Jungle Ventures' founding partner Anand says India should look at public-private partnerships to make its `10,000 crore start-up fund a success
Singapore: The Indian government should look at public-private partnership (PPP) to make its ₹ 10,000 crore start-up fund a success, says Amit Anand, founding partner of Singapore-based Jungle Ventures, an entrepreneur-backed venture firm focused on funding start-ups in the Asia-Pacific region. In an interview, Anand said India is among the top five start-up ecosystems in the world and despite limitations such as a lack of sufficient funding, the country is on track to produce several $1 billion companies, riding trends such as cloud computing and mobility.
In the budget, finance minister Arun Jaitley announced the setting up of a ₹ 10,000 crore fund for start-ups. India’s record of disbursing funds has been patchy and the system is known for leakages. Do you think something like this can propel the start-up scene in India?
About 95% of companies that start up fail. Moreover, it has been said that there is only a 0.0006% chance of building a $1 billion company. With such odds, a start-up needs all the support that it can get to increase the chances of its success. Even if a fraction of this money gets into the ecosystem, we are going to see hundreds of successful entrepreneurs and, maybe, a few global icons being created.
But this is not enough. Everything in the factories and home in the future will be run by smarter software. And India has an opportunity to make the next manufacturing revolution its own. India produces more engineering graduates than the US and UK combined, but it has the lowest ratio of number of engineering students per million population... We need more reforms and initiatives like this start-up fund that was announced in the budget to create knowledge, technology and entrepreneurs to build India into a leading innovation economy.
How would you like to see India use this start-up fund—should it be giving soft loans or infusing equity? The Singapore government has been funding start-ups successfully. What are the lessons the Indian government can take from here? At the same time, Singapore has a very government-led approach, and there is perception that it is over-subsidizing the start-up ecosystem here, and market forces are not at play.
As in any other area, we should always look at what has worked in other markets and adopt the best practices with any localization to make them work in the domestic conditions. Overall, I think PPP is the way to go, but the government needs to take a giant leap forward in making the private sector interested in working with it.
Singapore tends to take a cluster-based approach by enabling capital and capacity creation in industries that they consider critical to their future. They have rolled out a variety of schemes, both via PPPs and agency-administered grants, to improve the local venture capital landscape. In addition, they have also put a lot of emphasis on other ecosystems, building policies and schemes including streamlining the process of business creation, increasing the talent pool and facilitating access to overseas markets. All of these have had a significant impact and we can see a huge swell of entrepreneurial activity at the grass roots level as well as investor interest.
Hundreds of Indian start-ups have moved base to Singapore. Why is Singapore such an attractive destination for start-ups? What can India do to prevent these companies from moving out?
There is a lot for Singapore and India to gain from collaboration. Asean (the Association of South-East Asian Nations) already has over 200 million Internet users and smartphone penetration in the rest of Asia is much higher than India, and has been for several years. Japan and Australia are the largest digital advertising markets in Asia and credit-card penetration and other enabling factors for e-commerce are more established here than in India, although things are changing rapidly there, too.
Start-ups from India find it very easy to get started in the region by using Singapore as a base. There is good access to talent and know-how here that can help them capture a massive market which is as big, if not bigger than India. On the other hand, I see significant interest from Singapore start-ups and investors in India as the local market matures. Needless to say, India is going to be one of the top three Internet markets, after all. I believe Singapore and Bangalore are going to be the twin sisters of the innovation and entrepreneurship in this region. We have been an early enabler of this positive momentum and continue to believe in its long-term potential.
How is the start-up ecosystem in India evolving? Is it easier to exit now? Where does the angel investor, venture capital and private equity support base or ecosystem in India stand when compared with countries such as the US, Singapore and Israel?
India is among the top five start-up ecosystems in the world, joining the ranks of the US, China and Israel with Singapore following India closely. This is on the basis of availability of talent, market and capital for start-ups. Having said that, capital formation in India is still lagging behind market conditions. Average seed round in India is less than $0.75 million, whereas a similar start-up in the US raises more than $1.3 million on an average to achieve product market fit. Moreover, intermediate rounds of funding are not as easily available if the firm needs some more runway, and they are often not able to raise their next institutional round. In the US, there is a well-developed supply chain of funding partners with specialized funds that do only post-seed and pre-series funding, secondary market transactions, venture debt financing and other alternative means to keep start-ups going in between major rounds.
The exit scenario in India will light up over the next five years in comparison. Until five years ago, India had only one $1 billion start-up—we probably now have 8-10 “unicorns" already, and more are being added every year. This trend is going to have a significant impact on the exit scenarios in India as these companies find ways to increase their market share or eliminate competition. Even in the US, there are more acquisitions being made by large tech companies than those made by traditional industries that are looking at getting a foothold in digital.
There has also been a major step-up in terms of the quality and nature of product companies from software hubs like Bangalore. We have already produced a few software product companies that are hundreds of millions in valuations and are well on track to becoming a major force in the software world. Trends such as cloud computing and mobility are changing how companies buy software, and India is well positioned to join the US and Israel in the ranks of countries that produce the best software companies in the world.
At Jungle, you invest in start-ups across the region. Where does India stand in your portfolio? Again, as you are approached by entrepreneurs from this region, where does investing in India fit in your overall strategy? Which are your current Indian investments? Which are the hot sectors that you are currently looking at?
India, Singapore and Malaysia are our top three markets in terms of finding teams that have the potential to be regional, if not global, category leaders. In India, we have been fortunate to be involved with companies such as ZipDial (Mobile Solutions Pvt. Ltd), Mobikon (Asia Pte. Ltd) and pokkt.com, where we have helped them realize the potential outside of India. We have dedicated operating partners with decades of operational experience across the region that handhold our founders in areas of hiring, marketing and strategy when they think about venturing out of India. Legal and fund-raising are other areas where we actively support our companies with full-time internal staff.
SAAS (software as a service) and mobile are two big areas where we are already seeing Indian start-ups creating world-class companies. We are bullish that we will pretty soon see a mobile-only start-up come out of India and dominate the entire Asia-Pacific market, if not global.
Why are many entrepreneurs graduating from accelerators struggling to raise the next round of funding? Is being an entrepreneur in India and, say, Asia far more difficult than in the US?
It is much harder to be an entrepreneur in India or Asia than it is in the US. Our markets are underdeveloped on all fronts—lack of capital, relatively inexperienced talent and, more importantly, lagging consumer behaviour—and I have a lot of respect for entrepreneurs who are building world-class companies despite these challenges. At Jungle, we look at capital formation and are hiring very seriously, and spend a lot of time helping our companies ensure they have the right capital and talent base to grow their companies faster.
Like everything else, accelerators in India and Asia are in their infancy and are yet to find their MVP (minimum viable product). I believe eventually they would need to specialize if they need to get the best entrepreneurs to come and work with them. I am not a long-term believer in the model of founders giving away 5-20% of their equity for $25,000 and some guidance on how to pitch to investors.
Can 4G propel innovation in India? Can it be a catalyst for more tech start-ups?
India will soon reach its mobile moment. It is already the fastest growing smartphone market in Asia, and it won’t be long before we will have a billion people fiddling with these fancy yet powerful computers in their hands. These hungry-for-entertainment-and-knowledge consumers are going to want all kinds of apps and content, and they are going to want it in real time. This will spur all kinds of opportunities for commerce. 4G and other aspects of telecom infrastructure are the basic building blocks of this digital economy and a poor foundation there will result in a broken experience for the consumer, which may put them off forever.
Are you buying the story of the e-commerce boom in India? Macquarie estimates the Indian e-commerce industry will cross $1 trillion by FY15.
According to some statistics, the Asia-Pacific is already the biggest b2c (business-to-consumer) market in the world. Moreover, Alibaba is valued at much more than both Amazon and eBay combined. Of course, we are not there yet in terms of Internet penetration across India, but I think we do have a potential to create bigger e-commerce stories in India. India has never had a major organized retail sector, and similar to how we skipped landlines and went straight to mobile phones, I see a majority of Indians having their first organized retail experience directly online. There are probably plenty of youth in SEC B and C cities that would not know Shoppers Stop but would have already made purchases online on Flipkart or EkStop.
Should India ease restrictions on foreign e-commerce platforms, allowing direct investors to establish a foothold in its online retail market?
The government needs to ensure and encourage participation from foreign partners that can not only provide much-needed capital but also bring in expertise that can help our companies become world class. I also see Indian corporates waking up to the potential here and stepping up their efforts with e-commerce investments and joint ventures.
India has academic incubators at the IITs (Indian Institutes of Technology) and IIMs (Indian Institutes of Management)—why have they not lived up to their potential? They have produced less than 50 successful start-ups.
I am not sure if this statistic is any better elsewhere. What was the last $1 billion start-up that came out of Stanford’s incubator if they have one at all? I think these institutes need to re-evaluate their role in the start-up supply chain as against their core strengths, or think about a PPP model to ensure their start-ups are going through the rigour of real market dynamics.
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