India is still way behind China in addressing a large domestic market, but has started to scale up its tech entrepreneur presence in global markets
Apart from access to markets, availability of risk capital is at an early stage
Raju Reddy has been a prominent backer of Indian startups ever since he sold his company Sierra Atlantic to Hitachi Consulting in December 2010. He’s particularly fascinated by entrepreneurs building tech products in India for global markets.
What warms Reddy’s heart is when entrepreneurs who’ve tasted early success look at the bigger picture. Flutura co-founder Derick Jose and a few others recently got together to form a consortium that aims to make Bengaluru among the top three hubs worldwide for industrial artificial intelligence (AI) startups. They’ve roped in backers like Reddy as well as global venture capitalists and corporations. “It’s wonderful to see they’re not just building something cool but doing much more to build the ecosystem in India," says Reddy.
He has a good vantage point to observe the India-to-global story unfold as a mentor and angel investor in the Bay Area and India. He says India is in a unique position to combine the best of China and Israel, coming closest to a startup ecosystem like the US.
True to his roots as an engineer whose first job was with Intel, Reddy makes his point in terms of X and Y axes. The X-axis measures startups scaling in domestic markets, while the Y-axis shows startups scaling up in global markets.
“China is far right along the X-axis. It has very large companies valued at over $100 billion, but very few that have got much traction outside China in the tech entrepreneur world," says Reddy. “Israel would be along the Y-axis, but there’s not much of a domestic market with only a nine million population. The US is somewhere on the far right corner."
STRUGGLE WITH SALES
India is still way behind China in addressing a large domestic market, but has started to scale up its tech entrepreneur presence in global markets. A number of companies have scaled well past the $50 million revenue mark. SaaS companies Zoho, Freshworks and Druva, for example. But some deep tech winners have begun to emerge, like Grey Orange, in robotics. “Now there’s a whole range of companies behind that, probably another 20 to 30 growing very rapidly across different segments of India-to-global product companies," says Reddy, the earliest backer of Grey Orange.
From robotics and space tech to industrial AI, these startups have the specialized tech prowess to match the best from the Valley and Israel. What they struggle with is sales. In the big industrial marketplaces of the US, Germany and Japan, India is not perceived as a cluster from which robotic or sensor AI startups come. A few deep tech startup founders have formed the consortium, which had preliminary meetings in Bengaluru with corporations such as ABB and Honeywell participating. It widens the scope to leverage one another’s networks, with support from the Indian diaspora. The next step will be to showcase industrial AI out of India at events in the US and Europe.
Bay Area entrepreneur, investor and mentor Malvika Bawri hopes the consortium will help young startups tell the India story better. “I’ve interacted with many Bay Area startups who’re really confident. Even if they’re carrying coal to Newcastle, they’ll make you believe it’s premium coal," she says. “They crystallize their value proposition in 120 seconds. In India, we tend to get verbose."
Apart from access to markets, availability of risk capital is at an early stage. Only three Indian industrial AI/IoT startups have raised more than $10 million, with the highest being $17 million, according to data tracker Tracxn. Compare that with the top US startups in this space, like C3, which have received hundreds of millions of dollars in funding.
Early stage Indian funds like Blume, Axilor and Pi Ventures have been seeding startups, but global venture capitalists (VCs) are starting to follow up with larger cheques. Singapore-based Vertex Ventures is in the process of closing a new fund of over $300 million focused on India and South-East Asia.
“Tech companies built in India for global markets, where the R&D is in India but customer base outside, will be one of the investment themes for the new fund," says Ben Mathias, managing partner of Vertex Ventures.
Despite challenges of going to market and finding venture capital, Bengaluru has the base to compete with Israel and China in becoming an industrial AI hub.
Thanks to spin-offs from homegrown space and nuclear programmes, Bengaluru has a critical mass of instrumentation and controls skills which, combined with digital and AI skills, can power autonomous operations in industries. Not many hubs around the world have this combination of deep tech and engineering talent.
Malavika Velayanikal is a contributing editor with Mint. Write to her at email@example.com