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Tech Startups Boom in India, Attract Big Investments

  • Anjana Pasricha

The logo of India's largest online marketplace Flipkart is seen on a building in Bengaluru, India, April 22, 2015.

The logo of India's largest online marketplace Flipkart is seen on a building in Bengaluru, India, April 22, 2015.

From online retail to textbook rental companies to digital advertising, India is witnessing a boom in online startups. Global investors eyeing the growth of Indian technology firms are helping these young, tech-savvy entrepreneurs fund their businesses.

Along with two friends, 32-year-old Jaideep Manchanda quit his job in a media group four months ago to launch a venture (www.aqugen.com) that advises companies about digital advertising strategies.

He took the plunge after seeing that Indian firms lag those in developed markets like the United States in terms of reaching customers online.

“This industry is almost ten years behind in India. Even the biggest of companies are wondering as to when and how to revamp their digital advertising budgets. There are a lot of companies who don’t even have a clue as to what to do,” said Manchanda.

As the number of internet users in India grows to about 300 million, many young people like Manchanda are trying to harness the massive potential of online businesses.

Unlike the Indian information technology companies that mushroomed in the 1980s to set up massive outsourcing centers for Western companies, the new startups are tapping the consumer potential of the country’s huge middle class. Only 25 percent of the population of 1.2 billion is presently online, but fast-growing sales of smart phones are fueling internet access at a furious pace.

Gold rush

A recent report by the industry body National Association of Software and Services Companies (NASSCOM) found that India is now the fourth largest startup hub in the world, with more than 3000 new companies. Over the next five years, that number is expected to grow to 11,500. It is being termed a “gold rush.”

NASSCOM Senior Director Rajat Tandon said the time is right for “people to go out and live their dreams.”

“[We have reached] the inflection point where people, rather than going and working for multinationals, are today looking at having the idea and work for themselves, and actually make it big. If you really see the buzz which is happening on the ecosystem right now, I think this is probably the most interesting period for startups,” said Tandon.

The thriving entrepreneurial culture has been fueled by success stories of local online companies such as Flipkart and Snapdeal, which reached multi-billion dollar valuations last year. The valuation of Flipkart, the poster child of Indian startups, rose from $3 billion to $11 billion in just one year.

While online retail is grabbing the most attention, technology startups are tapping customers in a host of other areas, such as renting textbooks, selling used goods or notebooks for school students, price comparison portals, and booking tickets.

Foreign ventures

Foreign online ventures have also stepped into the country to get a slice of the growing market. Raghav Gupta quit his job as a senior retail consultant to launch “BlaBlaCar,” the France-based long distance ridesharing service popular in Europe.

Gupta said what made India attractive for BlaBlaCar is the high penetration of social media. Facebook has more than 110 million members here. Social media is the main marketing platform for the carpooling company, which Gupta said has hit the ground running, with 125,000 seats offered in the first 100 days.

“What is also very interesting is this is not a big city phenomenon, so it is not just Mumbai and Delhi and Pune, but we have seen seats offered from 700 cities in India. So even in smaller cities like Yamunanagar or Rishikesh, people are aware of a service like this, they are online, they are on smart phones and they are willing to use it, because it is answering to a very fundamental need of people to be able to travel between cities in comfort,” said Gupta.

Gupta chose to leave his well-paid job because of the tremendous opportunities India offers entrepreneurs.

Although many online ventures have yet to turn a profit, they have grabbed the attention of global and domestic financiers. As a result, funding is no longer as challenging as it was some years ago – hedge funds and venture capitalists poured in about $5 billion in Indian e-commerce companies last year.

'Exciting times'

Sasha Mirchandani, founder and head of Kae Capital in Mumbai, called it “exciting times” as investors try to carefully pick “the large winners” in India. He is an investor in several online ventures.

“I think it is pent up demand. China has slowed down a little bit, so the next new opportunity was obviously India. Russia and Brazil have not been traditional startup locations, so India logically makes sense from all angles. Large market, consumer internet has taken off,” said Mirchandani.

Among those who have committed funds are large investors like Singaporean wealth fund Temasek Holdings, venture capitalists Accel Partners and Japan's SoftBank Corp.

Their interest has been triggered by hopes that some Indian startups could reach the size and scale of Chinese ventures such as Alibaba.

Tandon of NASSCOM said there is huge optimism around the future of Indian startups.

“Why not? The ingredients are being built and we have had some really cool products coming out of the country. Some of them have been successful and some of the entrepreneurs are saying ‘why can’t we build something that is futuristic,’” said Tandon.

That is what is driving many young people like Manchanda.

“Yeah, its definitely one positive step, its like one baby step that we have taken, and we have yet to see where we go. But definitely it gives the drive in you, it keeps the rush inside you,” said Manchanda.

Investor Mirchandani, who saw companies like Snapdeal scale up “right in front of my eyes,” said Indian technology entrepreneurs have achieved credibility and could become a backbone of the economy.

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