Little eye labs Archives

21/01/201521/01/2015

Why does the future belong to product startups in India

I predict starting 2016, we will hear $3-4 billion product companies coming out of India every year.

NEW PRODUCT (2) The startup ecosystem has come a long way in the country, especially in the last decade or so. People often ask me at various forums and events as to where I see the startup ecosystem heading in the coming years. While it may be difficult to predict precisely, there are perceptible changes.

While the turn of the century was about the rise of the Indian services and outsourcing industry, I believe today it’s about the product companies. The rise of the product startups in the country has been due to numerous reasons, but the stellar growth has only made things exciting.

One of the reasons for the mushrooming of product companies is due to people returning from overseas after they have sensed an opportunity. They want to build a product that addresses the market opportunity. When I returned from the US, I saw some clear patterns and opportunities that I could work on. While one choice was to work with existing companies in the travel and tourism space, the other was to create a brand. I chose to go with the former.

The second clear reason is that people no longer want to do back office work for the world. For example, a lot of companies in the space of analytic work around identifying patterns and ideas for companies that outsource work to them. You will see a lot of individuals from these companies building a product start-up around same principles.

This is the natural progression and evolution of an industry. Outsourcing gained prominence because of cost arbitrage and then the IT companies started getting innovative to increase their share of the pie. They started advising various companies on how they should re-engineer their business processes and additional things they could do.

Phase 1 was about moving cost offshore and labour arbitrage while Phase 2 was making it efficient and optimising it. Indian outsourcing companies started evolving their services by providing additional services and at the same time automating it and making it non-linear to people.

The natural progression after that is if employee of these IT companies were advising clients on how to make their business processes better and how to “go to market” more efficiently, what prevents them from going to market on their own? You will see a lot of companies that are an offshoot of big IT establishments. You see individuals go out and address markets problems and opportunities rather than work for someone else.

Carpe Diem

Moreover, the services company has allowed people with similar ambitions to come together and seize the moment. Services companies have become the place where co-founders have met and most of the time the early hires in a startup are from these services companies. When there was a lot of movements around outsourced product management where companies outsourced their engineering work to India, it was obvious that employees from these services companies would get together and start a product company of their own.

The overall IT industry has evolved and the entrepreneurial ecosystem has been built to some extent and has gained velocity. According to Grant Thornton India, PE investments in India amounted to $1.7 billion last month, taking the overall PE deal tally to $10.2 billion in the first 10 months of this year. Spread across 500 PE deals, investments are up 18 per cent in value terms and 37 per cent in terms of number of deals in 2013. The entire investment community, access to capital and breadth of funds have increased quite dramatically.

The appeal of being a part of a product company is far cooler and hipper, rather than being a part of an IT services firm. For an aspiring entrepreneur, the IT services story has been beaten to death. No one wants to start another company in the outsourcing space and given the number of successful product companies like Druva, InMobi and Zoho, people now have role models. As entrepreneurs see billion dollar companies are now possible in the product space, it serves as fuel to the entrepreneurial fire. An aspiring entrepreneur wants to build a product company that will address a global market need.

Role of Industry Bodies

Industry bodies are also playing their part. Bodies like Nasscom have a separate Product Council and Product Conclave, which brings together a good collection of product companies in the form of peer-to-peer learning and experiences. Another body that is doing a good job is iSPIRT that has some big initiatives. It puts a big focus on the M&A connects where they look to enable big US tech companies to connect to a lot of Indian start-ups. Hence, we have seen a bunch of startups like Little Eye Labs and few others being acquired.

iSPIRT is providing a platform that enables big tech companies to acqui-hire, which essentially is acquiring a startup to get access to their talent. This helps both sides – buyers that know they can do a deal in India and integrate startups effectively and for the startup a viable exit route even if it’s not in a revenue generating state. It is also extremely focused on peer-to-peer learning of product companies. From newsletters from founders and experts to roundtable interactions, the body looks to bring curated number of entrepreneurs to come and share experience of selling globally.

Nothing succeeds better than success and the early successes of various product companies have set the stage as role models. Once the momentum builds it breaks the inertia in the system. I predict starting 2016, we will hear $3-4 billion product companies coming out of India every year. In that sense, 2015 will play an important role in ironing out structural issues in the system and ensuring the ease of doing business is improved.

14/04/201416/04/2014

India is poised for success because of the 3 D’s: Highlights of #InTech50 2014: Day 1

InTech50 is a joint initiative by iSPIRT and Terrene Global Leadership Network. InTech50 is a showcase of some of the most promising software products created by entrepreneurs from India. This is the 1st InTech50 and is going to be an yearly event.

The inaugural edition of InTech50 saw great participation: 50 Top Indian product companies showcased their products to 25 Global CIOs, 25 CIOs from top Indian companies, 25 top investors, angels and accelerators from US and India and several visionaries and media across India and US.

Piyush Singh and Sharad Sharma co-chaired InTech50 2014 and put together an excellent program for 2-days. Day 1 was all about content-rich talks and panel discussions from visionaries and experts to inspire and guide the product companies. Day 2 was dedicated to the 50 InTech50 companies to pitch their products and was also interspersed with highly relevant talks and panel discussions. This post covers Day 1, Day 2 is covered here.

Opening Session

Sharad Sharma shared some very interesting statistics in his welcome address:

40% of Indian startups are in Bangalore
40% of Asian statrups are in India
By next year, India will be the 2nd largest hub by number of startups.
82% of Indian startups focus on a global market.

Read more statistics in the InTech50’s booklet.

Sharad mentioned that there are three broad areas where he sees growth in the Indian Software Product companies.

1. Software Infrastructure: This includes things such as security, BYOD, cloud, app management.

2. Decision Infrastructure: Analytics, Big Data

3. Innovative Applications.

One of the initiatives of iSPIRT is to educate small Indian businesses about SAAS potential and products. Today, this knowledge is lacking and these businesses are not informed buyers. So far, 60,000 small businesses have been trained by iSPIRT on SAAS.

Another iSPIRT initiative is working with the corporate development teams in large enterprises to foster M&A of startups.

Welcome Address

Dr. Srivatsa Krishna (IAS, Secretary for IT, BT and S&T, Government of Karnataka) enthralled the audience with his presentation on “Why India Rocks”.

Dr. Srivatsa shared interesting facts that to establish his premise of Why India Rocks.

Indian IT Industry contributes to 8% of GDP and 25% of exports.
80 of 117 CMM Level 5 companies are Indian.
IT revenues grew from USD 100 million revenue in 1992 to USD 100 billion in 2013.
100 Indian companies have more than $1 billion market cap.
150 of Fortune 500 companies have R&D centers in India.
400+ of Fortune 500 companies outsource work to India.
Literacy in India has crossed 80%
By 2020, there will be 20 lakh IT professionals in Bangalore.
Along with IT, Gaming and Movies is also growing big time in India. Labs in Bangalore created substantial portions of movies such as Skyfall and Life of Pi.
A huge Media City is being planned in Bangalore where most of the post-production work of movies is envisioned to happen. The Media City will do to the digital movie and entertainment industry what Electronic City did to the Indian IT Services Industry.
What started as labor arbitrage in the initial days of IT industry has now grown up in the value chain. Mu-Sigma is an example of a world-class product company from Bangalore that has now more than 4000 employees and is the 2nd largest big data analytics company in the world.

Bangalore is already the IT capital of the world. The next step is to make it the Innovation and Startup capital of the world.

Dr. Srivatsa mentioned that the government is being a catalyst and enabler. Along with the big cities, Tier 2 and Tier 3 cities such as Mysore are also being developed.

One of the initiatives is to offer land for free if the company creates jobs. For every 1000 jobs created, the Govt. of Karnataka will give 1 acre of land free on a long-term lease. There are also exemptions from outdated labor laws and special tax breaks are available to encourage the Software industry.

On the flip side, he also mentioned that there are challenges such as being ranked 132nd in the world to do business, long time taken in courts to enforce contracts etc. The good news is that that government is working harder and faster towards making it better.

Opening Keynote

Kiran Karnik, Member, National Innovation Council, Government of India, visionary ex-President of NASSCOM, and the prestigious Padmashree award winner, delivered the keynote.

Mr. Karnik said that Innovation and Software Products are the two main areas that will drive growth for India.

According to him, India is poised for success because of the 3 D’s:

1. Democracy: Though there are some bottlenecks with respect to government speed and enforcements, it is trying its best to promote the industry and is improving day by day.

2. Diversity: Most of the innovations happen when there is good diversity – e.g. bay area and east coast of USA. India also has a varied diversity and the cross-pollination fosters creativity.

3. Demographics: The largest chunk of the population of India is young and this human capital is a great asset.

India has the unique combination of cheaper, better and quicker. Some other countries have one or two of these attributes, but India has the unique advantage of possessing all three attributes. The Indian work ethic is now famous in the world. While this is giving an edge to India currently, our future depends on how we innovate and differentiate.

The Indian IT Services industry has done tremendous service to the country and has created a very good foundation of talent and branding. The product companies should now leverage this and take us to the next orbit. The future of India is in Software Products.

DNA of product companies is different from services companies. Not just in India, but world over, due to the different goals and business models. It is difficult for service companies to become product companies. Startups are ones that will make disruptive products. Startups should target global markets, but they should also leverage the local markets for validation, testing and getting the product right.

Highlights And Takeaways from other sessions

Product successes are happening from India and we will see many more in the coming years.

During the early stages, startups must incentivize early adopters by giving them special deals such as co-development, deeply discounted prices, royalties etc. From the early days on, it is best to build the product along with a live customer.

Companies should keep an eye for serendipitous events and leverage them.

Shoaib Ahmed of Tally said that they resisted the urge to take to services. They remained focused on being a product company. According to Shoaib, the key reasons for Tally’s success are the mantras of “Customer First”, “Partner Growth” and “Building a Reputation”. They also leveraged inflection points in their industry – for example, when VAT was introduced in India.

Product Design and User Experience

Karthik Sundaram, from Purple Patch, shared his insights on product design and user experience, emphasizing that products should pay close attention to the 4Cs of great design:

1. Clarity.

2. Context (of the user).

3. Confidence (make the useful feel confident to use the tool easily)

4. Cheer (make it an enjoyable experience.

The current trends are predictive design, self-service design and ubiquitous design (across all devices).

The mindset should change from ‘What can the product do?” to “What can it do for the customer?”. If focus is lost from the customers’ needs, the product will become irrelevant. For example, Netflix and Amazon were disruptive to Blockbuster and Barnes and Noble because they made it that much easier for the customer.

Rishi Krishnan, from IIM Indore, gave his insights on how to make product innovation work. According to Rishi, if the following three attributes are satisfied, the chances of success increase by a large amount.

1. Painpoint. It has to solve a real painpoint for the customer.

2. Wave. The currently talked about area, which is doing the buzz.

3. Waste. Areas where there is lot of wastage are prime candidates for companies to optimize.

One example he gave was of Vigyan labs in Mysore. Vignan labs are working on controlling power consumption in data centers. They are satisfying all the above three attributes and hence he sees a very good future according to him.

Rishikesha gave another example where he contrasted Ace Commercial Vehicle (4 wheeler for last mile transport of goods) and Nano car, both products from Tata Motors. Ace has been a tremendous success, while Nano is not. And the primary reason is that customers drove the requirements for Ace, and customers were involved at each stage from conception to delivery. Market input is key. Product managers should know how people use their product and in what context. Concepts such as lean startup are very relevant for startups. You need to do rapid experiments to validate your assumptions. Experiment with business models too, not just technology. For example, Google does around 20,000 experiments every year – only 500 of them go live.

Mukund Mohan, from Microsoft Ventures, educated the audience about the cultural differences between Indians and Westerners using vey effective role plays. For example, how Indians expect the product to speak for itself, and focus more on the product features rather than customer needs. One of the key takeaways is to understand the customer in their context, understand their pain points and establish a personal connection. First ensure that the counterpart is interested in doing business with you – that is the first step before looking into the merits of your offering.

Valuation

Rob discussed several technical terms and valuation methodologies, making the audience realize that it is a non-trivial and complex subject. The key takeaway is that the VC financing terms are more important than pricing. Make sure you consult a professional and understand the financing terms before you sign up with investors.

Try to create a competitive process for the VCs. Having multiple VCs interested leads to a bidding process and gets the best deal for the entrepreneur.

Investment is a relationship game. Find a VC with whom you can gel well. This is going to be a long-term relationship and it is very important that you like each other. This is the most important consideration and the not the amount of money being invested or the amount of dilution. If possible, find an investor who has got reserves for follow-on investments. This will be useful if you need more money as the investors also want to protect their prior investments in you and will be more open to invest if they can.

Another key takeaway is to not raise money when you are desperate. Better to raise money before you get to that state. And maintain your momentum during the fund raising process to show continuous results. Find VCs whose strategy and success fits your business. Understand what is important to your prospective investors.

Manjunath Gowda sold S7 Software for US $8.5 million in 2010. S7 Software was in the space of Software Migration and built tools and provided Software Migration services. While pitching to BlueCoat – a US based company, BlueCoat expressed interest in acquiring S7 Software to become their India R&D center. The valuation was very tricky and Manjunath was recommended different models by different gurus – such as discounted cash flow analysis, multiple of annual revenue etc. Manjunath quickly realized that these models were not relevant in his situtation. Manjunath found out the real reason why BlueCoat was interested and what BlueCoat would have gained from the acquisition – in this case the engineering talent of S7 Software. Once that was clear, the valuation focused on benefit to BlueCoat and not on the standard textbook models. To paraphrase Manju – ‘Similar to how beauty is in the eyes of beholder, valuation is in the eyes of the buyer”.

Kumar Rangarajan from Little Eye Labs, the current rock star of the Indian Software Product ecosystem (first Indian acquisition by Facebook), gave an inspiring speech about their entrepreneurial journey and how they were focused on their vision and were flexible to adapt and planned for acquisition as their exit strategy.

Please continue reading the highlights of day 2 here.

05/02/201405/02/2014

Yes! We invested in Little Eye Labs! Lots of interest in Healthcare too! – Ventureast #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

Ventureast is an Indian VC fund manager with close to $300 million under management. They have a history of investing in innovative businesses across multiple sectors, and multiple stages of a business – from seed and early to growth stages.

Guided by the singular credo “We Differentiate, You Win”, Ventureast has enabled over 60 businesses in Technology, Life Sciences and emerging sectors to become leaders in their individual spaces. The company has a proven track record of investments and exits, aided by a strong founding team which has been with Ventureast for over 15 years and who understand the entrepreneurial ecosystem well.

The Ventureast Proactive Fund, Ventureast Life Fund and Ventureast Tenet Fund II feature a wide investor base (Limited Partners) consisting of institutional investors from across the world.

They were in the papers recently when their investment, Little Eye Labs, was acquired by facebook.

ProductNation sat down with Sateesh Andra, Managing Partner, and Dr. Ramesh Byrapaneni, Venture Partner of Ventureast Tenet Fund, for this interview. Here’s what we heard:

What kinds of start-ups are you interested in? What’s your stage of investment and typical investment size?

Our fund invests exclusively in IP-enabled companies. We are interested in Internet and Mobility related plays. We are very interested in enterprise focused start-ups among these. We are very interested in Healthcare and Healthcare related Information Technology plays also. We are interested in companies that address inefficiencies in areas such as Education and Finance with technology solutions. The filter that we use is that these companies address global opportunities in South East Asia, Europe and the US. We found a gap in the Indian VC market between what Angels can provide start-up companies with and Series A venture investors. In our current fund, we invest up to $1M a company. In our next fund we are planning to increase this to $1.5M to $2.0M per company.Most of our investments happen at the concept level; they understand the concept well, there is a prototype, and some early revenue validation.

How does an entrepreneur get your attention? How does an entrepreneur get in touch with you? What’s the initial process like?

Entrepreneurs get in touch with us in a variety of ways. We are panel sessions in conferences and some get in touch with us there. We also get introduced to entrepreneurs and start-ups are demo days at accelerators. Sometimes investors in incubatees at these places introduce companies to us. Introductions through our professional links and references are always welcome. Look us up in social media like LinkedIn and Twitter. See who we follow there. We have also engaged with entrepreneurs and start-ups that have come in with a nice relevant email. They are all good people to introduce you to us. Our big expectation is for you to know us as an investor before you pitch us! Out initial process is quick. After an initial meeting we would let you know in an upfront and candid way, whether we would invest or not. We provide candid feedback on why we are not investing. Entrepreneurs may not like it but these are only the reasons why it does not make sense for us.

Let’s say you are interested in exploring a company further? What happens next? What are your typical due diligence efforts? How long does it take for an investment?

We have a very strong team on our side that can evaluate the Product Market fit for the start-up we are looking at collectively. It is fairly important to us. In early stage start-ups creating the product is easy. Achieving Product-Market fit is tough. From a Product Management/Product Marketing perspective, we look at the value proposition and how they address customer requirements. At an early stage, start-ups may not have a crystal ball but we still need to see 12 month metrics; Profit & Loss and Cash Flow projections. They need to have a decent idea about these. We also dive deeper into distribution channels, feet on the street. The initial team is also critical. The timeline for investment decisions vary. Some take only 2 to 3 weeks if they already have a lot of traction. Some take 6 weeks and some take 8 weeks if there is a lot of financial due diligence to be done. Companies are doing pivots take longer. If there are regulatory frameworks involved as it happens sometimes with healthcare investments, it may take much longer.

How hands-on or hands-off are you with your portfolio company? What’s your style of engagement with a portfolio company?

This is a tricky question! We are not the kind of investor that drives from the back seat. We don’t dictate that this is the way it needs to be. We ensure alignment. In one of our healthcare start-up companies, post-operative care after a stay in the hospital was important. We got involved in that case and helped arrange things. We do monitor a simple set of metrics depending upon the company. We monitor the number of product releases, beta customers, etc,.We also monitor how our portfolio companies incorporate feedback they receive. We don’t give the portfolio companies all of the money upfront. They are done in stages and closely track progress they are making. We make introductions, go on cold calls with the portfolio companies once a month. There are quite a few informal meetings along with the formal ones. We engage with quite a few CIOs and do introductions as appropriate. Our style and approaches are different for different companies. There is no single formula.

Let’s talk about your interest in Healthcare and Healthcare IT Companies. Tell us about some recent investments. What kinds of things are you looking for in this area? What excites you in this area?

SmartRX is an investment of ours that serves post-operative care of patients. Usually after operations in hospitals, when patients are leaving for home, prescriptions are gone over and that’s where it ends. It becomes very difficult to make sure that the patients are taking their drugs properly. Doctors find it difficult to communicate after that with patients and vice-versa. SmartRx ensures that periodic messages are sent to the patient; common do’s and don’ts. Patients can also have small consultations back with their doctors through SmartRX. This is focused on the US Healthcare Market and is related to Meaningful Use Stage 1 and 2 of the Healthcare Reform effort going on currently in the US. The founders for this company were with Microsoft in the US, came back and started this company. To us, domain expertise is key, as in Healthcare and Healthcare IT start-ups..

We recently invested in OneBreath, a medical device company. OneBreath makes portable ventilators that have the same functions as expensive high-end ones but at a tenth of the cost. One of the founders is on the West Coast of the US and this is targeted towards the global market. We help portfolio companies get the CE Marking so that they can target Europe and other markets if we think FDA approval for the US market may take long.

We invested in Seclore, an Information Rights Management company incubated at IIT Mumbai. Their solution enables organizations to manage information access policies through the cloud. It enables their clients to manage access to documents across computers and tablets. 50% of their customers are in Europe or the US. It is one of the cool companies to watch for.

HealthHero created a device that resided with the patients, monitored vitals such as Glucose, BP levels etc. Patients can input the readings into these devices, doctors and nurses can analyze this data remotely and get back to the patient if necessary. This is now part of Bosch Telehealth.

We are very excited about the use of Smartphones in healthcare – they are the last mile to patients! They represent a humongous opportunity! The computing power within Android and iOS devices make possible some radical disruptions.

Now, let’s talk about Exits. What do you see coming in this area?

The Nest Acquisition by Google shows how much they value vision. Our belief is that you need to create value for exits. With a little bit of luck and timing this will happen! Exit multiples are very important to accelerate exits in general. The macro trends are very positive! We have seen some exciting exits; Portal Player acquisition by NVIDIA, Qontex, a spin-out from Pramati Technologies was acquired by Adobe , Yasu Technologies, a Business Rules Management System company was acquired by SAP. Healthcare, Pharma and Biotech companies are all seeing momentum right now. We are seeing a lot of investments in cloud based Value Added Services companies; distributed applications and globally relevant!

What about some parting thoughts for entrepreneurs?

Just wanted to reiterate what we are looking for in start-up companies; a strong product management team with strong technical skills, ability to look at things from a customer angle, sales and marketing knowledge, excellent people management skills. We are looking primarily for deep understanding of technology, clear understanding of the customer landscape and excellent program /people management skills!