Startup City Magazine

Indian Startup Ecosystem - Challenges, Growth & Opportunities

By Mahesh Lingareddy, Founder & Chairman, Smartron

Mahesh Lingareddy, Founder & Chairman, Smartron

Headquartered in Hyderabad, Smartron proffers exciting premium quality products for both consumer and enterprise markets with absolute emphasis on customer experience.

China’s current GDP is approximately $10 trillion, which is five times larger than that of India even though they were about the same size couple of decades ago. The reason being, over the last two decades, while India focused on only ‘services’, China focused on both ‘manufacturing’ and ‘products’. Thus, in addition to being the manufacturing behemoth, China is now home to some of the fastest growing brands in the world with likes of Lenovo, Huawei, Xiaomi, LeCo, Baidu, Alibaba, WeChat, Spreadtrum and others, spanning hardware, software and e-Commerce.

India has not been able to match pace with other countries when it comes to adding new brands in a larger number since last century. India files less patents than that of Iran. India doesn’t have a single company in the top 100 most valuable companies in the world while China has 10. So, we lag in every indicator that reflects innovation, products and high value. India desperately needs to move beyond services and create a strong product ecosystem to close this economic gap with China. India needs to quickly create several high value product companies that would drive demand for manufacturing as well. A robust start up ecosystem is the key.

The biggest challenge for Indian startups today is lack of access to risk capital especially early to pre-revenue stage. Startups need different kinds and levels of capital through different phases of its life cycle. In the first phase, they need seed capital typically funded by founders and angel investors ranging from $100,000 to $1 million. In the second phase, startups need early stage to first product/pre-revenue investment from venture capitalists and corporate investors, ranging from $10 million to $100 million through multiple rounds of equity financing.

In the third phase, startups need late stage capital from institutional investors and private equity firms to support revenue ramp, profitability and IPO, ranges in hundreds of millions of dollars through a combination of equity and debt financing. In India, there are lot of angel investors, and incubators supporting phase one through seed capital. Also, there is lot of appetite for late stage rounds especially from global investors. So, the real missing link is the critical phase two, early to pre-revenue stage capital in the form of series A to series C rounds financing, which requires robust ecosystem of venture capital firms and corporate ventures. This is where government must step in directly and indirectly to help to create startup investment ecosystem.

We can take inspiration from some of the recent sovereign initiatives. Russia has launched $1B RVC fund focusing on early stage and $10B Rusnano fund focusing on late stage investments. Abu Dhabi sovereign wealth fund, MUBADALA has launched $100B technology fund and invested more than $20B in creating Global Foundries, the 2nd largest semiconductor manufacturing company. China has launched numerous funds both at provincial and central levels pumping hundreds of billions of dollars into start up ecosystem in the form of investments, incentives, and subsidies targeting specific sectors such as manufacturing, semiconductors, energy and others.

Kingdom of Saudi Arabia has recently launched TAQNIA, a technology investment vehicle in addition to their support for early stage R&D through King Abdallaziz City for Science and Technology (KACST). Countries like Singapore and Israel have very active and successful government driven investment vehicles.   

Internet of Things (IoT) opportunity is here, and it is real and huge. Analyst firm Gartner expects as many 26 billion smart units (smartphones, TVs, tablets, sensors, connected cars, wearable and others.) to be connected through the IoT. The IoT products and services are expected to generate $300 billion in revenues and create $1.9 trillion in value. There will be tremendous opportunities to innovate from components to devices, systems, cloud, and big data analytics to services.

IoT is already happening and redefining the way we lead our lives. Smart phones tell us what we need and what we should do like; It tells us the best time to leave for office based on the traffic congestion on the roads or remind us a TV show based on our past viewing history. Smart watches and fitness bands have started to monitor our health and connect us to our doctors 24/7 for providing timely diagnosis and prescriptions. We can monitor our homes better. We get to know if there is a gas leakage at home through alerts on our phones. We can remotely manage the power consumption at home while we are away. Unmanned or autonomous vehicles like drones are already here and early versions of self-driving cars are already on the roads. Same with enterprises. The combination of smart devices, sensors, cloud computing, cloud storage, huge bandwidth, sophisticated analytics software will help enterprises to manage themselves better and offer greater products, solutions and services to their customers. The first wave of internet with PCs created companies like Google, Yahoo, and Amazon and others and gave growth opportunities to companies like Intel, IBM, Dell, and Microsoft. The second wave of internet with smartphones created companies like Facebook, Twitter, and Xiaomi and gave growth opportunities to companies like Apple, Samsung, Qualcomm, and Mediatek.

The next wave, the IoT wave is an opportunity to create new companies and global brands as well growth opportunities for existing companies and brands. India has missed on participating in the previous information technology waves of mainframes, mini-computers, Desktop PCs, Mobile Laptop PCs, and smart phones while countries like U.S., South Korea and China have taken full advantage of these waves. India cannot afford to let go the Internet of Things (IoT) wave, which is essential to the future of the country. To participate and succeed in IoT, India Inc., needs to innovate. Product level innovation and ecosystem is the key for success.   

To sum up, we have some start up ecosystem challenges in term of focus and investment but equally have huge opportunities thanks to IoT and AI waves. If the industry, government and academia work together, we can create a strong product and manufacturing ecosystems complementing the services industry.  Smartron is founded with a vision to build India’s first global OEM brand that is focused on product innovation in IoT and AI technologies offering next gen smart devices, cloud services and care. Smartron is also creating an open innovation platform and an ecosystem to help to offset some of the country’s start up and innovation infrastructure challenges in the hope to aggregate and accelerate innovation to close gap with China quickly. 

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