Facebook’s recent buyout of Little Eye Labs, a tiny company which has gone from creation to acquisition in just 18 months, is a booster shot to India’s fledging startup scene. Despite the country lacking a Silicon Valley equivalent for breeding entrepreneurs, the episode shows that right advice and funding is available for those who can think out of the box. There are about 25-30 startup firms who are being sought after by the big-daddies of the technology world thanks to the cutting edge nature of their work, industry watcher say. While many of these deals may not eventually go through, the bottom-line is that today’s entrepreneurs are better equipped to compete with their peers in Silicon Valley and the rest of the world. eWorld tries to understand what has changed.
Ravi Gururaj, Chairman of Nasscom Product Council is of the view that technology startups have better a chance of getting mopped up by a larger global player if there are good at what he call the ‘three T’s’- talent, technology and traction. And Little Eye Labs, the Bangalore-based firm that builds mobile application analysis tools for developers and testers, is seen as a player where all the three Ts converged.
“This deal signifies that that you can build a small company with a core technology focus. As long as you have an A-class team and early validation of your technology, the giants will take notice,” said Gururaj, a serial entrepreneur himself.
While availability of talent was never a major bottleneck -India produces 1.5 million engineers every year-lack of grooming and financing options clearly were.
However, a host of changes in the last 3-5 years have pushed entrepreneurs into orbits of faster growth. “First the critical mass of early stage investors, entrepreneurs and talent is now available in India. Second the costs of starting and innovating are a lot less now, which helps a lot more entrepreneurs who can take the risk to start and innovate. Finally there are many more role models who have innovated and succeeded in India, thereby inspiring upcoming entrepreneurs,” said Mukund Mohan, Director of Microsoft Ventures. Aashish Bhinde, Executive Director of investment banking firm Avendus Capital said that the enterprising types can now tap into an ecosystem that can give new leads and lends itself to mentoring.
For instance, the numbers of startup incubators, who provide early mentoring and office space for a few months, have increased manifold. Angel investors and venture capitalists have mushroomed. The government has done its bit with the Department of Science & Technology’s pan-India network of business incubators. Some of the top educational institutions- be it IIT Mumbai or IIM Bangalore- have full scale entrepreneurship programmes running in partnership with industry. More importantly, the attitude towards a business blow-up has changed. A senior advisor to emerging companies says that he prefers to invest in entrepreneurs who have failed once as they would not make the same mistakes again. In other words, entrepreneurs are allowed to dust themselves off and start all over again in case things go wrong in the first outing.
Internal boostIndustry associations such as Nasscom and iSPIRIT have also helped in creating an environment conducive to product startups. In the last few years, these bodies have helped startups who wish to connect with Silicon Valley companies, angel investors and venture capitalists, said Hanuman Tripathi, group managing director of banking software company Infrasoft Technologies. The endeavour is to ensure more M&A activity as few startups would wish to remain as standalone entities over a 20-year period.
“When you tell somebody to invest his savings or family jewels to start a new company they ask you two things: Where will I get the funding from and when would I be able to make a lucrative exit,” said Tripathi. Deals like the Facebook-Little Eye one gives enough motivation for well-paid professionals to venture out of their comfort zones and goad on the entrepreneurial journey. Little Eye Labs had received investment between $100,000 and $200,000 from early-stage startup incubator GSF Accelerator. Though not publicly disclosed, industry watchers say that the owners of Little Eye Labs would collectively pocket $10-$15 million from Facebook.
Does the Facebook acquisition of Little Eye Labs mean that Indian startups have finally come of age? Yes and No. Alok Mittal, Managing Director of Canaan Partners, feels that there are few startups in the country that are building global products. Most seem to be content with targeting local or regional consumers, he said.
Says Gururaj: “The likes of Google, Twitter and Yahoo would go in for only those buys that can be augmented into their network and delivered globally. Let’s not forget that they have a global platform which is almost the same throughout the world.”
Moreover, many Indian startups do fall prey to the me-too syndrome. Another fallacy would be to blindly duplicate the success of less prominent businesses in other countries for overnight success. “It would be a disaster to assume that a particular technology or platform would be successful in India just because it did well in the US. For all you know, it may take about 5-6 years for that product category to do well in India and you will be a subscale player till then”, said Avendus’ Bhinde. Yet, some experts believe that the idea does not have to be absolutely unique as long as a high degree of innovation and differentiation is involved.
However, the ones who differentiate themselves stand a good chance to show their prowess as the world’s largest social networking and email platforms are constantly on the lookout for fresh assets. Google has acquired more than 100 companies till date while Twitter has mopped up over 30 startups since inception. Currently, demand is high for filling gaps in offerings around emerging areas of mobility, software-as-a-service and social media analytics. Cloud, software-as-service and consumer technology are the other hot areas for global technology majors, said Anand Lumia, Founder of India Quotient, an early stage venture capital firm. Little Eye Labs was pitched to both Facebook and Twitter as it allows cost-effective tracking and monitoring of how apps and processes consume handset resources such as power, memory and storage. “Startups with products that can help the internet / social networking companies to generate more traffic and better engage and monetize their user base have a better chance,” said Avendus’ Bhinde.
Startups in the mobility space have a strong chance of making their presence felt, because of what Tripathi calls as the ‘platform balance’ in India. Courtesy the healthy penetration of mobile phones in India, India has sizable users on all major mobile platforms, be it Apple’s iOS, Windows’ Phone or Android. “The multi-platform capabilities ensure that startups can offer mobility-based solutions at cheaper price points across platforms. Such startups stand a good chance of being acquired over a period of time,” said Tripathi.
The FB-Little Eye Labs deal is a trend setter in many ways. Mohan of Microsoft Ventures believes that it is the first example of acqui-hiring in the Indian context, a signal that the talent in Indian startups is comparable to those in Silicon Valley and globally. Acqui-hiring refers to the Silicon Valley practise of acquiring a company mainly for the talent it employs. Facebook, Twitter, Yahoo and Google have adopted this model as the quest for talented engineers intensifies. All eight Little Eye Labs employees will relocate to Facebook’s headquarters in California as part of the deal. “Firms with excellent technical teams are attracting the attention of international companies. These companies are looking for mobile talent and big data scientists,” said Mohan. Today, a team of engineers sitting in small cities too can be picked by a Facebook or a Google. Clearly, a departure from the time one had to go all the way to Silicon Valley to get noticed!