Tucked away deep inside IIT Bombay’s soothing green campus is the SINE (Society for Innovation and Entrepreneurship), more endearingly called the ‘crèche’. Right now, a lot many eager ideas and hopes are being nurtured here, some of which provide a sense of urgency to the place. SINE is one of 20-odd incubators that are nurturing about 100 technology startups across India at present, and so far we’ve uncovered just a few inches of a rather interesting canvas.
Another estimated 1,400 startups are giving shape to ideas born inside R&D labs run by technology multinationals, management school classrooms, shop floors of Indian IT services giants and some transported all the way from Silicon Valley by returning Indian tech workers. We find them everywhere — Delhi, Mumbai, Hyderabad, Bangalore, Chennai and Pune. The evidence suggests that something big and exciting is underway: India appears to be on the threshold of a technology entrepreneurship resurgence — one that in many respects is vastly different from its predecessor, the ill-fated ‘dotcom’ era.
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In Bangalore, 250 new startups have sprung up since January. TiE’s (The Indus Entrepreneurs’) Bangalore and Mumbai chapters have seen a spurt in attendance at their events. “Suddenly, we’re running out of seats. Six months ago, it was difficult to fill even 20,” says Sridhar Mitta, who heads TiE Bangalore. IIM Bangalore’s entrepreneur club has had similar experiences. “Membership has jumped significantly in the last 12 months,” says Kalyani Gandhi, head of the Nadathur S. Raghavan Centre for Entrepreneurial Learning (NSRCEL). IIT Madras is incubating six new startups. And back in Mumbai, SINE is incubating 16, the highest it has seen since 1999-2000.
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We also discover a heartening development — social networking among entrepreneurs, investors and customers, Silicon Valley style. BarCamps — a phenomenon that originated in Palo Alto, California, around mid-2005, to get techies to share ideas in an environment sans the strictures of a formal conference — now frequent most Indian metros (see ‘Raising The Bar’ on page 40). Business plan contests and mentoring camps have also taken off. This February, TiE and Menlo Park-based Draper Fisher Jurvetson (DFJ) hosted the India Venture Challenge, which saw 125 first-generation entrepreneurs participate. The $150,000 grand prize was split between Vegayan Systems (Mumbai) and NCE Technologies (Bangalore).
A second group of people has now joined the party: venture capitalists (VCs). Danish tech investor Morten Lund, who was one of the seed investors in Luxembourg-based Skype — the startup that turned the long-distance calling business on its head by developing an application that allowed PC-to-PC voice calls — is backing a $150-million Europe-India fund called Amaya Ventures. It will invest in early to growth stage tech companies. Next is Silicon Valley’s most successful VC in 2005 — DFJ founder Timothy C. Draper. He’s raising a $200-million India fund for tech startups. Boston-based Matrix Partners has just set up a $150-million India fund and Palo Alto-based Sutter Hill Ventures is a key sponsor of the $140-million Helion Ventures that debuted this August in Bangalore. Then come the Silicon Valley entrepreneur-investors. Kanwal Rekhi is raising a $150-million fund called Inventus, and Vinod Dham and Vani Kola are heading a $150-million US-India fund of New Enterprise Associates (NEA).
More than 44 US-based VCs are said to be lining up direct and indirect funds for India, says recent industry research. The money that is likely to come in is estimated at over $2 billion. A good part of this will be seed-to-early stage money. The actual investment numbers don’t as yet match the startup numbers. In 2005, VC and angel investors put in $115 million in 20 tech startups, says research firm Venture Intelligence. But there has been a gradual improvement. In 2004, investments were at $82 million in 13 companies. The first six months of 2006 have already seen 25 deals worth $78 million. The higher number of deals implies that VCs are doing more early-stage deals in the $250,000-$1 million bracket.
While the action seems to have hit fever pitch in the past nine months, the actual build-up is at least three years old. Since early 2003, three powerful forces have been working in parallel. First, changes in marketplace dynamics; second, shifts in global VC investment patterns; and third, the emergence of entrepreneurs who have the winning combination of patience and tenacity to go the distance. In the past nine months, these three forces have started converging rather swiftly. That has turned the buzz into a steady drone.
We’ll take a moment here to ask a question: Will the convergence that is underway put India on the map as the next big nerve centre for technology innovation, a la Silicon Valley?
Silicon Valley East
The answer to that question rests with two primary actors — the entrepreneurs and venture capitalists. Not since the dotcom boom has India seen such a frenzy in terms of new companies being formed and greenbacks being lined up to fund them. In the past nine months alone, roughly 1,000 startups have sprung up across the country. Out of these, an estimated 50 have roped in funding of some sort. If you compare like to like, the numbers are nowhere close to those in the dotcom era — 5,000 startups roped in some $2.2 billion in funding between 1999 and early 2001. This is only the beginning of the differences between the two eras — a factor that could make all the difference to the fate of the current one.
Most folks who lived through the 1999-2001 era recall it with a degree of bitterness. But on the flip side, the bust was the best thing that happened to technology entrepreneurship in India. It laid the ground for the emergence of a more resilient bunch of entrepreneurs. And in the three-year nuclear winter that followed, some interesting business models have emerged around opportunities that had either taken a back seat or had not been explored at all due to the Internet hype.
This brings up the first big difference from the dotcom era. While that phase saw innovation mostly around one opportunity, the Internet, this time it is spread across six — consumer Internet, semiconductors, gaming and animation, wireless communication, SaaS (software-as-a-service), and telecom and software products. The diversity helps in a couple of ways. One, each segment is at a different stage of maturity and the business models are still being defined. That gives entrepreneurs more space to innovate. Take semiconductors — much of the work centres around back-end chip design. Example: the chip that runs Apple’s iPod was fine-tuned by Hyderabad-based Pinexe Systems. The chip itself was manufactured in Taiwan because India does not have a manufacturing base yet. Companies like inSilica and MosChip are betting on this space. Second, since some segments are more nascent than others, it lengthens the period of innovation, making this resurgence more sustainable. The odds for throwing up world-class technology leaders are, therefore, that much higher.
We picked three areas that already have the potential to produce winners — consumer Internet, wireless communications and SaaS. Over the past couple of years, these segments have experienced one big change — the emergence of a large and growing domestic market. Take the consumer Internet space. In the past six years, India’s Internet user base has jumped from 1 million to over 35 million on the back of increased broadband penetration and PC usage. In the near future, most Indians may access the Internet from their mobile phones. This implies a combined Internet user base of over 150 million. Service providers like Airtel and Hutch have started offering subscribers value-added services that enable even banking transactions on mobiles using the Internet.
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