The Indian startup scene is growing fast. Here’s why

When I graduated from IIT Bombay in 2008, turning down a job to do a startup was serious career suicide. Being poor for years, disownment by your parents and a significant decrease of market value in the marriage department were to be expected as well.

Last October, India’s fastest growing e-commerce startup Snapdeal raised $627 million at a reported valuation of over $2 billion. At the same time, India’s Uber-style service, Ola raised $210million while being valued at over $1 billion in under 3 years. Later in December, India’s largest online retailer Flipkart raised another $700 million at over a $11 billion valuation. Last week, India’s online restaurant guide Zomato bought US based startup Urbanspoon for over $50 million, making this deal the largest purchase of a US based internet company by an Indian startup.

 Clearly, things have changed.

Being a founder myself, I was curious to understand what caused this to happen. Over the last 2 weeks, I travelled across India, met some amazing people and asked a lot of questions. Over 20 founder visits, 3 investor coffees, 1 IIT campus and several Ola rides later, 3 trends have emerged as part of this Great Indian Startup Frenzy.

Rise of new startup hubs — Kormangala and Powai

Both Koramangala in Bangalore and Hiranandani Powai in Mumbai are becoming thriving ecosystems to nurture startups in India. Kormangala is a small neighborhood of Bangalore with several startup offices, coworking spaces and founders working out of coffee shops. Bangalore being the IT hub of India, its residents are the perfect early adopters — young, mobile and hungry for new products. Startups in Kormangala are able to easily get user feedback, hire talent from other tech companies and find mentors in other successful founders nearby.

Hiranandani Powai, on the other hand, is right next to IIT Bombay. This proximity creates a constant stream of talented graduates wanting to create the next Housing.com, an online property search site that started from a dorm room at IIT Bombay. This attracts the presence of capital as well — several VC firms, including Sequoia Capital, are starting offices right outside IIT campus in Powai. Zishaan Hayath, one of the most prolific Angel Investors in India, operates an investment club out of his Powai residence while he runs the fast-growing education startup toppr.com as his full-time job.

Exponentially growing VC investments

Being a developing country, venture capital goes much farther in India than the Valley. But, unlike the Valley, it is in limited supply. Indian startups need to be much further along than startups in the Valley in order to raise rounds. Hence, successfully raising money can allow startups to scale rapidly and outrun their competitors. Investors at all stages have taken notice and are capitalizing on this trend by significantly increasing activity in India.

Example  —  Ola and TaxiForSure were going head to head in June ’14, with Ola having a slightly larger fleet size. SoftBank invested $210 million in Ola last October. Fast forward 3 months: Ola has grown over 4X in size with 60,000 cabs in over 52 cities while Taxiforsure has a significantly smaller fleet in about 37 cities.

In fact, SoftBank investing billions in India after their Alibaba success has played a big role in the increase in startup activity over the last year.

“We believe India is at a turning point in its development and have confidence that India will grow strongly over the next decade. As part of this belief, we intend to deploy significant capital in India over the next few years to support development of the market.” said Masayoshi Son, Chairman and CEO of SoftBank Corp.

Cheap labor powers the product

Today’s successful Indian startups allow users to replicate their offline behaviors on their mobile phones. Interestingly, all such startups use an organized, on-the-ground labor force as a key component in delivering the product experience in one of two ways.

• Collect data used in product features. Housing.com has a massive workforce tasked with visiting each and every house on the website to document its features — from taking beautiful pictures of the house to whether the neighborhood has a swimming pool or not. This is very valuable data that makes Housing.com 10x better than it’s competition and creates a solid moat around their business.
• Deliver the end-user experience. Flipkart employes a network of delivery boys to handle last mile delivery to people’s homes.

A cheap labor force makes implementing any idea possible in India. Leveraging this asset is not just a good idea, it’s a necessity in India.

Now is the time to start a company in India

Too risky? Well … here are a few other ways you can contribute to the ecosystem:

• Work for an Indian startup. There is a huge demand for good talent, especially at senior levels. Salaries over $200,000 aren’t unheard of.
• Invest in startups. Your college network can be very effective in finding them. Angel list and termsheet.io are good resources as well.
• Use Indian products and send them feedback.
• Help Indian products get distribution in your country.
• Signup for this newsletter I started to stay informed about new products launching in India.

Medyog aspires to be the Uber of preventive healthcare

“It was in the year 2008, my first year in college, that I first read about Dr. Devi Shetty, Founder of Narayana Hrudalaya, and his immense contribution in the field of affordable healthcare. What amazed me the most was the power of economies of scale in providing basic healthcare to the under-served in India. But it was only around two years back when I was admitted in Narayana Hrudalaya after being diagnosed with Sarcoidosis, that I saw for myself the impact of this healthcare institution,” says Pranat Bhadani, a core team member at Medyog.

Medyog is an online healthcare aggregator for diagnostics, with a special focus on preventive healthcare.

Pranat adds, “Post my surgery, I had to do monthly follow-ups and it was then that I realized the hassles that an individual faces to get information around diagnostics. It seemed impossible to find answers to questions such as ‘Where can I undergo this test?’, ‘How much would it cost me?’, ‘Which diagnostic center is better?’ etc.

At the same time, startups like Flipkart, Ola, and Housing, etc. were making lives simpler in almost every other sector. I wondered why a critical sector like healthcare ignored. I was surprised to see how little was being done in the healthcare space when the Internet revolution was transforming the consumer experience in every other sector I could think of.”

Medyog aspires to bring in transparency and convenience in the healthcare industry by answering questions for consumers which Pranat had to struggle to find the right answers to.

Though Medyog is not the first enterant in this market, Ziffi.com which raised 15cr in Series A & DoctorC.in which raised 2.5cr in seed round last year are trying to bloom in the same segment.

The Medyog team says, “Apart from the simplicity of our design and ease of transaction, our competitive advantage also lies in our two unique initiatives, Smart Preventive & SASH.”

Hear’s more about Medyog, the market it is going after and its one-year journey from the Co-founders Shantanu Jain and Nitin Jain. They have partnered with 15 different centers in Bangalore and are currently a team of four.

 The market

Diagnostics is a USD 3.5B+ market in India. Preventive healthcare on the other hand is only about $250M of the total healthcare market. We are excited about the potential of the preventive healthcare market. We envision increasing this share to thee-four times. Though this will surely be challenging, but it isn’t as difficult as it sounds. As people start spending more on preventive healthcare, the total diagnostic spend will start decreasing. We believe it is possible.

 

Need for preventive healthcare

Majority of the population takes reactive healthcare measures. Wouldn’t we all prefer to cure the disease at stage zero? According to the Health Ministry reports, more than 63 million people in India are forced into poverty every year due to “catastrophic” expenditure on healthcare. And this is the financial impact of the reactive healthcare measures. Tobacco consumption alone is expected to take more than 200 million Indian lives in this century. To take a more specific example, Bangalore is facing a major health crisis, one that has been overlooked both by the society and the government:

• More than 25% of children in Bangalore have Asthma
• More than 15% of adult population in Bangalore have Diabetes

These stats shed some light on the need for a call for a strong collective response and we believe preventive healthcare can be the answer to some of these problems. Most ailments do not occur overnight, and can be detected at an early stage through regular check ups. The idea is to avoid severe health complications that could take a toll on both your biological as well as financial health. Medyog helps users go through various preventive health plans and identify the best one for themselves. We even customize preventive health plans based on your symptoms, lifestyle habits and family medical history.

A little deep dive in the market will reveal the existing nexus between the doctor and the diagnostic center. The Indian diagnostic setup is currently driven mainly by doctor referrals and the user has very little choice in the whole process, though preventive healthcare is a little bit of an exception.

Through Medyog we aim to restructure the industry from doctor driven to a doctor-patient driven. We firmly believe that what COD did for online shopping, preventive healthcare will do for online diagnostic segment.

How Medyog works?

1. Enables users to discover prices, compare offerings and make a choice based on reviews and ratings of the centers
2. Has discounts for the tests/packages
3. Users can get the reports online to share it with the doctor
4. Allows users to have their personal online repository
5. Allows creating multiple profiles under one account to managing one’s family’s healthcare needs
6. Provides personalized health plans

There are no convenience charges, no registration charges, and no subscription charges, either from the user or from our partner hospitals/diagnostic centers. Our partners provide us with discounts on each test/package and we pass on the major chunk of it to the user, while retaining a small fraction.

Healthcare is the most sensitive aspect of life for consumers and hence in addition to our social media campaigns, our focus is on personal interactions to raise awareness of Medyog. You can spot our team outside parks and health clubs in Bangalore early in the morning, creating awareness about preventable diseases and explaining the importance of regular health check-ups.

Some learnings

Don’t just ask your initial users for feedback, meet up with them and observe them using your platform. This will provide you with key insights to the behavior of the user, which you otherwise wouldn’t have known, and help you design accordingly. For instance, we were receiving complaints that there weren’t enough tests on our portal and that users weren’t able to find what they were looking for. In-spite of having more than 2000 tests, we thought that we still needed to add more and were about to prioritize adding new partners over everything else, when in one of our “feedback” sessions, we observed that a lot of people were making minor spelling mistakes while typing the name of the test, due to which they received no results and hence felt disappointed with the platform. We quickly incorporated a fuzzy logic in the search and the results have been amazing.

Team Indus from India wins Google Lunar Xprize in the race to the moon

       

With its Mars Orbiter, Mangalyaan, India scientists showed that they could stand head to head with their peers in the West. Indian entrepreneurs demonstrated today that they can also stand head to head with the best in the world. A tiny startup from India with no experience in robotics or space flight just won a $1 million prize for meeting significant milestones in developing a robot that can safely land on the surface of the Moon, travel 500 meters over the lunar surface, and send Mooncasts.

Five teams competing for the $30 million Google Lunar XPRIZE  have just been awarded a combined $5.25 million. Team Indus is one of them. It took on companies that had been funded by billionaires, had received the assistance of NASA, and had the support of leading universities all over the world—and won.

This is good news for India for sure, but it is better news for the mankind because it shows that governments no longer have a monopoly on space exploration. Now that the baton has been passed to entrepreneurs, we can expect to have private spaceflights to the Moon. This will likely take two to three decades, but we will get there.

What has changed since the days of the Apollo Moon landings is that the cost of building technologies has dropped exponentially. What cost billions of dollars then costs millions now, and sometimes even less. Our smartphones have computers that are more powerful than the Cray supercomputers of yesteryear—which had strict export controls and cost tens of millions of dollars. We carry high-definition cameras in our pockets that are more powerful than what are on NASA spacecraft. The cameras in the Mars Curiosity Rover, for example, have a resolution of 2MP with 8GB of flash memory, the same as our clunky first-generation iPhones. The Apollo Guidance Computer, which took humans to the moon in 1966, had a 2.048 MHz processor—slower than those you find in calculators and musical greeting cards.

The same technologies as are available in the USA and Europe are available world wide. Innovation has globalized.

Team Indus

That is why Team Indus was able to compete with companies such as Moon Express, which has the backing of several billionaires and received key technologies from NASA to help it get its start; Astrobotic, which is a spinoff from the Carnegie Mellon University Robotics Institute; and Israel-based SpaceIL, which has the backing of the country’s top research institutes. The Bangalore-based startup was founded by a former I.T. executive, Rahul Narayan and four of his friends: an Air Force pilot, a marketing executive, an investment banker, and an aerospace engineer. Neither company had experience in building spacecraft or robots, yet they were able to build technology that could navigate to the Moon.

Narayan says he expects completion of his space mission to cost around $30 million. Moon Express CEO Bob Richards estimates $50 million. These numbers are higher than the $20 million prize that they hope to win. But both see far greater opportunities: they hope to be pioneers in what could be a trillion-dollar industry. Richards is looking to mine the Moon for minerals and bring them back to Earth.

The Google Lunar XPRIZE has twenty-six teams competing from around the world. Collectively, they will spend in the hundreds of millions of dollars on their efforts. For them, it is not all about winning the contest; many of the losers will still commercialize their space technologies or put their knowledge to use in other fields. This is the power of such competitions. They lead entrants to spend multiples of the offered purse on innovative solutions. And they motivate people outside the industry, such as Narayan, to enter it with out-of-the-box thinking.

Innovation prizes are not new. In fact, a number of celebrated historical feats were made possible, in part, by the desire to win these prizes. In the 1920s, New York hotel owner Raymond Orteig offered a $25,000 prize to the first person to fly non-stop between New York and Paris. Several unsuccessful attempts were made before an American airmail pilot named Charles Lindbergh won the competition in 1927 with his plane, The Spirit of St. Louis. Lindbergh’s achievement made him a national hero and a global celebrity. And it sparked the interest and investment that led to the modern aviation industry.

That is what I expect will come of the Lunar XPRIZE. And that is why I am looking forward to booking my round-trip ticket to the Moon one summer in the 2030s.

XPRIZE Foundation also launched its India operations  in December. I expect it will inspire Indian entrepreneurs to solve many big problems that the country has. I have promised Ratan Tata, who is sponsoring this, and my good friend Peter Diamandis, who founded XPRIZE Foundation, that I will work with them to unleash the energy of India’s entrepreneurs. If Indians can reach the Moon, they can surely solve India’s problems of energy, learning, food and nutrition, shelter, clean water, social justice, connectivity, and waste.

What happens when a Baker goes to IIM

Can a yummy pastry or even the perfect biryani be deconstructed into such precise ingredients, measures and processes that they can be exactly replicated in dozens or even hundreds of bakeries? Can a work of art be broken down and simplified to such an extent that mere craftsmen can make replica after replica consistently? Can modern ovens be programmed to fine-tune the temperature and time controls that mothers learnt over years in the kitchen?

Yes, they can. When a baker boy from Chennai went to IIM Ahmedabad, that’s what he figured. And the result is Ovenfresh, a QSR (quick service restaurant) chain founded in 2008 by Rajiv Subramanian.

Currently, Ovenfresh is in 15 A-Grade locations in Chennai and 10 in Bangalore. They serve over 1000 plates of baked biryani every day, and see lakhs of footfalls every month. The plan is to have 50 Ovenfresh outlets by this year end. “Hyderabad and Pune will be the next two Indian cities we will go to. In the next 3 to 5 years, we aim to be in all the top 15 cities in India.  We will go for series B round of funding in 9-12 months,” Rajiv says. Revenue of Rs 200 crore is the medium term target.

A baker and a banker

The story began way back when Rajiv’s mother, who had a Masters in Food & Nutrition, ran a bakery in their backyard in T-Nagar, Chennai. He used to help her run it but had little expertise in the kitchen.

Rajiv went on to study computer engineering at the University of Madras, and worked with Oracle for a few years before getting into IIM-A. After his MBA, he joined Lehman Brothers, with whom he had done his internship earlier. He worked with them for a year, saved enough to bootstrap with 20 employees, and launched Ovenfresh.

It was conceived very differently from the home bakery Rajiv grew up in, because it had a model which could be easily replicated from one location to another. “Working on corporate finance with Lehman Brothers taught me how to scale,” Rajiv explains.

The secret sauce

“Our vision was simply to create a place where we’d love to eat at – every day. For this, the food had to be fresh, affordable and of high quality,” Rajiv says. To serve freshly baked food, and also manage time, costs and consistent quality was the challenge. Rajiv’s engineering background and business school training came into play here.

The initial months were spent experimenting with food. For every dish on the menu, ingredients were measured precisely, the heat monitored and the whole process documented to the last detail on an Excel sheet. “It was like building a prototype that can be replicated easily. This took a long time,” Rajiv recalls.

Trial and error played a part in formulating other components of the bakery as well. For instance, in the beginning, they had cappuccinos and lattes on the menu. “But when we realized that we ourselves liked to drink filter coffee instead, we took cappuccino and latte off the menu and added filter coffee instead.” That turned out to be a big money-saver as filter coffee could be priced much lower and is very popular. “It costs us close to Rs 20,000 to set up a filter coffee system vis a vis the Rs 4 lakh we used to spend on each cappuccino and latte setup. Now we are selling between 800 and 900 cups of filter coffee a day, at each of our outlets,” Rajiv says.

The process-centric approach

Rajiv’s mother helped him zero in on what would go on the menu. She baked countless perfect puffs and pastries and brewed coffee after coffee till Rajiv fine-tuned the processes he would need to recreate them in Ovenfresh outlets. They bought the best ovens and kitchen equipment available to make baking smooth and quick.

When they finally opened shop in Chennai, everyone in the 20-member team, including Rajiv, could whip up a pastry or two in minutes. “My cooking skills are still abysmal but the process is so streamlined that anybody can just follow the simple instructions and bake perfectly,” Rajiv says.

He took us through an Ovenfresh backend kitchen in Sarjapur, Bangalore. Monstrous steel machines – high-tech German ovens actually — lining the walls and employees wearing white aprons, it looked more like a laboratory. There were packets of what would be baked into a biryani – chicken, rice and spices in pouches. All one needs to do at the Ovenfresh front-end — that is, the outlets where customers go to eat — is mix the carefully measured ingredients, load it into an oven, punch a few buttons and lo, behold! Your baked goodie is ready to eat.

This process-centric approach was the differentiator for Ovenfresh. “Right from the start, I wanted to bring as much tech into play as possible. That baking or cooking is an art is a misconception. It is actually science,” he says.

“How do we take classic, everyday mass consumed Indian food products and create a process for it which no one had seen before — figuring that excites us.” That is the question Rajiv answers at Ovenfresh.

In March 2013, Kalaari Capital invested in Ovenfresh and came on board. “By then, Kalaari already had made successful investments in the retail sector. So compared to any other investor, they knew the space well and had a lot of insights to offer us. We usually had to explain the QSR model, and why we focussed on a process-centric approach and so on, but with Kalaari, they understood what worked well and could identify the potential in our model. They saw value in what we were doing though at that time we had just 10 outlets,” Rajiv says.

Ovenfresh mainly targets corporate customers, inside tech and business parks. “Those working in such places want to have good quality food without wasting any time. Most of our customers grab their coffee and quick-bite and head back to work,” says Rajiv.

Ovenfresh also has a few outlets on high-streets, which are open to the public – but Rajiv is clear in his focus: Building a business that creates value for customers, employees, and the partners.