Top 7 reasons why there you will not see an innovative software startup from Bangalore for another 5 years

Long (essay type) post.

You would
expect Silicon Valley of India to have more software entrepreneurs. I spoke
with 4 of my local venture capital friends (2 in Chennai and 2 in Bangalore) who were lamenting the lack of good quality
local software startups in Bangalore.
Their claim was that there are more “me too, copycat” software attempts with a “local
flavor”. No wonder – they saw 7 proposals for “Facebook for India”, 5 for
“Indian Admob” and countless mobile social networking ideas. I am going to punt
on the existential questions about the necessity of software startups for this
post, so let’s assume they are good to have.

 Here are
the main reasons that they claim is the reason for the lack of such ventures.

  1. There are not many smart
    engineers outside of IIT OR The top engineers from IIT go to US and Europe

The IIT’s (Indian Institute of Science) are premier
institutions no doubt, but the number of graduates are very small (relative) in
number. There are very street smart individuals I have met from the tier 2
regional / state colleges that are more willing to take a risk than your IIT
graduate. Even in Silicon Valley this plays
out – the number of companies started by Indians from other colleges far
outweighs the number started from IIT. Increasingly most of these individuals
prefer to stay back in India,
where they see a lot of opportunity, unlike 10 years ago. But IIT is a proven
name, which is why venture capitalists prefer to fund them. Plus the number of IIT grads are returning per Rediff.

  1. Social stigma against no name
    brands OR Culture prevents risk taking OR Culture does not support failures

This is true to some extent. In most cases, after you
graduate, close friends & family will pressure you to join a “brand name”
such as Infosys, Wipro, Oracle, etc. Why? They feel a stigma in mentioning it
at dinners, parties, etc.

Although software startups are risky so are any of the other
kinds of ventures. There’s a perception that starting a new venture in a proven
field reduces risk, which is why you see more restaurants, home builders,
infrastructure providers than new ground-breaking innovations from India.

  1. Since individuals need “strong
    brand name” in their resume, its hard to hire good quality engineers for
    risky startups

This is the same argument as the previous one. Most “fresh”
graduates don’t want to take a risk with their first job out of school – they
prefer to work for a well established company than a unknown startup. I believe
that’s changing. Most of the work done in India the last decade was
maintenance & support. Now,
there are some good cutting-edge Ruby-on-Rails and AJAX technologies that are being adopted, which is why I believe  it will take a few years, but  not for another 3 years to see a “new” idea emerge from India.

  1. Starting a service company is
    easy way to make money OR alternative types of startups are easier.

Services or consulting is immediate revenue, so the need for
capital is little and success is mostly assured. For every Infosys (that’s
proven) there are 100’s of other small 10-50 person companies that exist in Bangalore. Each company
is trying to be a specialist in a niche area in an attempt to get acquired by a
US or European company to
expand their operations in India.

  1. Bureaucracy prevents anyone to
    start companies easily OR There is insufficient infrastructure (unreliable
    electricity, bad roads) to support
    software startups

The paperwork in India to start a company or any new
venture is arduous and cumbersome. That’s changing in my view and you can
easily pay to get things done faster. The infrastructure question is a whole another
topic. Without good transportation and guaranteed electricity software startups
will not succeed. My personal view is that this is not going to change for the
next 3-5 years. 

  1. Not enough angel investors OR
    There are no successful software startup founders to mentor

I have heard more of the lack of good mentors than angel
investors. The VC’s obviously feel there are not enough of them since there is
not enough deal flow. Many first-time founders are looking to network, learn
and get some guidance, but the available pool of experienced startup mentors is
far and few between.

There is a TON of “dumb money” in India, which means capital is
cheap, but the cost of getting money with connections is too high for most

  1. Education system promotes rote
    learning not creativity OR Local universities don’t provide research
    environment unlike Stanford, Berkeley

I don’t quite believe this to be true. Yes there’s a HUGE
emphasis on math, repetition and students are drilled to learn their subjects
more by repetition than by experimenting. The thing that’s changing though is
there are a lot of new international schools that emphasize “complete learning”
and are empowering students to think more about what they want to do than are
told what to do. 

In a post later on I will try and provide some ideas and
viewpoints from entrepreneurs on how they believe they are going to change the
situation and prove me wrong. I would love nothing more than to be proven wrong
on my title.