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Raising money from banks in India is tougher. They are far more conservative and regulated.
Has India caught up with the developed economies in encouraging innovation and creating a suitable eco-system for entrepreneurs? What are the challenges and opportunities in India, specifically for technology start-ups? These are some of the issues that were discussed by the India panel in Intel Capital's Global Summit. The panellists were Mr Jai Pathak, Partner-in-charge, Singapore and Pacific Asia, Gibson, Dunn and Crutcher; Mr Vikram Gulati, CEO and MD of Happiest Minds Technologies; Mr Ganesh Natarajan, CEO of Zensar Technologies and Mr Yashish Dahiya, CEO of Policybazaar. Here are the key takeaways from the discussion.
FINANCE
Finding finance for starting a venture is not really difficult if one knows where to look. There is a lot of excitement about opportunities in India among global investors. The excitement that was prevalent in Silicon Valley in the eighties and nineties has been transported to India mid-2000s onwards. This has resulted in all the global Venture Capital Funds (VC), Private Equity Funds (PE) and other angel investors making a beeline for India. These funds are raising money overseas mainly with the intention of investing in India. They are not interested just in technology start-ups but in other areas as well, such as retail, pharma, auto ancillary, media, entertainment and so on.
Raising money from banks in India is tougher. They are far more conservative and regulated. Banks, therefore, do not play a significant part in funding start-ups.
TALENT AND DEVELOPMENT
There have been instances in the past when young start-ups have had difficulty finding the right people to work with. But the talent development process in India is quite mature now. We are today a $78 billion IT industry. This industry has a large talent pool.
Besides this, over four million students graduate every year and there are around 1.2 million engineering seats. Talent availability is, therefore, not an issue. However, if a new company is on the lookout for senior management to share the load and vision, the existing pool might not help because people who have already made their money in services may not want to join a start-up.
INFRASTRUCTURE CHALLENGES
Finding real estate to start a business is as easy in India as it is elsewhere globally. There are various options such as leasing, purchasing, and so on, that the entrepreneur can choose from.
However, dealing with the regulations is a little tricky. There will be many brokers offering to help an entrepreneur in dealing with the regulatory aspects. It is best not to take that route as it will not create the right impression or yield results. It is important to do this part personally, get the hands dirty. Happiest Minds was able to put together a 55,000 square feet office in three months, through direct dealings with people willing to lease space and not through real-estate agents or brokers.
GOVERNMENT, BUREAUCRACY
There are enough enabling mechanisms set up by the government especially for the IT sector. A smart way to smoothen the path to setting up a business would be to set up the company in smaller centres. Zensar's major facility was set up in Pune 11 years ago. Pune was not a hot destination then. The company has 6,800 personnel now and has centres across India and China, San Jose, and so on.
It is much easier to start from a smaller location, because you are wanted there and get full support from the government, as against being the 750{+t}{+h} company wishing to start an office in Bangalore or Hyderabad. So start in a smaller location, scale up and then take it world-wide or anywhere in India.
THE LEGAL SYSTEM
The process of enforcing the law is problematic in India since courts can take forever to settle disputes. The good news is that the intellectual property (IP) protection issue that is significant for the tech sector has matured significantly in India over the last 10 years.
Every company has very strong policies about how to protect their own and customer IP, how to work at arm's length, and so on. The understanding of what IP is, how you protect it and how to propagate it is turning to be the game-changer for India.
EXIT STRATEGIES
Companies prefer to list their shares in the US rather than in India and that probably has something to do with the difficulty of doing an IPO in the Indian market. Most Indian investors look only at profits and not at the future potential of a company.
Sometimes they seem to be equating future potential to the probability of the companies being bought soon. The foreign investor is more aware but he is mostly worrying about whether the business model has worked abroad without realising that India could be different.
WAGE INFLATION IN IT
Wage inflation has been unabated for some time and the way to overcome that is through productivity. An IT services company has to constantly reinvent itself, its procedures, methodology and framework. It has to invest a lot in intellectual property so that the next project is going to be more efficient than the previous one.
The flattening of the pyramid, wherein most new recruits in the IT sector are at entry level, has addressed the issue of wage inflation to some extent.
A recent study by NASSCOM and McKinsey shows that the cumulative wage inflation in the last two years is only 3.9 per cent.
