When I graduated from the Indian Institute of Technology (IIT)-Bombay in 2008, turning down a job to start a company was considered “career-suicide.”
Typical downsides included remaining poor for years, being disowned by your parents and a significant decrease of market value in the marriage department.
Last October, Indian e-commerce startup Snapdeal raised $627 million at a reported valuation of over $2 billion. In the same month, India’s Uber-style taxi service, Ola, raised $210 million, while being valued at over $1 billion in under three years.
Later in December, India’s largest online retailer, Flipkart, raised another $700 million at over a $11 billion valuation. And this month, India’s online restaurant guide, Zomato, bought US-based Urbanspoon for over $50 million—one of the largest acquisitions by an Indian startup.
Clearly, things have changed.
Being a founder myself, I wanted to understand how this had happened. Over two weeks, I travelled across India, met some amazing people and asked a lot of questions. Over 20 founder visits, three investor coffees, one IIT campus and several Ola rides later, three trends have emerged as part of this “Great Indian Startup Frenzy.”
Rise of new startup hubs
Both Koramangala in Bangalore and Hiranandani Powai in Mumbai are becoming thriving ecosystems to nurture startups in India.
The former is a small Bangalore neighborhood with several startup offices, co-working spaces and coffee shops (where entrepreneurs can be found working at all hours). By virtue of being India’s IT hub, its Bangalore’s residents are the perfect early adopters —young, mobile and hungry for new products. Startups in Koramangala are able to easily get user feedback, hire talent from other tech companies and find mentors in other successful founders nearby.
Hiranandani Powai, on the other hand, is right next to IIT-Bombay. This proximity creates a constant stream of talented graduates wanting to create the next Housing.com, an online property search site that began from a dorm room at the storied engineering school. It also helps bring in capital; several venture capital (VC) firms, including Sequoia Capital, are starting offices right outside the IIT campus in Powai. And it’s not just the big names: Zishaan Hayath, a prolific angel investors, operates an investment club out of his Powai residence, while holding a full-time job of running the fast-growing education startup toppr.com.
The VCs are coming
Being a developing country, venture capital goes much further in India than the Valley. But, unlike the Valley, it is in limited supply.
Typically, Indian startups need to be much further along than startups in the Valley in order to raise funds. So, successfully raising money can allow startups to scale rapidly and outrun their competitors.
For instance, Ola and TaxiForSure were going head to head in June 2014, with the former operating with a slightly larger fleet. Then, in October, SoftBank poured $210 million into the company. Three months later, Ola has grown over four times in size, with 60,000 cabs in over 52 cities, while Taxiforsure has a significantly smaller fleet in about 37 cities.
In fact, SoftBank investing billions in India after their Alibaba success has played a big role in the increase in startup activity over the last year. This is what Masayoshi Son, Softbank’s chairman and CEO, said last October:
We believe India is at a turning point in its development and have confidence that India will grow strongly over the next decade. As part of this belief, we intend to deploy significant capital in India over the next few years to support development of the market.
Today’s successful Indian startups allow users to replicate their offline behaviours on their mobile phones. Interestingly, all such startups use an organised, on-the-ground labour force as a key component in delivering the product experience in one of two ways:
- Collect data used in product features. Housing.com has a massive workforce tasked with visiting each and every house on the website to document its features — from taking beautiful pictures of the house to checking whether the neighbourhood has a swimming pool (or not). This is very valuable data that makes Housing.com 10 times better than its competition and creates a solid moat around their business.
- Deliver the end-user experience. Flipkart employs a network of delivery boys to handle last mile delivery to people’s homes without jacking up prices.
A cheap labour force makes implementing any idea possible in India. Leveraging this asset is not just a good idea, it’s a necessity in India.
Now is the time
Still too risky? Well, here are a few other ways to test out the ecosystem:
- Work for an Indian startup. There is a huge demand for good talent, especially at senior levels. Salaries over $200,000 aren’t unheard of.
- Invest in startups. Your college network can be very effective in finding them. Angel list and termsheet.io are also good resources.
- Use Indian products and send them feedback.
- Help Indian products get distribution in your country (in case you live abroad).
- And perhaps sign up for this newsletter I started to stay informed about new products launching in India.