I attended TiEcon Delhi for a day in October. The energy in the main hall and the deal-making in the lobby outside, spoke volumes about how hot the Indian venture scene is. I met old friends as well as some new entrepreneurs. And came away with much to chew on.
Startups in India have opportunities and challenges that are quite different from the ones in the US. Ditto for VCs. A few observations:
– Unlike in the Valley, Web 2.0 has no relevance to the Indian domestic market. Internet penetration is low (5.4%), broadband is lower (<0.5%). Even if you include use at work, account sharing and internet cafes, the consumer internet is a tiny market. It may be interesting for some compelling ideas or if someone wants to bet on growth. But in my opinion, it is not going to attract much investment unless there is a broader ‘global Indian’ or a ‘click and mortar’ play.
– Mobile however is hugely interesting. Mobile penetration in India is twice that of the internet and is growing at rates close to 50%. There are opportunities to develop mobile applications that the developed world never needed because of high internet penetration. Booking a cinema ticket in the US is probably done 95% of the times over an internet connection and 5% on a cell phone screen. In India it may be totally different. This also holds out the opportunity that Indian startups may develop mobile applications for the Indian market and then take them to Europe and other developed markets. I hear that OnMobile, a Bangalore based startup that does voice-based mobile apps did its latest round of funding at about $250 million pre-money. I’ll be surprised if they aren’t already selling their services in other countries in APAC or Europe.
– B2B Tech does have a play but in global markets, not in India. This poses a unique problem. Startups targeting the global markets need help from VCs in those markets – access, hiring and advice – which can’t really be expected from a VC based in India. Most VC firms will tell you that when you do a deal with them, you get the connections of the whole firm, but it is a rare firm that operates like that. On the other hand, no US based VC is comfortable funding a management team based in India – the distance is too much. This is a hard nut to crack. I hope some VC can come up with an innovative solution.
– Most people agree that plain outsourcing is no longer a great investment idea. There is a lot of competition and you have to get everything right to build a defensible business. However, managed services – services combined with a software platform – can be very competitive.
– The big opportunity, and one that doesn’t get talked about much, is in non-tech consumer oriented products and services. The Indian middle class is growing and so is its buying power. Every category is growing at a rate that should interest any VC. The discerning Indian consumer wants quality products and services that meet her very unique needs. Food, recreation, entertainment, leisure travel and retail are huge and growing markets. Seeking funding for startups in these areas is also going to be tricky if the entrepreneur wants expertise. Most of the VC expertise in the Indian market is technology and services related, reflecting the expertise in the US market where technology and healthcare are the two largest areas of venture investing.
– Listed companies offer significant opportunities to VCs via PIPEs (private investment in public enterprises). Because of the low hurdle to a public listing in India, many listed companies remain small and in need of growth capital.
In conclusion, the Indian venture business is going to be quite unique. VCs and entrepreneurs, who take a cookie-cutter approach to it, are in for a rude shock.
6 am pacific 
Hey..
Took some time for me to realize that the blog has moved..Blame my feed reader 😦 .
Web 2.0 & its irrelavence to Indian market owing to the unique nature is true, does that mean, there shall be no success in web 2.0 models in the sub-continent…?
Secondly, I have a slightly different opinion.. just tracking back at what you have written about start up costs, it takes less money to get one going..
Less Money to start(25 lacs) —> Limited consumers (5.4%) is huge.. Success will be there but one has the same slow moving user base instead of a fast growing mass.
The option is to innovate and carve success in an era that holds lot of promises..
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Hi Basab,
I liked your perspective on the TiE event; I was there as well but missed meeting you.
I partly disagree with your take on Indian Web2.0; low internet penetration makes only those websites unviable that are hoping to sustain on PPC/google ads. But there are other (few) web based products/services which are trying to work out a freemium model or a subscription model; they are less influenced by internet penetration figures.
Off course, the big problem with the latter is lack of a global perspective, shabby design and inability to execute really well.
On the whole, I agree that web2.0 is much less relevant in India than it is in the Silicon Valley.
Amit
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Amit, I agree with you. Regardless of the market size, if you want your web 2.0 startup to succeed, you need to execute well – intuitive user interfaces, good graphic design and high-performance web-sites don’t cost more money.
Satish, you raise an interesting point. If the denominator is lower, then the numerator can be lower. In the valley some people say this bodes well for angel investors but is not so good news for VCs. The low cost startup phenomenon is even more pronounced in its economics in India, where labour costs are far lower. You may be right in that 5.4% may be enough. However, I still don’t like the chances of an India wide consumer internet play. More likely niche internet startups, say focused on just a city, or wildlife enthusiasts, could become profitable with very small investments. But they will still be operating in small markets which won’t be as interesting to traditional VCs.
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Hi Basab, I completely agree with your views on the current web 2.0 scenario, but I suspect its to do with the low internet penetration. 22.5 % users in orkut are Indians, so I think quality of interaction and concept I think matter a lot. Available web 2.0 products in India are not properly marketed and eventually end up being used by users who are good enough to search such products on their own on the web.
Most mobile apps however require advanced handsets and high end devices. As of now even GPRS and java based handsets are yet to become a common feature. With more than 1 million mobile phones being bought every week, the prices of such handsets should come down and enable apps like Webaroo to do well.
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Completely agree. It will still take some time for Web 2.0 to take off in India. Rather, at this time, traditional transaction oriented web companies are doing much better off. More at http://ileher.com/2006/10/30/is-india-ready-for-web-20/
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Hey Basab,
You know what, over the period of time your website is getting better, I still fail to understand why did you choose the color brown.
Have you looked at this tool called Proclarity( this company got rescently acuired by Microsoft) they had a great way of presenting date, do check if you wish to, i’m sure you’d agree in your kind of business presentation of complex data is a key.
Great going buddy, good to read your thoughts on this blog.
regards
Ritu
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Other than email, chatting and browsing and recently little bit of blogging, internet hasn’t changed any thing in the lives of Indians. (Few who use internet for litte more than these things are so low that it can’t be counted on any business plan.) Orkut might have such a big number of Indians, but does it count?
I put my 2cents on Healthcare, Entertainment and Sports.
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Hi,
I do certainly think web 2.0 is irrelevant for the Indian Market alone. Though agree with Amit on web 2.0 from India for a global market, especially when amit is showing a great example in terms of slideshare 🙂
I take the 1.0 or the 2.0 quite in a non-tech (econ) way and thats the reason. 2.0 as I have argued in a blog post & a barcamp prez web 2.0 is about attention markets & colloboration possibilities harnessed through communities & networks.
When there is so much yet to be done in 1.0 in the web space in India it would be hard to think of 2.0 right away. For example it is still cheaper to buy attention rather than build it (What could be a better evidence than makemytrip.com though being an internet company having to advertise on TV)
Rajan
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I liked your conclusion. Indian VCs are going to be in for a rude shock. They apply the same metrics as their counterparts do in the Valley. Unless they build some ethnic originality into their evaluation and incubation initiatives, there’s catastrophe written all over them.
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Hi,
You missed out rural India. I think that we have a duty here(shades of Kant).
The power of groups is big. Consider a rural trading platform in different indian languages. speech to text interfaces are required here.
The issue is due consideration to be given for contribution in Web2.0,continuity and wireless connectivity. The underlying enablers are mesh networks.
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