Are there startups in India

Startups in India: On the way to the next big ecosystem

With almost 1.4 billion people worldwide, India is the country with the second largest population. India's potential is enormous, as the state is home to more than 460 million internet users - and at the same time has the largest number of people who are not yet connected to the internet. India is growing rapidly, with a GDP growth rate of consistently over 6 percent and a venture capital sector that is already the third largest in the world, just behind China and the US. Last but not least, the Indian startup scene is experiencing its Cambrian explosion with more than 5,000 startups in the tech sector alone and more than 20 unicorns.

+++ Asian Innovation Meetup on November 4th in the Talent Garden: Innovation in India +++

These astonishing developments have not gone unnoticed within Asia. Bofan Wu, editor of China 21st Century Business Review, once said: "India has developed many business models that are worth learning from for Chinese entrepreneurs." Comments like this put India in the focus of Chinese entrepreneurs and early on Investors. China is now the leading foreign investor in the Indian startup scene.

The rise of India was also noted by Masayoshi Son, founder of Japanese giant Softbank, who announced plans in 2014 to invest $ 10 billion in Indian startups over the next decade. Halfway after this time, this milestone had already been reached. In July 2019, Softbank announced that it would invest another two to four billion US dollars in India over the next two years. Overall, Softbank's investment strategy is industry-independent - but if we take a closer look at its investments, we see a preference for financial services and startups at the interface between online and offline trading, for example in marketplaces.

The focus of Indian startups: 60 percent B2C

While Chinese megatrends such as WeChat or China's AI ambitions are covered in detail in the western media, there is still relatively little coverage of the startup development in India. Possibly with the exception of Flipkart, whose $ 16 billion acquisition by Walmart made headlines in Western tech media earlier that year.

Depending on the methodology, the number of active startups in India is estimated at 5,000 to 10,000, 60 percent of them in B2C and the remaining 40 percent in B2B. Successful B2C startups focus primarily on food distribution, e-commerce, financial services, tourism and the hospitality industry. Successful B2B startups use cloud computing, AI, and large amounts of data to improve operational efficiency, track consumer habits, and minimize costs.

Growing middle class driving the startup ecosystem

Perhaps the biggest driver of the startup ecosystem has nothing to do with the startups themselves, but with the rapidly improving macroeconomic conditions, which brought firstly a rapid decline in poverty and secondly an emerging middle class. In addition, mobile internet usage has grown rapidly and will double to 700 million users within the next four years. In other words, the growth in mobile Internet users alone will be greater than the entire US population.

+++ Startup-Nation India: Delegation trip to India's tech hubs +++

This trend is reinforced by the fact that the costs for mobile data tariffs in India are falling exorbitantly; according to a recent study by McKinsey, the tariffs fell by 90 percent from 2013 to 2019. This is mainly thanks to Jio, a new mobile operator that massively undercuts existing market participants and gives away smartphones with a contract practically free of charge.

However, not all trends are market and macroeconomic. When the government carried out large-scale banknote monetization in 2016, it accelerated the development and adoption of internet payments across India. One of the main contributors to this development was Paytm, whose user numbers have grown by 20 million in just five weeks. Today, Paytm is India's largest internet payment company with more than 350 million users and is often referred to as the Indian version of Alipay.

Key people in the Indian startup ecosystem

When we talk about the international key players GAFA and some well-known investors like Y Combinator and Andreessen Horowitz, we inevitably have the USA in mind. In China, this role is taken over by BAT (Baidu, Ali Baba and Tencent) and many dedicated entrepreneurs who regularly give birth to unicorns. India, on the other hand, is an ecosystem that is well on its way to market maturity.

In the following table I have put together a cheat sheet about Indian unicorns, in which the Chinese and US counterparts, as well as the financing of the Indian unicorns, are shown.

In contrast to the Chinese government, which decides on the national key industries for future growth, the Indian government is more similar to the US and Europe in taking a supportive approach to individual industries. For an up-and-coming economy, the Indian market and investment landscape is surprisingly open to foreign market participants and has very few barriers to entry. As a result, India could be the only market where Google, Facebook, Amazon, China's Xiaomi, Alibaba and some South Korean internet companies co-exist.

Investors in the Indian startup ecosystem

In the past, major investors in India could be divided into three categories:

  • US dollar funds such as Sequoia Capital, Tiger Fund, Accel Partners, etc.
  • Local funds like Kalaari Capital
  • Japanese investors such as Softbank and other Japanese companies that have worked in the Indian market for many years.

The Chinese capital inflow started late but has grown exponentially in recent years. A total of $ 5.6 billion was invested in 2018, putting Chinese investors ahead of US and Japanese investors for the first time.

Skilled workers from India

Both Indian and Chinese talent are known to hold the top positions in US elite universities and the engineering ranks of GAFA. About 10 years ago, Chinese local governments began to actively engage with the Chinese overseas and find ways to lure them back home. What started slowly has now become a strong trend, both due to the rapid economic development and current political reasons. The termination and partial reversal of the brain drain is often cited as one of the most important factors for the rapid development of the Chinese ecosystem. Top talents who have studied abroad and spent the first few years of their careers in Silicon Valley are returning to China as investors, founders, managers and researchers. They apply their insights from the US startup ecosystem to China.

+++ “go international” initiative extended +++

How is India doing in this regard? According to a report by INSEAD Business School, in partnership with Tata Communications and the Adecco Group, the biggest challenge India faces is improving its ability to attract and retain skilled workers. Finding high quality employees remains a key issue for Indian companies of all sizes, with tight budgets being the biggest challenge. Under the circumstances, some Indian companies decided to use the technical team in China to recruit Chinese engineers to provide remote technical support.

Government support: from startup programs to digital ID

In May 2014, Prime Minister Narendra Modi started his political reforms and presented the Digital India project. In 2015, the Modi government launched the Make in India program. On January 16, 2016, Modi officially announced the “Startup India and Stand-up India” program. The Indian government invested $ 1.5 billion to support the Indian edition of Mass Entrepreneurship and Innovation, which is similar to a similar 2015 Chinese government program.

In 2017, the Indian federal government relaxed the rules and restrictions on foreign investment. Because the Indian government has recognized the importance of the Indian startup ecosystem - it is intended to attract foreign direct investment, create jobs and increase the productivity of Indian industry.

Driven by the “Digital India” program, India has built the world's largest biometric ID system based on the Aadhaar card, including name, address, date of birth, gender, mobile phone numbers / email and fingerprints, iris scan information, photo image, etc. Aadhaar is not just a pure ID number, but is also tied to a personal mobile phone SIM card and a bank account. The state transfers pensions, subsidies and other direct benefits to citizens according to the associated accounts. Individuals can register with the "Unified Payment Platform UPI" via the Aadhaar account.

In addition, the Indian government adapted Aadhaar to introduce a biometric time and attendance system to check for delays and absences of government employees.

Conclusion

The Indian ecosystem has made tremendous strides in a short period of time, and we are already seeing Indian startups expanding overseas. For the next wave of startups, we can expect that Indian technology-driven companies will emerge in the near future that will emulate international giants such as Huawei, Xiaomi or Apple.

On November 4th, 2019, a meetup on the subject of "Innovation in India" will take place in the Talent Garden Vienna. Registration under this link.


About the columnist: Ting Wasner-Lian, MBA

Ting founded her first company, a real estate portal, in China immediately after graduating. She then worked in the real estate and architecture business in many functions such as strategy and business development. In 2007 she switched to an Austrian management consultancy, where she was responsible for setting up the Asian business operations. She has an MBA in Entrepreneurship & Innovation from WU Vienna and has lived and worked in China, Japan and Austria for 12 years. In 2018 she founded SE Incubator and became an independent consultant with a strong focus on Chinese innovations and market trends. She is also co-organizer of the Asian Innovation Meetup Vienna.