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India Digital Summit 2013: 1000 Startups, Govt Involvement, Build Vs Buy, Exits

What will it take to get 1000 startups?
In response to that question, Rajesh Sawhney, founder of GSF SuperAngels, said that the question of 1000 startups or 10,000 startups (as an indication of health of the ecosystem, we assume) is ridiculous. “The question is, do we have space for innovation in this country, and can we create globally scalable businesses? When you start asking this question, you feel that everything in this country is broken. IITs are self obsessed ecosystems busy with themselves. Corporates don’t do any buying, there are no acqui-hires. IPOs are almost impossible to build in this country, and then there are issues regarding those countries are profitable, forcing our companies to go overseas. I see the hope in two dimensions: our digital economy is flipping over from 100 million to a 300 million smartphone economy. We’ve never had that. The second is that we have talent – we have entrepreneurial, hustler sort of talent, but not geeks and cutting edge technology, and we do not have product and design people. Accelerators can play a part in this and this is a cultural issue.” Contesting that, Mukund Mohan, CEO of the Microsoft Accelerator, pointed towards instances of an 11 year old girl who created a jewelry application on the iStore, which had 10,000 downloads, and Raghav Sood, who has written 2 books on Android development, saying that there are instances of kids bringing value to the ecosystem, who need to be encouraged.

Manish Vij, co-founder of the Smile-Vun Group pointed towards the need for large companies to play a role, becoming internal incubators, providing exits, and also welcoming unsuccessful entrepreneurs back into their fold. Mahesh Murthy from Seedfund said that there’s a need for success stories, and role models to inspire entreprenurs. Summing these points up, Satyan Gajwani, CEO of Times Internet, who was moderating this session, said that there are four themes – there is a need to create a grassroots cultural validation of entrepreneurial culture. Second is that there is an infrastructure component. Third is the financial element, is there enough funding in the market, are there enough exits? The fourth thing is the government involvement.

Government Involvement In The Startup Ecosystem
Murthy said that he has no issues if the government stays away from the startup ecosystem, but they have to let private enterprise flourish. “You might come in with good intentions, but you don’t know what you’re doing. Someone didn’t understand the situation around startup investment. It’s our fault that in this community, that we haven’t reached out to the government, and explained to them how it works.” Mohan added that there is always a law of unintended consequences, and there are cases of success stories, like the Startup Chile program, DARPA, and even Singapore, where the government puts the money in after there is funding. Murthy disagreed, saying that right now, every single government policy is about mega large corporations, and it very difficult to set up a company, when actually, the government needs to let a thousand flowers bloom.

What will bring about exits?
Murthy suggested that we need small cap exchanges to provide exits: To go on BSE and NSE, you need Rs 1500 crores in revenue, you need to be profitable, double digit crores in profits. “If there is some way for an exit, even a secondary market, it helps. You don’t have a market to be able to exit easily. Nobody has that visibility. We don’t want to lose money, and we do stunted exists. ” Responding to Manish Vij’s question about buyouts from large companies like Naukri and MakeMyTrip, Murthy said that most of those are desparate companies, on account of valuations. Gajwani, who recently acquired MensXP.com, said that there is a big disconnect between buyers and investors. “We see a lot of companies that are very highly capitalized, or we see rounds at valuations that don’t make sense. That’s a challenge we face. We find acquisitions easier when the company hasn’t made money.” Vij suggested that there is a need for large companies to become larger,for larger exits, and that hasn’t happened, so they’ve had to rely on foreign companies for exits. But it isn’t just digital companies – Mohan pointed out that in the US, non digital companies are buying tech companies. “That culture of buying in India has been based on revenue and profit instead of being based on intellectual property.”

Build Vs Buy
Gajwani said that their attitude is to buy or partner with someone successful”, but the old approach was to build. We’ve learned this the hard way.” Vij added that 9 out of 10 times, things have failed in the build versus buy space. “I’d rather buy than build,” he said. Mohan questioned that approach, rightly pointing out that acquisitions have a very high failure rate “Nearly 90% of the acquisitions don’t work. Indians are a lot more risk averse, and a shareholder value here is limited.”

Fund Businesses Only For Exits?
Responding to a question, Sawhney said that there is a need to build a culture for solving big problems, where the entrepreneur doesn’t have to worry about the immediate short term funding. “I didn’t get a sense that you’re suggesting that the idea doesn’t return money, but is a long term, mission oriented. There is a need for a different kind of funding paradigm. If some of the entrepeneurs, and there are people who care about these things. The question is slightly deeper: are you going to fund founders who will give me exits, or something that will change the world?”
Murthy said that he’ll be a cop-out, and fund businessest that give him exits, because of the LPs that he has.

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