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Indian Regulator SEBI meets Software Product Startups.

How often has this happened? An entire team from Securities and Exchange Board of India (SEBI) with its Chairman Mr. U.K. Sinha meeting with Software Product startups in Bangalore to understand their challenges and also provide useful advice by participating in interactive sessions for more than 5 hours.

On 19th December, Mr. U.K. Sinha, Chairman of SEBI and his management team, heard the stories of 8 Indian software product startups. The idea was to understand both the Capital Markets Challenges (like raising capital from FIIs, listing for IPOs, and other book building challenges) as well new developing landscape of Consumer Market Challenges (like changing landscape of payments, pre-payments, recurring payments, etc.)

Mr. U.K. Sinha, was very forthcoming with his admission that new age companies require a completely new paradigm of evaluation and approvals. The new paradigm is needed not just for listing purposes, but also for market regulation and growth purposes. He assured full commitment from SEBI’s end to the budding entrepreneurs that SEBI is very keen, and will do everything within its capacity to help develop the markets keeping in mind INDIA’s growth needs.

More than 90 minutes of conversation and showcasing of New Software Product Startups from Bangalore took place. Mohandas Pai chaired the sessions on iSPIRT’s side. Not all elements of the sessions can be reproduced here; below are some of the key highlights.

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Home grown Startups share their Stories with SEBI

About 8 Indian Startups which started in INDIA, and which have global operations today, presented their stories not just from a valuation and growth standpoint, but from an emotional and proud-to-be an Indian startup viewpoint. To sum it up, almost every story was about Entrepreneurs who dared to dream something not only for them, but for INDIA, and today want the Indian System (Regulators, Government and Institutions) to reciprocate to their needs. They highlighted their list of issues which include the following:

  • 8 companies from various sectors (InMobi’s Manish Dugar, Ezetap’s Byas, Exotel’s Shiv Ku, HotelLogix’s Aditya, iViz’s Bikash, Paytm’s Pratyush, QuickHeal’s Rajesh and Deck.in‘s Sumanth) all presenting the journey of their startups.
  • A common hardship that resonated from most of them, was the unwarranted need of setting up subsidiaries or parent companies abroad, just to attract the right Investors and raise capital for growth.
  • Exemplary companies like InMobi, which raised initial money from Angel Investors today has a reach of about 1 billion people. Ezetap which raised initial money from AngelPrime, today has global operations, however it has its manufacturing, done entirely from Electronic city in Bangalore. Both urged that it should be made easy for Indian companies to raise money from Global Investors.
  • The existing regulations and guidelines make it very difficult for companies to get the right people (investors and advisors) on their Board.
  • Exotel, Hotelogix, Paytm and iViz, all stressed the need for modifying the SEBI/RBI guidelines on ESCROW, where Indian shareholders should have similar opportunities like Global Investors.
  • QuickHeal’s Rajesh highlighted how Kailash Katkar, a college drop-out had built one the most successful product companies out of INDIA over the past 25 years. Today QuickHeal is thinking of its IPO and needs to decide where to list.
  • Requirement for the Regulator to understand all stake-holders and their motivations, and provide for fast and timely intervention for Exits (IPO listings, etc.).
  • Need for new models to evaluate the new paradigm of Tech/Internet Product startups in INDIA.

At the end of this open session, Shekhar Kirani (iSPIRT Fellow; Accel) highlighted the fact that the Indian software product markets were entering an era of hyper growth. It is a new paradigm where not just startups, but all Institutional bodies within India, need to now collaborate and commit, for supporting each other’s need. In this context, he appreciated the interest shown by SEBI.

Policy Expert Team Interacts with SEBI

Following this open session, the visiting SEBI team met with iSPIRT’s “List in India” Policy Expert Team for an intense three hour closed door conversation about specific issues and their resolution. This iSPIRT Policy Expert Team is led by Sudhir Sethi of IDG and has Rajiv Khaitan (Khaitan & Co.), Sanjay Khan (Khaitan & Co.), R Natarajan (Helion), Rajesh Ghonasgi (Quick Heal CFO), Manish Dugar (InMobi CFO) and Harish HV (Grant Thornton) as its members. While specific details of this meeting are not available, Mohandas Pai told me that the session had been very productive.

Insights from SEBI

Mr. U.K Sinha, Chairman of SEBI, has an unbeatable track-record. In his past life, he was the chairman of UTI, and was instrumental in transforming UTI from a 1.2k crore institution to 12k crore institution. Many insights were shared by Mr. Sinha with all the participating Startup Entrepreneurs. Some of the key ones are:

  • Mr. Sinha and his team gracefully acknowledged that they were not just a Controller or Monitor of Capital issues, but they were equally keen to Develop Markets for businesses to thrive.
  • Further, Mr. Sinha highlighted the introduction of SME-ITP platform to facilitate capital raising by SMEs including start-ups which are in their early stages of growth and to provide for easier exit options for informed investors like angel investors, VCFs and PEs etc.
  • He also indicated that SEBI is exploring putting in place a framework for crowd-funding which will provide a much needed new mode of financing for start-ups and SME sector and increase flow of credit to SMEs and other users in the real economy. In this mode, SMEs and start-ups will be able to raise funds at a lower cost of capital without going through rigorous procedures.
  • It was indicated that SEBI is keen to facilitate capital raising by such companies to help them achieve their full potential.

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New Wind is Blowing

I saw a collaborative approach to problem solving that I haven’t seen before. iSPIRT’s policy approach is refreshing different from the traditional lobbying mindset that one sees in trade bodies. And SEBI is clearly open to listening and learning. It was amazing to see how SEBI as a regulator and iSPIRT as a think tank were both focused on the same national goal. I came away from the meeting with optimism and a spring in my step.

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This Fourth Wave of Indian Enterprise Software Startups is World-Class

India’s enterprise software industry has been slowly bubbling since the 1980s but has generally failed to deliver a large number of high impact, high value companies.  We do have some companies that everybody talks about – iFlex, Tally, Zoho – but these are far and few between. I believe that we are seeing a new scalable wave of enterprise software companies coming out of India and there is a potential to deliver several high impact companies over the next decade.  Here at Lightspeed Venture Partners, leveraging our global strength in enterprise technologies, we see opportunities to partner with companies that are cloud-native and have cracked a global market – examples of current active categories in India are CRM, analytics/big data, marketing automation and infrastructure.

India’s enterprise software industry has to be looked at separately from the outsourcing/BPO firms like Genpact, Cognizant, Tata Consulting Services and Infosys.  Starting in the 1980s and early 1990s, this services industry is now mature and at scale.

Separate from the outsourcing/BPO industry, India’s enterprise software industry (or “products” as it is called by many here in India) has evolved from the 1980s to now in what I think can be divided into four waves, coinciding somewhat with three trends: 1) enterprise software moving from desktop to client-server to cloud; 2) evolution of Indian industry post 1991 liberalization; and 3) increased experience of Indians at successful US product companies.

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WAVE 1

Tally-

The first wave of software products came along in the late 1980s/early 1990s – the focus was desktop products for business accounting.  Companies in this wave include Tally Solutions (still the undisputed leader in SME accounting software in India), Instaplan, Muneemji and Easy Accounting.

WAVE 2

Infosys-finacle ramco  5I-flex_Solutions_logo.svg G _institute_Newgen Logo

This generation of software products emerged in the 1990s as projects within outsourcing firms or from internal services arms of larger corporates. Infosys launched Finacle. Ramco Systems launched its ERP. And Citibank launched CITIL which became i-Flex.  Other notable companies included 3i Infotech, Cranes Software, Kale Consultants, Newgen Software, Polaris Financial Technologies,Srishti Software and Subex.

I remember attending CEBIT in Hanover in 1989 when many of these Indian software and consulting companies were first introduced to Europe.

The late 1990s saw a wavelet of ASP (application service provider) startups in India, most of which got crushed after the dotcom bust.

WAVE 3

eka-nexus-funding-147zycus-logo Manthan-Systems-Logo talisma logo

The 2000s saw on-premise India-first companies such as Drishti-Soft, Eka Software, Employwise, iCreate Software, iViz, Manthan Systems, Quick Heal Technologies, Talisma (for which I did some initial product management work while at Aditi Technologies) and Zycus get started.  This was the era of 8-10% GDP growth in India which lasted till about 2010.  Many of these companies had a direct sales model. After India, they generally expanded into the global South (Africa, Middle East, SE Asia, Latin America) where they found similar customer requirements and little competition from Western software companies.  Bootstrapped in their earlier years, some of these companies grew over several years and have broken through to $25 million+ in annual revenue.  Key verticals have traditionally been BFSI (banking, financial services and insurance), telecom, retail/FMCG (fast-moving consumer goods aka CPG in the US) and outsourcing/BPO.

Having been around for over a decade, some of these companies generally face the challenge of migrating to the cloud, upgrading user experience to modern Web 2.0 levels, and expanding addressable markets beyond the global South to the US and Europe.  We have seen some of these companies get venture funded, typically at much later stages in their go-to-market relative to US-based software companies.  Several of these companies have received funding in the past couple of years, ostensibly to “go international” and “go cloud,” not an easy task, especially when done together.

WAVE 4

Starting in around 2010, a new wave of cloud-native companies were launched, perhaps following the slowdown in India’s economy and the growth/acceptance of SaaS as a delivery model and as a sales model in the US.  These companies have grown and now could power beyond the $10M/year revenue glass ceiling.  The reason for the scale potential being higher for this cloud-native wave is the cracking of efficient online sales channels to reach markets globally.

Why this decade? Because there is an increased willingness of companies around the world to search for and buy software products online.  There is now a large pool of founders who have worked at global enterprise product companies (e.g. Indian offshore development centers or in Silicon Valley itself with companies like SAP, Oracle, Google, Microsoft, Adobe) and have experience in product management, marketing and sales.  And finally, there has been a dramatic reduction in the capital required to bootstrap enterprise software companies.  Everybody uses AWS and software from other startups to get started. It’s quite meta.

Wave 4 companies have the opportunity to break through the barriers that previously relegated Indian enterprise software companies to selling to the global South. We have seen Atlassian (Australia), Zendesk (Denmark) and Outbrain (Israel) do this move to Western or global markets.  Zoho is an Indian company that is rumored to be at $100 million per year revenue scale – they have been part of many of the waves I have described.

This cloud-native wave, I believe, can be divided into two dimensions. One dimension is the platform/tools companies versus workflow automation (applications) companies. The other dimension is India-first companies versus the global-first companies.  We see opportunities in all four quadrants, each having its own challenges.  We are interested in looking at companies in all these segments, with a bias toward companies which have reached some scale ($1M ARR) and are going after large addressable markets with aggressive sales & marketing execution.

Fourth Wave

 [Please note this is not a comprehensive list of companies nor a view on which companies we admire or not]

Global-first companies coming out of India have started to crack or have cracked the online sales model, using SEO, SEM, content marketing and telesales.  They are typically going after mature segments where buyers are typing keywords into Google at a high rate. This online selling model results in an SMB and mid-market customer base.  In many cases, founders may have to move to the US to enterprise sales.  It’s worth noting that scale markets are not necessarily all in the US – companies could get built with a general global diffusion of customers, perhaps with help from resellers.

I see India-first companies typically going after newer high-growth companies in India (e.g. ecommerce, retail) and startups.  Some go after Indian arms of multinationals (MNCs).  This is a reasonable early adopter market to cut a product’s teeth on, but has limited ability to scale.  Of the newer crop of India-first companies, very few go after large enterprises in India – there are exceptions like Peelworks and Wooqer.  The model here generally is SaaS as a delivery model but not SaaS as a sales model (ie direct sales, not self-service).  Many software companies are essentially verticalized.

We continue to see a few high-ticket, high touch direct sales enterprise software companies which are global-first, including companies like Cloudbyte, Druva,Indix, Sirion Labs and Vaultize. Many of these start out with teams in both Silicon Valley and India or transplant themselves to the Valley over time.  I think this will continue to happen but we will not see the explosion here that we are seeing in the number of companies utilizing low touch online sales models.  I see several high-impact companies coming out of these direct sales enterprise software startups as well.

I think this dichotomy between India-first and global-first companies is interesting and makes India a distinctly different type of investment geography, different from Israel (which has very small domestic market where tech companies move to the US very quickly), different from China (which mostly has domestic market focused startups and very little enterprise software) and different from the US (which is primarily domestic-focused in $500B enterprise tech industry in the early years of most startups). In terms of investor and founder interest, the pendulum may also swing back and forth between these two models as the Indian economy grows, sometimes at high speed, sometimes at a snails pace.

[With input from the team at iSPIRT and several of the companies mentioned above].

Reblogged from YourStory & LightSpeed Venture Partners blog.

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Q&A with Cloud-Based Application Penetration Testing Company iViZ Security

iViZ Security “takes ethical hacking to the cloud,” says Bikash Barai, its co-founder, CEO and director. Currently iViZ focuses on cloud-based penetration testing services for Web applications. He shares insights for other entrepreneurs about lessons learned in finding a market and growing a startup. This article is brought to SandHill readers in partnership with ProductNation. 

SandHill.com:  Please describe your product and your market. 

Bikash Barai: We provide application security testing in the cloud. The idea is to hack yourself before others do. We figure out the flaws and also provide the recommendation to fix them. We conduct tests so that you can protect your website from hacking attacks like cross-site scripting, XSS, business logic flaws and many others.

Our solution is beneficial not just from the perspective of security/business continuity but also for compliance with PCI, SOX, HIPAA, etc. Today for any company doing serious business, it is mandatory to conduct such tests.

We primarily focus on verticals like banking/insurance, online/ecommerce and manufacturing. Basically anybody who has an online application that is critical for running their business finds us useful. 

SandHill.com: Please describe your product’s differentiation and how it provides business value for your customers. 

Bikash Barai: Let me first talk about the customer problem before I get into the differentiation. If you have to conduct a penetration testing/security testing, there are a couple of conventional options. One is that you buy tools and the other to hire consultants. The tools throw a lot of false positives (vulnerabilities that are not true) and also cannot detect advanced business logic vulnerabilities. So you need to hire an expert who will have to augment these gaps manually. But the biggest problem is to hire enough good guys and retain them. On the other hand consultants are costly, non-scalable, time-consuming and also not flexible to work during non-business hours.

Our differentiation is that, unlike any other competing products, we provide advanced business logic testing by leveraging our patent-pending “hybrid approach” that integrates automation with manual testing by security experts. So you need not buy tools or hire people/consultants. Unlike consultants, you can test anytime, anywhere. For organizations that make frequent changes in their applications, we provide unlimited testing at a flat fee.

SandHill.com: How did your company originate — what inspired you to launch the company and what was the original vision/hope? 

Bikash Barai: While studying at IIT (Indian Institute of Technology), I approached Nilanjan De (the current CTO of iViZ) for collaborating on a possible venture on ethical hacking. We made the decision in our hostel room. And that’s how the company was born.

While conducting a conventional penetration testing exercise, it dawned on us that even as security experts we could not comprehensively detect all multi-stage attack-path possibilities. Especially, once a network is successfully broken into, people tend to become complacent and the incentive to find all ways to penetrate diminishes.

To overcome this barrier related to basic human instinct, we began in 2005 exploring the use of artificial intelligence to simulate all multi-stage attack possibilities. We built a prototype and refined it over nine months and then stabilized it after testing it in several environments. Thus, the automated penetration testing product was born. This technology is currently under “patent pending” with the US Patents & Trademark Office. We formally launched our company in 2007 in Kolkata, India.

Read the complete story at Sandhill.com