sets of an entrepreneur. We never knew that a product should be such that it will have revenue model and sustain itself. Our focus was on product and people using it.”
Now, the Startup Centre is introducing Eventifier to venture capital investors and the promoters are hopeful of raising funds.
More firms are starting out to grab entrepreneurs in the mould of Ferry.
In September, former president of Reliance Entertainment Rajesh Sawhney announced the launch of India’s first multi-city start-up accelerator called GSF Accelerator. It will provide 12 start-ups with personalized mentoring, access to funding and business networks, and initial capital of $25,000-30,000 for 5-8% equity.
“This programme is designed to create the next wave of product-oriented technology start-ups in the areas of mobile, social, local and cloud. There is no reason that Indian entrepreneurs cannot create the next Instagram or the next Twitter or the next InMobi,” said Sawhney.
A cultural change
Last week, former chief executive and co-founder of Fashionandyou.com, Pearl Uppal, and Gaurav Kachru, former chief executive and co-founder of Dealsandyou.com, launched 5ideas.in, a seed fund-cum-late-stage accelerator programme for Internet and mobile start-ups.
Another reason behind the increase in the number of accelerators is an increase in the number of professionals taking the entrepreneurial plunge. Five years ago, turning entrepreneur was the last resort, said Kachru; now graduates from renowned B-schools are willing to take the risk.
“Culturally things have changed. Also, the cost of building a business has gone down,” Kachru said, explaining that five years ago it would have taken Rs.3 lakh to set up a website; now it costs Rs.400 and two days to set up 5ideas.in’s website, for instance.
To be sure, backing from accelerators is no assurance of the success of a start-up. Existing accelerators (those that have batches graduating after three-six months of mentoring) are yet to show any noticeable exits from firms in their portfolios; returns from such programmes are supposed to be a minimum of 5-7x (five-seven times the invested capital).
There are concerns, too, of a bubble-like situation developing, with accelerators targeting similar sets of start-ups, experts say. Accelerators risk being questioned, too, about their intent in funding start-ups—are they in the business with the goal of raking in short-term profits? Experts also caution that not all accelerators are equipped with commercial talent.
“How many accelerators (that) started have founders that sold companies with Rs.100 crore revenue? This is a problem; these accelerators are not experienced enough,” said Indus Khaitan, co-founder and vice-president (India operations) at Bitzer Mobile, and a former founding partner of the Morpheus.
Khaitan said an accelerator needs the knack for identifying a “diamond in the rough” that comes with sector expertise, knowledge and experience.
Still, venture capital investors like the “accelerated” firms as they are better prepared for business than regular start-ups. These are filtered business models and entrepreneurs are better equipped to answer investors’ questions, said Niren Shah, managing director of Norwest Venture Partners India, who has evaluated such businesses for their next rounds of funding.
“Mostly there are no corporate governance issues with them, and they know what to expect in terms of market valuation,” he said.
Sometimes, however, accelerators are confronted by seemingly enthusiastic entrepreneurs, who in reality have no intention of going into business.
Recently, Vijay Anand, founder of the Startup Centre, came across a bunch of students who wanted to create a product for hospital management.
“The hospitals we introduced them to are now calling us, but the students are nowhere to be seen. This is the risk of doing client introductions,” said Anand. “Most people don’t realize the discipline that is required for being an entrepreneur.”