My iSPIRT Experience, A Learning Of A Lifetime By Praveen Hari

In 2016, the company I co-founded, Thinkflow, went through a liquidity event. It was a great outcome for all and I was thinking of the next move. It was natural for me to think of starting again. I was wiser, had seed capital and only had to find a problem attractive enough. It looked like I was going down that path and would build another software product company for the global market.

Something interesting was happening in India at that same time. All the global giants were investing in or had invested in companies that were building for India. Venture funds like Softbank, DST Global, Naspers were making bold bets in the Indian consumer space. A lot of digitization was also happening in India. UPI was in the initial release phase (Flipkart had already committed to back PhonePe, when it was just Sameer and Rahul’s idea), the GST bill was tabled in Parliament, a system to track real-time movement of goods was being discussed. It was really a lot of action and if venture investments were any indication, it was the validation of the India story.

In a meeting with Sharad, for the first time, I understood the true potential of the digital stack (now called the IndiaStack) that was taking shape then. While the stack was not fully ready for all the use cases that we covered in the meeting, the vision to solve some of the hardest problems India was facing through technology was fascinating. That vision combined with the kind of commitment the Open API team (it is now called the IndiaStack team) put in is unparalleled in my experience

I left the meeting with a question from Sharad.  “Do you want to do a 2-year MBA that pays you a small stipend?”. I thought about it and said ‘yes’. Amongst all the challenges, unlocking credit for small businesses resonated with me. Having faced the consequences of not having access to timely credit during my Thinkflow days, I could identify with this problem and ended up doing work around data-driven and cash-flow lending. We make a number of decisions in a lifetime but a few handfuls of them are life-changing. And my decision to work with iSPIRT and to focus on Flow-based lending has been a life-changing one.

Over the last 30 months, I worked towards Improving efficiencies in the loan delivery and collections cycle so we could bring a lot more borrowers to the formal system. As an iSPIRTer, I had the privilege of working with CEOs of banks, NBFCs and Small Finance banks to design new loan products. We were working on new ways to use data to underwrite small loans for new-to-credit businesses. I was guiding them on how to use technology to deliver credit at lower costs and worked alongside them to devise new strategies to build new workflows around origination, disbursement, collections, et al.

The iSPIRT stint has been a rewarding one. iSPIRT is all about putting country first and solving country scale problems. Core values such as this and others like setting up fellow volunteers for success were totally unheard of to me in the modern day workplace. iSPIRT is a safe space for any volunteer who is passionate about changing India. The institution has been about investing in the success of its fellows –  I had the benefit of learning from the wisdom of people like Nandan Nilekani, Sharad Sharma, Pramod Varma, Sanjay Jain. My colleagues are A-players and I had the opportunity to learn from and work alongside Meghana Reddyreddy, Nikhil Kumar, Venkatesh Hariharan, Jai Shankar, Tanuj Bhojwani, Siddharth Shetty and Karthik

As I prepare to roll-off my responsibilities at iSPIRT, I want to express my gratitude and a special thanks to Sharad Sharma for giving me this opportunity. He is a great guide and has been a great mentor for me. Thank you for being there for me when I needed you. It has been a great experience working with you and the team and my learnings here are my core strength as I move on to solving for India through my next venture.

India Financial Services – Disrupt or Be Disrupted

Matrix India recently hosted two firebrands of the financial services world, Mr Sanjay Agarwal, founder AU Small Finance Bank and Mr Sharad Sharma, founder iSPIRT Foundation, Volunteer at India Stack, for a no holds barred discussion at the Matrix Rooftop in Bangalore. Here is an excerpt from the evening and some of our learnings for fin-tech entrepreneurs.

Part 1 of the two-part series features the untold story of AU Bank, in the words of Sanjay Agarwal himself, as below:

Sanjay Agarwal – on his background and early days before starting AU:

“In my early Chartered Accountancy days, I started out by doing audit work, taxation, and managing clients. I had studied hard and was naïve and enthusiastic at that time hoping, to solve the world’s problems. This pushed me to work harder and I had a desire to do something more.

I believe that we are the choices we make. While evaluating various choices, I eliminated all the options that I didn’t want to pursue e.g. to work for a fee or commission and then I started digging deeper on what really interests me – that was when the concept of AU Financiers was formed.

In 1996, as 26 years old, I began approaching HNIs to raise capital, as back then, there were no VCs. I was fortunate to raise INR 10 cr at a 12% hurdle rate and I had to secure the funding with a personal guarantee. But what is the guarantee of the guarantor? No one questioned this at that time. So, I technically became one of the first P2P lenders, and structured a product that didn’t exist– short term, secured and at a 30% rate of interest. That was the start of the AU journey.”

The Early Days of AU:

“I started off AU as a one-man army. I was everything from the treasurer to the collector. Slowly we built our team and rotated the 10 cr of capital to disburse 100 cr of loans – not a single rupee was lost. There were several challenges at that time for e.g., there was no CIBIL score, financial discipline was lacking, people were still learning how to take a loan and repay it and customer ids didn’t even have a photograph. But somehow, we managed.

The period from 1996 to 2002 taught me everything I needed to learn – how to lend, how to collect, how to manage people, read people’s body language, and most importantly how to manage yourself in different situations. I follow all of that until today, and my team also benefits or suffers from those learnings of mine even today. In those 7 years, we would have dealt with 2000 customers out of which 500 defaulted. That was the ratio of defaulters – 25%. But we managed and there were actually no NPL’s.”

Partnering with HDFC Bank

“In 2002, retail credit was beginning to take off, but our HNIs started pulling their money out, as they wanted a higher return. However, at that time, the most premium bank in the country, HDFC Bank, appointed us as their channel partner. The model we followed was very simple – AU was responsible for sourcing the customer, KYC processing and doing on the ground diligence while loans were booked on HDFC’s balance sheet. HDFC is perceived to be a conservative bank, and it is – however, they gave me Rs 400 cr, on a net worth of only Rs 5 cr! They made an exception in our case due to our strong track record, through execution, sound knowledge of the market, and most importantly our integrity.

By 2008, our net worth had increased to Rs 10 crore through internal accruals. At that time, HDFC told us that we can’t give you any more capital, as we were overleveraged, and that we now needed to bring in equity capital if we wanted to grow.”

Growing the balance sheet and partnering right

“I had two choices at that point, I could continue in Jaipur, keep my ambition under control and live comfortably or figure out what else is possible. I chose the latter and this marked the beginning of my partnership with Motilal Oswal. Its easier to raise equity now, back in the day shareholder agreements used to look like loan agreements with min IRR requirements, etc. As luck would have it, a few months after we raised equity, the Lehman Brothers crisis broke out and most banks stopped funding. We were supported once again by HDFC – they were our saviour and I will cherish my relationship with them always. Once the market settled down, having survived this negative environment, there was no looking back.

Our next major investor was IFC. For the entrepreneurs here, I want to say that you have to be selective about your investors, who will help with not just capital – there should be added value they bring to the table apart from money. IFC was giving me 20% lower valuation, but I knew that I didn’t have any lineage to fall back on. As a first-generation entrepreneur, I had to raise money on the strength of my balance sheet and not basis my family name. I knew that partnering with IFC would shift the perception of AU within the industry, especially for PSU banks. After their investment, we grew from one bank relationship with HDFC to 40 bank partnerships. One thing led to another and Warburg Pincus, ChrysCapital, and Kedaara Capital all came on board after that.”

Consistent performance

“From 2008 onwards, we started diversifying from vehicle lending and got into other forms of secured lending like a loan against property, home loans etc. We never tried unsecured lending and never ventured into microfinance or gold finance. Those were very popular products at that time but focusing on what we were good at resulted in a consistently strong performance. We never had a bad year. In the world of finance, the margin of error is very less. If you have a bad year you can almost never come back. Good companies survive regardless of the market condition, you can never blame the market for your company’s poor performance. In 2015-16, we were a successful NBFC, our RoA was close to 3% with an asset base of close to 8,000 crores, with a RoE of 27-28% and everyone was chasing us – the question at that time before us was, what next?”

How we became a bank

“As an NBFC, it is very hard to manage a book of Rs 50,000 cr with the same efficiency and effectiveness as it’s a people dependent business, there are limits to the kind of products you can do and you can’t keep raising capital. Hence, we became a bank because we wanted to be there for the next 100 years and that perpetual platform can only be created through a bank. That is the biggest platform and it is not available at a price. It’s available through your integrity, business plan and execution. Today, we receive Rs 100 cr of money every single day. This is the same person who was struggling to raise Rs 10 cr in 1996, and is now getting money at the speed of Rs 100 cr every day – it feels amazing but there is a lot of responsibility!”

Part 2 of the two-part series features insights from Sharad Sharma:

Recognizing the Athletic Gavaskar moment in Indian Financial Services

“Indian financial services industry is going through its equivalent of the Athletic Gavaskar project of Indian cricket. The motive behind this project was to instil the importance of being athletic to successfully compete in the modern game. A new team was created with the rule that if you are not athletic, you cannot be a part of the team, regardless of other skills that you bring to the table. Virat Kohli eventually became the captain of this team and the results are for everyone to see. Similar yet contrasting stories played out in hockey and wrestling. In hockey, we lost for 20 years because we refused to adapt to the introduction of astroturf. However, in wrestling, the Akhadas in Haryana embraced the move from mud to mat with rigour, and Indian wrestling is already punching above its weight class and hopefully will do even better over time. The idea of sharing this is that similar to sports, sometimes an industry goes through a radical shift. Take the telecom space, for example, if Graham Bell came alive in 1995, he would recognize the telephone system, 20 years later he wouldn’t recognize it at all. The banking industry is going to go through a hockey/wrestling or communications type disruption and a lot of us are working hard to make it happen.”

Infrastructure changes lead to New Playgrounds

“All the banks and NBFCs put together are not serving the real India today. We have 10 million+ businesses that have GST id’s, out of which 8 million+ are big enough to pay GST on a monthly basis, but only 1.2 million have access to NBFC or bank finance. This is a gap that needs to be addressed and it cannot be solved through incremental innovations.

Entrepreneurs and incumbents should learn from what happened in the TV industry when new infrastructure became available. When India went from state-run TV towers in 34 cities to cable and satellite TV in pretty much every town, there was a massive new market that was unlocked that did not want to watch the same Ramayan or Hum Log TV serials. What transpired was an explosion of entertainment products because of the high demand stemming from the new markets and the TV channel players that reinvented their content is thriving today while others that did not, are barely surviving or have shut down.

So where does this leave the bankers? I think it is the biggest opportunity for the right banker who understands this problem, wants to serve this section of the market and is willing to reinvent the way they do their business and take advantage of the new infrastructure that will be available.”

Dual-immersed entrepreneurs have the biggest advantage

“Entrepreneurs who are immersed in the messiness of both the new infrastructure and the old problem are “dual immersed entrepreneurs”. They are the ones that succeed when a market shift is underway. Today this is not happening. Some of our city-bred entrepreneurs are more comfortable with California rather than Bharat. And some of our sales-oriented entrepreneurs are intimidated by the messiness of the new technology infrastructure.”

New Playgrounds need new Gameplay

“In a world where eKYC exists, and we can transfer money through UPI from a phone, and sign documents digitally – we are ready to deliver financial products on the phone and this is the disruption that is required. Access to credit drives the economy and with this new infrastructure, it is now possible to lend to the real India. However, it’s easy to give money, but the ability to get it back and keeping defaults at a minimum is the real trick. Even there we are moving towards seeing a radical improvement. Debt providers now have powers they never had and defaulters are being brought to book. Customers are now incentivized to build their own credit history to get better and lower interest rates over time. A new Public Credit Registry is coming to enable this at scale. But the biggest innovation is related to the dramatic shortening of the tenor. One can structure a one-year loan into 12 monthly loans or 52 weekly loans. This rewards positive customer behaviour and brings about the behaviour change that is needed.

There is no secret sauce here, it requires gumption – like that shown by Reed Hastings, founder of Netflix. He disrupted the TV and home video industry by first having the wisdom to go from ground to cloud and then again when they started developing original content. In both cases, he had little support from the board or investors. If you can reinvent yourself before it becomes necessary, you’re a winner but this is harder to do for a successful company. The legacy of success provides resisters with the clout to block change. The real beneficiary of Aadhaar based eKYC in the telecom world was not the incumbents but Jio – eKYC allowed Jio to acquire customers at an unprecedented scale and they saved INR 5000 crores on KYC costs as well.”

About iSPIRT

iSPIRT is a non-profit think tank that builds public goods for Indian product startup to thrive and grow. iSPIRT aims to do for Indian startups what DARPA or Stanford did in Silicon Valley. iSPIRT builds four types of public goods – technology building blocks (aka India stack), startup-friendly policies, market access programs like M&A Connect and Playbooks that codify scarce tacit knowledge for product entrepreneurs of India.

About AU Small Finance Bank:

AU Small Finance Bank Limited (AU Bank) started in 1996 as a vehicle financing NBFC, AU Financiers and scaled to touch over a million underbanked and unbanked customers across 11 states of North, West and Central India, prior to becoming a bank in April 2017. During this time, AU attracted equity investments from marquee investors such as IFC, Warburg Pincus, Chrys Capital, Kedaara Capital and recently went public when its IPO was oversubscribed ~54 times. Over the years, AU Bank, led by its founder Sanjay Agarwal, has created significant shareholder value with its equity value growing from ~$120 million in 2012 to current market capitalization of ~$3 billion.

Please Note: The blog was first published and authored by Matrix India Team and you can read the original post here:

iSPIRT is ending the year on a high note


At the beginning of the year when we wrote down our thoughts in the 2016 Annual Letter about aspects such as break away from copy paste entrepreneurship, innovation bridge with Silicon Valley, progress on open market policies, etc. we thought we will score a few wins in the year. The pace of progress has surprised us. In many areas we have exceeded our best expectations.  

The last few months have been particularly hectic for iSPIRT. Some of the wonderful work of iSPIRTers is captured in the four events that took place in the last five weeks:

#PNgrowth, Nov 25th – 28th: This intense 3-day bootcamp is grooming the future category leaders of our Software Product Industry. This was our second PNgrowth bootcamp this year. Read about it in Avinash’s evocative blogpost: Behind the scenes of $2 billion Indian startup movie #PNgrowth.

Startup Bridge India, Dec 2nd: This was our first roadshow in Silicon Valley and was done with TiE SV and Stanford University. We sought out strategic partners for 28 startups that traveled from India. This was organized by our M&A Connect Program, which is now led by Rajan. Read about the matchmaking event in a descriptive blogpost by Roxna: Startup Bridge India: Breaking Down Borders, Barriers and BS.

InnoFest #IndiaInnovates, Dec 8th: We are slowly and steadily building a community of hardware product innovators to cater to the needs of 100m families in ‘India 2’ (beyond metro). Financial inclusion will soon allow them to improve their lives using Indian products. Prathibha, the anchor volunteer behind InnoFest, captures the mood in her blogpost: InnoFest 2016 – Innovation celebrated in Bangalore, and how…

FinTech Leapfrog Council, Dec 16th: India is set to leapfrog the rest of the world in financial inclusion driven by India Stack. The FTLC program combines global best practices with a home-grown, world-class architecture for financial inclusion, and helps incumbent Indian banks create a “leapfrog roadmap” for their organizations. Venky, the anchor volunteer driving this initiative, describes the thinking behind FTLC in his blogpost: A Leapfrog moment for Indian Banking.

We are ending the year on a high note!

Next year will be a busy one for us given market inflections and the heightened expectations from us. This presents iSPIRT and each of us with a unique opportunity to contribute and make a difference.

With loads of best wishes for 2017 from all of us volunteers at iSPIRT.

Calling all Indian B2B companies: InTech50 2016 – the global platform beckons again!!

With two super successful events in 2014 and 2015, InTech50 2016 is back – bigger than ever before.

For the uninitiated, InTech50 is a showcase of some of the most promising software products created by entrepreneurs from India. A panel of Chief Information Officers (CIOs), Venture Capitalists, and Product Leaders from previous successes will look out for fifty companies to make the cut to InTech50 selection criteria. Here are few reasons why you should apply( last date is 22nd Feb ’16).

  • An opportunity to showcase, get validation of the concept and product direction, better understanding of business value in the enterprise from Global CIOs.
  • High probability of being selected by Global CIO’s for pilot or early adoption.
  • Possibility of being selected by large product companies for add-on/bolt-on value add/partnerships to their large scale product solution sets.

Is it relevant for you? Yes it is, if you are a software product company that has aspirations to go global. Most importantly, you don’t need to travel abroad to seek your fortunes but rather the panel of experts comes to you in Bangalore, in India.

17220053885_5aa4bbf407_bThe program combines prospective buyers (CIOs) who will constructively critique your offering, funders (VCs and other investors) who will tell you why they will fund your product and mentors who will offer you that timely bit of advice that will give you the extra edge.

What’s in it for me? To answer that question, we are sharing some enthusiastic and overwhelming responses from people who were a part of InTech50 2015.

InTech 50 was an excellent opportunity to get attention from some of the top decision makers from India and US. I am very happy to say that some of the largest deals we did in the past year had their origins in Intech 50. It is probably the best networking and showcasing platforms for Enterprise technology companies in India. Sanjoe Jose, CEO, InterviewMaster

Congrats to you both on amazingly successful and proactive event. I have always had so much respect for how you all do all the right things to build be ecosystem. It is really commendable and we all entrepreneurs appreciate it so greatly. Thanks again! Valerie R Wagoner, Founder & CEO, ZipDial

This is a very unique event happening in India where in you are getting Global CIOs under one roof. I think this is god send for Indian CIO-focussed product companies like ours who want to go global. Manjunath M Gowda, CEO, i7networks

In my view, this was one of the best organized events in Bangalore in the recent past! I was quite impressed with the concept, companies that participated, their offerings, their passion and expertise etc. I have decided to buy the solutions offered by 2 of the companies for our internal use Kris Nair, President and Chief Executive Officer, Ascemdum

Thinkflow was one of the 50 companies that was chosen to be part of the first edition of InTech50 2014. It turned out to be a wonderful platform because we got an opportunity to showcase Thinkflow to a 50 global CIO’s and Intech50 gave us the opportunity to interact 101 with CIO and VC community. Conversations on the sidelines of InTech50 2014 led to multiple discussions on funding for Thinkflow and connecting with people who have helped us open conversations around sales and partnerships. Although we had a few good customers by April 2014, our selection to InTech50 and the press mentions made people take note of Thinkflow and our reach and recall with the CIO community increased substantially. For start-ups who are selling to the west, you cannot miss the InTech50 opportunity. Praveen Hari, Director – Alliances & Partnerships, ThinkFlow

When we at Whatfix decided to participate in inTech50, our initial expectations were limited to networking. But, the event turned out to be much more than that thanks to amazing participation by investors, start-ups and Fortune 500 company CIO’s. We were able to close big name clients like Procter & Gamble, iLantus and Nanobi. We are most definitely going to return every year! Khadim Bhatti, Whatfix

Thanks for organizing a wonderful event, esp, getting the top buyers in one place, is no easy task. KiSSFLOW had 5-6 inquiries and few VC interests too” Suresh Sambandam, Founder & CEO, KiSSFLOW

This year again, our Global Advisory Team has stalwarts like Ned Curic, Suren Gupta, Harmeen Mehta, Jack Pressman, Sashi Reddy, Narendra Kale and more… The startups will get an opportunity to showcase their wares to this highly selective team, giving them the opportunity to get a global footprint, right here in India.

Startups, please note – There is no application fee. 50 companies will be shortlisted by the Advisory Board comprising global and Indian CIO’s, product company heads, venture capitalists, and analysts. The selected companies will need to pay a fee of Rs. 25,000 to cover the expenses for two attendees. Only the 50 shortlisted companies will get to attend the event.

22nd February, 2016 is the deadline to submit your entry.

Apply now for the InTech50 2016, 13-14th April in Bangalore. Click here to submit your application.

When it Comes to Startups, an 80% Fix is No Fix

In this polytheistic world of entrepreneurs, who is the Startup Initiative for?

There are many types of entrepreneurs. There is the self-employed vegetable-vendor type, the Thelawala. Then there is the small businessman in Okhla or Peenya who has grown to be in GST net. And how can one ignore the technology entrepreneur who graces the pages of ET every day . Even these tech startups come in many shapes and sizes. Some are after mainstream `Bharat’ consumers; others are building mass-luxury brands.Then there are fast followers in global markets or those who are rattling ferocious global players. And who can ignore startups that are filling white spaces in the safer domestic market and are aspiring to be national leaders.

What’s the one tool all successfulIn this polytheistic world of entrepreneurs, who is the Startup Initiative for? If it’s for all the various types of entrepreneurs, then it will quickly succumb to the 80% syndrome. Policy-makers will address things that are the common denominator for all types of entrepreneurs. While this is necessary , it’s not sufficient. As any product manager in the technology industry will tell you, this 80% fix is a recipe for failure.

To make a critical mass of changes, a persona-based policy making is needed. The biggest problem for Thelawala type entrepreneurs is absence of easy credit. For Peenya and Okhla business Peenya and Okhla businessmen, it is the inspector raj. For technology star raj. For technology startups it’s outdated regulations that thwart venture financing.

Each of these types of entrepreneurs is in pain today . Last year 54% of the funded technology startups redomiciled themselves outside India. This year, iSPIRT estimates, the exodus has accelerated and the number of companies redomiciling out of India will be 75% of all funded startups! There is crisis on another front too. India’s Global Innovation Index has been falling for four years in a row. We are no longer in the top 85 countries of the world! This innovation deficit has a bearing on sustainability of the entrepreneurship boom that we are witnessing right now. We are overly reliant on copy-paste entrepreneurship and this can only sustain if we keep MNCs out like China has done.

The most important decision for a policy-maker is focus on a specific type of entrepreneur. Only then the `how’ comes into focus and a cross-ministerial approach kicks in. Some of this is starting to happen. Later this week, there will be an important announcement by the Ministry of Finance about addressing venture-financing gaps in areas beyond e-commerce, neighbourhood commerce and consumer tech. There is a lot of work to be done to bring Startup India initiative to life. A nuanced henotheistic approach is needed (henotheism: involving devotion to a single god while accepting the existence of others). It can be done. Early signs give reason for cautious optimism.


Starting up a new company: So simple, yet so hard

I’ve seen all sides. I’ve lived in big companies. I’ve been a technology entrepreneur. I’ve also lived inside dozens of startups as a proxy entrepreneur, aka an angel investor. And I’ve seen hundreds of software product startups as a grass-roots ecosystem builder in the past eight years. My conclusion is that in the end it comes down to just two things: Mindset and Conduct.

What’s the one tool all successful (1)Entrepreneurship is a state of mind

Entrepreneurship is not just about having the greatest of ideas, knowing the best sales pitch, crafting the best marketing strategy, building the coolest products, or any of that sort of things.

Entrepreneurship is, in its unalloyed form, a state of mind. It is how you think, the way you think, and how you act. It is a state of mind that needs to be cultivated. It needs personal mastery.

Four mindset elements that really matter

Are you comfortable being the underdog? It’s only by seeing yourself as an outsider can you change the rules of the game.

Can you hold a contrarian point of view? This is what gives you a big spirit even when you are small in size.

Can you step outside your comfort zone? Having an internal, not external, driver for excellence is necessary to be world’s best at what you do.

Can you influence without control? Unless you can motivate an army of knowledge workers through empathy, storytelling and meaning-making, there is no revolution that’ll take place.

Personal code of conduct matters more than skills

Entrepreneurship is a team sport. Your rules of engagement with others matter. They determine if people will stick with you when things don’t work out.

Believe me, in the long run a personal code of conduct matters more than skills. Here is quick checklist:

Do you make things up, and make them happen? It’s all about outcome and action. It’s about producing results, not reasons. Do you keep your promises? Saying what you mean, and doing what you say is surprisingly uncommon. So making clear commitments – I’ll do my best effort or I’ll do what it takes – is often enough to stand out.

Do you give more than you get? Paying forward creates trust. Trust delivers speed and amplifies the power of collaboration. In today’s world, it’s a gamechanger.

Do you set people for success even though their definition of success is not yours? This is how you get loyalty.

You’ll find hundreds of books and websites telling you how to think, act and invest like Warren Buffett. Many people try out his investment formula but very few succeed. Why is this the case? Because, while the blueprint is pretty easy to understand, it’s really difficult to implement. Entrepreneurship is like investing and dieting–at its core it is simple, but not easy!

This blog post was written for The Economic Times. 

Inflexion – Technology Summit: An evening of insights and observations

I was invited to “Inflexion” an event organized by Signal Hill and iSPIRT. The duo have in the past co-created the report on Technology M&A in India (link) which was very educational, so my interest was piqued and decided to go.

The evening was started by Scott Wieler, Chairman & CEO Signal Hill. He mentioned that $6.9Bn of VC/PE money has been invested in India in last four years (2011-14). However, the M&A value generated is just $1.7Bn. So with a value creation ratio of 0.2x, India is far behind US (3.0x) and Israel (5.3x). This led to the insight that M&A values will need to increase by more than 15x over next 3-6 years for this ratio to catch up to US and Israel levels. My hope is recent acquisitions by Flipkart (Myntra), Snapdeal (Unicommerce), Facebook (Little Eye Labs) and Twitter (ZipDial) – are good trend in this direction, and we will see a lot of action happening in next couple of years. This augurs well for Indian entrepreneurs.

Next came the retrospective by N.R.K. Raman – co-founder of i-FLEX Solutions. Very interestingly his company was probably the first VC/PE backed unicorn in India! They were bought by Oracle for nearly a billion dollars. A lot of i-FLEX’s story was about perseverance and street smarts. We keep on talking about product-market fit – this was a phenomenon written all over i-FLEX’s success. The founders were working in the banking software industry inside a bank (Citigroup) – and understood the inefficiencies of the system. They jumped the boat, separated from the mothership (albeit Citi wrote them their first $400k) – and launched a product that found ready takers in the market. It was not the dramatic high burn, breakneck growth story but rather a well thought out, methodical plan executed with hard work and business fundamentals kind of story.

As the night became young, Flipkart’s co-founder Binny Bansal and YourStory’s Shradha Sharma, stepped onto the stage. Binny said that the one thing keeping him awake at night is “finding high quality talent and retaining them” – interesting to note that the big guys have still the same challenges as newbie startups. As an investor, I feel it is becoming very competitive to hire good talent. That one perfect designer or product manager you have found – chances are will have multiple offers in hand, if not thinking about doing his own startup already. The other big focus area that Binny mentioned was mobile – if you look at the data, I think the writing is on the wall – by 2016 – 80%+ of India’s internet population will access Internet more by mobiles than by desktop and my guess is 60%+ of India’s internet population will have never accessed internet using desktop. So Flipkart’s worries are talent and mobile.

Then Sharad Sharma, iSPIRT co-founder and Governing Council member, delivered a short punchy talk. He explained how small sub $50m dollar exits are the lifeblood of any tech ecosystem. Unless they happen in enough numbers we won’t get Billion dollar exits in the long haul. I learnt that iSPIRT’s M&A Connect program has been instrumental in getting Facebook, Corporate Executive Board, Yahoo, Intuit and Twitter become first acquirers in India! The M&A Connect program is now on a one-acquisition-a-month run-rate and aspires to get to a one-acquisition-a-week rate in the coming years. What an inspiring story of volunteer magic changing our ecosystem for the better!

Sharad then talked about global SaaS startups. They are gaining momentum. He also outlined why software product startups targeting Indian SMEs will be big in the coming three years.

We then broke for drinks and dinner. The book “Conquering the Chaos: Win in India, Win Everywhere”, authored by Ravi Venkatesan, iSPIRT Adviser and former Chairman of Microsoft India, was gifted to attendees of the event. It promises to be an interesting read.

‘Finding’ Innovation

In a highly competitive market, and one where market dynamics are changing faster than ever, innovation is the key to long-term sustainability and success. History has proven that companies that have a culture that encourages innovation stand a far better chance at sustaining their leadership position or emerging as market leaders.

1Harvey Firestone, an American businessman, and the founder of the Firestone Tire and Rubber Company once said, “Capital isn’t so important in business. Experience isn’t so important. You can get both these things. What is important is ideas. If you have ideas, you have the main asset you need, and there isn’t any limit to what you can do with your business and your life.”

Businesses recognize that. Most progressive businesses have put in place people, processes, resources, and investments and encourage a culture that fosters innovation.

Considering the fact that companies need to innovate faster than ever before, many companies now are also looking for absorbing innovation that is independently created outside their company. Smart companies recognize that they cannot hire all the smart people, and that smart and relevant innovation is also happening outside of their organization. Their efforts are therefore directed not just in innovating within the organization, but on engaging with innovations from outside as well.

By ‘outsourcing’ innovation, many leading companies have managed to minimize innovation costs and associated risks by as much as 60% to 90% while simultaneously reducing cycle times. In addition, they leverage tens to hundreds of times by internally investing the resultant savings. By engaging with innovators outside the organization, larger companies are able to look at a significantly larger pool of concepts and products, and thus are able to significantly reduce the cost of deploying innovative solutions and products for their businesses.

To enjoy the benefits of outsourcing innovation, the executives and the front-line should be on the lookout for the latest and most innovative technologies emerging across the globe and then figure out which ones they can leverage to derive the maximum synergy.

What is important is that you catch innovative companies’ young, i.e., when they are still in the startup or early-growth stage. Identifying and engaging with companies at an early stage has significant benefits for a large company, not just in monetary benefits, but also in being able to guide the product / concept design to best suit their own use case.

Larger companies who may not have the ability and bandwidth to scout for innovation independently can easily collaborate or partner with enablers in the entrepreneurial eco-system like accelerators, incubators, early-stage funds, and also the emerging online platforms that showcase startups and early-stage companies. Domain specific ‘hackathons’, mentoring clinics, and boot camps are some other ways in which larger companies can connect with relevant innovators.

Once the organization has identified which of these innovations fits into their scheme of things, there are 3 options before them:

  1. Acquire the company – in some situations for competitive reasons and to get a longer lead-time compared to competition it might make sense to acquire the company.
  2. Use the product – – sometimes it is worthwhile to simply use the product as an add-on or bolt on to the existing eco-system to provide a unique offering or enrichment to the existing solution.
  3. Partner with the company – This option involves jointly developing the product or innovation further, keeping in mind your specific requirement. This way, the innovation can be customized to suit your needs.

These are interesting times, particularly for software products. The pace and quality of innovation in India has gone up significantly. At iSPIRT, we have seen the quality of entrepreneurial talent, ideas and products, improve rapidly. We have quite a few global standard companies as witnessed by the global scale acquisitions, and the pace at which newer ideas are being introduced is very encouraging. It is also encouraging to note that a number of larger companies have already connected with us to get an early glimpse into innovations. The InTech50 event is a great initiative to showcase innovation to CIOs, product leaders and VC’s that provide the platform for the innovators to springboard.

Here’s how India’s “Product Nation” ambition be achieved and what the Budget can do for that ambition

The Next Google, Made in India

If you look at the Indian business landscape, you will see several successful services companies in fields like airlines (e.g. Jet, Indigo), health care (e.g. Apollo, Manipal), mobile phone services (e.g. Idea, Airtel) and IT Services (e.g. TCS, Infosys). Many of these companies are comparable to global peers, if not potential world beaters. What we don’t have are the corresponding product companies. We don’t have an aircraft maker like Boeing, a pharma company like Pfizer, a network equipment company like Cisco, or a software product company like Microsoft.

Is this is a problem? Yes. Because Boeing and Airbus alone generate almost as much profit as all global airlines put together. Pfizer’s profits are more than the profits of top 100 hospitals in US. Cisco’s profits are more than those of all European mobile operators. Microsoft generates more profit that the profits of top 20 pure-play global IT Services firms. Take a moment to digest that and it becomes clear that if India remains bereft of product companies, it won’t be a sustainable economy in the future.


Building product companies is hard, to be sure. Despite the fanfare, Tata Motors’ Nano has failed. And, sadly, Bajaj has been humbled by Honda in the last two years. In high-tech, Ittiam, despite its success in developing core intellectual property in online video, hasn’t broken into the main league. And, with our borders open to global competition, is it too far fetched to imagine that in a few years Amazon would have pipped Flipkart and Uber, not Ola, would rule our roads? We may have Indian players serving our digital consumers, but most categories might be dominated by foreign companies. Google already owns our search, Skype owns voice messaging, Facebook owns social media.

Is India destined to lose all these battles? Maybe not! But if we have to win, we have to embrace a new gameplan. Products, especially software products, are a winner-take-all business. Either you win or you are a nobody. Its not a place for the faint hearted.

In fact, tentativeness translates into a loss. It leads to sub-critical investments. We are staring at a costly example of this in the nuclear reactor industry right now. India can build 700 MW reactors. But economies of scale now kick-in at 1600 MW. Since we didn’t invest enough in the last 20 years (despite a wonderful start that Homi Bhabha gave us in 1950s), we are not a player in this large-reactor segment. So we will spend more on buying these bigger reactors from France, Russia and US in the next three years than what we have spent on our entire nuclear industry in the past 50 years! This is a really expensive failure.

If this was a one-off case it would still be okay. It is unfortunately not. In telecom, despite CDOT, CDAC and Sam Pitroda, we have only created one Tejas Networks, a nifty networking start-up from Bangalore. But, guess what? Tejas gets a pidly 1% of the annual telecom capex buys in the country. Rest is imported. We have a big rail network but no rail equipment companies. We are a generic drugs superpower but limp when it comes to new drug discoveries. These failures to create product winners don’t even faze us. We pretend it doesn’t matter.

We don’t even introspect why this is the case. When one sets out to create the world’s best hospital, airline or IT Services company, one builds in layers over years. But building a world class product company needs a different mindset. You have go all-in and bet-the-company on market or technology shift that is underway. This mindset is new to us in India. Our success in building services companies comes in the way. We have to accept this Provenance Effect; it is subtle yet significant.

To be sure, we are not the only victims of this effect. Taiwan is a victim of this too. It isn’t a player in mobile phones, ironically, because its design services legacy holds it back. Venezuela is not able to crack the chocolate market. El Ray owns the high end cocoa market, a key raw ingredient in chocolate, but comes up a cropper in high chocolates. If you ask the Belgians or Swiss, they tell you that they are a chocolate nation because they don’t have the cocoa mindset. Lack of a services industry legacy helps not just Korea but also Estonia (created Skype) and Finland (land of Nokia and Angry Bird games). It turns out that mindset matters — big time!

We have to jettison two ideas that hold us back from becoming a Product Nation! The first one is rather simple. We have to accept that no matter how well-run Indigo Airlines is it’ll not become a Embraer or Boeing. Similarly, a Narayana Hrudayalaya hospital will never bring a drug to market like a Pfizer does. Airtel or Verizon will never build a router like Cisco or Juniper do. And TCS will never be a Microsoft. Acknowledging this plain reality is the first step that we must take.

Then, we must discard our mentality of unbridled greed and reluctance to make bets — best showcased in our penchant for large Olympics contingents. Nobody cares about how many athletes you send to a sports competition, they only care about the number of medals you won. To improve odds of winning, small focussed efforts produce better results than grandiose schemes. Today, we have four times more new startups than Israel for one-sixth the outcomes. One reason is that the ecosystem enablers are narrowly sector focussed in Israel. The accelerators that help medical device companies don’t work with cyber-security start-ups there. Can’t we have a sector-focussed approach in India aiming at solar energy or medical devices, to name just two promising areas to bet on? If someone needs proof of concept: look at our performance in badminton and wrestling in India in recent years. The enablers in these sports are game-specific. Anything that smells like a generic “startup” program will have a low impact. It quite likely to be a scam!

Software product entrepreneurs when they are successful make a big economic impact in this winner-take-all world. So they are being courted worldwide. US is trying to get the Startup Visas in place for them. Canada already has a working program. Singapore has startup tax exemption. UK is in the game too. In our last budget there was a tantalizing line about “a special focus on software product startups”. Nine months have passed and nothing material has happened yet. Maybe this new budget will bring some well thought-out policies to light. This year 75% of newly funded software product startups will redomicile themselves in Singapore or US (up from 54% last year).

It is time for India to wake up to our Product Nation imperative. It is an opportunity for the NDA government to write history again. In 1998, they introduced a 108 point policy for IT services and we have the benefits around us to see. Now, they must do the same for software products. For the first time in modern India’s history, we have a chance to create world-winning products from India. The decisions we take today to support our flight to become a Product Nation will decide whether tomorrow’s Google, Viagra,Facebook, or Uber come from our nation. Act now.

Jointly written by Mohandas Pai & Sharad Sharma for Economic Times. 

Bootstrapping – Boon or Bane for Product Startups #BootUpINDIA

On August 14th, 2014 iSPIRT, the industry enabler that is creating a vibrant eco-system for promoting, encouraging, supporting and enabling product companies out of India, organized a very useful online discussion on the concept of bootstrapping. Titled ‘Bootstrapping – Boon or Bane’, the discussion explored various facets of bootstrapping, including its relevance, benefits, limitations, and challenges.

Sharad Sharma, founder of iSPIRT kicked off the conversation with a very incisive observation that the startup community, largely driven by the media, tends to celebrate and showcase startups only when they receive angel or institutional funding. How true is that!!! There are a number of very successful and modestly successful startups, many of who are deserving of the praise and showcase, but they get reported about only when they close an investment round. (I am not sure if the media is to blame entirely. I suspect companies too reach out to media only after they have received an investment round, perhaps because they believe that funding makes the ‘story saleable’ for the media.).

Avinash Raghava, startup eco-system builder and the driving force behind iSpirit shared that over 65 of the 140+ companies they have profiled, were indeed bootstrapped. Of course, some of them may have tried to seek VC money and started to bootstrap if they were not successful in raising capital. However, that they have succeeded in being showcase-worthy by iSPIRT, is indeed commendable.

The panel explored whether bootstrapping & angel/VC funding are either-or strategies or is there merit in a hybrid model. While the panel agreed that building a business with customer’s money is nicer than building a business with VC money, Bhanu Chopra, founder of Rategain(who has built a globally successful company that was bootstrapped) and Sharad Sharma suggested that there are no set rules, and companies should evaluate their strategies depending on the merits of the options available. (It is relatively easier to bootstrap for companies that address enterprise customers than B2B companies.).

Ramesh Loganathan of Progress Software added that while startups have to evaluate what’s the right way for them to fund their venture, it’s not just about the money, but the mentoring and advisory that comes along with that money, that is more valuable at the early stages. First-time entrepreneurs who have no experience of building a business, or even a full product, can benefit enormously from the perspectives and learnings of more experienced individuals. Now, whether this advice is available with or without money is immaterial.

Bootstrapping is not equally relevant or appropriate for all concepts/products/services: In some cases, it maybe possible to build the foundation or a company through bootstrapping, but you may need external capital to grow. In some cases, it may be possible to grow at a healthy rate through bootstrapping, and internal accruals may enable the company to even grow at a healthy rate. However, Bhanu elaborated that at some stage, the company may need to explore inorganic growth and may have to seek external capital.

Shekhar Kirani of Accel Partners, who has a unique perspective as a member of two hugely successful bootstrapped ventures, and is now a part of the investor community, was of the view that since all ventures need capital, the entrepreneur has to make an assessment on whether the idea needs VC money or are the idea & market conditions more suitable for bootstrapping.

He further explained that companies like Facebook, Twitter, Quora, etc. could not have been built without VC money as these businesses needed to invest a lot to build scale so that monetization opportunities arise. He added the once there are others in the market offering similar benefits, it is almost always difficult to leapfrog without adequate capital, and in such situations, bootstrapping may not be the right approach.

VCs have a lot of respect for companies that are bootstrapped. Bootstrapping demonstrates the entrepreneur’s commitment and conviction, both critical parameters for investors. In fact, Shekhar shared that even in the US, Accel invests in a number of companies that have built a reasonably sized business through bootstrapping, and Accel was the first institutional investor for scaling up.

Bootstrapping forces you to focus on building a strong ‘business’: For, Ahimanikya of DocEngage, one of the benefits of bootstrapping is that you are forced to think of revenues from day one. He added that it has become fashionable for entrepreneurs to seek VC money to pay for their lifestyle or for their own salaries, and felt that this approach, which does not have an element of risk-taking by the entrepreneurs was damaging for the startup community.

Bhanu mentioned that bootstrapping allowed them to focus on building a fundamentally strong product with a strong customer value proposition. It also instilled very strong fiscal discipline within the company.

All panelists agreed that for bootstrapping to be successful, it was important for an entrepreneur to be adequately prepared to multi-task and to be a multi-skilled. Else it becomes very difficult to sustain a bootstrapped venture. Panelists also agreed that at some stage, if the company needs to change gears to scale up using VC funding, they need to be prepared for a fundamentally different way of growing the business. If they are not prepared, they may miss out on some large opportunities.

To summarize: It was, as Sharad Sharma put it, a very thoughtful discussion, do watch the video for mode details.

Raja the Raja ! We miss you!

Dear Raja,

Rajendra RajaWe have collaborated on many blog posts in the past but we are struggling to shoulder the burden of this one. People say you are 63, but you worked like a 23! You didn’t care what people thought about your views – you boldly put them forward. You worked for a large company but you cared for the success of innovation in smaller startups. While your mates were fighting for their promotions you were fighting to promote the eco-system. When everyone is having hard time adapting to change, you learned twitter, facebook and what not, with the curiosity of a teenager. While everyone safely choose an MNC product, you took the risk choosing Made-in-India products within your organization and also forced your network to follow you. You saw no boundary and went across NASSCOM, Ignita, iSPIRT with the only goal of building a solid ecosystem. It is hard to merge companies but you easily united iSPIRT and Ignita. When people hesitate to accept friends requests in FB, you made us part of your family by including us in your 60th anniversary celebrations. You are great friend to all of us and we miss you! Raja the Raja !

With limitless love and affection,

Akshay Shah, Avinash Raghava, Dilip Ittyera, George Vettath, Lakshman Pillai, Nari Kannan, Purushothaman K, Sharad Sharma, Suresh Sambandam


So Long, and Thanks for All the Fish #InnovateDelhi

This blog is part a recollection of the events of the Pitch Day. And part a farewell post to those amazing 112 students who continued to surprise us till the last day at Innovate Delhi.

This Sunday marked the culmination of the intense three weeks of action happening at IIIT Delhi as a part of Innovate Delhi Entrepreneurship Academy (IDEA). Where on one hand we have extended weekend based startup events happening in the country. IDEA could could be described as being on adrenaline, with more rigor, creative problem solving and the fun.

The day was a typical June summer in Delhi, by being slightly hot than what was comfortable. The past weeks saw nearly 40 teams working on their ideas, iterating and pitching leading upto the main event. Only the top five were to present that day. With the certificates of participation distributed, the focus was now on two major groups. The finalists who were presenting that day to the investors/judges were practicing with Randy. The others were setting in motion the open house.

Kiran Karnik

With the judges comprising of a diverse and interesting mix. The spectrum ranged from Mr. Vinod Rai, the former CAG of India all the way to Dr. Pankaj Jalote, Director of IIIT Delhi. The sounds of healthy debates boomed across the hall with the judges talking to the teams. There were student groups working on their ideas even before they came to the program to others who pivoted on their ideas and names the day before. The variety ranged from an online wig platform called WigVanity to MyParking which helped people find parking spots in NCR.

With the open house being wrapped up all of us moved to real attraction of the evening, the top pitches. The  welcome note by PK from IIIT Delhi was followed by speaker talks by Kiran Karnik and Sharad Sharma amongst others. One could see the hunger for knowledge and the collective wave of emotion in the student audience when Sharad quoted number and facts about the software and the startup industry in India. Celebrating the pride in our product startups.

We soon began with the pitches which made for the highlight of the evening. Weeks of learning for the final teams reduced to just five minutes. Which could make or break their odds of winning. With Surfing Couch taking the top honours for their idea of providing free community wi-fi, Shoutstr and Ripple followed close on the heels for a podium finish. Aegis (wearable for women safety) and ZapApp were the other two startups vying for the top slots.


The student testimonials on stage were a perfect example of the diversity and broke the stereotypical mold of the impression we have of an Indian entrepreneur. There were ‘students’ coming from remote Indian villages to others who were married. Talking of age, a very interesting observation came across. All the finalist teams had atleast one team member above the average age with atleast a few years of industry experience. What inference should we draw from this, I’ll leave that to you.

With the events of the evening concluding, it was not long before students had crowded around their favorite judges soaking in what wisdom they offered and asking them a lot of questions. Rem Koning had to be excused towards the end, with the Delhi weather taking the better of him. Students just loved Sharique Hasan, with requests for IDEA ’15 already pouring in. But the hands down favorite was Randy Lubin, and it was not long before he was posing for pictures.

Surfing Couch is declared the winner
Surfing Couch is declared the winner

After three weeks you could see the camaraderie in the students, now working on the details to execute their ideas in the real world. As members of the Indian startup ecosystem, we take so many things for granted. But seeing a batch of the next generation of builders, beginning their startup journey reminded many of us about why we started in the first place. So Long, and Thanks for All the Fish.

Acknowledgments: No event takes place without the healthy support from a huge set of unnamed workers. Special shout out two amazing people who helped with the creating the digital record for the Pitch Day.

a. Bhavna Nagpal for helping with the tweets on @InnovateDelhi. You can see the entire chatter at #InnovateDelhi.

b. Tasveer, the photography club of IIIT Delhi for helping provide pictures for this post. They also have an amazing album covering the proceedings of the day.

With Inputs from Gurpreet Bedi

Presenting the iSPIRT Governing Framework

It has been a great, great year here at iSPIRT, and though we have a long way yet to go, we are confident that we are well on our way to get to where we want to be.

After all, well begun is half done.

But then, there is also the question of structure, not unlike the problem entrepreneurs face they have to scale their business – when the organization becomes big and responsibilities fragment and become more focussed, what if the core values get diluted?

This is why principles are important, and since we started with an ideal we wanted to reach, we have distilled it into three governing principles , which are –

  1. Radical transparency
    This is crucial to continued operation of our ‘peer production’ (volunteer) model.
  2. Polycentric governance aka Panchayat system
    Which means that SPIRT is bigger than any one individual.
  3. Open-Access Public Goods
    We work for many and not for any one company, no matter how important it might be.

The Governing Council (GC) is responsible for upholding these governing principles and ensuring integrity across the board. The GC is about empowerment, not control. It helps clarify the causes and initiatives that we pursue. It is responsible to the SPI at large and not to donors. Our inspiration comes from the world of Wikipedia and Linux.  It’s a world where people are organized but there is no traditional organization; disputes are resolved and order prevails but there is no single person in control.

In the GC, we have a clear conception of the long-term outcomes that we seek. Today SPI is not even an identified industry. We seek to change this. As we argued in the 2012 iSPIRT Annual Letter, India’s future depends on a vibrant software product industry.

To accelerate the growth of SPI we seek a healthier power-law distribution of big and small firms. Our focus on market catalysts like M&A Connect, Global CIO Connect (InTech50) and Software Adoption Initiative are geared to help companies scale faster. In keeping with the global practice, we measure ecosystem’s success in terms of market capitalization, not revenues. We hope to overtake Israel in number and value of M&A deals in the coming years.

The Governing Council is going to champion three causes in this regard –

  1. Solve market coordination failures (e.g. through M&A Connect Program),
  2. Influencing policy,
  3. Synthesizing and evangelizing playbook for faster success.

We recognize that these aren’t everyday tasks. And iSPIRT is just getting started. With our almost audacious mission of transforming India at large through use of software products, we know this is a marathon, not a sprint.

This governing framework that we are sharing with you has evolved from numerous discussions and conversations with our Founder Circle membersFellows, Mavens and Saarthis over the last many months.  By placing this in the public domain, we once again commit ourselves to building a durable Think Tank that’ll turn India into a Product Nation.

Bharat Goenka (Tally Solutions), Jay Pullur (Pramati Technologies), Naveen Tewari (InMobi), Sharad Sharma (BrandSigma), Vishnu Dusad (Nucleus Software), Governing Council, iSPIRT Foundation

On that age old debate, Bootstrapping Vs Venture Capital

“The best way to do something ‘lean’ is to gather a tight group of people, give them very little money, and very little time.” – Bob Klein, chief engineer of the Grumman F-14 program.

I first came upon this quote on Paul Graham’s website, and it always intrigued me, the small detail about the money – it could be little or a lot, but money is a factor, and a very important factor at that.

Bob Klein’s F-14 program is now legendary in aviation history; the Tomcat was one of the airplanes I was familiar with even in the Indian Air Force circles of the 90’s. Designed to fulfill duties both as a air superiority fighter as well as a naval interceptor, the F-14 Tomcat was easily one of the greatest airplanes ever built then, and Bob Klein did it, as he said, by keeping it fast and cheap.

Bootstrapping or Venture Capital

So is that the blueprint to build something amazing and meaningful? To just sit down, tighten your belt and do it, what we call bootstrapping, or is embracing the stability of venture capital a better way?

It’s an important question in the context of the product startup, and I believe there’s no right and wrong answer to it.

Last week, in a conversation with iSPIRT’s co-founder Sharad Sharma, this topic came up and proceeded to lay claim our entire discussion. When these days a bootstrapped startup is seen as something of an aberration, and scale is seen as validation, Sharad maintained that there’s no formula here; both these paths can lead to success, if followed with caution and perseverance.

Quoting Sharad –

“When you are building something that hinges on a market prediction, that so and so market will be worth so and so in 2025, and you want to be there to fill that gap, then VC funding for the idea and for you is probably the way to go. But if you have no such idea or bet on the future for what you are building; it’s much more experimental (which is ok, that’s how innovation happens), then bootstrapping might make better sense, even if just for the sake of flexibility and more control.”

I could find no reason to disagree.

The Zoho Example

The success of Zoho, the poster child for the bootstrapped product startup, is now quite well known. And all of it with not a penny in external funding. The company is growing, has always been growing, and has just announced a bold move to make one of its flagship products completely free. These are big decisions, made strategically and with a much larger gameplan. Zoho has always stood for something, and its clear, unmuddled decision making has been one of its strengths through the years.

Would Zoho have been able to make such decisions if a member of its board was an investor? Perhaps, but not very likely.

Which I think is significant. What ails the ecosystem these days is a ‘go big or go home’ attitude that typically results in an organization and a product that scales far ahead of its time, resulting in chaos and sometimes even graver problems. Zoho didn’t fall into that trap, it took its own time, and now stands tall as an organization.

Sometimes VC money, though a huge competitive advantage, can come with its own baggage, and the pressure of having to execute something extraordinary all the time can weigh down on doing what actually needs to be done.

But sometimes that baggage is exactly what you want.

The Zomato Story

When Deepinder Goyal started Zomato off, he certainly would not have known that the product he was building, a restaurant review and recommendations site that is today used in 40 cities across the world, would change the entire landscape of eating out. He would have had a vision, but of course he could never have knows what exact shape his business was taking. But he knew he had something; he raised funding. Venture capital stood him up as he expanded hard and fast and cool. It was great to watch.

Would Zomato have been able to scale the way it did without venture capital? The answer is an emphatic no. The awesomeness of the Zomato model rested on its ability to execute, and they did it magnificently well; waiting was something Zomato could not have afforded anyway.

In this case, the VC prerogative to execute fast and hard tied in perfectly with what Zomato itself wanted to do. What resulted is Zomato’s incredible success as a platform, a lovely example of using funding to take an idea big.

“There is no formula”

Again, though, Sharad put in a word of caution – it all depends. This may be a good rule of thumb but there is no formula. Product startups are all different from each other, and what works for one is not at all guaranteed to work for another.

And this is when it struck me that there’s a third category here as well, the perfect example of which is that darling of the younger generation, Instagram.

The Instagram Model

Instagram started out as Burbn, a location sharing app with the option of taking a photo thrown in, but then pivoted to the unbelievably successful photo sharing app we know. And they were funded from the beginning by Andreessen Horowitz and Baseline Ventures.

So here’s a venture funded company, which was trying to build something purely ‘social’ and ‘viral’ in parlance, and the VC’s let them experiment to an extent as to change the focus of the product itself. This is the third kind, the company which adds the no-commitments freedom of bootstrapping to the competitive advantage of venture capital, and becomes a sort of hybrid, absorbing the good in both approaches and ridding itself of the bad.

An important point here is that Instagram never really had a monetization plan in the first place (other companies like this include Tumblr, Twitter, Foursquare, and so on). Positioned for acquisition because of the exponential increase in their user base, they could tread this middle ground with the confidence of knife edged focus.

WhatsApp also did something similar. When Jan Koum and Brian Acton started working full time on WhatsApp, they already had $250000 in funding from friends, which meant that they had the freedom to innovate and at the same time had the stability of capital.

The Last Word

In 1986, Tony Scott’s Top Gun hit the silver screen, in which a young man called Tom Cruise flew a F-14 Tomcat to box office glory and superstardom. The immediate aftermath was that the US Armed Forces were overwhelmed with young people wanting to sign up for service, so much so that the US Navy opened recruitment desks outside cinema halls.

The Tomcat became the symbol of a generation, the high of the air and the allure of uniform combining to give an era its own narrative. And it was exhilarating.

It was a small team that built it. With the entire might of Grumman (later Northrop Grumman) behind them, Bob Klein could have done it in any way he wanted, but he and his team chose the best way for the specific thing they wanted to do, and executed.

And that’s exactly what we can learn from them – that there’s no ‘one size fits all’ answer to this question, and the ecosystem should encourage bootstrapping as as much of a viable pathway to growth as venture capital.

As for the startup, it should choose wisely.

Can we build IP-based Product Businesses from India?

My interest in knowledge management has always been from the perspective of knowledge creation. So, I readily agreed to participate in the CII Knowledge Management Summit this year in a session that focused on this dimension. Ganesh Natarajan, Sharad Sharma and I were together on a panel to explore the potential of, and challenges in, the creation of intellectual property (IP)-based businesses from India.
I began my talk with a historical perspective. For the first four decades after independence, India tried to build core industrial capabilities. The focus was on understanding, assimilating and improving on manufacturing processes. It’s only in the last two decades that we have seen some momentum building up in the arena of new product development.

IP-based Successes from India: Bajaj, Vigyanlabs, Praj & NCL

We have several examples of this trend. My favourite one is of Bajaj Auto. As a scooter maker, Bajaj restricted itself to making cosmetic changes to the Chetak. But after it entered the much more competitive motorcycle space, it came up against powerful competitors like Honda (at that time in the Hero Honda JV). After several unsuccessful attempts to adapt Kawasaki’s bikes to the Indian market, Bajaj was finally successful when it developed and launched the Pulsar around 2001. The Pulsar offered power and style at a reasonable price and operating cost to a new young generation of bike riders who wanted something more than the efficiency of Hero Honda’s Splendor. At the heart of the Pulsar’s engine, was Digital Twin Spark Ignition (DTSi) technology, a patented method of overcoming the traditional trade-off between power and fuel-efficiency. The DTSi patent itself has been the subject of litigation over questions of novelty and non-obviousness, but the Bajaj Pulsar is certainly a landmark in terms of a successful Indian product riding on IP covered by a patent.

In some of my earlier posts, I wrote about other companies that are doing a good job of IP-based innovation. Vigyanlabs, winner of the 2013 Nasscom award for technology innovation, has a novel solution to reduce power consumption in data centers – the core of this is covered by a US patent. Praj Industries started by developing improved continuous process technologies for fermentation of cane molasses, but is today doing research at the molecular level so that it can convert different types of waste into next generation biofuels. Praj already has patents covering processes to produce ethanol from lignocellulosic material, and I presume more patent applications will follow.

Our public research institutions have also been successful in creating core IP that is at the heart of commercial products. To give just one example, Dr. Sivaram and his team at the National Chemical Laboratory (NCL) created a microencapsulation technology covered by 6 US patents that is today being used by Procter & Gamble in their high end Downy fabric softeners for controlled release of perfume that lasts many days after the clothes have been washed.

Yet, Challenges Remain…

I recently met Anjan Mukherjee, co-founder of HyCa Technologies. HyCa has been a pioneer in the development of hydrodynamic cavitation, a technology that has applications in areas as diverse as treatment of effluents and ballast water. Anjan and his team have won several awards, and been invited as guests of different countries. But, commercialization on a big enough scale has eluded HyCa so far. One of the main reasons for this is the absence of an effective public procurement system for new technologies. While in most countries public procurement helps in certifying and establishing locally-developed technologies, in India the rules of public procurement are loaded against the purchase of novel technologies developed in India.

The Indian pharmaceutical industry graphically portrays some of the other challenges in building IP-based product businesses from India. While the leading Indian pharmaceutical companies were already strong in process innovation, they invested in new drug development when India decided to sign the GATT/WTO agreement in the mid-1990s. But, after some early success in out-licensing molecules at early stages of the drug development process, they have found the big wins hard to come by. As a result, some of them either sold out or cut back on new drug development.
Why is it so tough to develop new drugs out of India? The combination of large upfront investments, a long gestation period (trials and approval can take 10+ years) and uncertain outcomes (a drug can fail in advanced trials, rendering several years of effort infructuous) make drug development challenging anywhere. But, in India, this is compounded by the absence of knowledgeable and patient capital, and a lack of deep expertise in biotechnology and disease mechanisms. Recent curbs on clinical trials in India have made the trial process more expensive and cumbersome. Local regulators lack the sophistication and expertise to make a rigorous assessment of a new drug. IP protection is also an issue with Indian IP laws perceived as being against new drug development.

Many Challenges are Ubiquitous

But, in fairness to the Indian environment, some challenges in IP-based product development exist everywhere. Even in the US, the assumed Shangri La for new product development. I often relate the story of Robert Kearns, who invented the first intermittent windshield wiper. He applied for a patent, and then offered his technology to the automotive majors. They didn’t license his technology, but introduced similar products of their own some years later. Kearns sued Ford and Chrysler, but won a pyrrhic victory– by the time he won in the courts, he suffered several personal losses. If this David vs. Goliath battle can play out in the US, one can only imagine the challenges of defending one’s patents in India.

Apart from the IP itself, there is the importance of the possession of complementary assets in getting value out of IP. In many industries including biotech-based Pharma, in order to make money you need to have a good understanding of the regulatory process, staying power and resources to complete trials and the ability to market your product if you want to capture a major part of the value created by your IP.


India has the potential to build IP-based, product businesses. We have people with ideas, in many areas we have people who have gained deep expertise, and access to funding is improving.

But there are serious weaknesses as well including the absence of support from public procurement, regulatory gaps, absence of specialised funders, and shortages of talent, and infrastructure that can be used on a shared, chargeable basis.

The keys to success include the ability to stay the course (for a much longer time than in developed markets), internationalization, and getting the business/commercialization model right. I can’t over-emphasize the internationalization dimension – other countries can be much more accepting of new, cutting-edge technologies; you get a large enough market to amortise the cost of your development; and Indian customers are more positive once you have proven yourself elsewhere.