Since I get nearly 60% of my visitors to the blog and nearly 80% of email requests for connections to funding sources from India, I thought I’d do a quick round up of what’s getting funded in India, so people can determine which areas they would have an easier time to get funded, and which areas they are likely to struggle.
There are 13 sources of funding data for me from India – 1. Venture Intelligence, 2. VCCircle, 3. YourStory news, 4. TechInAsia, 5. Economic Times Tech, 6. IAN newsletters, 7. Mumbai Angels newsletter, 8. LetsVenture, 5 of the accelerators (9. Microsoft, 10. GSF, 11. 91 SpringBoard, 12. Tlabs, 13. Startup Village and 14. CIIE Ahmedabad), 15. TIE, and 4 other angel networks and sources – Hyderabad, Chennai, Bangalore and Kolkata. Besides this I also track the top 25 Venture firms announced deals.
If you triage that data you get roughly about 273 deals done this year from accelerator to seed and from VC to later stage deals. I suspect another 10-20% have gone unreported.
The deals have totaled about $4.1 Billion so far ( 9 months) compared to $5.1 Billion in 2014. While we cant predict for sure, I think we can safely say that we should go past the funding amounts for last year.
Of these deals, over 28% have been accelerator stage, 21% have been seed and the rest have been later stage. Some companies have gone through 2 deals in this year alone.
The not so surprising part – Over 50% of the companies have been funded without going through an accelerator – which makes sense if you consider the domains getting funded.
Over 62% of the companies are in eCommerce. The rest are in SaaS, Content (media), Ad supported businesses and Enterprise software businesses.
B2B has made up less than 22% of the funded deals. They have been more in the later stage deals and the accelerator stage, but VC’s have largely been slow to adopt B2B this year.
The top 3 areas within B2C eCommerce are – services (delivery – food, groceries, etc.), goods (furniture, etc.) and travel / transport (cabs, buses, etc.)
In B2B, SaaS is the first category, followed by some Ad tech, but IoT, Cloud infrastructure, drones, Robotics, are largely being ignored.
So if you are looking to raise funding now, you are better informed.
Ask most people who they think is innovative, they will likely name Apple, Amazon or Google. Some many even mention Facebook.
True innovations though have been coming from industries outside of technology for years. In the area of healthcare, medicine, drug delivery, education and mining for example, creating great outcomes to help improve the lives of humans.
The credit card for example is one of the innovations I value the most. Not having to carry cash and yet pay for practically anything and “actually” pay for it many days later. What’s not to like? Very innovative.
There are a few observations about innovation that I wanted to put forth.
First, most innovative ideas which have a lot of impact rarely seem to be so early on. I still remember many years ago when a friend, Mike Walsh mentioned Uber to me and I did not think it was very innovative. I actually thought it was an app for taxi drivers to get fares. Turns out it is an innovative way to avoid car ownership.
Second, you need help from many others to bring your innovation to the market. Almost always those people who you need help from are pretty busy or very tied up, so they will likely not have time to give you. Being persistent, taking any chance you get and keeping at it helps.
Finally being disciplined and meeting people from other backgrounds and experiences helps a lot. Getting ideas that worked in other fields and trying to solve problems you have with a different perspective helps make your idea stronger and more innovative.
I heard about Innofest from my friends Sharad and Avinash this week. The 1 day un-conference is an event to be held in 2 weeks (22nd Aug) at IISc Bangalore.
The event is an un-conference so you will have a chance to meet with folks and discuss ideas instead of just listening and leaning back to hear “speakers” talk. Also, the part that’s most useful is that you will get 10 min to talk to the awesome lineup of speakers – people like Alok from Saif partners and Bhavish from Ola Cabs among others. These folks have been through it before and will be there to help guide you through your problems and formulating your idea.
I think if I were in Bangalore, this would be a must attend event. #IndiaCanInnovate
First, the two ecosystems are not that different in many aspects – the criteria used by compass were:
1. Performance (exits, valuations, etc).
2. Funding access
3. Market reach
5. Startup experience
and finally Growth index.
1. Growth: Bangalore is growing dramatically, at 2.5 times Tel Aviv’s growth and more than 3 times Seattle. It will be a matter of time before the total number of startups from Bangalore will be more than that of Tel Aviv or Seattle combined. Likely in 2018.
2. Spread: Seattle’s ecosystem of startups is more broad based – a few eCommerce (Zulilly, Expedia and Amazon), some cloud and a few SaaS companies. Bangalore’s ecosystem of startups is fairly shallow – eCommerce rules, followed by a few in Ad tech and B2B.
3. China: I am shocked that Beijing and China were out of the top 10, much less not even on this report. My first hand knowledge of Seattle and Bangalore and secondary knowledge of China, indicates that they will be #2 even higher than where LA is.
I would agree that market access / reach and startup experience, expertise will put Bangalore slightly behind Seattle, but that’s more than made up for with Bangalore’s better funding availability and overall acquisition track record.
Here is my unofficial top ecosystems ranking, which I believe will reflect a more accurate ranking of the top ecosystems for startups.
1. Silicon Valley (Separate the valley and SF and you will have the #1 and #2 positions)
3. New York
4. Los Angeles
6. Tel Aviv
The rest of the ecosystems dont matter. Either market access, funding or performance in terms of acquisitions.
The other parts of the ecosystem that should be measured include news and media involvement, hackathons, events, training and education – early indicators of where the ecosystem is headed and I think those will show a few other cities – Tokyo and a few middle eastern countries as well.
Over the last 4 months I have been able to talk to over 30 Chief Innovation Officers and VP’s of Marketing or Technology who are customer’s of Microsoft. These have been largely 30-45 min sessions, followed or preceded by a 30 min call. The main purpose of these session is that “Innovation” and “Disruption” are now a board level agenda.
A brief, but short history. Innovation has always been about a major “theme”. During 1960-80, inside out innovation was the mantra. People were carrying books from Peter Drucker – Innovation and entrepreneurship and every person in the large company was asked to suggest ideas and help the company be more innovative.
Then between 1980-2000, the Japanese innovation and optimizing manufacturing, measuring outcomes and building networks were critical.
In the early 2000’s the Blue Ocean strategy took shape. The concept of “Outside In” innovation, talking to customers and having customers drive the innovation process became the vogue.
From 2010, Clayton Christensen’s book on the Innovators Dilemma is the most quoted book by innovation teams. The idea of “disruptive innovation” is in its peak.
So, if you are in a large Fortune 1000 company, you look at startups like AirBnB and Uber and get concerned that these and other companies will “eat your lunch” and change your entire industry with software and technology.
Which is why you see a huge spike (year over year) in the number of new corporate venture capital teams.
There are many tactics that larger companies are using to foster more innovation:
1. Starting offices in Silicon Valley, even if you are a mid-west retailer.
2. Opening a new innovation, analytics and venture funding organizations.
3. Partnering with startup accelerator programs to engage with early stage startups.
4. Starting your own accelerator program, even for a baseball team.
5. Announcing API’s that are available to startups to build applications on top of – even for government.
6. Running hackathons for Epilepsy to help learn about new ideas startup entrepreneurs come up with.
7. Partnering with your competitors to support startup innovations.
All of these and others, are a reaction to the extreme disruption that software, technology and mobile are causing to other larger, more established companies in all industries.
In talking to most of these Innovation officers, though I get a sense that they are “trying lots of things” to see what sticks.
What they are finding is that:
1. Silicon Valley is more expensive and hiring there is a big problem. Competing with Google, Facebook has many of those companies rethink that option.
2. Innovation is now dispersed in China, India, Israel and other countries as well. Over 50% of the “unicorns” are from outside the United States.
3. Unless they go deeper to learn with the startups, they are unable to change the internal culture, which is where most of the work needs to happen.
Which leads them to India, particularly.
Many of the executives are keen to tap into the talent pool in India, but are concerned about high prices (what a surprise) and also attrition rates.
Most are trying to understand if they need to open Innovation and startup center’s in India instead of the valley.
So, for B2B, enterprise startups the next few years would be great with many of their target customers “coming to India” to source startup, instead of the startups that have to travel outside to get customers.
In 2008 (before Angel List) there were roughly 1000 technology startups in India starting each year. of these about 50+ got funded by VC each year according to Thomson Reuters.
The percentage of services (consulting, IT enabled services, BPO, outsourcing) companies was about 29% – those that started and 33% of those that got funded.
The number of eCommerce companies was about 3% of the total.
Fast forward to 2014 and those number of companies starting at 22% of the total for services and 5% of the total for eCommerce.
The structural changes of the services companies have changed as well. We have gone from 8% of the companies in IT Services to 5% from 2008 to 2014.
While Thomson Reuters does not break out the data, anecdotal evidence suggest that there are a lot more digital marketing & design outsourcing companies now than before.
The number of eCommerce companies has been steadily increasing as a % of companies started, but has increased significantly as a % of funded companies and a % of total funding.
The only other category, which has grown (for which I dont have a breakout again) is software as a service (SaaS).
Over the last 7 years, the number of Micro Venture Capital firms has also grown. We have gone from none in 2008 to 5 in 2014, and I think we will end up at about 10 Micro Venture Capital firms (those that have less than $25 Million in capital to invest) in 2015. These include Angel Prime, Oris, India Innovation Fund, Blume Ventures, and others.
I have talked to about 5-10 angel investors and industry veterans who are all looking to start their own Micro VC, seed fund and combination accelerator or incubator in India over the last 3-4 months.
In 2008, the average amount of time it took to raise a fund (regardless of size) was about 9 – 12 months. That number is lower for Micro VC funds, obviously, but we have no way to know how long it would have taken.
In 2011 of the 3 funds that raised, the average was about 7 months.
This year, I am hearing funds that are < $25 Million close their raise in less than 4 months.
That means the time taken to raise their fund has dropped. It is easier for fund managers to raise their capital, they can do it in shorter periods of time and they can raise more than they initially desired.
The challenge for the fund managers seems to be no longer raising capital, but efficiently deploying it.
The gold standard for VC investing has been proprietary deal flow (startups that come to the investor for funding exclusively and go to no other investors). That’s becoming harder for all VC’s now.
If the number of companies starting up has grown significantly (as from the graph above) and the % of non services companies have grown as well, then there is a real democratization of founding startups.
So the problem has now moved to sourcing, building a brand for your Micro VC firm and convincing entrepreneurs that you are the “smartest” capital available.
The challenge for Micro Venture firms with no brand visibility or “magnet” founders is that their deal flow is largely limited.
From our own data, I can confidently tell you the “best” deals are usually referrals, but 3 in every 5 companies we get into our program are non referrals. Speaking to Accel and Helion last week, I confirmed that 25% of their funded opportunities were cold (unsolicited).
So while the Micro VC fund manager may have a decent network, their biggest challenge is going to be that they will not be able to attract at least a quarter of deals which come because of having a good brand in the startup ecosystem.
The problem for a lot of the Micro VC’s is going to be that they have poor quality deal flow or deal flow that’s not proprietary.
While they will still go to many events, and review Angel List startups, I suspect they will have a tougher time getting good quality companies to apply.
The bottom line is that now it is as hard for the investors to get good companies as it is for the entrepreneurs to get good investors.
“Every morning in Africa, a gazelle wakes up, it knows it must outrun the fastest lion or it will be killed. Every morning in Africa, a lion wakes up. It knows it must run faster than the slowest gazelle, or it will starve. It doesn’t matter whether you’re the lion or a gazelle-when the sun comes up, you’d better be running.”
― Christopher McDougall, Born to Run: A Hidden Tribe, Superathletes, and the Greatest Race the World Has Never Seen
Between 2010-2014 there were 150+ acquisitions (about 30 per year) reported in the technology sector in India. Of these, 100+ were acquirers from India, and 40+ were from abroad. Most of the acquisitions were in the Internet space (outside of eCommerce).
Fast forward to 2015 and there have been 21 reported acquisitions already, and it is only April. In fact one of the investors, Blume Ventures has had 3 in 3 months. When I spoke with Sanat Rao of Ispirt M&A advisory connect, they are expecting an acquisition to be announced every week for the next 2 years. That’s a 100% increase over the last 5 years.
What’s driving this is a question that often comes up.
The first is the build up of the investor ecosystem over the last few years. From 2008 to 2010, IVCA reports that close to $5 Billion have been invested in Indian technology companies. Compare that to $1 Billion from 2000 to 2008. That’s a 5 fold rise in 1/4th the time. While investment alone is no indicator of M&A, many of the venture investors have built good relationships with M&A teams to help companies further their cause to “find a home” if needed.
The second, is the growth of new age acquirers – FlipKart, Snapdeal, Komli Media, PayTM InMobi, Naspers and MakeMyTrip, are now the leading acquirers in India with 15 deals in the last 18 months. Flipkart has acquired LetsBuy, Chakpak, NgPay and Myntra, PayTm acquired PlusTxt and Snapdeal has acquired FreeCharge, while Naspers acquired RedBus. Some of them have stated publicly that they will spend close to a $1 Billion to acquire more companies in India.
Third, older more established companies are finally getting into the act as well, with Havells acquiring Promptech most recently. The primary motivation for them is their strong cash positions are now being put to use to move into newer markets quicker.
Fourth, raising follow on capital has become easier for the larger companies, (series D,E) from external investors such as Tiger Global, which gives them a war chest to be more aggressive and take some risky bets.
Fifth, many early stage companies are getting acquired by US companies keen to expand into the Indian market – e.g. Twitter acquired ZipDial to expand in India. Now that there’s a huge critical mass of Indian Internet users (on mobile), this makes a lot more sense for these large US companies.
Sixth, acqui-hires are becoming more attractive to US companies since they are looking for smart talent and it is easier for them to acquire a team in India and move them to the US than hire a team locally. For example Facebook acquired Little Eye Labs and Yahoo acquired BookPad.
Many may argue that we still dont have the “big” acquirers from the US that are significantly buying Indian startups yet, but given the maturity of the ecosystem, comparing India to Israel is going to be hard.
At the Lets Ignite event last week in Bangalore, I had an opportunity to meet a few entrepreneurs who have all recently raised between $90K to $250K (50L to 1.5 CR) in India over the last year.
The biggest change from 2+ years ago when I wrote about how to hack your seed round in India, is that the number of angel investors in India, has risen from about 300 to over 1000. Over 30% of these are active in any given year (meaning that they have made at least 1 investment in the calendar year in a startup).
Where did all these investors come from? According to the new investors who I spoke with:
1. Many are the first few employees at large successful startups such as InMobi, Flipkart, Myntra, Manthan etc. At least 3 startups I know of were exclusively funded by current Flipkart employees alone. They formed a syndicate of 10L each to put over 50L in one company alone. I have heard of InMobi employees taking to angel investing (small amounts of < INR 10L) as well.
2. Thanks to the 2 pages of daily startup coverage in the Economic times which has gone from 2 full time employees covering startups to over 13, many businessmen and women from other industries (retail in particular) have started to ask to get in on the action. Many of these folks come from older industries and are keen to diversify, invest and make some money as well. This was something I predicted 3 years ago as well – non technology investors are a key part of the tech angel investment community.
3. Finally a few (much smaller in number than the 2 other categories) of the early employees at Infosys and Wipro, etc. have finally started to get engaged with the technology startup ecosystem in India, creating opportunities for entrepreneurs to raise small early checks.
Of these 3 categories, I am most excited about the first category. This pool is the “smart money” which can offer help (though not necessarily desired advice) and connections to the entrepreneurs in India.
Which makes the advice a lot of investors give students these days, graduating from the top colleges in India more sense – Join an early stage startup, get some wins, then go on to create your own startup.
This advice helps you make a little money (hopefully), and build some relevant connections into the startup – which if successful only helps your raise your seed round.
I think the opportunities this creates for Indian entrepreneurs is awesome. Many of these investors are “off the radar” and tend to only invest in early stage entrepreneurs they know and trust. They also create a forcing function for investors who used to take their time to invest and string entrepreneurs along to move quicker.