The story of the Indian entrepreneurship is replete with paradoxes and surprises. During the pre-colonial and colonial era, the entrepreneur was seen more as a trader-money lender merchant, bound rigidly by caste affiliations and religious, cultural and social forces ranging from the philosophy of Karma to the system of joint family. Entrepreneurship as we understand it today was definitely not forthcoming from this social segment. A number of political, economic factors too had an inhibiting effect on the spirit of enterprise among Indians. Lack of political unity and stability, absence of effective communication systems, existence of custom barriers and oppressive tax policies, prevalence of innumerable currency system – all these combined together to restrict the growth of native entrepreneurship until around the third decade of the 19th century. The religious system of education and the low social esteem accorded to business were the other potent forces that discourage the emergence of large scale commercial ventures in the pre independence India.Year 2010 was a stellar year for startups in India. Entrepreneurial activity returned with gusto after spending two difficult years in the shadow of the global financial crisis. Significantly, Indian startups received more support than usual from venture capitalists (VCs). Along the way, the enabling entrepreneurial ecosystem represented by incubators, startup accelerators, angel investors and mentoring networks has kicked in with more vigour. Today, being a first-generation entrepreneur is a better proposition than it was three or four years ago.
In 2010, several first-generation entrepreneurs found capital quite easily. VC firms invested a record $637.9 million across 117 deals, according to data released in January by Chennai-based private equity and M&A research firm Venture Intelligence. While many of these deals were in later-stage companies, in overall terms, the numbers are significant. In the past, barring the 1999-2000 dotcom era, VC investments have rarely exceeded $300 million.
At the same time, exits have fuelled a fresh surge of VC investments in young companies. Several VC firms were able to sell their stakes in portfolio companies at attractive valuations. In November, Mumbai-based Seedfund sold its remaining 25 per cent stake in auto classifieds portal Carwale, making over 5-6 times its original investment. German media group Axel Springler has acquired Carwale. Earlier, social and rural sector focused VC investor Aavishkaar exited its investments in Servals Automation that makes fuel-efficient stove burners, and automated dairy solutions company Shree Kamdhenu Electronics at IRRs (internal rates of return) of 65 per cent and 45 per cent, respectively.
But the big bang exit in 2010 that has revived interest in Indian startups is the MakeMyTrip IPO (initial public offering) in August. The online travel portal raised $70 million on its Nasdaq listing and opened up a lucrative exit route for its VC investors SAIF Partners, Helion Venture Partners, Sierra Ventures and Tiger Global. All four invested $40 million in the company over successive rounds of funding.
Profitable exits, coupled with a stable line of investors flush with funds, have helped the investment run continue into the current year. In the first four months of 2011, VC investors have put over $170 million to work across 32 deals, according to media and industry reports. Out of this, a large chunk has gone into Internet companies, specifically online travel. Still, several companies, including pre-revenue companies, in sectors such as education, financial services and mobile have also raised money.
To a large extent, VC investors are yet to diversify their interests beyond sectors such as Internet, mobile and software. Of late, some money has started flowing into education, healthcare and cleantech, but not enough.
Last two years have also seen a surge in start-up accelerator programmes, incubators and mentoring networks that make it easier for a young entrepreneur to kick-start his or her idea. Notable ones include Morpheus, fronted by Sameer Guglani, founder of former online DVD rentals startup Madhouse, and IIM Ahmedabad’s CIIE (Center for Innovation, Incubation and Entrepreneurship). VC firms such as Seedfund and Nexus Venture Partners have also set up incubators to hand-hold younger companies. There is also support available from angel funding networks such as Indian Angel Network and Mumbai Angels, and mentoring organisations such as National Entrepreneurship Network.
Not surprisingly, a lot of companies that were either shortlisted or won the Businessworld Hottest Young Entrepreneurs contest this year are products of this ecosystem. Gridbots Technologies, one of the winners, was incubated at CIIE, which also invested Rs 10 lakh in the company (see page 38). Desicrew Solutions, a BPO that operates in rural areas and Tier-2 cities, was incubated at IIT Madras’s Rural Technology and Business Incubator. Mobile solutions company Innoz Technologies was also incubated at CIIE. Kwench Library Solutions, another winner, raised angel funding from IAN.
These are some of the examples of startups that have emerged in the past 3-5 years from the entrepreneurial ecosystem that has been almost a decade in the making. They are representatives of a generation of entrepreneurs who are surer of themselves than their predecessors from the dotcom era. The business models are more innovative and grounded in reality. As the environment matures further, even better startups will emerge from within college campuses and established companies.