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What does the Indian Startup Ecosystem need, really?

A good discussion is developing on the 'need for more incubators in India' at Sramana Mitra's blog. I thought I will post my take on it here first and then add a comment there.

Ok..going by all the reports, more and more VC money is coming to India. But as we all have been told umpteen times, there are too few deals.I guess deals here refer to high tech and internet deals, and not non-technology deals.

So, what does the eco system need really?

Let us identify the issues first.
1.Experienced industry professionals prefer to work in IT service provider companies than working in Startps. Reason: Some of them did try to join startps around 2000 or so, but then the dot com bust made them get back to IT SPs, licking the wounds so to speak.
2.There are very few startups where the team is strong and has trust, a proper vision is in place, and they are backed by some able and experienced ('adult supervision' according to Sramana Mitra) grey heads.
3.Leave alone senior heads, even finding talented techies is a problem because most of them are poached straight from colleges by the top IT service providers.
4.The 'parents syndrome' and the 'failure at business is not respected in Indian society' syndrome.
5.Startup teams like to focus on what they want to do (develop the product) but are forced to spend a lot of time on the essential but non-core functions (handling the accounts, running the office, planning the logistics, getting legal work done, and so on). Some teams even hate writing and rewriting the business plans and pitches.
6.Because of connectivity, power supply and other infrastructural issues, tech startps find it very difficult to be based out mofussil towns and distant suburbs of metros. So, they try to get set up in metros, thus jacking up the startup costs. Some people do start up at their homes, or the glamorous garages, but this inevitably drives down productivity.
7.There is a lot of talent and knowledge lying in the academic institutions but industry-academia interactions are limited to IITs and IIMs, and may be some RECs and BITS Pilani.

Well, there could be a few more issues, but this list should do for now.

Let us look at my take on the possible solution environment now:

Do we really need supervision from adults who have been playing a safe game all along, and are just living off the labour arbitrage scenario in IT services since the early 1990s? True, some of them did try to join startups, but they are all now safely perched in their VP, EVP and CxO roles in various IT SPs, that they may have lost the stomach for a risky startup (if they ever had such a streak in them). If these senior professionals really value innovation and entrepreneurship so much, they would at least try to invest in seed stage deals in India, using the enormous cash piles these companies have built up. Fact is, they are not doing it.

Instead, they are: 1.Monitoring offshore/onsite ratio of huge staffing contracts and 2.Investing in select high tech startups in the Valley as advised by their analysts, with the hope that when some of the startups grow big (like, Tibco, Reconnex etc), they will help the ITSPs get the maintenance services part of it.

I am sure the greenhorns can do with out these senior professionals.

If at all the startups need 'adult supervision', it is in the relatively simple areas of accounting and financial matters. Basically, how to use the little money they have to stay on course and get to the next level.

The startups may also need the services of seasoned HR professionals in recruiting the right kind of technical talent that will gel well with the current team, and also not cost a bomb in terms of deferred payments. The HR and finance professionals could also advise the founding team on matters such as - shall we start paying ourselves decent salaries or shall we continue on sustenance levels for some more time?

The VCs entering India should have more interactions with academia.Not just with IIT professors, but with any academician who has the 'ideas' and the pedigree. Such people could be found in many universities across India. For example, a global drug major has tied up with Dharwad University (wonder how many VCs will know where Dharwad is) in Karnataka for chemical research and bio-tech research.

Extensive interactions with academia will accomplish two things - cross pollination of ideas, and more importantly, a motivation for the professors and their students to start thinking in terms of commercialising their lab projects. It will not happen over night, but over 3-5 years, we could start seeing some results.

Coming to the availability of team members to staff the startups: If what you need are programming skills, go to any good institute that teaches those skills, and do Walk-ins. That's the best way to get the 2-3 people you need. Just go for aggressive learners. They will pickup what they don't have on the job. If what you need is domain knowledge of a specific vertical you want to serve, don't expect the ideal hires to read the job ads on Venturewoods. Get the people working in brick and mortar companies in that vertical. You have to sell your startup idea to some of them the way you sell it to a VC. May be, its even more difficult. But that is a much better way than hoping for a person with 15-years exp in the domain, working as a sr. consultant in a major IT SP, to come and join you.

Well, I still need to cover some other points related to structure of venture financing and how it needs to be different in India. Will do that in a follow-up post tomorrow.


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