Archive for January, 2013

Tech Startups: We are on our own.

Fraction

I remember this TED talk by Hans Rosling as he echoed the sentiments that I’ve heard working closely with Market Research firms:

Even with quantitative data, you have to be careful because as much as they are hard numbers, they usually are averages of two extremes – and the markets are full of extremities.

Truth is, if you follow (just) the numbers and build a product, you might end up with something that half convinces one group and slightly lures the other but never raging fans - in short, you build a product that is average.

Which means, that in order to improve a system, its not necessarily the most effective way to measure the system has a whole, you have to look at the individual parts of it and see which part of it is inefficient and work on that as a unit, rather than the whole system.

Organizations, love to club “Entrepreneurship” as one big whole chunk of gooey and that is very misleading.

I came to realize this working for a few years with IIT Madras, and interacting with the government and realized two things – their priorities were on cutting edge technology (patentable, and hence hard core sciences – some of which were a few layers away from direct commercialization) and the other was employment. If you think about it, it fundamentally comes down to the two priorities any government would have – security (economic and physical) and job creation, which are the key elements to a society, everything else is incidental.

How does technology entrepreneurship play into all this? If you are not building patentable technology (but an application – Yo! to the dudes and dudettes building Twitter 2.0) and if you do not have an intent to hire the masses to come work for you, you really don’t factor in anywhere at all.

That’s why when I read articles and the entire social media sphere going abuzz about the government plans t0 create 10,000 startups, and trying to force fit technology startups into that equation, I cringe, because thats like tryin to get a rhino into a bride’s wedding dress.

“According to a recent planning commission study, India needs to support nearly 10,000 scalable start-ups by 2022 to provide some level of sustainable job creation to the 140 million potential job seekers entering the workforce over the same period”

Some rough estimates say that there are close to 24 – 32 million (I know its vague but vague is all we have, because nobody has actual data) small and medium enterprises. Most of them are spread in the 1200+ Industrial clusters in India. When the government says “Startups” that is the ideal target they have in mind. It is none of the 350 odd brilliant, fraction of the whole equation demographic at all. The image in the mind of the government and policy makers when they say “startups” is someone who can be part of that 140 million job creation scheme of things – which means its the labour industries first, followed by manufacturing, followed by vocational skillset based organizations, followed by service companies (IT and Hospitality), followed by Research and development. You and I, don’t factor in at all.

The Key is to recognize that, before writing a post saying that things are sweet and sour. Truth is that the Tech Startup Ecosystem is on its own. And it survives on its own. It is nascent, very nascent and things are as crazy as the wild wild west. Not all entrepreneurs know what it takes to be in India and be building a business here, most of them complain that they are born in the wrong country, and most others just whine that this is not the valley. Some others are fooling themselves into believing that we are somehow there.

So steps to take:

1. Organizations like TiE have seriously lost their focus, gearing further and further into general entrepreneurship (so is CII, and FICCI and etc), rather than having a focus – when they are positioned best to help, but are just wiling away.

2. Understand that there is no such thing as an ecosystem yet, there is a landscape and like cattle there are some startups and enablers around. When my CA knows why a tech startup which has no “machinery” is valued at a crore, and all he sees is four guys and their laptops, then we have made the first step in building an “ecosystem”, not yet.

3. Building the Tech Startup Ecosystem, will take a concerted effort, by not the govt, or by one or two people, but by many who share this vision and are willing to play a non-zero sum game. Think beyond what you get (right now).

4. Our early successes will come from companies that will move out of India, go to the valley and succeed. Hopefully some of them will find a reason to come back and become that corridor. So don’t grumble when some of them leave, if they come back we should involve them. Israel’s ecosystem was built that way. There are ways to accelerate it, but that goes back to point (3) about a concerted effort. Investors will have to think beyond just deal flows, technology companies have to think beyond getting startups on their platform, and entrepreneurs have to think beyond just getting funded as their agenda.

5. Stop thinking small, and incorporating in India because of Patriotic reasons. Be global, incorporate where needed and keep your options open. Leverage all the exposure you can get. You are not competing with that startup down the road, you are competing with your counterpart globally.

6. If you are a startup, stop wasting your time in ecosystem stuff, there are enough of us around who have made it our mandate, if you really really really want to help, succeed amazingly well. There is very little replacement for what a success like FlipkartMobmeWebengageFreshdeskFusionChartsVisual Website OptimizerTenmilesOrangescape or a like can do.

Suceess breeds inspiration, while all the enablers can lay the roads, its entrepreneurs succeeding that really lights up the runway.

So don’t crib. Leverage India for what its worth. You can build amazing businesses here, but it will require getting your hands dirty. In short, be resourceful and make the most out of it. We are on our own.

 

MobilePOS – a few questions

One of the primary reasons for this post on mobilePOS – is that we as a company are being inundated with requests from various mobilePOS start-ups from India, Europe and US, who seem to be replicating/inspired by the Square Inc. model and want to leverage , ‘Our network of merchants’.

To explain ‘Our network of Merchants’ a brief background might be in order – I am the founder of a five year old electronic payments company called Paytronic Network. What began in mid-2007 as a two member team has now grown to a team of over 300. We offer merchants/retailers the ability to electronically accept prepaid mobile & DTH payments – quickly and conveniently using their mobile phone with zero transactional cost. We have over 60,000 points across India & some 2,500 points in Panama (Latin America) who use our technology and are part of the Paytronic Network.

With mPOS , the first question that comes to mind is – Who is the target market for mPOS? Is it the traditional users of POS from the banks? – what is their incentive to move to mPOS? Or is it the pizza delivery guys – who will embrace mPOS? May be it will be the e-commerce players who offer cash on delivery – who can now offer card on delivery, using mPOS?

Once the target market is clearly defined the next significant question is, what is the revenue model? Is it taking a fixed monthly fee from the merchants? Or a share of the merchant discount? (Merchant discount – is the money charged to the store for each transaction. It usually ranges from 1.5% to 3% of the transaction value). Or both? Finally , can mPOS be a singular offering from a company to sustain itself ?

To the best of my understanding most of the mPOS solutions out there use smart phones (Android/Apple). How many merchants in India or the developing world use smart phones in their stores? Even, if they own a smart phone.
Some players claim J2ME ready mPOS, but I tend to take that with a pinch of salt. From our past experience of developing J2ME apps for the recharge app, we know the myriad of compatibility issues that we have faced, especially with the cheaper imported phones and their convoluted J2ME implementations.

The next question is – how many mPOS players are PIN & CHIP (EMV – EuropayVisaMasterCard ) ready? As per an RBI notification EMV is here to stay from June 2013.The traditional POS players are EMV ready as their equipment are already in use in Europe where EMV is mandatory. Entire LATAM is also going the EMV way in 2013. Are the mPOS players really prepared for EMV ?

Although I might sound like a doubting Thomas, at the end of the day in my opinion mPOS is really exciting part of the electronic payments space. The traditional POS players with their deep pockets, experience and expertise and definitely the Goliath in the arena. If someone has reviewed the PCI POS PED-3 security standards they will understand how well placed the traditional POS players are in order to play the mPOS game vis-à-vis the start-ups.

In the past many Davids have won against the Goliath of the world – will we see that in the mPOS game? or will it be the case of – When the giants learn to dance? – only time will tell.

Would love your opinions /feedback on mPOS.

P Thomas Abraham

Does your product have a market?

Unfortunately not all new ventures end up as success stories. The reasons are plenty and well known. But start-ups continue to commit those very same mistakes.

Ensuring success involves implementing the critical parts of the business plan in a systematic way. Like, identifying the product functionalities that will have takers; building a scalable sales process; having a team with fantastic skills in their specific domain be it technology, operations, service delivery, sales or finance with a reasonable track record of success; and last but not the least, knowing when to conserve and when to scale the business.

Any product development or innovation is done with the confidence that there is a market for it. Definitely some amount of due diligence would have been done before embarking on the development process. However, reality actually strikes when you get down to the task of converting the product into dollars. A lot of ideas lose steam at this stage, only because a systematic process is not followed to identify the right fit. It is not that there is no market for it. In most cases, either the product needs to be tweaked to get that market fit or it is a little ahead of the curve in terms of market readiness.

This is a typical issue with most start-ups. My experience has been that in most cases, the CEO does not recognize this and keeps throwing money into getting sales and by the time realization hits, they are in a cash crunch.

To know if your product has a market or understand what needs to be done to convert it to dollars, one has to get customers to try out the product and endorse its usefulness …. even if you have to give away a few for FREE. Ofcourse, it is always advisable to ensure that the customer has some skin in the game, however small it may be. This will ensure a higher level of involvement and timely implementation.  Getting the first few customers is the real challenge. Usually this is achieved by approaching people whom we know and convincing them to invest in the idea based on the entrepreneur’s personal reputation or actually running a small Direct Mailer campaign to a small set of target customers and convincing them on technology and value. Both these approaches work.

Once you have 8 – 10 such users who are willing to provide testimonials on how your product helps them in their business process and provides ROI, and MOST IMPORTANT are now willing to pay for your product, then you have a bestseller! This will mean that your solution is now a ‘must have’ and not a ‘good to have’. The day you are able to build a business case for your product, you can then rest assured of converting it into revenues. This is the time to invest in a proper Go-to-Market plan. Until then you will only be shooting in the dark. Oh yes … the final version that actually finds a market need not necessarily be the one you started out with … and that is quite normal.

Until this stage, it is important to be frugal and conserve resources. The time to throw resources will come when this is converted to a repeatable and scalable sales process, ensuring a regular revenue beat rate. Getting here will be a major milestone for the company and will go a long way in convincing VCs to invest in your venture.

All that I have written is nothing new but requires constant reiteration as in the heat of trying to quickly establish a revenue stream, some of these basics are forgotten and once again the same story unfolds.

Stars Aligned to Foretell Future of Indian Private Equity & Venture Capital

Dear Colleague,

In 2004, the buzz around one mega exit – of Private Equity investor Warburg Pincus from Bharti Airtel – got institutional investors across the world excited about the Indian Private Equity opportunity. Naturally, there was a boom in PE fund offerings from India- typically focused on minority growth capital type investments – to cater to this rising appetite. And billions of dollars flowed in search of the next big Bharti.

Now, in one forum after another, these investors – “Limited Partners” (investors in PE/VC funds, LPs for short) – have been hyper critical of Indian PE fund managers for their lacklustre returns.

Indian PE sure seems to have hit rock bottom.

Is There Hope?

Admidst a lot of skepticism, the BSE Sensex was the best performer among emerging markets (aka BRICs) in 2012 after being the worst performer in 2011. Recent months have seen MNCs from Europe to Japan and, of course, the US – in their almost desperate search for growth – very actively snapping up companies Indian companies: whether it’s high profile consumption targeting sectors (think United Spirits), the relatively quieter pharmaceuticals ones (think Claris LifeSciences and Orchid Pharma) or the very quiet but very many acquisitions in the Industrials segment. With so many PE-backed companies lined up for exits, the signs on the liquidity front look good for 2013 at least.

The Bloom?

Recent exits in the tech industry – think MakeMyTrip, InMobi, etc. and performance of rising stars like Flipkart, RedBus, etc. – have got even some of the normally wary LPs interested in the Early Stage segment. As a result of which, new VC funds are expected to bloom. Which was exciting enough for 2012 to witness one new Accelerator to sprout up each month: The Morpheus now has Microsoft and 500 Startups for company (competition?). And the original Accelerator – US-based Y Combinator – continues to attract over a couple of exciting Indian startups to flip over to Silicon Valley for each of its batches.

What are these Accelerators – who are churning out companies by the dozens each year – betting on? That Angel Investors/Seed Funds will provide follow on funding to their promising hatchlings. The membership at the angel networks is booming with a little “Old Money” folks; some “Been There, Done That” First Generation Entrepreneurs; more “vicarious startup thrill seeking” corporate executives and lots of hope for quick flips – 3x return is the oft used multiple – when the “Series A” (first round VC funding) happens.

The Bottom Line?

It’s all hyper connected. The accelerator phenomenon is absolutely great for entrepreneurs searching for early validation, mentoring and first money for their ideas. And a great feeder for the angel investors and seed funds. Who in turn need a vibrant set of VC funds to provide scale up capital. Who need PE funds to allow them to take some “chips off the table” (via Secondary Sales) and prepare their portfolio companies for the public markets. The IPO markets are of course vital for the PE folks to exit. Which is heavily influenced by the economy.

So, Who Can Foretell What’s to Come? The Stars?

Let’s look at it backwards…

About The Big Picture?

How about someone who was Deputy Governor of the Reserve Bank Of India until last month? And Chief Economist-Asia-Pacific at a top global rating agency before that.

About The Public Markets?

How about the CEO of the Asia’s Oldest and best known stock exchange, the BSE?

About (The Mess in) Private Equity?

How about the founder of India’s Best Known Home Grown PE shop? How about the India Head of the World Biggest PE Firm? The Global Co-Head of Private Equity at a MNC Bank (who no one seems to have informed that any portfolio – especially one constructed in India – should have a few lemons)? How about if we threw in an outspoken IAS officer – a batch topper, Harvard Grad and who is doing his PhD researching Indian PE – to needle the PE Stars?

About Venture Capital?

How about two Managing Directors from the best known VC firm in the World, India included? And many, many more rising stars (from accelerators, seed investors and growth capital funds).

About Starting Up, M&A and the Life After?

How about the founders of a pioneering KPO venture (acquired by Thomson Retuers) and a pioneering assessment services firm (acquired by Manipal Group) who have since turned investors?

Agree that These Stars can (at least somewhat) foretell the future and Connect the Dots in the Indian PE/VC – Entrepreneur landscape? It’s now possible to listen and meet all of them in One Place in One Day!

At The Venture Intelligence APEX’13 PE/VC Summit & Awards

When? February 13 (Wednesday), 2013

Where? Mumbai (ITC Grand Central – Parel)

How can you sign up to participate?

After all, the Stars Don’t Align Like this Very Often!!

Indian Ecommerce 2013

My views on what to expect from Indian ecommerce sector in 2013 – the profitability challenge, the financing challenge, and the differentiation challenge.

Read here.

Tata Social Enterprise Challenge – Call for Nominations

Tata group and IIMC have launched the Tata Social Enterprise Challenge. Key highlights:

• National level competition to find India’s most promising social enterprises
• Identified social entrepreneurs to be offered mentorship support, funding opportunities and an opportunity to be incubated at IIM Calcutta’s Incubation Centre
• Teams need to have an early stage venture or a promising idea with a firm plan
• People can submit entries to nominate social enterprises, they know (www.tatasechallenge.org)