Birth of new age product companies in Indian silicon valley

Birth of new age product companies in Indian silicon valley

The tech startup scene in India is at an impressive juncture. At present, the country has over 10,000 tech-startups and close to 8000 new ones are coming up every year. These are not just mad numbers, estimates indicate that even after provisioning for survival rates, the growth rate is an astonishing 25 – 30%.

There are several factors contributing to this growth in start-ups. The small number of startup companies right now make it a pretty young business eco-system. Culturally, Indians have been risk averse so the amount of competition is less than what is seen in either China or the US in this space. The one key sector that is competitive right now is the e-commerce sector, making all other verticals and domains ideal for pursuing startup options. Talent is relatively economical – The annual technology talent produced by India is close to a million. Further, the existing Indian regulations are business friendly, aiding the formation and sustenance of startups on an ongoing basis.

Global tech giants are lapping up Indian tech startups at very attractive prices

Book pad, whose enterprise software product allows the viewing, annotation and editing of any document (word, PPT, PDF etc.) from within a website or app, was acquired by Yahoo for a rumored value of US$ 15 million. Not bad for a three employee company which is only a year old. LittleEye labs, which built analysis and monitoring tools for mobile apps has been acquired by Facebook for a rumored sum of INR 93 Crore. Imperimium, a cyber-security startup has been bagged by Google for an undisclosed amount.

The top tier of Indian startups are already fetching valuations above 1 Billion dollars. Some of these top names and their valuations are as follows

• Information service, Just dial funded by Sequoia capital India, SAIF partners, Tiger Global and SAP ventures is valued at US$ 2 Billion
• Online retailer, Flipkart having investors like Sofina, Morgan Stanley, Dragoneer Investment group, Vulcan Capital, Tiger Global, Naspers Group and Accel partners has a valuation of around US$ 1.6 Billion
• Mobile advertising network InMobi invested by Mumbai Angels, KPCB, Sherpalo and Softbank is valued at over US$ 1 Billion
• Another online retailer Snapdeal with investors like Temasek, BlackRock Inc, Myriad, Premji Invest and Tybourne is also valued at US$ 1 Billion

In addition to these, many more startups are supposedly valued between US$ 1 million and 100 million.

SMAC – Social media, Mobility, Analytics and Cloud Computing is a key a focus area for the Indian start ups

The forces of Social media and Mobility are changing the way today’s digital consumers think, behave and expect services to be delivered. These new age technologies are putting tremendous pressure on business models. Knowing the consumer and reaching them, on demand and in a cost effective way is becoming seminal to business survival each passing day. IT is being consumerized like never before and increased agility has become an imperative within the enterprise and in the market. Analytics allows an understanding of consumer behavior and identification of potential trends in demand. Cloud computing can be the perfect vehicle for service delivery. These four enabling factors Social media, Mobility, Analytics and Cloud Computing or SMAC, in short, are predicted to be the prime enablers for business and technology in the years to come.

According to some estimates the global SMAC related revenue opportunity is going to be nearing US $ 1 trillion by 2020. Indian tech entrepreneurs are eager to have a piece of this pie and with the availability of serious technology talent at lucrative cost, incentives from the government and corporate involvement, the SMAC stack is going to be a key focus area.

The SMAC scene in India is heating up

Currently there are around 800 to 900 startup firms in India which are focused on solutions around SMAC . This shows an increase of 300 % in the last 9 years. They are predicted to grow to 2000 in 2015. The established players in the industry are also patronizing the start-ups in the SMAC space. Infosys has set up a US $ 100 million fund to invest in startups. In addition, several key IT services players are setting up business accelerators and innovation platforms that bring together startups, academic institutions, venture funds and clients. Tech Mahindra has established a US$ 50 million fund exclusively for global technology startups and has launched the i5 starnet initiative to hunt for SMAC companies¹

Implications for the VC community

The VC community is going to reap rich dividends from investing in start-ups because there is very little competition among the angel investors and VC’s for deals and this results in lower valuations for the Indian start-ups as compared to silicon valley.

Why Bangalore is going to be the hub

Bangalore has the highest number of tech startups in India. Being the IT hub, software development talent is quite abundant and this is very conducive for the product focused organizations. The city is at the fore front of accepting the startup culture as is evident from the fact that of the Four thousand odd applications that Nasscom received from startups under its Ten thousand startups initiative. Close to 23% percent (about 900) were from Bangalore.

The road ahead: cautious optimism

What we see right now is probably just the start. If the govt. policies remain conducive and corporate involvement does not sag, the current momentum will be sustained and we will see many more Indian startups. It might happen that we find the next Facebook, Twitter and Baidu in India itself.