The technology space in India is undergoing a major transformation. India’s well-known software services companies created the first wave of success and global recognition for India’s technology industry. The next wave is now under way, being created by a new generation of start-up companies. Most of these technology companies are in the product space, and many play in India’s rapidly emerging domestic marketplaces.
What has created the necessary ambience for these start-ups to grow and flourish? It seems to me that the stars have finally aligned, with most of the factors required for success finally coming together, creating, perhaps, the most exciting times in recent history for start-ups. I’ll classify the factors into four categories: markets, capital, technology skills and service providers.
A decade or so ago, the Indian domestic markets were just too small to enable the creation of a meaningfully sized technology company. In recent times, we’ve seen many end-user markets offer opportunities to build global scale technology companies. These markets include education, healthcare, financial services, travel and retail, to name a few. The intersection of the mobile and Internet explosion with the emergence of these end-user markets has created many exciting new opportunities. E-commerce, security, payments, digital marketing (including Internet and mobile marketing) and mobile value-added services (VAS) are some of the new industries that we’ve witnessed being created. We’re beginning to see global scale companies emerge in some of these sectors, especially e-commerce and mobile.
Riding the next technology wave
Technology product start-ups have a different rhythm from services companies, needing a longish period of time to define and build the product, and then trial it with a customer, before they can hope to start generating revenues. This necessitates the need for capital, typically angel capital (small in amount, large in help!), with which the entrepreneur can start validating and building his business. In the last few years, we’ve seen an explosion in angel funding. Successful entrepreneurs and angel networks have emerged—which not only provide seed capital, but also have the capability to mentor entrepreneurs. This, coupled with the emergence of a good cadre of experienced early-stage venture capital, has helped technology entrepreneurs get a longer runway for their businesses to take off.
The skills required by product companies (technology architecture and product management being two significant ones) have traditionally been in short supply in India. Over the last few years, though, with a number of multinational firms doing cutting edge product technology work in India, and a large number of Indians with experience in the technology space having returned from the US, the availability of such skills has dramatically increased.
Over the past decade, societal changes that are more accommodating of failures, and the huge opportunities thrown up by the growth of India’s economy, have created an environment that encourages more of risk-taking. This has resulted in more people leaving cushy jobs to become entrepreneurs, creating a broader and more likely successful pool of start-ups.
Start-ups need service providers who understand that start-up requirements could be different, and are willing to work with them. In recent times, we’ve seen the emergence of such law firms, accounting firms and human resources firms, which aids the growth of the start-up ecosystem.
Recent months have seen the emergence of some clouds on the horizon, mainly driven by issues with the global economy—debt issues in Europe, inflation, slowdown in GDP growth rates, etc. However, start-ups are by and large immune to these factors, since being small they are insulated from the full shock of such happenings. In my view, there could not be a better time to become an entrepreneur.
Samir Kumar is managing director of Inventus Capital Partners, which looks at early-revenue start-ups.
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