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E-commerce start-up Instamojo founder Sampad Swain plans to shift his entire team—currently only four members, including him—to the San Francisco Bay Area within 18 months. (E-commerce start-up Instamojo founder Sampad Swain plans to shift his entire team—currently only four members, including him—to the San Francisco Bay Area within 18 months.)
E-commerce start-up Instamojo founder Sampad Swain plans to shift his entire team—currently only four members, including him—to the San Francisco Bay Area within 18 months.
(E-commerce start-up Instamojo founder Sampad Swain plans to shift his entire team—currently only four members, including him—to the San Francisco Bay Area within 18 months.)

India’s fledgling start-up sector seeing exodus

Product start-ups in India are hampered by the lack of a mature ecosystem needed to sufficiently support them

Bangalore: For Sampad Swain, founder of e-commerce start-up Instamojo, it was an obvious decision to move his entire team from Mumbai to the San Francisco Bay Area.

“In India, I have to do hazaar (thousand) things to catch the attention of a company," said Swain, who founded Instamojo in October 2010 when he started a newsletter containing video interviews of entrepreneurs.

“It’s a much tougher market to crack than the US," Swain said. There he expects to find a larger customer base in companies more amenable to trying new products. Instamojo is an online store where companies and individuals can sell products such as e-books or software.

Swain plans to shift his entire team—currently Instamojo has only four members, including him—to the Bay Area within 18 months. He didn’t say how big the expanded team will be.

Swain is among at least a dozen young Indian entrepreneurs who have joined an exodus of local talent to Silicon Valley, the world’s biggest technology hub,over the past 12 months, with product start-ups discovering that incorporation in the US can bring larger markets, wider mentorship networks and better valuations for theirs firms.

India lacks a strong software products industry or a mature ecosystem to sufficiently support product start-ups, and the brain drain could further cripple the fledgling system, say experts and entrepreneurs.

With the start-up exodus, valued ideas and intellectual property (IP) bred in the country are also being drained.

“In a way, we are actually losing all that IP which is being created in this country," said Avinash Raghava, a member of newly founded Indian software product think tank iSpirt and a previous director of software industry lobby Nasscom’s emerging products forum.

Vineet Devaiah, who in April 2011 founded TeliportMe, a start-up based in Bangalore for sharing panoramic images through a mobile application, quickly realized that Indian venture capitalists and angel investors were wary of taking risks on start-ups and could be very demanding.

“They’ll be like, ‘you want money, you suck up to us, accept our terms and build a great company that comes out with great products’," said 27-year-old Devaiah, a Cornell University graduate who sold his first app, a weather forecasting software, at age 15 to Infosys Ltd in 2001 for $1 million.

He then quickly trained his sights on Silicon Valley and incorporated TeliportMe in the US last year. Within a year, his company had raised upwards of $500,000 ( 2.75 crore today), including backing from the 500 Startups accelerator programme started by Silicon Valley angel investor Dave McClure.

“India is not a large market for a lot of these start-ups," said T.V. Mohandas Pai, a former director at Infosys and chairman of Manipal Global Education. “At the cutting edge of technology, the market is in America, not in India."

For firms offering consumer services, the distance is manageable, but start-ups pitching products find it easier to operate in the US, near potential customers and where networks and pricing are more attractive, he said.

“The propensity to go out and try new things is better in the US," said Brij Bhasin, entrepreneur-in-residence at GSFIndia, which has a partnership with 500 Startups, adding that compared with the US, mergers and acquisitions and early-stage investments in India are fewer.

To be sure, the infrastructure supporting Indian start-ups has matured in the past five years. New initiatives such as the incubator programme launched recently by Nasscom with Google Inc. and Microsoft Corp., and the Startup Village in Kerala are expected to give India’s tech ecosystem a much-needed fillip.

But some entrepreneurs such as Cherian Thomas aren’t willing to wait.

Thomas left Zynga India in Bangalore last summer to start recipe blogging website Cucumbertown.com, opting to incorporate it in Delaware in October. When working from their US office recently, he met a slew of potential partners—companies and fellow start-ups working in food. “Those kinds of synergies are very difficult to build in India, at least now," he said.

The other reason is economical. “I can’t generate the equivalent of $1 per user here in India," Thomas said. “But there I can."

Larger companies such as Bangalore-based cloud computing firm Capillary Technologies, too, are increasing their focus on overseas clients in the West. “There is no incentive to focus on India right now, because there is a gold rush for those (US) markets," Sharad Sharma, chairman of the Nasscom product forum and a former chief of Yahoo Inc.’s research and development (R&D) centre in India, said in a recent interview. “Even Indian start-ups are participating in that gold rush."

In the Startup Genome project—an R&D project started by entrepreneurs Bjoern Herrmann, Max Marmer and Ertan Dogrultan, and which tracks start-up ecosystems in 141 countries, Silicon Valley topped the 2012 start-up ecosystem index, followed by Tel Aviv, Israel. Bangalore, ranked at 19th, was the only Indian city to find a mention in the index.

Critical challenges for product companies, such as smooth online payments and deliveries, are far simpler in the established US market, said angel investor McClure, the founder of 500 Startups, in a February interview. “If you’re willing to take the risk and you can make the transition, going to bigger markets is probably a good thing," he said. “Silicon Valley or New York or Beijing or London—those are interesting places to go, where there are bigger markets, large amount of customer and capital."

The biggest challenge start-ups face in India is the dearth of good mentorship that they can find in abundance in the Silicon Valley. Swain of Instamojo said he applied to McClure’s incubator primarily because it offered a direct pipeline to prized consumers and communities. “There are three things in the US which we get in abundance: capital, network and talent," he said.

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