IT Start Ups in India

IT Start Ups in India

Pradeep Joshi

Abstract :

A startup is a young, dynamic company built on technology and innovation wherein the founders attempt to capitalize on developing a product or service for which they believe there is a demand.1 Startups have been the buzzwords nowadays because of Prime Minister Narendra Modi launched an ambitious program called Startup India, Standup India. . This has resulted into the emergence of a number of home grown Unicorns across the country. One of the major contributors leading to this development has been the mega funding that has been ploughed into most of these Unicorns between the period 2007 and 2015. Even the aspiring Unicorns have had a decent run during this period, where managing to find investors is usually considered a tough task. . In the past decade, we have seen the rebirth of the startup ecosystem with a more sustainable business model in the form of Angel Network/ Venture Capital. This is now taking strong root in the technology related areas and we are now seeing the results of this in cities such as Bengaluru , Gurgaon ,Pune , Hyderabad and Mumbai. We believe that India’s economic future lies in encouraging startups which will bring dynamism, new thinking and create jobs to the Indian economy.

Introduction

A startup company (startup or start-up) is an entrepreneurial venture which is typically a newly emerged, rapidly-growing business that aims to meet a market need by developing or offering an innovative and extraordinary product, process or service. A startup is usually a company such as a small business, a partnership or an organization deliberately designed to rapidly develop a commercially viable business model. More often than not, startup companies deploy technologies, such as Internet, e-commerce, computers, telecommunications, A.I., or robotics to make a niche for them in the market. These companies are generally involved in the design and implementation of the innovative and out of the box processes of the development, validation and research for target markets. While start-ups do not only operate in technology realms, the term became internationally widespread during the dot-com bubble in the late 1990s, when a great number of Internet-based companies mushroomed. Start-ups have high rates of failure, but the minority of successes include companies that have become large and influential . Startups usually need to form partnerships with other firms to enable their business model to operate.

Co-founders are people involved in the initial launch of startup companies. Anyone can be a co-founder, and an existing company can also be a co-founder, but frequently co-founders are entrepreneurs, engineers, hackers, web developers, web designers and others involved in the ground level of a new, often high-tech, venture.

https://en.wikipedia.org/wiki/Startup_company#cite_note-10

According to an Infosys Co-founder, a startup is defined as a business: • Within the first three years of its existence • Employing 50 people or less • Revenue of INR 5 cr. or less

The exact definition of "startup" is widely debated and discussed. However at their core, most definitions are similar to what the U.S. Small Business Administration describes as a "business that is typically technology driven and oriented and has high growth potential". The reference to "growth potential" may mean growth in revenues, number of employees, or both, or to the scaling up of a business to offer its goods or services to a wider or larger market.
OBJECTIVES OF THE STUDY:
• To study in detail about the IT Startups in India. • To ascertain the scope of growth of IT Startups in India. • To identify the challenges and bottlenecks faced by IT Startups in India.

Overview of IT Startups in India

India is amongst the top five countries in the world in terms of startups.US ranks number one on the list with 83,000+ startups. There are approximately 10000 startups in India.
Technology Based start-ups

43000,

Non Technology Based start-ups

57000

%Share-

43%/57%

New Annual strat-up
=800/NA

Table 1.1 NASSCOM Startup India report 2015,

Technology Based Start-up >

Sector / Percentage

E-commerce /33%

B2B /24%

Consumer internet /12%

Mobile apps /10%

SaaS / 8%

other /13%

In the Technology based startups, maximum concentration is in E-Commerce sector (33%) followed by B2B sector (24%), Consumer Internet (12%) and other sectors comprise 13%.

Source: Microsoft Ventures, Zinnov, NASSCOM Startup India report 2015Note: Non-tech based startups sector concentration is an outcome of a survey conducted by CRISIL on ~20% sample of micro, small, and medium enterprises 2013-14 ,

Source: NASSCOM Startup India report 2015, Microsoft Ventures, Secondary sources, News article



STAGES OF THE STARTUP LIFECYCLE:

1. Identification of Need of New Application (Idea Generation)

2. Securing the Idea (with filing a Design and Utility Patent, Both)

3. Devising a Business Model to suit the Needs.

4. Challenges in Scaling the Business Model to generate sales to the potential expectations of Investors in Business.

5. Challenge of Retaining the Original Team.

6. Challenges to get new customers and retain customers

Unicorn IT Startups

Despite being common practice in other parts of the world, the importance of filing patents has only just become apparent to young startups in India, as the country increasingly moves towards becoming an innovation hub in Asia. Moreover, the Indian government has begun offering incentives to encourage innovators to file patents, including attractive tax rebates and speedy documentation processing.,

Unicorn—a start-up valued at $1 billion or more—has become a buzzword among venture capital and private equity investors. Some 177 companies across the world have won the tag. Only in August 2016 did India get its 10th unicorn when Hike Ltd, which runs the messaging app Hike Messenger, raised $175 million, largely from Chinese Internet giant Tencent Holdings Ltd and Foxconn Technology Group of Taiwan, at a valuation of $1.4 billion. Here is a look at the Indian unicorns, their valuation and the year they made it to the list.

Source = http://www.livemint.com/Companies/XHG57dolUHbJXASuxEvlaN/The-10-Indian-unicorns.html

Following is a list of unicorn startup companies. In finance, a unicorn is a privately held startup company with a current valuation of US$1 billion or more.

Notable lists of unicorn companies are maintained by The Wall Street Journal,[1] Fortune Magazine,[2] CNNMoney/CB Insights,[3][4] and TechCrunch.[5] https://en.wikipedia.org/wiki/List_of_unicorn_startup_companies

Currently there are 222 Startup Companies in world valued at $775 Billion.

https://www.cbinsights.com/research-unicorn-companies

Top 10 Unicorn StartUp companies in India that made to World List of Start-Ups (Top 222)

Sr.No.// Company Valuation // Type of Business Model Of StartUp

1. FlipKart// $16 Billion //e-Commerce

2. Snap Deal //$ 7 Billion //e-Commerce

3. Ola // $ 5 Billion// On-Demand

4. PayTm // $ 4.83 Billion //Fin-Tech

5. Quikr // $ 1.5 Billion //Internet Service/Market Place

6. Mu Sigma //$ 1.5 Billion //Big Data Analytics

7. Hike // $ 1.4 Billion //Social

8. Shop Clues //$ 1.1. Billion //e-Commerce

9. In-Mobi // $ 1 Billion //Ad-Tech

10. Zomato Media //$ 1 Billion //Social On Demand

Source: CB Insights, Crunchbase

India is home to 10 unicorns—startups valued at over $1 billion. And, studies indicate that the country’s rapidly growing startup ecosystem could produce at least 50 more in the future. However, such massive valuations don’t imply profitability. Of the 10, only two Indian unicorns are currently profitable: Data analytics firm Mu Sigma has made annual profits for three years while InMobi, an advertising technology platform, posted profits in the fourth quarter of 2016.

The rest are still struggling. Online sellers like Snapdeal and Flipkart have been bleeding due to the massive discounts they dole out to woo and retain customers. Advertising and marketing costs, too, are eating into revenues.

Only Mu Sigma and InMobi made profits.

Source: CB Insights, Crunchbase

However, what is more interesting is that till now the e-commerce or marketplace start-ups have been the most successful in entering into the unicorn club. There are currently 56 start-up unicorns from the e-commerce or marketplace sector, said the report. It is closely followed by the internet software and services start-ups with 41 unicorns. The fintech start-ups have been seeing a surge of late. Currently, there are 25 unicorns in the fintech sector. The hardware sector has 16 start-ups that made it to becoming unicorns. Big data start-ups are at the same number. There are 13 unicorns from the healthcare sector and 12 unicorns from the social sector.

• So far in 2017, there have been 42 companies added to the global unicorn club E-commerce start-ups globally still hold the lead in 'unicorn' race

• Startups are finding it harder to break into the 'unicorn' club

http://www.zeebiz.com/small-business/news-india-is-the-second-most-unicorn-rich-start-up-countries-outside-the-us-25826

A study carried out by SAGE, UK based accounting firm reported that most unicorns are produced by Universities in US and India. The first position was bagged by US-based Stanford University for having churned out 51 unicorn founders and the second position went to Harvard University with 37 unicorn founders. The third rank was occupied by University of California with 18 unicorn founders, which was followed by IIT for fourth rank with 12 billion-dollar founders.

https://www.thebetterindia.com/86539/inspiring-unicorn-founders-india-startups/

In Agri Space Big Basket has become only Unicorn Company with cash rich position. India’s largest e-grocer BigBasket.com, has raised $50 million Series C funding in a round that values the company at $1 billion. The round was led by Bessemer Venture Partners, a Silicon Valley-based VC, which has been working on it since late last year. The Series C includes new investors Helion Venture Partners and Ascent Capital, and existing investor, Zodius Capital, according to CrunchBase. This funding makes BigBasket.com India’s highest valued vertical player in the segment.

https://agfundernews.com/indian-e-grocer-bigbasket-com-becomes-unicorn-in-50m-series-c-funding1.html

There is a space for at least 6-7 Unicorns of Agro Based in India by told by Mr.Sawhaney,GSFAccelrator on CNBC Channel on discussion on 23-12-2017

Startup Challenges:
Startups take time, effort, and energy to grow into profitable and sustainable businesses. Funding is a major concern for startups and small businesses as availability of finance is a very crucial factor. Credit today is tight, in fact very tight in the light of demonetization and it is not clear precisely when it will become more readily available. Moreover, there is a growing trend of smaller initial investments in early stage startups rather than big investments in bigger startups.

1. Tackling Rising Costs

One of the most significant factors that keep startups from filing patents is cost. Filing a patent in India involves a pre-filing cost priced between $920 and $1530 (Rs.56k-Rs.92k), a first-action cost of up to $2300 followed by a patent maintenance cost of another $2300 (app.Rs.3Lakh). The collective fee of filing a patent can be a burden on several early-stage startups so private IP firms are helping startups manage these costs.

Dr.Kalyan C Kankanala, senior partner and chief IP attorney at BananaIP, says, “Several startups don’t prioritize patent filing as an early stage activity. It’s important for them to understand that once an idea or product goes public, the possibility of acquiring a patent is lost under most circumstances.”

2.Startups Seize Patent Filing Opportunities

While anyone can file a patent, it is recommended to seek the help of IP law firms, which conduct patentability analysis to verify the authenticity of an idea and suggest amendments in patent documents. Based on findings by the Indian Patent Office, the process of filing patents in India has improved of late. Applications went up by 10% last year compared to the year before, and growth has been credited to the improvement of online services, availability of IP specialists across the country as well as the incentives provided for startups under the government’s Startup India initiative. Swapna Sundar, CEO of IP Dome Strategy Advisors, says, “An increasing number of product startups in India are embracing the need for filing patents at an early stage of product development, which is very sensible. The Indian government’s Startup India initiative is creating awareness towards minimizing legal risk against IP infringement.” Kankanala says, “About five years ago, we would do about five to six patent filings a year. This year, we have already filed about 20 patents for startups, and expect more.” “We have helped around 35 startups in building successful IP portfolios for their businesses,” she said. In addition, the government’s Startup India initiative provides a slew of benefits to Indian startups, which includes an 80% rebate on patent filing. Application fees for startups to file patents has been reduced to just $25. The Indian government has introduced mechanisms for speedy processing of patent applications, and it’s now possible to acquire a patent in India within a year of its filing. Unlike earlier, the Indian Patent Office is processing foreign filing permits quickly, with which Indian startups can now file patents overseas.

3. Protected Ideas Lead To High Investor Confidence

The eagerness to file patents has also led to improved investor confidence. Having seen both the sides of the ecosystem, SateeshAndra, an entrepreneur-turned-venture capitalist with Endiya Partners believes that patent filing is an integral part of the overall product strategy as benefits outweigh the timelines and costs involved. The owner of multiple patents himself, Andra says, "As startups go global, how quickly you go to the market is paramount. Entrepreneurs must be aggressive in their market outreach plan as patent filing not only increases the credibility when they scale but also bolsters investor support." As awareness around patent filings and quality of legal assistance improves, startups can now push the boundaries of innovation and creativity in India, establishing new benchmarks in the fast-growing ecosystem.

https://www.forbes.com/sites/sindhujabalaji/2017/10/16/indias-startups-are-filing-more-patents-than-ever-before-heres-why/#26b89da069f5

4. Adding new customers and retention of Customers.

The acquisition of customers for IT Startups is becoming more and more difficult task as number of IT Startups is growing. Many e-retailers are offering discounts for using particular bank’s credit/debit card; however customers are hoping to get cashbacks on deals in festive season. "Cashback is the reigning king of Indian ecommerce marketing," says Saurabh Vashishtha, vice-president, business, Paytm. "Cashback is potentially a better way of engaging with consumers. It's like building a loyalty programme in an indirect manner," reckons Arvind Singhal of Technopack.. "While discounting operates in spurts, cashback has proven consistency in terms of traction," Nidhi Agarwal says, adding that it allows customers to experiment with new brands and products for free. While discounts are a way to increase volume sales, cashbacks not only drive volume but also provide tangible rewards (value), avers Nidhi Agarwal, Fashion Portal Owner. Investors, for their part, are also not complaining. They see immense business sense in the way ecommerce players are splurging money in acquiring consumers and achieving scale. The etailers, they aver, are only playing by the rules of the game, which is customer acquisition at whatever cost. First, in the online marketplace where margins for ecommerce players are wafer-thin if not absent, having one's own payment wallet saves precious commission which otherwise would have gone to the outsourced payment gateway provider, Second, it enables ecommerce players to engage more with the consumers for a longer period of time, which in turn ensures repeated purchases. And, third, the money invested by companies in rolling out a cash-on-delivery model, which adds to the cost overrun of the startups, will significantly come down. This, in turn, will ensure moving rapidly towards profitability, perhaps the biggest concern with all the ecommerce players in the country, he adds. That also explains the strategic trigger for Snapdeal buying mobile top-up firm FreeCharge for reportedly Rs 2,400 crore in April this year. Four months after the acquisition, Snapdeal and FreeCharge jointly launched a mobile wallet. In fact, cashback seems to be the flavor of the season. Online travel aggregator Yatra has rolled out a promotional offer of 100 per cent cashbacks on tickets booked through its app. Chinese handset maker Xiaomi has announced cashback offer during this festive season. Even Tata and Mahindra have taken a chance to etail their cars online. Tata Motors [BSE -0.65 %] launched up to 100 per cent cashback offers on its range of cars including Safari Storme, Bolt, GenX Nano and Indigo. Mahindra & Mahindra too has been running a cashback scheme for its two-wheelers.

Latest News
https://www.hindustantimes.com/mumbai-news/new-policy-to-create-10-000-start-ups-5-lakh-jobs-in-maharashtra/story-upFZ2eTUxRs38goa8eZeuN.html

Maharashtra Government announced policy to create 10,000 startups in next five years with 5,00,000 Jobs (direct & indirect) . Features of policy are While half the amount, i.e. Rs 2,500 crore, will be set aside in the state budget to foster entrepreneurship with a special bent towards startups, the other half of the amount will be used for venture capital funding for startups units. The government calls upon financial institutions to lend to startups, and even intends to stand guarantee for a part of the loans issued. Besides the investment, at least fifteen startup incubators will be established across the state. “We aim to develop at least 10 lakh sq ft of incubation space in the state over a period of five years. Eventually, we plan to scale it up to around 35 incubation centres, which in effect means one for each district,” said a department official, according to this LIVEMINT article. These 35 centres will be divided equally among 12 distinct, prominent and buzzing sectors that have been identified by the government — construction, production and manufacturing, textile, automotive, hospitality, healthcare, banking, finance and insurance, organised retail, pharmaceutical and chemical, information technology and enabled services, agro-processing and biotechnology — thus amounting to no more than three incubators per sector. The plan is to evenly distribute these incubators across each district of the state, on a public-private partnership model with lead industries from relevant sectors, according to this INDIAN EXPRESSarticle. These incubators will assist the startups right from the idea to implementation and sustenance stages. Two world-class accelerators are also being thought up for the cities of Nagpur and Aurangabad, with a focus on mentorship and education, once again with the public-private-partnership model, for which, they wish to rope in experienced national and international organisations. “Start-ups will be provided services of top-class management and administrative experts through accelerators. This will help start-ups avoid mistakes, function efficiently, and reduce the risk of their failure,” states the policy. A slew of other policies will be set in motion, in order to bring some tax relief for the fledglings — 100 percent and 50 percent reimbursement of stamp duty and registration fee for the first and second transactions respectively, for recognised start-ups and incubators when they buy or rent property; reimbursement of up to Rs 2 lakh for an Indian patent and Rs 10 lakh for an international one, etc.

Conclusion

• Indian Startups have become more conscious in filing patents. No. of patents filed has shown growth (4 Times as compared to 2014).

• India has the second highest number of unicorn start-ups in the world
• India currently has 10 unicorn start-up firms.

• India has only 2 IT Start Ups Unicorns. (MuSigma and InMobi)
• Less than 2% startups reach the coveted 'unicorn' status.

• IT Startups (e-commerce sites) have started offering Cashbacks to get new customers and retain existing customers.

• Even TATA and Mahindra and Mahindra tried to promote their fledgling products online.

• It will be interesting to do data mining and A.I. for identifying repeat buyers and retain them for longer period of time. Thus adding value to the bottomline.

References: 1. Source: Microsoft Ventures, Zinnov, NASSCOM Startup India report 2015 2. NASSCOM Startup India report 2015, Microsoft Ventures, Secondary sources, News article