Indian use of smartphones is rapidly growing. Google-sized companies will be created over the next decade to satisfy user demand, which is significantly more than in the U.S. and China over the same time period. Here’s whyIndia is primed for massive mobile growth. This is why we are getting more aggressive in India.
By 2014, the world’s mobile phone user base had grown to 5.2 billion, or 73% of the population. 40% of that user base had a smartphone.
Based on these stats, it’s hard to argue against mobile development as a lucrative business endeavor all over the world. Even so, growth in countries like China and the U.S. is slowing. Based on what I’m seeing as I invest and work with Indian companies, India offers the greatest opportunity for mobile investment. According to a report by IAMAI and KPMG, the number of mobile Internet users is set to double by 2017 to 300 million!
India already has over 900 million mobile phones, representing 79.39% of the population, and it’s on the path to having more smartphones than the entire U.S. population. It has the second highest number of mobile phones in use, after China and before the U.S.
Having a population that is four times bigger than that of the U.S at 1.27 billion people, offers a massive opportunity to scale a business. Though, margins in India are typically pretty low, the numbers are massive. There are hundreds of millions of people across India who will access new technology for the first time via their mobile phones. They will want entertainment, content, services, and communication. Startups that can figure out how to meet the demands of mobile-first urban and rural Indians will create multibillion dollar companies. Even now, most people use a mobile phone to access the Internet vs a computer or desktop – “According to Meeker’s report 65% of people accessing the internet in India do so from a mobile device and 41% of e-commerce in India takes place on mobile.”
Growth in India
According to the App Annie Index, “Emerging markets grew as low-cost smartphones continue to penetrate India and Southeast Asia. First-time smartphone owner numbers are on the rise.”
I also think that people are inspirational at their core. If you provide the best hardware, QoS, content, and services, they will pay for it as long as their payment options become easier and ubiquitous.”
The trouble that some Indian startups are facing is being touted as the harbinger of a coming apocalypse. What happened at TinyOwl in Pune with employees holding the founders hostage was an embarrassment to all of us.
Dazo shutting down. Zomato laying off employees. Foodpanda, well, just Foodpanda. These are normal occurrences at startups. Most of them are, in any case. Some things are hard to comment on without knowing details.
6 months ago, almost all of the bloggers and reporters were writing about how foodtech is the second coming of the Indian startup economy and how VCs are falling over themselves trying to get into as many deals as possible. Today, those same folks are pontificating on “the bubble” and the coming apocalypse.
One small, and I mean TINY, sub-sector does not a bubble make. Contrary to what people would like to think, food/grocery delivery is a very very small part of the much larger Indian startup world. PayTM is going after everything from m-commerce to taxi booking payments on Uber to hotel bookings to hyperlocal to movie tickets. Flipkart, Snapdeal (though far from startups any longer) have changed the way Indians fundamentally think about purchasing products. Freshdesk, FusionCharts, Wingify and many others are going after global markets and are seen as serious threats to incumbents. Even some of our Indian companies are changing the way people think about hiring, education, commerce, gaming and finance. Companies like CultureAlley and OnlineTyari are taking language learning and test preparation to the masses at affordable prices thru the only device they need – a smartphone. Consider how Kraftly is giving cottage industries where men, women, and even children are making baked goods or clothing or art at home and able to easily reach and transact with customers not only across India but overseas as well or how SwitchMe is making refinancing your home loan quick, painless and cost effective.
My point is that the Indian startup scene is far broader and diverse than this one small sector. The food and grocery delivery vertical has been overfunded. Some of the companies closing rounds forced me to scratch my head and ask, “what am I not getting?” That’s Ok. You know why, there are amazing entrepreneurs and developers, and designers and financial wizards building solid businesses. And guess what, it’s not going to stop. What else isn’t going to stop? The funding of great companies but also of companies that aren’t run very well.
Would I invest in Zomato today? Definitely. Deepinder and the team don’t give up. They will make the hard decisions when required and they will continue to push the limits of what’s expected from them and at the same time, force the rest of us to compete better.
Would I invest in a pure food or grocery delivery business that picks up veggies from the local mandi or from the 3 restaurants in my neighborhood and deliver it to me? Not likely, though, I have invested in ChalDal in Dhaka. I would definitely consider investing in entrepreneurs that understand warehousing, logistics and supply chain to provide grocery delivery via distributed warehouses in a city. Or a food company that understands how to manage large centralized kitchens, and has an expertise in logistics. Oh wait. Didn’t the Harvard Business Review write about a cooperative that does this? In India.
So all of you talking about the rot in startupland, keep doing what you’re doing. You will get your clicks and likes and shares and eyeballs with sensationalist headlines but all you’re really doing is scaring a young dreamer’s parents into not letting them work at a startup or start a business or get married because they aren’t working at Microsoft, Infosys or TCS. Once the cycle completes, you can begin again. This time writing about how those parents are unfair and ruining their child’s chances of starting a multi-billion dollar startup. Please, just ask yourselves, how any of this helps anyone.
One has to let loose a lot of arrows before learning to shoot and hitting the target. Even after learning to shoot, we will still miss. Often.
At 500 Startups, we’re not going to slow down our investing in India. In fact, I love all this talk of doom and gloom. Why? It’s going to send wannabe founders, angels (who figured they can make more money investing in startups than real-estate) and the glory seekers running for the hills. This means less noise, serious founders pushing the limits of creative destruction because they will have to do more with less, and investors, in it for the long haul, getting access to great founders building real companies.
Cover photo from https://pixabay.com/en/apocalyptic-war-danger-apocalypse-374208/
In a country of almost 1.3 billion people, mid-20th century infrastructure, rampant corruption, over 400 million people below the international poverty line, roughly another 400 million people who are considered middle class and one of the youngest populations on the planet building the next Facebook isn’t exciting. What is exciting? Solving problems for over 800 million people who don’t have access to smartphones, tablets or computers. The real opportunities for smart, savvy entrepreneurs is to solve the problems plaguing them on a daily basis. There really is no shortage or problems, big or small.
A SMS based service that brings “mandi” (market) prices directly to a farmer allows the farmer to know exactly how much his produce will get him at a market in Mumbai, Delhi, Indore, Kolkata, etc. In 2009, Thompson Reuters was making over a million dollars a year by providing the service to farmers in only three states in India. In many cases, information about current market prices has made farmers better able to negotiate fair prices with middlemen, sometimes tripling the amount of money that goes to the farmer.
Every hear of “star dialing”? Chances are that if you live in the US, you haven’t. In India, on my mobile phone, I can dial *123# and I will get my current balance pop up on an iPhone just as easily as a Nokia 1100 feature phone. The best part is that “star dialing” doesn’t cost the caller anything. No call ever gets terminated. Well, can you imagine building a banking solution on top of this for people who don’t have access to a bank? Eko Financial, based in New Delhi, has done exactly that. For millions of people who don’t have access to a bank or millions who need to send money back home to their family in a small village can do so quickly and easily by going to a local bodega (we call them “kirana” stores in India) and give cash to the store owner who enters a sequence of numbers to authenticate with the service and transmit the cash to the destination account. All of this is done in minutes and payments can be tiny or relatively large.
Imagine you lived in a rural area with no terrestrial Internet connection, no 3G, no 2G, nothing. You had a mobile phone to communicate with the world via voice and SMS. Now imagine you could search the web simply by sending an SMS to 55444 or you can find the Rotten Tomatoes ratings for a movie playing over the air. You can join IRC style chat rooms simply by using SMS. Innoz let’s you do all of these things and a lot more. It’s bringing the power of the Web and applications to people who would never have access to them. The reality is people living in remote, rural parts of India can now connect with people in cities over IRC style chat rooms, find out the seven day forecast, and even get the best price for a TV from EBay simply by sending a text message.
These are just a few examples of mobile applications that people have built in India over SMS. Add in smartphone apps that alert civic authorities to sewage problems, garbage piled up on the side of the road, illegal construction, unsafe working conditions, etc. and you have a tech savvy urban population that can use technology to improve their quality of life. The opportunity in India isn’t in building another social network or e-commerce site that sells printed kurtis online. The poor across India are hard-pressed to get access to basic resources. The middle class is very aspirational and though price sensitive, the household savings rate as a percentage of GDP fell to 7.8%, the lowest in 20 years, according to a report in Times of India. This means middle class Indians are spending and it’s been increasing.
Today, it’s possible to get a basic smartphone in India for INR 4,500 or less than USD 85. The Aakash tablet, was an ambitious project to produce a basic Internet device that can be used anywhere a mobile phone can at USD 50 subsidized to USD 35. A good deal of controversy surrounded the Aakash tablet. However, the push from the Indian government as well as manufacturers towards more affordable smartphones and tablets will create massive opportunities for entrepreneurs to provide solutions to everyday problems along with education, entertainment, sports, content, and other utilities. All going after hundreds of millions of people who are getting access to technology for the first time.
Geeks on a Plane is a 10-12 day trip to various parts of the world with 20-25 “Geeks” (entrepreneurs, techies, designers, angels, VCs, mentors). The trips are planned and run by 500 Startups and have been going on for a few years now. The first Geeks on a Plan (GOAP) to India was in December 2011. That’s when I first met Dave, Paul, Christen, George, Anu, Samir, and a bunch of other really awesome geeks. Fast forward 14 months and I got a chance to be a “geek” on the February 2013 GOAP India trip.
GOAP India 2013 also had some really awesome people on the trip as well as hosts across India. Here are some of the things that I learned from these people during our visit to Bangalore, Mumbai and Delhi with Geeks on a Plane.
India: A Land of Contradictions
The poor are all over India. It’s still one of the poorest countries in the world. However, the rich are obscenely rich. Driving a $200,000 car is no big deal in a city like Mumbai. On your way to a swanky hotel where you’ll pay $900 for a single malt, you may drive by open sewage, dirt piled up on the side of the road for impending construction, barking stray dogs in packs, etc. However, you will also pass by massive skyscrapers, gorgeous temples, educational institutes galore, and many people hustling to make a buck. You can feel the buzz in the air and the excitement of young people who see multiple opportunities all around them.
I didn’t witness these contradictions being any more pronounced than they have in the past. Instead, I saw young people that are hopeful and welcoming of bright future for their country, their families, and themselves. As risk averse as their parents are, more and more people are willing to take significant risks to enact change and get rich while trying. For example, at Startup Weekend Bangalore, we saw many ideas pitched, of which, two of which stood out in my mind.
Ghati, to enable safe and clear passage of ambulances.
Garbage-busters, which uses mobile phones to alert civil authorities of garbage that hasn’t been cleared.
Two years ago, very few people would have considered quitting their jobs to pursue ideas that will make life better for people while at the same time, having a real chance at making money. Instead, most of them wanted to build the “Twitter of India” or the “Facebook of India”. More and more Indians are cognizant of the problems surrounding them in their daily lives and they are taking the first steps at solving them.
Great Raw Entrepreneurial and Tech Talent
There’s no question that India is full of geeks with great raw entrepreneurial and tech talent. Look at the number of Indian engineers in the Valley, doctors and Wall Street quants that flourished in the US. In India, having their chidren go into the “IT” industry has been the hope of many middle class Indian parents since the 90’s. That usually meant working at Infosys, Wipro, TCS, HCL, etc. Then came along PWC, E&Y, Accenture, Goldman Sachs, JP Morgan, Dell, Microsoft, Google, etc. Today we have Facebook and LinkedIn as well as hundreds of other great US tech product companies. Most tech entrepreneurs in India prior to 2005 built their fabulous businesses selling services to companies big and small around the world. These successful tech entrepreneurs built businesses to be envied and made India the outsourcing capital of the world.
What they didn’t do was build an ecosystem that fostered entrepreneurship or creative thinking.
All that started changing sometime in 2010. Some amazing companies have been built in the last few years by incredible people (some of the companies go back to 2006/2007) – Druvaa, Slideshare, FusionCharts, InterviewStreet, ZipDial, Flipkart, SnapDeal, InMobi, Innoz, ZoHo, Freshdesk, Wigify and Komli Media.
Some of these companies have exited. Some are incredibly cash rich. Some are growing like a weed and continue to raise larger amounts of growth capital.
Beyond some of the marquee names above, quite a few amazing founders are building great companies. A few are InVenture, WebEngage, UberLabs (gazeMetrix), Ketto, InstaMojo, ChargeBee, and Practo.
Founders’ Communication & Confidence Need to Improve
Most first time founders in India still lack confidence and it shows in their pitch and their communication style. Paul has mentioned this before in his Observations on India and he also talks about gaining confidence. I continue to see this being a problem and a tremendous opportunity for founders. The founders that can communicate the most effectively, will have a much better chance at selling to their customers, their investors, and prospective co-founders, employees, mentors/advisors and importantly, in India, to their families. The good news is that in the last 7 years I’ve been here, I’ve seen pitches and communication styles get better. Although the ecosystem is still nascent, it’s maturing and giving young entrepreneurs the shot in the arm they need.
Investors are Optimistic
Investors across India that I met during GOAP continue to remain bullish on the long-term opportunity. Ecommerce, education, travel, personal finance, Universal ID (UID), family tech, rural tech and, of course, tech built in India for a global market are some of the broader themes that investors expressed significant interest in. Sorry folks, “social media” just wasn’t at the top of anyone’s list.
However, as bullish as investors are, most of them still aren’t very founder friendly. Some of the deal terms being offered are still quite onerous. Doing an investment in tranches is another favorite past time of Indian investors. Most founders still complain of angels behaving like series A VCs and VCs behaving more like private equity shops.
The bright side is that a few founders I met with and spoke with during GOAP, mentioned two VCs by name who work more like startup founders than VCs. They make decisions quickly. They present terms that are fair. They tell founders when and how much they should raise to minimize dilution. They make themselves available by not hanging out in their ivory towers. You might say that two VC firms in a country of 1.2+ billion people is statistically insignificant. However, if you said that, you would be wrong. It’s quite significant. VCs running their funds like real startup founders is a massive mindshift and their success will only inspire more to do the same (or lose deal flow).
Investors are also Cautious
During some of the investor events at GOAP, I spoke to investors about things that concerned them. Investors are a little bearish about the short-term. Macro-economic conditions, the lack of exits, corruption in the government, the bureaucracy, rising costs all play an important part in dampening the spirits of investors. However, these also present considerable opportunities for daring entrepreneurs. Investors realize this and continue to hunt for deal where they can deploy funds in India.
The Indian Government is Finally Waking Up
During our trip, the Indian Government announced its budget. Though, not a big deal in most western countries, in India, the budget makes or breaks economic sentiment for the year. No one was terribly excited or distraught over this year’s budget. However, there were a few things added that raised the hopes of startups and early stage investors.
Preferential tax treatment for angels when investing together or “pooling” their capital and registering with the government.
Corporations are required to spend 2% of their income on CSR (Corporate Social Responsibility) investments or donations. Incubators at government or recognized universities qualify for claiming the 2% spend.
Startups can potentially find some liquidity by listing on the SME exchange. The BSE (Bombay Stock Exchange) runs one and had 11 companies listed as of December 2012.
A much more detailed analysis of the budget and some opinions can be found on VCCircle.
You might have heard that 500 Startups recently announced a public application process. This is the first time we’re accepting applications for all companies that want to join our accelerator. In the last batch of the 500 Startups Accelerator, we had four great companies from India. The highest number from any country outside of the US. I’m hoping India can be represented just as well in the upcoming batch which starts in April 2013.
If you’re doing something exciting in education, jobs/employment, travel and you’re looking at markets in India or globally then you may want to put in your application soon. We will consider all applications, however, companies with traction, strong teams, past successes, and even a few referrals from 500 mentors and/or other 500 founders will go a long way.
Education Put in your application by 13th of February 2013
Jobs/employment by 14th of February 2013
Travel by 15th of February 2013
Others by 16th February 2013
By the 20th of February, I will start emailing interesting startups with dates and times to meet Dave and I in Bangalore, Mumbai and Delhi/NCR. If you have been thinking about how you can be a part of the 500 Startups family, this is your chance.