A perfect example of innovation from India – By Alap Bharadwaj

Recently, in a meeting with a VC from a tier 1 global fund, the conversation turned to India’s tech companies and the ideas that these companies are built on. The VC made an all encompassing statement to the effect that every single venture funded Indian tech startup recently has ‘absorbed’ its basic idea from a similar company in the US. The statement was loaded but one that could not, for the most part, be countered. It made me feel disappointed and put a serious question mark on the creativity of nouveau Indian entrepreneurs. I have blogged about this before, and to be perfectly honest – the apparent “apathy” tech entrepreneurs are showing towards actually building out a unique idea SUCKS. Has an Indian company come up in the recent past with an idea before its western counterpart? I am sure many have, but have they been able to drive scale using technology before the western equivalent? I am thrilled to report; the answer came to me on a recent trip to Hyderabad.

Travelling from my house to the Bangalore airport, and then to various meetings in Hyderabad and back was all enabled by one phenomenal Indian company – Meru Cabs. Meru, since 2007 has leveraged GPS to the maximum, efficiently allowing cabs to service customers closest to them, provide great service, reduce a ton of consumer frustration and make entrepreneurs of over 5000 drivers in India. I know what you’re thinking right now – so which western equivalent did they beat out to the implementation of this idea? That would be San Francisco based Uber – a company that has been getting rave reviews from the TechCrunch faithful for months now.

An analysis of the two companies will reveal differences in their business models. While Meru is more of a supply player (the company owns every single one of their 5000+ cabs) Uber is an intermediary that consolidates demand via a mobile app. The secret sauce of both companies is the same though – the ability to track, in real time, a cab’s location and then push relevant demand of transportation services to these cabs. Isn’t Uber better in terms of payment you ask? Uber allows users to pay using the credit card that is on file with the app, while Meru allows their customers to pay via a swipe of their credit card right in the cab as well.

The best part about Meru though is the “Indian-ness” of their model, in allowing so many cab drivers to make a better living by allowing them to offer a better service backed by robust technology. To say I’m impressed with Meru is an understatement, but I’d like to end by stressing that I am not in any way shape or form running down Uber. They are a fantastic American startup with a truly disruptive idea, backed by an amazing set of early investors in First Round, Lowercase Capital and a host of angels. I am just ecstatic, as an Indian, to have such a compelling business model be executed so well in India before it was done out of the Valley!

Do let me know the other Indian companies who, in your opinion, have implemented a disruptive idea before Silicon Valley has.

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Why it makes sense for entrepreneurs and VC’s to be ethical– Deepak Srinath

Recently, I was talking to a partner in a top VC fund about why the fund had passed a particular investment opportunity. The startup we were discussing had created a lot of buzz, revenues were growing faster than their competitors and the founding team was aggressive and impressive. The partner replied that the fund had decided not to invest because they were not comfortable with the ‘moral compass’ of the founders. Investors often find themselves in a dilemma about the ‘moral compass’ of founders, i.e, the innate sense of ethical right or wrong on the basis of which an individual makes business decisions.

As an I-banker I’ve encountered plenty of entrepreneurs with dodgy moral compasses. The misdemeanors range from showing inflated sales numbers to shortchanging customers intentionally. There are times when I’ve even had serious doubts about an entrepreneur’s intention of using VC money for the right purpose. With some entrepreneurs its just a gut feel that something is amiss even if you can’t put a finger on it.

Conversely, I’ve been in situations that have exposed the moral compass of funds. A couple of years ago, we were in the process of raising funds for an internet firm.  A VC showed great interest in our client and we shared all the data on the business with them. A couple of weeks later, we found out that the VC had issued a termsheet to a close competitor of our client. One can argue that this situation is normal- A VC will evaluate all the players in a space and make a decision on whom to invest in. This is perfectly fine and part of the VC game.  However, a few days later when our client happened to meet the CEO of the firm the VC had decided invest in, he was shocked to discover that his competitor seemed to know everything about his numbers and growth strategy. Clearly, the data we had shared with the VC had found its way to the firm’s competitor.

In an industry that is more often than not on thin ice when it comes to ethics, why is it so important to possess the right moral compass? I think its not just about taking a moral high ground; it actually makes solid business sense to do so. The world of Entrepreneurship and Venture capital is a relatively close-knit and well informed group, especially with social media and blogs disseminating stories instantly. The best entrepreneurs will never want to raise money from an investor with a dodgy track record. Similarly, an entrepreneur who cuts corners will get caught out sooner rather than later and will never be able to raise a follow on round or attract the best talent, leave alone build a scalable and sustainable business.

I hope the anti corruption fervor in Indian society spills over to the entrepreneurial and investing world too. What do you think?

Cash on Delivery- The catalyst for E-tailing in India? – Deepak Srinath

I often hear people saying that e-commerce entrepreneurs in India have it easy when it comes to ideas for their startups- they simply have to look at what has worked in the US and copy that model. Group Buying sites inspired by Groupon are the favorite examples used to illustrate this. Sure, E-commerce startup’s in India are by and large inspired by successful US models – Group buying for services and products, private sales for fashion, flash sales for electronics and accessories, category specific sites such as baby products or shoes…you name the e-commerce startup in India and there is a corresponding US model. However, it would be massively unfair to Indian E-commerce entrepreneurs not to give them credit for the clever and sometimes subtle adaptations to suit Indian markets and consumers. Perhaps the most significant and game changing of all these innovations is the ”Cash on Delivery’ (COD) payment option. In fact, I will stick my neck out and say that the e-tailing business in India owes its explosive growth to COD.

For a long time any discussion or article on E-commerce in India centered around the twin problems of low internet penetration and low debit/credit card base. Add to this the perceived ‘trust issues’ of Indian consumers for transacting online and it was believed that e-commerce in India would take years and years to scale. As recently as 18 months ago, while the online travel model was relatively well established, it was difficult to imagine how e-tailing or online purchase of physical goods would take off anytime soon.

And then the e-tailing revolution happened, and how! Flipkart and Infibeam led the charge, starting off with categories such as books, music CD’s, etc which were easier to sell online. As reports of their phenomenal growth came in, the trickle turned into a flood and at least a hundred e-tailing startup’s sprung up across the country across all possible categories. VC money started pouring into these startup’s and valuations based on annualized Gross Merchandize Value (GMV) multiples became the norm. Hygiene factors such as internet and card base reaching critical mass had helped but the real reason why sales took off was perhaps a small innovation in the payment model called Cash on Delivery. It allowed internet consumers to ‘order’ without paying upfront and allowed them the luxury of seeing the product (or at least the packaging box 🙂 ) before they paid for it. Logistics companies such as Bluedart and Aramex supported this model and trained their employees to collect payments. COD entails an extra charge of Rs.75 to 100, but consumers don’t seem to mind. Suddenly the limitation imposed by card base or trust issues for online purchase were redundant. Moreover, India has a large parallel ‘cash economy’ which has its own dynamics and cash payments are the preferred mode for all non salaried professionals. It’s a win-win situation for e-commerce firms and consumers and the only flip side to the e-commerce firm is an increase in working capital requirement.

So what % of e-tailing happens through COD? E-tailers I’ve interacted with say that 50% to 80% of their sales come from COD and rejection rates upon delivery are lower than 10%. I’m not sure whether COD was the brainchild of a single e-commerce firm or whether it evolved naturally as a solution to the payment problem based on a facility logistics partners anyway provided. Nevertheless, this collaborative innovation in business model and it’s impact on e-commerce in India should be the subject of a business school case study.

The Cloud – why is this space interesting? – Uday Disley

Few things have happened in the last few weeks and days which pretty much sums up the excitement that may be in store in the cloud computing space. While the buzz might have been around for a while in the enterprise computing space, but with Amazon launching their cloud music service and Apple launching iCloud, and the impending launch of the Chorme OS the cloud seems to have become very relevant for the regular consumer on the street (or the internet). This clearly indicates few points (not in any particular order)

  • Increase in the consumption of digital content (worldwide digital music revenues were pegged at $ 67.6 Billion constituting approximately 20%-25% of the market)
  • The increase in usage of multiple devices (PC, tablets, mobile phones) for consuming the same digital content
  • Applications which enable access to ‘paid content’, having to converge on these devices
  • Wide spread penetration and usage of broadband internet (again through multiple networks), be it 3G, WiMax, wireless and wired broadband
  • At least three of The Gang of Four (Google, Apple and Amazon) are betting big on this space for enabling true mobility and making substantial revenues on the side

So how does this play out; let’s say you bought some songs on Amazon and downloaded it to your PC, but then you realized that you had a blackberry and an iPad, which you would like to interchange for listening to music at your will. In the old times you would have to wade through various compatibility issues, spend considerable time on syncing, moving it from one device to another and backing up somewhere in case you fancied buying the latest version of the iPhone. If you are looking at a market worth upwards of $150 Billion for digital content consumed by people like you and me (music, games, movies, newspapers and magazines), then having products/services to address the issue of convergence starts making a lot of sense.

While all the three players have their own take on the opportunity, Apple having launched iCloud, wants to bet on the ‘have any Apple product and have everything seamlessly synced’ theme, Amazon has its device agnostic service with ‘cloud player’ and ‘cloud drive’ and Google has its lose your device, but not your data theme with Chrome OS. But essentially the cloud is the common thread that runs across these services and a lot is riding on these products becoming popular (and making money on the side to hold everyone’s interest).

It would be interesting to see how these products/ services will take off in India, given the fact that consumption of ‘paid digital content’ is negligible and penetration of multiple devices even more so. But going by the availability of Bollywood songs (in plenty) on Amazon and apparent (large) plans of Netflix to enter India, there seem to be more people excited by the prospects than just me.

Mentoring 2.0, Y not YC? – Deepak Srinath

I recently wrote a blog piece about the growing trend of self professed ‘mentors’ in the startup world. This generated a lot of feedback from friends in the startup community saying how much it struck a chord with them. Interestingly enough, we often receive the suggestion that Viedea should start aYCombinator type of startup accelerator model adapted for India (for those of you not familiar with it, YC developed a model of making a small seed investment and then working closely with founders over an intense 3 month boot camp http://ycombinator.com/). On the face of it this makes a lot of sense – we are probably the only advisory firm in India focused exclusively on the VC ecosystem, we understand what it takes to ‘dress up’ a firm for funding and all of us on the team have entrepreneurial as well as operating experience. We’ve spent a lot of time thinking about the mentoring/incubation issue and continue to shy away from it.  I thought I’d share a few ideas on what would make a startup accelerator work (and perhaps these are reasons why we don’t start one 🙂 ) –

1. Rockstars and Hackers – The people who founded and/ or the people who provide mentorship at the most successful startup accelerators in the world- YC, Techstars, etc- are bona fide rockstars. They are super successful entrepreneurs, hackers or investors. Their achievements and aura not only enables them to give great advice to entrepreneurs, they also have the networks to open doors to investors, customers and other advisors. This quote from a YC alumnus in a  NYTimes article on YC says it all, “It’s like Rob De Niro wants to start an acting school. Do you want to join it? You get to work with him every week, you might even get a small little movie deal out of it at the end.”

My take – You need to be a rockstar to coach potential rockstars. Great successes (and great failures) along with being super well networked are necessary ingredients for mentoring entrepreneurs.

2. Focus– Successful startup accelerators in the US are mostly focused on tech startups, and almost invariably on internet/mobile startups. The YC founders are hackers themselves and take great pride in it. Mentors at these programs have specific areas of expertise, be it marketing, product management, technology or finance.

My take – The mentoring program cannot be one size fits all. It needs to be focused on a specific domain and the mentors on the program need to have real skills. I attend startup events where a lot of general fluff is dispensed in the name of mentoring. The real value to a start up is when a mentor gives them concrete, actionable guidance to solve specific problems.

3. Peer mentoring – We share our office space with a startup. We’re constantly bouncing ideas off each other and sharing learning’s. The energy in the space is infectious. Commenting on my previous blog on mentoring (http://blogs.vccircle.com/500/mentoring-the-mentor/), GautamSinha, a good friend and founder of myfirstcheque.com, wrote about the importance of ‘peer’ mentors. I couldn’t agree more.

My take – A well run shared physical space for startup’s is a great idea. Entrepreneurs will learn more from their peers than through formal advice. I’d like to emphasize that this model requires a focused, highly networked and visible person or team running it for it to succeed. The Startup Center in Chennai is a great initiative and hopefully will validate the benefits of a well run shared space for startups.

4. Be rich before you mentor– This sounds a little frivolous, but let me explain why it’s important.  A lot of people seem to be getting into the mentoring business of late, which is great if they have the right experience, expertise, etc. However, this is a long haul business. You’ve got to invest all your time and energy for five years at the very least before returns (may) kick in. In the interim, there is very little income.  Unless you have other sources of income, this is going to be very frustrating.

My take – If you strip it down to basics, the entrepreneurship game is all about making truckloads of money (I’m already anticipating the ‘higher calling’ type of comments :)). Now why would an entrepreneur take advice on how to do this from somebody who’s not made sacksful of it? Ergo, be rich before you mentor!

What do you think?

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