ALL ABOARD IN INDIA’S FLOURISHING MARKET FOR AMBITIOUS START-UPS
It is a golden era for entrepreneurs in the world’s fastest-growing economy,
Siddharth Sharma owns a start-up in Noida in north India called ZipZapDeals, a consumer discount app for students, and the 25-year-old says it is a good time to be an entrepreneur in Asia’s third-biggest economy.
“I think the market has become more mature now – before it was just a bubble,” says Mr Sharma.
Start-ups are hitting new highs in terms of their valuations. Global investors are ploughing funds into the sector and culturally there is a greater acceptance of entrepreneurship in the country, inspiring Indians to try their hand at setting up the next potential billion-dollar company.
“The scene in India right now is pretty exciting,” says Ravi Jakhar, an investor in food, health and technology ventures, who this year launched an organic food company based on nutrition science called Truefarm Foods. “Ten years ago, we were only talking about IT start-ups, but now it cuts across everything, ranging from e-commerce to fitness to art.”
This trend is largely being driven by India’s expanding economy, rising disposable income and the technology boom. There has been a wave of entrepreneurs – from students quitting university to seasoned professionals giving up their jobs – trying to tap the market with new ventures. India’s GDP grew at 7.7 per cent in the first three months of this year, making it the world’s fastest-growing major economy.
“Everything is changing – the way we shop, the way we travel, the way we commute,” says Mr Jakhar. “This is why there’s a tremendous opportunity.”
The home-grown success stories of start-up ventures like Flipkart are adding to the attraction for future entrepreneurs as more of them jump on the start-up bandwagon, experts say.
In May US retail giant Walmart announced plans to buy a 77 per cent stake in Bangalore online shopping website Flipkart for $16 billion (Dh58.7bn). Flipkart started out in 2007 as an online bookseller, launched by two young Indian entrepreneurs Binny and Sachin Bansal, out of an apartment in Bangalore with just a few thousand dollars.
Binny Bansal thinks the deal is ground-breaking. It is “the dawn of a new era for India’s #StartUp ecosystem”, he wrote on Twitter after the transaction was announced.
Indian food delivery app start-up Swiggy proves his point. It has just become a $1bn company, after South Africa’s Naspers and investment house DST Global led a round of funding, feeding $210 million into the venture.
It is the second “unicorn” – commonly used terms for a company with a valuation of over $1bn – to emerge in India’s online food ordering space, alongside New Delhi-based Zomato, which received $150m from Chinese billionaire Jack Ma’s Ant Financial in February. Morgan Stanley earlier this year valued the firm at $2.5bn.
“Post the Flipkart deal, people have now started to realise that these are not just paper values,” says Bhaskar Majumdar, the managing partner at Unicorn India Ventures, a venture capital fund. “The muted valuations that were there have started to shoot up, primarily because people are realising India is one of those few markets where there’s still the possibility for large home runs.”
However, one look at the data on start-up funding in India, shows things have not been too rosy for this budding sector of the economy as far as the recent past is concerned.
Figures from Inc42, an Indian information platform, show that funding into the Indian start-up sector stood at $1.17bn in the first quarter of this year, down 50 per cent compared to the previous quarter, as investors have become more discerning and are not throwing money at any idea.
“Investors are more constrained and relying on sustainability metrics and profitability for making an investment,” according to Inc42.
However, seed stage funding has improved, according to the figures, with the number of deals up 43 per cent compared to the fourth quarter of last year. The FinTech and health tech segments are attracting the most interest from financiers, according to the firm.
Despite the overall funding decline, things are looking up for those with novel ideas that have the potential of commercial success.
“We are seeing an explosion in high-quality ideas among Indian start-ups,” says Shripati Acharya, the managing partner at Prime Venture Partners, a seed stage venture capital fund in Bangalore. “It is no surprise that the investor interest is getting stronger as well as seen from a number of new fund launches and participation in funding rounds from overseas funds and strategic investors.”
But what is being poured into start-ups is still a drop in the ocean and much more needs to be done in terms of funding in India for the sector to fulfil its potential. “While we see sufficient capital in the early stage, growth stage funding for mature startups is still inadequate as compared to the opportunity,” he says.
It helps that the likes of Softbank and Tencent have taken an interest and are now betting big on the success of Indian start-ups.
Japan’s Softbank has ploughed capital into homegrown tech companies in India, including Flipkart, mobile wallet company Paytm and the ride-hailing app Ola, with its investments into the country totalling more than $8bn in less than five years, according to figures from data analytics firm Tracxn.
India’s government has also thrown its weight behind the sector in India, with prime minister Narendra Modi in 2015 unveiling a campaign called Start-up India that includes a specific fund of funds.
Mr Jakharr explains that India has now become more supportive of entrepreneurship, whereas previously there was a more pressure for well-educated Indians to take conventional jobs and avoid risks.
“That’s been one of the key driving factors, the change in our societal values and how we value entrepreneurship in the country,” he says. “I remember when I passed out of my college in 2004, I was the only one ... to start a company and not appear for a job placement. But now there is a large number of people starting companies from college, so that’s a significant change.”
Ashwin Ramesh, 27, started an online marketing start-up called OrganicApex at the tender age of 14 when he was still at school. He made the company profitable by the time he was 18 and he dropped out of college to pursue entrepreneurship, setting up a firm enabling businesses to manage their online presence called Synup in Bangalore in 2014.
It has has been a tough journey – like most entrepreneurs he had to learn from his mistakes along the way – but he says there is a definite transition taking place in India’s start-up scene.
He raised a series A funding for Synup in September of $6m and his firm opened a New York office in December.
“I think the environment is extremely good to raise funds,” he says. “There is a general bullish environment right now because a lot of tech companies are starting to mature. If you look at India, the problem was a lot of money was being pumped in into sectors like e-commerce but we had a big graveyard of e-commerce companies that went nowhere. But recently interesting things are happening in the space and a lot more capital is getting deployed.”
Mr Ramesh says he does not know if this will last a long time, but he expects it to prevail for a couple of years, and he thinks aspiring entrepreneurs in India should take advantage while it lasts.
We are seeing an explosion in high-quality ideas. It is no surprise investor interest is getting stronger SHRIPATI ACHARYA Prime Venture Partners