Are you a product startup entrepreneur looking for a viable way to get your startup off the ground and get it going in India? Sramana Mitra’s fifth book in the Entrepreneur Journeys series, Seed India: How to Navigate the Seed Capital Gap in India, offers nimble advice based on case studies in forms of interviews with founders of many successful product ventures in India.
The nascent product ecosystem in India still has a large seed funding gap. Sramana quotes Sharad Sharma, an active angel investor and founder of the Indian product think-tank iSPIRT, “US does more deals by 11 am on the first day than what India does in a whole year.” Sharma validates his point by the number of deals that happened in 2011. Angel funding exceeded venture funding ($30 billion vs $24 billion) in the Valley in terms of size and happened at the rate of 500 deals a day. In India, the number of angel deals in the whole year amounted to only a hundred or so.
Sramana goes on to argue that the latest trend of incubators coming up and the kind of mentors on the scene doesn’t make the ecosystem any better. She feels that given the low availability of seed funding, perhaps only one per cent of the startups would qualify for early-stage funding.
What’s the solution? According to her, bootstrapping is the only viable option for growing startups to gain traction and then go for venture funding. In her global virtual incubator, 1M/1M, she has found several startups succeeding by bootstrapping through paychecks and services.
The book features interviews with Phanindra Sama (redBus cofounder), Sachin Bansal (Flipkart cofounder), Pallav Nadhani (FusionCharts founder), Arvind Agarwala (FACT Software founder), and Mithun Sacheti (CarratLane cofounder). Sramana answers one question lingering in the mind of product entrepreneurs: Should you move to the Valley?
Why no ample seed funding in India?
Sramana puts forward the argument that India is a slow-growing technology market and although the opportunity is big in terms of size or total available market (TAM), technology adoption by users (what Geoffery Moore would call laggards) makes it a tougher market to crack. So early-stage investors are not willing to risk their investments in a slow-growing market is her conclusion.
A couple of companies which have really cracked the Indian customers are not pure tech companies but the ones which have used technology to sell products online. The examples are Flipkart and CarratLane. While Flipkart sells many consumer products online, CarratLane sells diamonds online.
The founders of these startups share the challenges they faced while selling to an Indian customer. While Sachin Bansal found trust to be a key issue, Mithun Sacheti dwells on delivering to specifications (of the diamonds they are looking for) of the customer as being the primary differentiator. These two companies had to bootstrap their way to get traction and then find venture funding.
The book is an interesting read on the thought processes of Flipkart founders when they were starting up. It’s also true that these two companies replicated models (Amazon and Blue Nile) that succeeded in the United States.
Bootstrapping your way
Sramana feels that product-market fit would take somewhere between 18 and 36 months. To sustain the startup when the product is under development and iterations are on is difficult. One option is so-called moonlighting while on a job. Once you are confident to launch the product, you can quit and plunge in. Funding your startup early on through your paycheck is not an easy task given the conflict of interest and ethical issues involved.
Phanindra Sama solved it by getting buy-in from his employer Texas Instruments after they were convinced that what Sama was doing was not affecting his productivity or constitutes conflict of interest. It’s now history how Sama found a new market in selling bus tickets online, found a strategic investor and gave a wonderful exit to his early investors.
Pallav Nadhani’s challenges were different. He had to fight piracy, and work around to make his product suitable for the Apple devices by collaborating with competitors and later licensed his software to scale his company. It might give product entrepreneurs a few tips on how to structure their pricing after reading Nadhani’s story.
Arvind Agarwala found markets for his accounting software outside India in Nepal first and then in a big way in Singapore. Agarwala is not looking for funding as his revenues are sufficient to grow the company but finding the right talent poses a real problem for FACT Software. It’s clear that paying customers are important for a product startup before they could knock at the doors of an investor to grow their companies to the next stage.
Moving to the Valley
Sramana cautions entrepreneurs moving to the Valley as the burn rate may be high and war for talent may be hot. Unless you are venture funded, it would be difficult to stay in the talent race. She does not advice against moving to the Valley but asks entrepreneurs to be prepared. Although she provides examples of successes outside the Valley, it is still an undeniable fact that Valley remains the dream for many product entrepreneurs.
Her interview with Jaspreet Singh of Druva provides ample evidence for her earlier caution on talent. Singh had to do a lot of hard work for selling Druva to prospective employees and find the right guys as well. Freshdesk, founded by Girish Mathrubootham, is still leveraging the advantages of low-cost talent and less competition for funding by operating from Chennai.
As an example of bootstrapping with services, Sramana mentions RailsFactory, a product startup from Chennai. After developing apps on Ruby on Rails for more than 100 customers, the company, cofounded by Senthil Nayagam and Dinesh Kumar, productized their service and sold the product to their previous customers. The other examples provided by Sramana are AgilOne and Mansa Systems.
This short book is a breeze. Prospective product entrepreneurs are better served by reading it to understand how successful product entrepreneurs have built their businesses without a seed capital. Sramana’s conversations provide depth about the core issues as she is well versed with technology. It’s also recommended for founders of product companies in the growth stage and anyone interested in reading product success stories.