By Ranjith Menon
Over the years Venture Capital ecosystem in India has grown bigger and has become more organized. At the end of 2008 Venture Funds had invested $740 million across 125 companies. This is lower when compared to the $867 million that was invested in 2007 across 144 companies. Capital is available but the investment criteria have become more demanding. Stronger business models, more complete teams and a must-have solution rather than a good-to-have are the order of the day.
Interestingly, IDG Ventures India has seen more product companies last year than software services companies. Five out of the nine companies that we have invested in are in the products companies. Maximum value in any product cycle lies at the end of the chain in the hands of the customer and accrues to the party that owns the customer. However, to build a company that owns a complete product takes longer, requires more capital and involves more risk. The good news is that today we have over 275 VC's and an estimated 275 angels operating in India. This coming together of funding ecosystem (Angel , seed, VC funds) and engineering talent pool can create an innovation friendly landscape that will help start-ups in these tough times.
Our Experience: India is a Strategic Market:
NASSCOM has predicted the domestic software market reaching $25B by 2015.To tap into this opportunity we require fresh thinking as far as applications and price points are concerned. The emergence of a domestic market for such solutions has encouraged entrepreneurs to invest in technology that targets the India market first before venturing out into markets abroad. One of our portfolios, Perfint, a medical devices company is developing a tool positioner for minimally invasive procedures. This tool will help doctors identify cancer at a very early stage. The product is launched in India first before being taken to markets abroad. Our belief is that meeting the developed market standards on every aspect but delivering at emerging market price will contribute to the rise of next level of product businesses to come out of India.
We have been working with our companies to look at the India market very strategically. Software Product companies like Manthan Systems with its business intelligence offering focused on retail and Iviz, with its penetration testing and vulnerability offering are seeing good traction with specific initiatives launched to target the India opportunity. We believe that the domestic market today is not just a testing ground but also offers significant growth opportunities for young for product companies.
There is great opportunity in the alternate energy space but huge work in the areas of monitoring energy distribution and consumption will be required. Condition based monitoring and demand forecasting solutions based on consumption will be required to address the growing energy concerns. In the Healthcare space companies will have to innovate to break the constraints of physical reach, lack of specialist doctors and affordability in delivering quality healthcare. Opportunities in security and defense will be driven by the demand for indigenization and to reduce dependence on foreign products. In India we will have more people accessing the internet on the mobile rather than a PC and this will drive innovations in mobile technology and value added services business models.3D Solid Compression a spin out of Stanford University and Indian Institute of Science has developed a software product with which it is possible to develop light weight interactive mobile value added applications to address this specific opportunity.
Apart from the sunrise sectors, large sections of business across India be it the government sector or even the private sector comprising SME's have still not woken up to the benefits of automation. Software products addressing these requirements will need to be developed and delivered at a price which will open these markets. However, the jury is still out on whether the license model will prevail or the SaaS model will win.
Innovation: Key to survival:
Opportunity for innovative products made in India is potentially massive. Innovations are not just in technology but also business models. The half lives of business models today have come down drastically. It is not only important for businesses to try new ways to doing things but also quickly drop models that are not working. It becomes absolutely critical to focus resources (cash and time) to finding newer ways rather than keep doing the same thing for longer.
Conserving cash is critical because we might not have hit the bottom yet, but we have been working continuously with our portfolio companies to achieve that right balance between investment and conservation. Cautious investment in scale is also required in a slowdown, only then will the company be ready to take the next step when the tide turns. It is a fact that a tough period like this is a great leveler; it gives opportunities for young companies to beat the bigger and more established ones at their own game. History is a witness, most big companies of today IBM, Google globally, Mindtree Consulting in India have sprung out of a recession taking the rest by surprise and we may just be coming a full circle on this one.
Ranjith Menon is a Senior Investment Advisor at IDG Ventures India and currently serves on the board of Perfint Healthcare and is an observer on the board of ConnectM and Myntra. He can be reached at firstname.lastname@example.org.
IDG Ventures India is a Rs. 600Cr technology focused venture fund having committed over Rs. 200Cr in capital across product companies in India.