Posted on

The Road to Startup Exits – Think Next Roundtable Recap

$8B of venture investment went into Indian startups in 2015 alone! Four firms–Ola Cabs, Flipkart, Snapdeal, Paytm–accounted for 32% of these investments.  However, on the M&A side, things have been slow. Since 2011, there have been approximately 190 transactions valued at a total of $2.3B (about $11M per deal), placing India way behind the U.S., Israel, and other startup ecosystems.

I recently hosted a roundtable on M&A at Microsoft Ventures’ Think Next in Delhi, called “The Road to Startup Exits.” Our star panel consisted of Ashish Gupta(Helion Ventures), Deepak Gaur (SAIF Partners), and Abhishek Kumar (Snapdeal). Among a marquee audience of VCs, entrepreneurs, and senior execs from the industry, we discussed the present M&A scenario, its gaps, and the future.

Here is a glimpse of the insights generated during the panel:

  1. There is a slowdown in private markets globally, including in the U.S. and India. Valuations are expected to come down in 2016 and will cause grief for some investors, but the long term promise of India is in tact. In other words, there is no issue with fundamentally strong companies being built in India, but there is an issue with them being overvalued.
  2. This is a normal cycle for the startup/venture space: there will be several startups who will not survive the slowdown and will get integrated into other startups or corporates. A slowdown is actually good for the startups that survive – they can finally focus on getting their unit economics right, hiring the right talent and focus on what needs to be done to get to the next level. This also contributes to the ecosystem’s evolution, shaping the next waves of entrepreneurs and their offerings.
  3. Some recent examples of companies who had a solid team and business model, but that were unable to scale (subscale), are Qikwell (acquired by Practo for ~$50M), Exclusively (acquired by Myntra for their private label offerings), and Letsbuy (acquired by Flipkart). TaxiforSure’s (TFS) acquisition by Ola was about the power of financing–Ola had raised significantly more money than TFS, and at that point, TFS’s volume was still interesting for Ola and Uber, which justified Ola’s decision to acquire TFS.
  4. Large startups are more open to leveraging other startups and their offerings. For instance, Snapdeal has been a prolific acquirer of Indian startups (15-16 to date), primarily to plug their own gaps in terms of technologies, products or customers. For example, the product from Martmobi became the basis of Shopo, the C2C platform for Snapdeal. Freecharge was one of the fastest growing mobile wallets in the country and post-acquisition now has become Snapdeal’s payments business.
  5. Companies stay private much longer in the U.S. This will play out in India, too, and fewer companies will go for IPOs in coming years–and the ones who do might not consider doing it in India. The capacity of the India market to absorb large IPOs is restricted–there is limited float. Although regulations are becoming favourable, the India market today still has very stringent guidelines on public listing with very high levels of scrutiny and liability. Hence, listing a company in the U.S. is a lot more attractive, even for an Indian company.

In summary, 2016 is expected to see a slowdown in the funding space both globally and in India, which in-turn will drive an uptick in the number of M&A transactions as companies who are unable to raise their next financing round will seek an exit option.

Want to see the entire Think Next Roundtable? Watch it here:

Posted on

Baby steps to an Indian Microsoft

A country well known for its software services now has an opportunity to build world-beating software products.

At a recent corporate awards ceremony, Tata Consultancy Services (TCS) was crowned as the company of the year. Piyush Goyal, the Minister of State for Power, Coal and New & Renewable Energy hurriedly stepped up to the lectern after the award was given. He told the assembled glitterati that TCS had promised to give the All India Institute of Medical Sciences (AIIMS) a modern, nay, world-class hospital management system by March 31. In the tentative clapping that ensued I heard a big snort from my right. The scepticism of the gentleman sitting next to me was rooted in the belief gaining ground that bespoke software systems were outdated and presented a sub-optimal choice.

The predicament of enterprise technology clients stuck with archaic bespoke software systems is no longer common. Bespoke software systems fell out of favour 20 years ago. Firms switched en masse to on-premise enterprise software products. They were cheaper, easier to upgrade, and yet extensively tailored to their needs. This shift in the late 1990s created two sets of players: product vendors like SAP, and implementation consultants like IBM Global Services and Accenture. Soon, Indian IT services players like TCS, Infosys and Cognizant muscled into the game and grabbed considerable market share.

Lost in this success story is the narrative about Indian enterprise software product vendors. For instance, iFlex built a great enterprise software product for banks, which Oracle snapped up for a billion dollars in 2005. Kochi-based IBS is a leading product vendor for airports and airlines, and is now big enough for an IPO next year. PARAS, a hospital management product from Bangalore, is grabbing the industry limelight by winning global deals involving hundreds of hospitals.

If the Indian IT industry has benefited from the shift away from bespoke systems, why did AIIMS miss the bus? In general, why has our public sector been so slow to buy enterprise products? Government officials are not to blame for this. Unfortunately, our IT services firms became protectors of status quo in the government sector. While it helped them milk their fading bespoke systems for longer, it also created crumbling government systems and robbed the nascent product industry of a big market. Luckily, the new government has started fixing the issue.

The Growing Shism

Another breed of enterprise product vendors is emerging. Companies like Workday and Salesforce personify this new wave. They offer on-demand products. These require less customizations and work on cloud-based data centres. So, as Workday says on its website, they are a “fraction of the cost of upgrading from their incumbent vendors”. Naturally, customers love these new-generation products. They are called Software-as-a-Service (SaaS) products. And they are growing like wildfire.

A schism has opened up in the Indian IT industry over SaaS products. The implementation consultants don’t like them, as they need only minor adjustments. They look at them with a jaundiced eye of a traditional bespoke darzi [tailor] looking at readymade clothes. Going from stitching custom pants to doing length adjustments for readymade ones is a gloomy shift for IT services providers. But it’s a boon for our software product start-ups.

In fact, Indian SaaS product start-ups are on a roll. They are even getting begrudging respect from Silicon Valley. When ZenDesk, the SaaS market leader in customer service desk management products, did its roaring IPO earlier this year, it listed six key competitors in its SEC [US Securities and Exchange Commission] filing. Four of these – Kayako, Freshdesk, Supportbee and Tenmiles – are Indian! Indian SaaS product players are becoming global category leaders. Zoho, for instance, sells a CRM (customer relationship management) product at $12 per salesperson per month and is the market leader in this mid-market segment. It is flanked by Salesforce in the enterprise segment (at $60 per salesperson per month) and a raft of players, mostly Indian, in the SMB segment (at $3 to $4 per salesperson per month).

This availability of, say, CRM software product at every price point is a big new story in the IT industry. Unlike cars or smartphones, we have never had different software products to cater to every price segment. SaaS has changed this. As a result, everybody can now afford a software product. Hopefully, this time, government policy will build on this new generation and not let incumbents hold things back.

My Cup Runneth Over 

Two other pockets of explosive growth are exciting. One is the much-discussed rise of the digital consumer in India. This has led to the birth of Flipkart, Ola Cabs, Stayzilla, Newshunt and others. The other pocket is less sexy but it’s even bigger. It has to do with software infrastructure.

Old software infrastructure is being replaced at a pace previously unseen and is creating lots of product opportunities. Data explosion is driving endpoint data protection and governance products. Video explosion is driving dynamic ad insertion products. E-commerce growth is driving a new generation of search infrastructure products. Corporate mobile use is driving new agentless Bring-your own-Device security products. Social media is driving real-time social media analytics products. Now here is the punch line: in each of these categories, the emerging global leader is an Indian company! This is an unbelievably powerful development. For instance, Druva, a Pune-based start-up, is the global market leader in endpoint data protection and governance and is set to do an initial public offering in the US in 18 to 24 months.

Daring to Dream

Behind this optimistic turn of events is a new type of a technology entrepreneur. He (and, sadly, its mostly he so far) is unshackled from the restrictive dream of being the world’s back office. He doesn’t think in terms of labour arbitrage. He is a missionary, a creator and disruptor of status quo. And he has a blazing desire to change the world.

Team Indus embodies this spirit. This team is a motley group of passionate technologists that aims to land a robotic craft on the Moon by December 2015. This is literally a moon shot. Not altogether surprising to many of us, this team has emerged as one of the top three teams in the prestigious Google Lunar X-prize!

There are other moon shots in the works. Some are pivotal to developing our defence, aerospace and electronics industries. Others are about building highly affordable software products that will bring competitiveness to small businesses, teaching effectiveness to schools, productivity to health-care centres and new skills to farmers. Let’s not blow this chance. Let’s give these efforts the policy oxygen they deserve.

The country that gave zero, calculus, yoga and chess to the world is dreaming again. It wants to retake its rightful place in the world. It’s not satisfied being a back office for everybody. It dreams of powering the future with its ideas and inventions. It dreams of being a product nation!

This article was first published in Business Today

Posted on

iSPIRT Welcomes Product Circle Donors

The world has been witness to several movements that have changed the face of history. India is not alien to these – Mahatma Gandhi’s silent revolution that finally led to Indian Independence is a shining example. About 18 months ago, a group of software product entrepreneurs got together to charter a course that would make India a Product Nation. Today, those 30 early pioneers of iSPIRT are joined by 50 Product Circle Donors who represent a cross section of the software product industry and add weight to the cause of the industry.

These Product Circle Donors role model the industry. For instance, 60% of the company’s focus on Enterprise Software, 30% on B2C software and the remaining 10% focus on the SMB space in India. 55% target the US market, 30% India and around 15% on the Emerging markets. 60% companies are funded and around 40% are bootstrapped. 65% companies are SaaS based, 30% are On-Premise and 5% are using Tech to enable their business (like Ola Cabs, Taxiforsure, CommonFloor), 50% companies are at a growth stage… 40% are early stage and 10% are Hyper growth stage. The Software Product Companies represent Enterprise Mobility, Big Data, Cloud, analytics, Security, Heatlhcare, Elearning, Workflow, collaboration spaces.

This group of 80 is now small and niche enough, yet deep enough to champion the industry cause.

Though the intention was not to exclude (there may be many who are not part of the group), the invitation to join was designed to build the momentum slowly yet surely by including companies that have visibly demonstrated their zeal in championing the software product movement in the past. And these champions will certainly grow over a period of time. Rest assured, for those who still feel the urge to volunteer there is room for everyone! (email: [email protected] and become part of the movement).

Then, the question is often asked: Why handicap yourself by not having VCs, MNCs and Service Companies as Product Circle donors? We believe that Donors provide the financial muscle for iSPIRT to achieve its mission of making India a Product Nation. While we appreciate this contribution, there is a risk, albeit, a small one that donor clout can result in mission capture. We manage this risk in two ways. First, we ensure that we have a broad base of donors and no one company is a dominant donor. Second, we exclude categories of donors where future mission conflict can happen. For this reason we don’t have certain categories of donors on board.

Finally, while our steps are still baby ones, be assured our voice has been heard. Our resolve is even stronger with the 50 new Product Circle Donors on board. The time has come to join hands and redouble our efforts to make India truly a Product Nation.

As Anchor Volunteers for the Donor Campaign, we’d like to thank Sandeep Todi, Sanket Nadhani, Peter Yorke, Avinash Raghava, Harrshada Deshpande and Sagar Kogekar from BillBooks for pulling together the collateral and logistics for this.

Shekhar Kirani and Anand Deshpande
Anchor Volunteer for the Donor Campaign

Below is the Donor Campaign deck that the invited companies received: