Startups: The View from India

TiE Inflect, Silicon Valley

I am delighted to be back in Silicon Valley, back among friends at TiE. I have been on this stage before, starting in 1994, then from Washington representing the US Government and now I am here to talk about India, where I now live.

When I served as Assistant Secretary of Commerce in the Obama Administration, I had oversight of global economic engagement as Director General of the Foreign Commercial Service. It was clear to me then that India was one of the clear high potential areas in the world, followed at that time by the ASEAN region and Sub Saharan Africa.

I have been back in India now for 15 months. I returned to work there after being in the US for almost 40 years.

My instincts while in the Administration have been more than confirmed during my time in India.

This is a new India. It is not the India many of us left, it is not even the India of just ten years ago. The place is growing and changing very rapidly. In nominal dollar terms, the economy of India is about the same size as the UK, an advanced industrial economy; in purchasing power parity terms, India can be considered to be four times larger.

An important feature of that growth and change is the entrepreneurship scene. 

I see this close at hand in my role as Chairman & CEO of KPMG India.

We do significant work with eCommerce and internet startups – as well as importantly with other, non-tech startups.

In fact, in India KPMG has the largest startup and E-commerce practice and have been working in this space since 2009 serving myriad new ventures.

We work across the ecosystem, from the regulators, funds and marketplaces to startups themselves. We have worked with Google and Facebook in many market assessments.

We work with critical support businesses like analytics, logistics, cataloguing and packaging companies which feed in to the internet and startup ecosystem.

In our work with Government and regulatory bodies across various initiatives in the past three years in the startup space, it is clear there is an enhanced focus by Governments in this sector – at the centre and the states.

A highlight was the launch of the Start Up India event and the start-up policy.

Thus my talk will draw from our work across the ecosystem.

First, let me start with the critical fundamental that a business needs: demand.

There is plenty of demand in India today. Consumer spending is constantly rising. The expenditures on infrastructure, which has significant multiplier effects, is significant.

When I talk to CEOs and major business leaders in India, they are looking at growing their businesses at rates of 25, 30 and 40 per cent. Where else in the world will you see that?

In my experience, I have not seen an opportunity-rich environment such as that I see in India anywhere since the dot com days in Silicon Valley.

No wonder it is a clichéd but a critical fact that India is the fastest growing large economy in the world.

And India has a couple of decades of strong growth and demand expansion ahead of it.

Seeing this strong demand, entrepreneurs are innovating and starting enterprises.

Last year, India added over 1000 startups. In terms of numbers of startups, India will soon catch up with the US.

India has some ten unicorns and many more “SOO-Nicons”. Flipkart, Ola, Paytm, Hike Messenger, Shopclues, InMobi, Zomato, Quickr, Snapdeal and RenewPower are the Unicorns as of 2017.

Venture investors have told me that after Silicon Valley India is the best place to see investment opportunities – well ahead of New York, Boston or other US centers.

The entrepreneurship scene in India is supported by the fast paced development of the startup ecosystem in the country – incubators, accelerators, VC/PE and angel investors, corporate fund houses, regulators, corporations and other ecosystem players.

Let me focus on four key features of the India environment.

 Talent:  The country is one of the largest bases for technology talent. And India’s youth have become bold, taking the path of entrepreneurship over traditional secure jobs.

 Large pool of Digital Consumers:  India has over 450 million internet users and over 300 million smartphone users. Access to customers has thus become easier.

 Consumerism: The past four years saw a significant rise in consumer spending, which is reflected on the various economic metrics.  Per capital consumption expenditure is rising.

 Favorable ecosystem:  A large Ecosystem is built today in India with the Government, regulators and investors are seeing the market in a similar way after a long time. All these sets of stakeholders want to see companies grow. We have seen 13-15 billion USD in exits, all time high — with public markets accounting over 50% of exits. Top exits included Qatar Foundation Endowment’s exit from Bharti Airtel Ltd in an open market transaction for $1.48 billion (~41% returns in 4 years); Tiger Global’s secondary sale of Flipkart for $800 million; and Apax Partners partially exiting Global Logic for $780 million (more than 3x in 4 years). Just in the past few days, there has been an exit that eclipses these – that of Flipkart investors and founders to Walmart.

Let me drill down into the demand picture.

About 250 million of India’s internet users don’t prefer or cannot use English.  These consumers will bring in the next wave of growth in India. These are people with decent purchasing power, but who prefer their native language over English to converse and transact.

This is a huge opportunity for internet businesses to acquire these customers, as they are waiting!

There are about 75-100 million online shoppers today in India and that number is expected to grow significantly in the coming years.

An interesting fact about the country’s digital growth is that among the top 10 apps that is downloaded in India “Share It” and ”UC browser” feature in the top 10 along with the usual suspects like WhatsApp and Facebook.
A digitally enabled villager uses “Share It” to transfer files with his friends and family on a regular basis.

The potential for business as well as customer acquisition in these areas are becoming immense with the acceptance of these apps in the rural market in India.

For many digital initiatives to capture communities like farmers and weavers, these are becoming key channels for outreach.

E-commerce is being adapted to India’s unique needs. Thus we will see “assisted commerce” implemented to complement and facilitate online commerce. Such assisted commerce will be strengthened by the emerging convergence between telecom and retail.

Startups have created over 100,000 assisted commerce centers by startups to enable people to buy/ transact online like ShopX, which is funded by Nandan Nilekani.

Add to that another 50,000 AADHAR centers across the country which are digitally enabled.

And 100,000 flight ticket booking centers like

As well as a large train ticket booking platform IRCTC which has 7000,000 tickets being booked a month.

All of these today are ready and able to act as assisted commerce agents for customer acquisition in India.

Another key trend we are seeing is the online only and online first Indian brands across Fashion and Retail, Consumer Health and Personal Care.

An important aspect to note is the direct maturity and growth we are seeing in the SME sector due to the digital revolution.

The e-commerce companies have put small businesses on platforms that enable their multifold growth.

Thus a small aggregator of Indian ethnic wear in Surat, has now become a $25 M company only through market places.  Ola and OYO Rooms have helped thousands of taxi drivers and small hotel owners achieve significantly higher productivity, thus emphasizing the need and growth of a shared economy.

 We are seeing startups focus on customer clusters.  There are specialized startups focusing on the needs of senior citizens, women at large, expecting mothers, farmers, non-employed customers and software engineers.

Examples include from the RPG group focusing on products for senior citizens and multiple startups such as Firstcry and Morphmaternity focusing on the needs of babies and pregnant women.

 Let me touch on key sectors that startups are focusing on in India:

Online education has been on the rise in India across K-12, from certifications to test preparations. This sector is seeing customers across age groups constantly engaging with ventures.  The rise of companies like BYJUs with interesting business models in supplemental education has been very relevant for India, where personalized tuitions for students has been the norm for ages.

BYJUs is the largest online education startup from India which is now crossing the borders. With an innovative model of a loaded tablet with course content for
grades 6 – 12, Byjus has accomplished great adoption across the country for tech enabled education driven by its interactive and innovative models of content display.

From education I would like to move to the other extreme – internet gaming.  Skill based gaming platforms are on the rise. The market is expected to grow to over a billion in the next three years with over 300 million gamers in India.  This trend opens up a new consumer channel for B2C businesses in India. There is significant interest in this segment by the PE/VC fraternity with multiple rounds of funding supporting startups in this space.

 Fintech is one of the fastest growing spaces from a consumer acceptance perspective:  from marketplaces for financial services products to wallet companies. The growth of the internet is directly influencing the adoption of wallets and other fintech products

The robust ecosystem is facilitated by the advent of AADHAAR Unique ID, prepaid instruments licenses (PPI wallet), peer to peer lending guidelines, Unified Payments Interface UPI, payments banks and credit information companies.

One of the world’s largest enrollment programs, AADHAAR has reached about 1.15 billion Indian nationals, helping improve transparency in transactions and providing direct access to the population base for government direct benefits transfer programs.

Paytm wallet today is valued at over USD 10 Billion, making it the second most valuable internet startup in India behind Flipkart.

Unified Payment Interface (UPI) and AADHAAR IP has been best put to use by the National Payments Corporation of India (NPCI) promoted BHIM App with over 10 million downloads. The country’s leading banks have adopted the interface to enable Indian customers with seamless transactions and payments.

Government has rolled out the Payments Bank licenses in Phase 1 to 11 Indian companies with maximum customer reach, including telecom operators, to make payment services more accessible and delivered through tech-infused models.

There are a handful of FinTech companies (Rubique, BankBazaar, LoanTap) aggregating and comparing financial services products offered in India. They participate in lead generation, processing and fulfilment of financial services.

Another key trend is that there are many startups who are focusing exclusively on international markets. These are predominantly B2B startups in AI, IoT, Marketing Insights, Process Automation and Health Tech.  These are promoters with significant experience working in the Valley, other places in the US, Europe and Middle East who understand the market requirements. They are leveraging the abundance of talent in India to come up with strong technology enabled solutions for the developed and emerging markets. Examples include Freshworks, LogiNext, Zoho, inMobi and Pubmatic.

 Non technology startups are on the rise. India is seeing many non-technology startups in the past 3 years in areas like Food, Fashion, FMCG, alcoholic beverages, services companies and logistics companies.

Among those who have built a brand in India is Paper Boat, a novel concept of fruit and Indian flavored drinks which was sold with a theme of nostalgia. The company has raised multiple rounds of funding, the latest from Tata Global Beverages.

Another venture is ID-Fresh, an innovative startup which saw a pressing need for clean, hygienic and consistent batter for idli and dosa. Targeted at working wives initially in the top cities in South India, the company was an instant hit and grew exponentially with a very strong cold chain set up.

 A beer brand that has attained great acceptance in the metros in India is BIRA beer.  Other interesting ventures are Chai-point, a tea based snacking outlet and the WROGN Youth Fashion brand.

 The Government of India has created a startup policy that with many ease of doing business elements for startups. State governments too are actively investing and attracting investments for local startups by opening incubators such as fintech clusters.

With better taxation policies, easier methods to start up and greater access to loans, start-ups have better clarity and ease in operating in India.

Startup India is a flagship scheme launched by the Indian Government with the goal of building a strong eco-system for promoting innovation and startups in order to generate large scale employment opportunities. The aim of the scheme is to provide incentives to startups, usually first generation entrepreneurs with limited resources, and reduce administrative and compliance burden to allow them to focus on their core business.

Accordingly, benefits extended to startups include a compliance regime based on self-certification, fast tracking of patent applications, relaxed norms for public procurement for manufacturing sector ventures and faster exit norms.

Tax incentives include, for specified startups, eligibility for 100% deduction of taxable profits in 3 consecutive years out of 7 years for business that has potential for employment generation or wealth creation

For carry forward and set-off of tax losses, an exception has been provided for startups for 7 years provided all the shareholders of such company continue as shareholders.

In order to provide funding support to startups, a fund has been set up with an initial corpus of INR 2,500 crore per year for 4 years (i.e. INR 2,500 crore per year). The Fund will be in the nature of Fund of Funds, and will not invest directly into startups, but will participate in the capital of SEBI registered venture funds.

Startups are allowed to raise External Commercial Borrowings (ECB’s) up to $3 million or equivalent per financial year for a minimum period of 3 years.

While these steps taken by the Government are welcome and intended to benefit the sector, they may not be enough keeping in mind the enormous funding requirements of startups in Inida. Thus, there is a further need for policy intervention to incentivize even the general public to set-up and invest in this category. In line with global best practices, it’s time for India to bring in regulations around public funding of startups to make available the much needed funding for the sector.

Having showcased the opportunities in the India markets, let me talk about the biggest challenge that startups face in India – mentorship. 

India being a young startup nation, there aren’t many startup veterans in the country to support and guide the startups.  This deficiency is creating problems for many startups while crafting their business models. Many startups will benefit from good mentors.

In conclusion, what do you need to know about the India startup scene?

For investors there three key takeaways:

  • The Indian startup scene is attractive, probably the second most vibrant place after the Valley. The level of technology enablement is high, utilizing high end technology for customer experience, insight and prediction.
  • Multiple Indian startups are using Robotics and Block chain in their warehousing and supplychain functions.  Further, usage of data for predictive modelling has been on the rise from customer acquisition to customer experience to managing various costs across the value chain.
  • Factorable government policies and focus from the central and state governments are helping.

There is a huge consumer base, startups with winning business models are succeeding – WhatsApp (200 million), Facebook (270 million) have largest user bases in India.

 And for entrepreneurs, three takeaways:

  • Consider entering India as the country offers a huge customer base.
  • Use the huge talent pool for technology and digitization.
  • Embrace alliances and partnerships.