Finding deep tech startups is not difficult, scaling them up is, say expert investors

1st May 2016
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There is life for Indian startups who know what to build for Indian corporate. In fact, India is poised to grow beyond just being a great test bed for B2B startups. A couple of years ago startups only validated their products here and went away to the USA because the largest B2B market is the USA. We see the likes of Freshdesk, Unmetric, and Helpshift take their businesses to North America and become popular businesses. Today, Indian corporate is desperate for innovation, and with corporates like Cloudnine, Future Group, Mahindra & Mahindra, and Tata Motors actively working with startups there is light at the end of the tunnel. Based on the size of B2B opportunity, the technology opportunity in the automobile as well as retail industry is roughly estimated to be about $1 billion. With Rs 13,000 ($2 billion) crore as the opportunity in just these two industries, startups need to certainly innovate for India and build for the globe.

‘When does a sector get saturated for VCs?’ A VC answers
‘What is deep technology for VCs?’ These VCs answer.

Recently, YourStory caught up with four top notch respected investors and mentors at the Ideaspring Capital dinner. They have built big businesses and have lobbied extensively for a positive impact for Indian entrepreneurs through the StartUp India policy. Here’s what Ravi Gururaj, Shekar Kirani, Sanjay Anandaram, and Sharad Sharma had to say about innovation and the B2B industry. Deep-tech, which is about machine learning algorithms and IP, is the future of India. But they are cautiously optimistic about how India can be an IP hub for the world. Here are the excerpts.

1. Is it is easy to find B2B businesses with focus on deep technology?

Ravi: Entrepreneurs need much more than financial support. Product is not easy to build, it is difficult to scale and to know whether what you’re building is right. This is the dilemma that entrepreneurs face. We can find deep tech companies in India for sure. But remember it takes time and lot of money to build deep tech companies. The entrepreneur needs to be resilient.

2. Is the funding eco-system changing its attitude towards deep tech?

Sharad: I believe that ecosystem will change with specialised small funds like Ideaspring. These focused funds, which have a hypothesis about backing a particular theme, will become large funds in the future. The Indian ecosystem is big enough for such funds participating in funding innovation. The other fund similar to Ideaspring that became a large fund over time is the India Innovation fund, which focused on the thesis of innovation.

3. Is it difficult to raise money being a B2B deep tech company?

Shekar: It is really hard to raise money today for funds and startups. It takes time to build an ecosystem of startups. Funds have a larger role in creating this ecosystem by finding companies that have value in technology. In Accel, we started small in India and now our current fund is $305 million in size. Everyone is looking for that tech startup that can give funds 10x growth. There has to be some differentiation beyond growth.

Today, building a great user interface and easy on boarding is a commoditised business. In the valley what we see is tech products that have to be smart, anything in the 2011-12 realm of building apps for corporate are finished. Startups must build use cases for corporates to take them seriously. Large outcomes (in exits or scaling up) cannot happen in India by merely copying what is there is the West. We should not play catch up.

4. What should be the key differentiator for tech companies?

Sanjay: Intellectual property will be the differentiator for these companies. If this country has to achieve this destiny enterprises should move more being a laggard to increasing their ratio of R&D to sales. When Indian companies increase R&D spends it would be fantastic for them to work with startups. The startup policy has changed the game. In the future, the Government should give tax breaks to companies using Indian intellectual property.

Shekar: Every fund asks for revenues from deep tech companies right from day one. This is not correct. IP companies should be asked if they are engaging customers and they need guidance to acquire new customers. Also these customers need to make sure they remain anchor customers. They need to stay longer with the startup.

5. What should a deep tech startup build?

Ravi: Product is never a standalone, it plugs in to a stack. The tech should create outcomes for business. The technology needs to have an impact.

Sharad: Cloud companies are building tech with much fewer people. Whole product business is reshaped and it no longer about the number of people who build tech. It is about fewer people and the architecture arbitrage. Indian market will become competitive and deep tech is the future. Today a lot of industries are getting disrupted. Banking is feeling vulnerable for the first time and they have to work with companies with deep technology.

Every big company is having an existential crisis. HP and IBM have theirs because innovation is happening outside. There will be several cross border M&As in the future because these corporates have to find these innovative companies. Indian companies like Eka, Dhruva, and IFlex have changed the game for Indian technology companies going global.

Sanjay: This breed of new age entrepreneurs are not hostage to heritage. India is an attractive market because these engineers are building some great companies. So global corporate is waking up to this. There is a natural interest to have a serious foothold in India for global corporate. The other thing is government as a customer. High-value IP-oriented startups will be given the opportunity.

6. What should companies think about over the next two years?

Shekar: Understand the market and create the ability to benchmark with global standards. The global software-as-a-service market is great, and all global leaders are saying the next big software-as-a-service business should come from India. The timing is right for us.

Sharad: Now we can create companies with deep tech. But these companies need anchor customers. I believe small teams will become great companies as they acquire more customers that use their tech. The global delivery model is going to get world class with Indian startups going after intellectual property. Zoho and Freshdesk are examples of companies who worked this to their advantage.

Ravi: Industrial IOT would be fantastic in India, if the product is instrumented for the corporate then they will work with the startup. Today startups go to large companies and tell them what to do. But this is going to be hard for them because the corporate organisation is large and it knows best what it wants. For example, in the automobile world a corporate will always ask a startup to work with its vendors. Startups have to work closely with the vendors. Deep start-ups need a compelling story to get the attention of the corporate.

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