Startups in India – An Overview

TiEcon Kerala
04-Oct-2019

The Opportunity for Kerala

Remarks as prepared for delivery

It is wonderful to be among so many friends. My own association with TiE Kerala goes back to its beginnings, to a meeting that Mr. G A Menon and my friend Bala had with TiE leaders in Silicon Valley in 2002. I then recall being here at a TiE meeting in 2004 on the day of the tsunami.

Today, let me start by congratulating TiE Kerala and my friend MSA Kumar, for organizing this event.  TiE Kerala has been among the most innovative of TiE chapters globally and this current TiEcon and the events leading up to it are yet another example.

As many of you know, I am a proud Keralite.
And Kerala gives us reasons to be proud.

As is well known, Kerala’s welfare-oriented development model has resulted in high literacy and quality of life indicators comparable to developed countries.

But alongside, and this is not often highlighted as much as it should be, Kerala has also made progress on economic growth and financial indicators. 

The state’s per capita income is 60% above the national average today, which is a strong base to build on.  

Kerala is thus an attractive location for people in other parts of the country to seek jobs.  

What California is to Mexico, Kerala is to places like Odisha, UP, Jharkand, Bihar and Bengal.

As Dr. Gita Gopinath of the IMF memorably stated at a similar event in Kochi a couple of years ago, Kerala is one of the best locales on the planet for equity of opportunity. Regardless of one’s origins or one’s station in life, anyone can have a basically equitable level of access to the educational system, the health system or the justice system in Kerala.

And Kerala repeatedly appears at the top of the list for the least corrupt state in India. This is important to investors and industry – and Kerala needs to publicize this feature.

Being in an ecosystem where fairness is the prevailing mode would be a very important consideration for any outside investor or local entrepreneur.

A new moment for Kerala is potentially here, as its knowledge economy can take advantage of the fourth industrial revolution that is unfolding.  

Kerala’s traditional ‘barriers’ in the realm of conventional manufacturing, as measured by some of the indicators currently used in ranking Indian states in the Ease of Doing Business Index, (such as land availability and allotment, construction permit enablers, inspection enablers, utility permits) are becoming comparatively less relevant in this new world.

The ubiquitous availability of connectivity is leading to a democratization of technology — and Kerala, with its high human development indicators, is uniquely poised to take advantage of this paradigm shift.

Now, it is the availability of talent and agility of thinking that counts, more than the traditional legacy advantages of being close to major metropolises or industrial centres.

While Kerala has sustained decent levels of growth, is it enough?

Many states are outperforming Kerala on the growth front.

A major drawback of economic growth in Kerala today is that it is not generating adequate jobs to meet the expectations of educated Keralites entering the labour markets.

Entrepreneurship has got to be part of the answer for job creation.  The entire ecosystem including the non-government sector, especially platforms like TiE and successful entrepreneurs, many of who are present here today, have a big role to play in this regard.

TiE has relentlessly evangelized entrepreneurship.

India today presents a vibrant landscape for entrepreneurship and startup activity.

I see this close at hand in my role as Chairman and CEO of KPMG India. KPMG has 20,000 people in India, situated across 25 offices.

We do significant work with eCommerce and internet startups – and startups in other fields.  In fact, in India, KPMG has the largest startup and E-commerce practice and we have been working in this space over the past ten years.

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 /cataloging/ packaging companies which feed into the internet and startup ecosystem.

And we work with Governments both in the Centre and states in the area of entrepreneurship.

The environment in India provides vast opportunities for successful entrepreneurship.

First, the critical fundamental that a business needs is demand.

There is plenty of it in India today if one takes a long-term view. In the short term, businesses are seeing headwinds for both global and local reasons. But in the longer term, say looking beyond a year in India, it is clear that consumer spending will steadily rise. 

The expenditures on infrastructure, which have significant multiplier effects, is significant even in the short term.

When I talk to CEOs and major business leaders in India, they are looking at growing their businesses significantly, taking a long-term point of view.   

In my experience, in the last two and a half years I have been back in India after almost forty years abroad, I have seen an opportunity-rich environment here —  that I have not seen anywhere since the dot com days in Silicon Valley.   

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 1200 startups, taking the total number of startups to 7200.

In terms of numbers of startups, India will soon catch up with the US.

2019 alone has produced over half a dozen unicorns so far – BigBasket, Rivigo, Delhivery, CitiusTech and OlaElectric to name a few.

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 development of the startup ecosystem in the country – incubators, accelerators, VC/PE and angel investors, corporate fund houses, regulators, corporations and other ecosystem players.

The Indian entrepreneurship landscape is being shaped by some interesting trends.

1. As the B2C layer of startups matures with players such as Amazon and Flipkart, we are seeing the center of gravity of India’s start-up ecosystem shifting towards B2B startups.

India has added 2,300 B2B startups in the last five years – driven by increased investment, growing number of B2B VC funds, and the unprecedented rise of the advanced technologies like AI and RPA.

A related trend is the rise of ‘assisted commerce’ – which brings together offline buyers, sellers and local merchants.   

Startups have created over 100,000 assisted commerce centers to enable people to buy/ transact online like ShopX, UDAAN and Storeking.

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

And 100,000 flight ticket booking centers like via.com.

As well as a large train ticket booking platform IRCTC which has 7,000,000 tickets being booked a month.

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

2. Another key trend we are seeing is the online-only and online first Indian brands across Fashion and Retail, Consumer Health and Personal Care. Examples include Nykaa, FreshMenu and MilkBasket. 

3. We are seeing maturity and growth in the SME sector due to the digital revolution. 

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

4. There are many startups that are focusing exclusively on international markets. These are predominantly B2B startups in AI, IoT, Marketing Insights, Process Automation and Health Tech.  These are promoters, many of who are expatriates with significant experience of working in Silicon Valley, as well as other places in the US, Europe and Middle East, and 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 and InMobi.   

5. 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.  

These trends can be seen across the key sectors in which 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 (founded by Kerala’s own Byju Raveendran) with interesting business models in supplemental education has been very relevant for India, where personalized tuitions for students has been the norm for ages.

Another area of activity is internet gaming.  Skill-based gaming platforms are on the rise. The market is expected to grow to over 1Bn in the next 3 years with over 300 Mn gamers in India.  This opens up a new consumer channel for the 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 market places for financial services products to wallet companies. The growth of the internet is directly influencing the adoption of wallets and other Fintech products.

I have been really impressed by the efforts of the Kerala Startup Mission (KSUM), the central agency of the State Government for entrepreneurship development and incubation activities in the state.  KSUM was instrumental in assisting the government to formulate the Startup policy that was launched in 2014, making Kerala the first state to do so. I have seen the Start Up Mission undertake extensive outreach. I have been pleased to see them at TiEcon in Silicon Valley.

Various state governments are also actively investing and attracting investments for local startups by opening incubators and Fintech clusters.  T-Hub or Hyderabad Technology Hub launched in 2015 and the Techno Hub launched in Jaipur in 2018 are two such examples. Built and backed by the state governments, the USP of these incubators is that they provide free infrastructure such as seating, R&D and innovation labs, as well as help engagement with mentors. They also often bring in seasoned leadership from the industry who have a mindset to nurture entrepreneurs and to give back.

Kerala too has a similar set up which was launched this year (2019) – The Kerala Technology Innovation Zone (KITZ).  Floated under the aegis of the Kerala Startup Mission and spread over 13 acres of land, KTIZ comprises of built-up startup modules, high-end fabrication labs, R&D lab facilities, commercial office spaces, dormitories and more.

The Chinese company OPPO has recently announced its partnership with the Startup Mission to support tech Startups and stimulate incubation activity in Kerala, given the vibrancy of this sector in the state.

Kerala, in fact, has many ingredients to be known as a state that leads in digital technology.  With a population of 35 plus million, with its historical cultural openness to new ideas from around the world, Kerala can provide a tech-savvy ecosystem and the right ingredients for the state to be India’s leading startup destination.

The Kerala Government, along with various industry bodies and alumni is investing significantly to position the state as a center for digital technology.

The State’s IT policies over the years have helped. Investments in geographical clustering of organizations and incubation centres have enabled the development of a technology ecosystem.  As a result, Kerala today accounts for 15% of the 5,000 odd technology startups in the country – with one of the most enviable start-up cultures across the breadth of the country. Kochi and Trivandrum continue to attract the majority of the startup companies, and Calicut is also developing as a hub.

And we have many success stories in Kerala, and many successful Kerala entrepreneurs who have made their mark globally, nationally and regionally, who can help lead the way.

Young entrepreneurs from Kerala are already working on advanced technologies such as 3D printing, Internet of Things, Robotics Process Automation, Virtual and Augmented Reality, Machine Learning and Artificial intelligence – and hold much promise.

Some successful examples to mention here would include:

ZappyHire, born at the Kerala Startup Mission in 2018, uses AI for end- to- end hiring solutions, including identifying behavioural patterns of prospective candidates.

Sastra Robotics, started in 2012, offers intelligent robotic manipulators for industry, with clients like Lockheed Martin- won more than one global award for best startups.

Ignitarium provides AI/ ML based solutions for Industry 4.0, healthcare, consumer electronics and automotive sector.

To provide a further boost to entrepreneurship, Kerala’s latest IT Policy explores a four-pronged strategy of creating world-class technology infrastructure, human capital building, focus on modern marketing systems and a citizen-centric digital economy.

In the book, Crouching Tiger, Sacred Cows, which I co-edited back in 2006 and to which some in this audience contributed, I called attention to some areas which could help alleviate the challenges then faced by the state, and in a sustainable fashion. Many of those ideas have continuing relevance and the state has made remarkable progress on these in the last decade.

One of them was nurturing a culture of entrepreneurship.

Kerala has a very vibrant startup ecosystem with well over 1500 startups (as of Dec 2018) located in the state. 

Many of the early businesses seen in Kerala that started as promoter-driven, or bootstrapped entities, have significantly scaled up over the years – examples include UST Global, IBS, Geojit and Manappuram.

Kerala’s startups are now pushing the boundaries of technology, as well as focusing on domains that will have a significant impact on the quality of life- using AI, ML, and other deep and emerging technologies across areas like med-tech, [including cancer detection], food tech, biotech, and even in space launch vehicles.

One of Kerala’s Startups has addressed one of India’s primal issues of sanitation by manufacturing manhole-cleaning robots.  Another startup builds products that make life easier for differently-abled people. There is a successful startup that enables a paperless, end-to-end virtual office environment for law offices, and another that works as a virtual trial room for online marketplaces.

The explosion in content creation, in new-age services riding on the net, as well as the adoption of 5G over the next 4-5 years, is expected to provide a further fillip to this trend.

Revamping the curriculum for general, technical and vocational training is critical.  As things stand, a large majority of jobs for which people are being trained will no longer be there by the time they finish their courses.  In fact, a recent study suggested that by 2022, almost 9 percent of India’s 600 million estimated workforces would be deployed in new jobs that do not exist today. 

The demand for radically different skill-sets also stems from the fact that the next generation of IT companies is likely to be in the pure digital space, i.e. social, mobile, analytics and cloud. 

Collaboration of academia with tech companies can scale up the R&D ecosystem in the state. This can create academicians with strong industry orientation and students who are employment ready. A good example is that of Stanford and MIT – they run a collaboration program through which they reach out to Indian diaspora who can play an important role in such areas, given their experience and industry reputation.

Next, making Kerala more attractive for non-Keralites.

Easy airline connectivity, with 4 airports now, and affordable fares, have made Kerala that much more attractive and accessible for outsiders as well as helping the State’s increasing prominence as a domestic tourism and healthcare destination.  In fact, one of the key attractions of Kerala for outsiders these days is the quality, availability and affordability of healthcare.

Cities like Kochi are fast becoming great shopping, and leisure zones, with a number of entertainment options for the young, apart from the tourism/ cultural attractions.

That said, government and industry could do more in terms of creating attractive recreational hubs for the young, as a means to attract outsider interest and investment.

Kerala already has some good private schools, and remarkably the quality of many government schools even in rural areas has really gone up, with best- in- class infrastructure and some very dedicated teachers.  But the publicly-funded colleges are not in the best shape, and there is a need to seed some world class institutions.

My last point, but not the least, is involving expatriate Keralites to promote development.    

Being a young startup nation, there aren’t many startup veterans in the country to support and guide startups.  Given Kerala’s dynamism and talent, many startups will benefit from good mentors and this is one significant way in which the many experienced entrepreneurs in this room today can contribute.

Recently (in July 2019), the Kerala Govt announced the formation of a Non-Resident Keralites Investment Company, with 74 per cent stake held by expats.  The investment will primarily be used to develop townships and infrastructure.  This can be the start to many more such channels of investment with a direct stake.

In closing, I believe that India has several years of robust growth ahead, and Kerala, with its natural advantages, has a huge role to play. Both the country’s and the state’s economies will have to depend on entrepreneurship to generate the jobs required.

We are at the cusp of a new wave of opportunity, and Kerala is well poised for the next phase of growth.

My best wishes to all those engaged in this journey.

Slide deck (PDF)