This report will focus specifically on India of the APAC region. The country have gained an impressive, significant traction on its’ own, with crazy high VC valuations and a huge stream of startups that appeared in the past few years.
2015 proved to be an extremely successful year for India. By the end of December 2015, total funding came to approximately $7.7 billion across 760 funding rounds, almost doubling from 2014’s record of $4.7 billion across 383 rounds. It has been previously observed that the mega rounding funds in 2014 proved that India has a thriving startup scene. Leading eCommerce marketplaces of Flipkart and Snapdeal following the entry of Amazon.in, and late stage investments in Flipkart, Snapdeal, and taxi app Ola accounted for half of $4.7 billion.
The Indian government is also figuring out new ways to propagate more startups, and they have large interest in vastly improving the tech sector. Prime Minister Modi recently announced the Startup India Movement in January, a series of incentives which will help startups including a $1.5 billion fund and tax incentives for both the startups and their investors. In hopes to accelerate the still sluggish economy, they see the value tech startups bring to India so these efforts aim to add over a million to the workforce.
It’s wise for startups to take advantage of a country with a huge population of 1.2 billion. Even though internet penetration is at 19.19% of a total estimated 243 million users. Compared with other developed and developing countries that have up to 90% penetration, the number is expected to rapidly grow once mobile infrastructures appear in more rural areas. This is primarily why the Indian government is actively pushing for the Digital India, an initiative aiming to improve the country’s infrastructure and internet connectivity. This is also garnering large attention from large U.S. companies like Microsoft, Google, and Facebook have corporate interest to increase internet usage in Indian rural areas and competitively offer their services. The growth will definitely sustain due to the large percentage of the population subscribed to broadband Internet, burgeoning 3G internet users, and a recent introduction of 4G across the country.
In addition, IDC expects India to be the world’s second-largest smartphone market after the U.S. by 2017. The smartphone market in India is definitely explosive, as smartphone companies all offer affordable smartphones at $100 – $150 entry point prices, and some have opened their own manufacturing factories in India. The smartphone medium will prove to be the greatest catalyst for India. Given its’ current low internet penetration, the proliferation of cheap smartphones will increase in smartphone penetration, and increasing demand for Internet-based services such as chat, social media, video and music will accelerate growth in mobile Internet usage.
Delhi, Gurgaon, Mumbai, Bengaluru, Chennai are the cities that contain India’s startup ecosystems. With government intervention pushing for more internet connectivity, this will be a major push for more Indians to enter the tech industry. India’s startup scene is starting to take off and more and more companies are getting closer to achieve unicorn statuses. Startups are starting all over cities with different cultures, with challenges companies still face such as poor infrastructure, obtaining talent, obtaining property, and access to funding.
|City||Founded||# of Employees||VC Raised (M)||Market|
|Grofers||Gurgaon||2013||1k – 5k||$165.50||Grocery|
|Quikr||Mumbai||2008||1k – 5k||$346.00||Classified|
|Practo||Bengalore||2008||1k – 5k||$124.00||Saas, Healthcare|
|Pepperfry||Mumbai||2011||501 – 1k||$128.00||eCommerce|
|PolicyBazaar||Gurgaon||2008||501 – 1k||$69.60||FinTech|
|Hike||New Delhi||2012||$86.00||Mobile, Messaging|
|Manthan Systems||Bangalore||2003||501 – 1k||$56.70||Big Data Analytics|
|InMobi||Bangalore||2007||501 – 1k||$220.60||Mobile, Advertising|
|Antuit||Bangalore||2013||$59.90||Big Data, Analytics|
|Peppertap||Gurgaon||2014||1k – 5k||$51.20||eCommerce|
|iYogi||Gurgaon||2007||1k -5k||$85.60||Tech Support|
|ChargeBee||Chennai||2011||51 – 100||$6.20||Saas, Subscription|
|Delhivery||Gurgaon||2011||5k – 10k||$127.50||Logistics|
|BigBasket||Bangalore||2011||1k – 5k||$85.80||eCommerce|
Analysis of the 20 startups previously mentioned indicated several trends:
- All of the startups mentioned above offer services more so than products. India has an oversaturated market offering services across various verticals, whether it’s eCommerce or cab booking. Since developing a product usually requires some R&D and investment before any revenue or profits happen, service companies often turn a profit quickly within the first several years. Creating a startup for software services simply requires hiring a talent pool at a cheaper, market-competitive salary in India and “renting” them out to outside regions. This is mostly why India always had a strong IT infrastructure for the last 15 years. For Indian entrepreneurs, the labor pool is what defines opportunity cost – or the risk/reward ratio they are trying to beat. It appears that building a product is far too risky for Indian entrepreneurs, and they are chasing the VC dollars in the form of services instead.
- eCommerce is the most promising growth prospect, as many eCommerce startups helped India jump into the billion dollar unicorn club. Several Indian eCommerce startups that managed to achieve these valuations in 2015 were Flipkart, Snapdeal, Zomato, and Inmobi. India’s eCommerce market is expected to grow to $100 billion by 2020 with an estimated CAGR of 10%, which is more than half of the total funding this year just like in 2014. Online groceries are taking off the most in this sector, because they have finally worked out the supply and logistics chain in the areas they’re servicing. Being a customer centric startup, they have an effective supply chain management system with which they deliver groceries and daily needs on-demand and in a short period of time. Successful grocery startups such as Peppertap will face lots of competition as they try to scale up rapidly to including serving more Indian cities for an increased customer base.
- Transportation is also largely successful here, as cab aggregator startups are following the same pursuit as Uber, but with business models catering to India’s poorer infrastructure and taking advantage of the much cheaper labor force. Since intra-city commuting tends to be difficult, the cab booking space has brought a level of significantly better convenience. Following the unicorn success of Ola Cabs, Meru Cabs and TaxiForSure are enjoying high VC dollars.
- There have been lot of developments in digital health mainly due to the digitization of healthcare and patient records, and the creation of various discovery platforms for doctors and healthcare practitioners to serve the end-user. Indians getting adequate healthcare is an issue, as government spending on healthcare is about 1.1 percent of the country’s GDP, and a recommendation to raise that to 2.5 percent has yet to be implemented. This leaves the healthcare field wide open for a startups partnering with healthcare professionals and hospitals to offer a variety of services that is consumerizing healthcare. As more and more Indians are increasingly using the internet, they demand healthcare services and digital health startups are offering solutions that have not been in place before. Successful startups include doctor discovery and booking platform Practo and prescription delivery site Netmeds.
Venture capital is a critical component for India’s growth. Now that India is home to a billion dollar tech industry, the largest concern for VC funding in India mirrors closely to China. With valuations exceeding crazy high amounts, there are dangerous implications for these highly values. With VC dollars chasing the next startup that is most likely a clone of a previous success, some of these over-funded startups will destroy more value in the short-term than they will create.
For now, the clone model works extremely well for India as evident in the last few years. VC firms typically prefer to invest in companies developing a niche product/service, a driven and focused management team and a business model that looks scalable. Although the cloning model doesn’t work in Silicon Valley anymore, waves of brand new Indian startups are disrupting basic processes and systems for Indians and introducing them to a level of convenience never experienced before. Large Indian companies are disrupting how eCommerce, travel, transactions, cab booking, and traveling has been previously done in India before. The ideas “appear” as fresh and brand new, all thanks in part to following similar models of other successful commercial ideas and companies of larger regional markets. However, it is concerning for how long the model is going to last before there are way too many clone companies.
Since startups that offer services are oversaturating the market, startups offering products are far and few inbetween. Right now, most Indian entrepreneurs do not want to risk 2+ years building a product before introducing it to the market, make adjustments, and then possibly garner VC investments. There will definitely be a large number of challenges in terms of execution, funding and expansion even though startups try to clone a successful business model well ahead of others. As soon as a clone of Uber and Amazon is established in India, there will definitely be a window for newer startups to start bolstering more innovating products and services.
Developing a mature exit and a new innovative, completely original startups will be the best strategy for India. Since most startups tend to fail within the first several years, India’s new wave of startups face problems with access to funding or failing to prove their business model as successful. They also need to foster brand new, innovative ideas that are far outside the clone model. Few companies will dominate a specific sector, so clone modeling will not work anymore. India is riding the wave of huge success right now, but there might be a shift once realization sets that new startups must figure out a completely new business model.