VCPE Report2016 Final

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2016 India Venture Capital and Private Equity Report: Inspiration and
Momentum for the Gladiators - A study and analysis of the startups
Technical Report · November 2016

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India Venture Capital and
Private Equity Report
2016
Inspiration and Momentum for the Gladiators
A Study and Analysis of the Start-ups
Department of Management Studies

Indian Institute of Technology Madras
Chennai 600 036
India
© Indian Institute of Technology Madras
The India Venture Capital and Private Equity Report Series is an annual publication of the Indian Institute of
Technology Madras.
Previous reports
2009: On top of the world, still miles to go

A report on venture capital and private equity investments
2010: The contours of smart capital

A report on venture capital and private equity investors
2011: Fueling growth and economic development

Private equity investments in real estate and infrastructure
2012: Stimulus for the new and the nascent

A report on angel investments and incubation
2013: Convergence of patience, purpose, and profit

A report on social ventures and impact investments
2014: The fuel for wealth creation

Capital providers to the Indian venture industry
2015: The alchemy of judgment and objectivity

Valuation and structuring of investments
All the previous reports are accessible and can be downloaded from ResearchGate at www.researchgate.net
Any correspondence can be addressed to:

Thillai Rajan A., Professor, 202, Department of Management Studies,
Indian Institute of Technology Madras, Chennai 600036. India.
Telephone: +91 44 2257 4569
Email: thillair@iitm.ac.in
India Venture Capital and Private Equity Report 2016
Table of Contents
Tab le o f Con tent s (i )
Li st o f Tab le s (i ii )
Li st o f Fig ur es (i v)
Li st o f E xhib it s (v i)
E dito ri al Tea m and Au th o r s (v iii )
Adv is or y Rev ie w Bo a rd (x )
E dito r s’ N ot e (xi i )
Executive Summary 1
Articles
1. The Start-up Effervescence and Impact 5
2. The Spatial Diffusion of the Start-up Ecosystem 23
3. Trends in the Sands of Time 51
4. The Gladiatorial Arena of Start-ups 77
Perspectives
1. Fintech Start-ups: Making the Elephants Dance 11
2. Should Incubators Romance the Equity Share? 37
3. The Acceleration of the Indian Start-up:
A Brief Outline of the Regulatory Changes 67
4. Summary of the Case Studies 99
Reflections
1. The Equitas Journey: A Conversation with P.N.Vasudevan 19
2. Contours of Venture Investing in India: A Conversation with Samir Kumar 47
3. Bootstrapping to $500 million: A Conversation with Sridhar Vembu 73
4. Evolution of Start-ups: A Conversation with Mahesh Murthy 93
Case Studies
1. The Accelerator Program at Axilor 105
2. The Chennai Angels 109
3. Keiretsu Forum, Chennai 115
4. Saffron Incubation and Acceleration 123
(i)
Appendices
1. Definitions and Explanations 129
2. Useful Websites for Start-ups 131
Acknowledgements 135
(ii)
List of Tables
Table No. Description Page No.
1.1 Leading start-ups from India and their overseas comparisons 7
1.2 Scale of reach of start-ups 9
2.1 Comparison of angel investments in Tier 1 and Tier 2 cities 35
4.1 Founding year of start-ups 77
4.2 Maturity index for start-ups in different cities 78
4.3 Number of start-ups founded and funded 78
4.4 Percentage of start-ups funded by type of city 79
4.5 Tier I cities: Maturity index and percentage share of start-ups funded 79
4.6 Maturity index for funded and non-funded start-ups 81
4.7 Profile of start-ups that have been part of incubation or acceleration facility 81
4.8 Funding trends for start-ups in incubators or accelerators 82
(iii)
List of Figures
Figure No. Description Page No.
1.1 Venture investment in start-ups across time periods 5
1.2 Number of venture funded companies across time periods 6
1.3 Number of start-up deals across time periods 7
2.1 Host institution of the incubators 23
2.2 Geographical spread of incubators 24
2.3 Type of city and incubator host 25
2.4 Sectors supported by incubators (representation 1) 26
2.5 Sectors supported by incubators (representation 2) 26
2.6 Incubatees in different sectors 27
2.7 Incubatees classified by sectors based on the incubator host organizations 28
2.8 Geographical spread of accelerators 29
2.9 Start-ups supported by a sample of accelerators 30
2.10 Geographical spread of funded Start-ups 31
2.11 Geographical spread of SMEs 31
2.12 Angel and venture investments in start-ups classified by city type 32
2.13 Patterns in start-ups funded in different states 33
2.14 Patterns in start-ups funded in different cities 33
Average age of start-up in different cities at the time of receiving angel
2.15 34
funding
2.16 Average angel investment received by start-ups in different cities 35
3.1 Growth in the number of incubators 51
3.2 Year of founding of incubators by type of city 52
3.3 Incubatees classified by sectors 52
3.4 Incubatees classified by the host organization 53
3.5 Incubatees classified by geographical region 54
3.6 Incubatees classified by type of city 54
3.7 Angel deals over the years 55
3.8 Estimated amount invested by angel investors 56
3.9 Number of angel investors in different years 56
3.10 Number of angel investors who are reinvesting in different years 57
3.11 Average investment in an angel round 57
3.12 Average investment made by an angel investor 58
3.13 Number of angel investors in a round 58
(iv)
Figure No. Description Page No.

3.14 Average age of start-ups at the time of receiving angel investment 59
3.15 Number of angel deals in different sectors 60
3.16 Trends for quartile classification of angel investors 60
3.17 Trends in investment amount for quartile classification of angel investors 61
3.18 Number of investments made by angel networks 62
3.19 Number of angel networks that have made investments in different years 63
3.20 Average number of investments made by angel networks 63
Start-up funding classified by sector
3.21 64
3.22 City wise funding of start-ups by the year of incorporation 65

3.23 City wise funding of start-ups 65
4.1 Proportion of start-ups at different stages (LV funded and not funded) 80
Proportion of start-ups at different stages (Overall funded and not
4.2 80
funded)
4.3 Location of angel investors in LV platform 82
Number of angel investors who joined the LV platform in different years
4.4 and the number who have made their 1st investment on the LV platform 83
in the corresponding year
4.5 Percentage of angel investors from different city categories 83
4.6 Percentage of Tier 1 city angels from different cities 84
4.7 Number of investors and average commitment amount 84
4.8 Cumulative investment and number of investors 85
4.9 Profile of angel investors 85
4.10 Professional background of angel investors 86
Proportion of start-ups that get founded and funded at every successive
4.11 86
round
Days elapsed since the last update made by the start-up and joining the
4.12 87
platform
4.13 Comparison of global and Indian trends: Grocery tech start-ups 89
Comparison of global and Indian trends: Consumer Health-care and
4.14 90
Health-tech
Comparison of global and Indian trends: Home Improvements and Smart
4.15 91
Homes
(v)
List of Exhibits
Exhibit No. Description Page No.
P1.1 Technology and delivery of financial services 11
P1.2 Penetration of digital banking in India 13
P1.3 Investment activity in Fintech, 2015 14
P1.4 Ecosystem of Fintech Firms in India 15
P1.5 Sector-wise 2014 vs 2020 Market Opportunity 16
P3.1 Changes made with respect to sweat equity and ESOP in Co Act., 2013 69
P4.1 Deal flow by the stage of the start-up 100
P4.2 Snap-shot of the deal flow in 2010 and 2015: A comparison 100
P4.3 Deal flow from different cities 101
P4.4 Deal flow from different sources 103
C1.1 Number of applicants at different stages of the selection process 106
C1.2 Comparative characteristics of applications 106
C2.1 Number of proposals received by TCA 109
C2.2 Proposals received in different sectors 110
C2.3 Investments classified by sector 110
C2.4 Source of all the proposals received 111
C2.5 Average fund requirement indicated in the proposals 112
C2.6 Average investment made in companies 113

Investment made by the founders in the company till the time of proposal
C2.7 113
submission
C2.8 Reasons for proposals being rejected 114
C2.9 Comparison of invested and not-invested proposals 114

Number of companies by sectors that have presented in the monthly
C3.1 116
chapter meetings
Companies that have received funding through the Keiretsu Chennai
C3.2 116
chapter
C3.3 Average investment in different sectors 117
C3.4 Count of positive factors in the mindshare provided to entrepreneurs 118
C3.5 Count of negative factors in the mindshare provided to entrepreneurs 118
C3.6 Pattern of positives and concerns in different sectors 119
C3.7 Count of positives and concerns for domestic and foreign start-ups 120
(vi)
Exhibit No. Description Page No.

Count of positives for invested and non-invested companies for key
C3.8 120
parameters
Count of concerns for invested and non-invested companies on key
C3.9 121
parameters
Aggregate count of positives and concerns for invested and non-invested
C3.10 121
companies
Average count of positives and concerns for invested and non-invested
C3.11 121
companies
Proportion of applications received from different locations for
C4.1 124
participation in the incubation resident program
Proportion of applications received from different locations for
C4.2 124
participation in the accelerator program
C4.3 Number of founders in start-ups 125
C4.4 Relationship between co-founders in the start-ups 125
C4.5 Sector classification of start-ups 126
C4.6 Business models of start-ups 126
C4.7 Expectations from the incubation program 127
C4.8 Expectations from the acceleration program 127

Ratio of employees with engineering and business backgrounds in
C4.9 128
incubation applications
C4.10 Stage of start-ups at the time of applying for incubation 128
C4.11 Number of start-ups classified by the college graduation year of founders 128
(vii)
Editorial Team and Authors
Contributing Editor
Thillai Rajan A.
Thillai Rajan is a Professor in the Department of Management Studies at the Indian Institute of Technology
Madras. His areas of research interest include venture capital, private equity, corporate finance, and
infrastructure finance. He has edited and co-authored the past seven annual reports in this series. He received
his graduate degrees from Birla Institute of Technology and Science, Pilani and completed his doctorate from
the Indian Institute of Management Bangalore. He is also an alumnus of the Chevening Gurukul Program at the
London School of Economics, the Endeavour Executive Fellow at the Macquarie Graduate School of
Management at Sydney, and the Fulbright-Nehru Senior Research Fellowship at the Harvard University.
IIT Madras Research Team

Chaitanya V S Veeraghanta
Second year MBA Student, IIT Madras
Hemanth Penmetsa
Final year dual degree student in Mechanical Engineering, IIT Madras
Keyur Vohra
Final year dual degree student in Engineering Design, IIT Madras
Niroopa Rani
Ph.D. Candidate, Department of Management Studies, IIT Madras
Parag Ray
Second year MBA student, School of Management, NIT Warangal.
Ramesh Kuruva
Ph.D. Candidate, Department of Management Studies, IIT Madras
Reeba Devaraj
Principal project officer, IIT Madras. Previously, Deputy Research Director at GFK.
Sahithi Sampath Yeleswarapu

Final year dual degree student, Electrical Engineering, IIT Madras.
Saurabh Awatade
Final year dual degree student, Civil Engineering, IIT Madras.
Sravani Alur
Second year MBA student, School of Management, NIT Warangal.
External Contributors
Aarthi Sivanandh
Aarthi is currently a partner at J. Sagar Associates, a leading Tier I law firm in the country. She started her practice
in the US in 2001 as a foreign legal consultant concentrating on the US-India business corridor and in 2004 she
co-founded Vichar Partners in Chennai. Aarthi Sivanandh graduated in law from Dr. Ambedkar Law University
(viii)
and completed her master of laws with distinction from Tulane University. She focuses her practice on the full
spectrum of corporate transactional and other matters, including M&A, de-mergers & spin-offs, foreign
collaborations – Joint Ventures, strategic alliances & licensing transactions, restructurings, Private Equity and
Venture Capital transactions.
Amit Garg
Amit is the founder of MXV Consulting, a strategy and general management consulting firm. He has 2 decades
of experience, working with more than 100 organisations on areas of business strategy, profitability
improvement, sales effectiveness, operations improvement, and organisation. He earlier worked with the
Boston Consulting Group, and is a graduate from BITS Pilani and IIM Ahmedabad.
Atit Danak
Atit is Director - Partnerships at LetsVenture. Atit has over 8 years of technical and general management
experience, working in India and China, in areas of business development, product development, operational
strategy, and materials management. He has worked across sectors and successfully led teams to execute
strategic projects in Asia, Europe and North America for global clients. Atit graduated from the Manipal Institute
of Technology, India.
Dhritiman Borkakoti
Dhritiman is a consultant with MXV Consulting. He has more than 10 years of experience working with clients
across industry segments and sizes, providing advice in the areas of strategy, operations and organization design.
He currently focuses on emerging technologies, analytics, and new opportunity assessment. He received his
MBA from IIM Calcutta.
Havisha Reddy
Havisha is a Junior Consultant with MXV Consulting. She has experience working with clients on projects of
strategy and operations. She has a Master’s Degree in Operations Research from Columbia University, New York.
Josephine Gemson
Josephine is an Assistant Professor of Finance at the Loyola Institute of Business Administration, Chennai where
she teaches finance, quantitative techniques and business analytics. She completed her PhD in Finance at the
Indian Institute of Technology Madras in 2013 where she analysed risk investment strategies and preferences of
private equity investors worldwide. Her research interests include private equity and venture capital, corporate
finance, and innovative investing under risk and uncertainty.
G Sabarinathan
Sabarinathan is an Associate Professor in the area Finance and control at IIM Bangalore. His research interests
are in the areas of Financing Small and Medium Firms in India, Private Equity, Venture Capital and Regulation of
Securities Market in India. He teaches an elective on New Enterprise Financing that has become popular over
the years. He also conducts executive training on corporate valuation. Prior to joining IIM Bangalore, he was one
of the founding members of ICICI Venture.
Upendra Kumar Maurya

Upendra is an Assistant Professor in the Department of Management studies, IIT Madras. His research interests
are Brand Management, Entrepreneurship, and Marketing Interface Identity issues in Organization. He
completed his doctoral program from the Xavier Institute of Management, Bhubaneswar.
(ix)
Advisory Review Board

Anup Bagchi, Managing Director & CEO, ICICI Securities Limited
Anup Bagchi is the Managing Director and CEO of ICICI Securities. In his 18-year career with the ICICI Bank, Anup
has held various key positions in the bank in Retail Banking, Corporate Banking and Treasury. Previously, as the
Executive Director of ICICI Securities Limited, he pioneered the seamless online broking offering through
ICICIdirect.com. Anup has been honoured with The Asian Banker Promising Young Banker Award. He was also
recognised as one of India’s Hottest Young Executives by Business Today. Anup received his degrees from IIT
Kanpur and IIM Bangalore.
Dr. Archana Hingorani, Chief Executive Officer & Executive Director, IL&FS Investment Managers Limited
Archana Hingorani has over 29 years’ experience in the financial services business, teaching and research. Her
focus has been on private equity, project finance and financial structuring, with a specialisation in infrastructure,
manufacturing and real estate projects. She has been with the IL&FS Group for 21 years and has performed a
multitude of roles – starting off as an economist and moving on to project finance and asset management. Dr.
Hingorani is a Bachelor of Arts (Economics) with post-graduate qualifications in Management (MBA) as well as a
PhD in Corporate Finance from the University of Pittsburgh, USA. She is co-chair on the Investment Commission
Board of the United Nations Environment Programme Finance Initiative. She is also a member of CII National
Committee on Infrastructure Finance and is a member of the Advisory Council of Emerging Markets Private
Equity Association (EMPEA).
Arvind Mathur, Chairman, Private Equity Pro Partners

Arvind Mathur is the Chairman of Private Equity Pro Partners, an organization he founded to provide consulting,
training, and other services to the Indian venture and private equity industry. Previously, he was the President
of the Indian Private Equity and Venture Capital Association (IVCA). Prior to joining IVCA, he has held a variety
of positions, including Head, Capital Markets at the Asian Development Bank. Arvind has helped structure, and
invested in, over 30 private equity funds, including 5 infrastructure funds and a number of General Partnerships.
He has worked on funds with Limited Partners such as the Asian Development Bank, the International Finance
Corporation (IFC), CalPERS, the Prudential Insurance Corporation of America and some of the leading
institutional investors in Australia, Singapore, Malaysia and India.
S. Gopalakrishnan, Chairman, Axilor Ventures and Co-founder, Infosys

Senapathy ‘Kris’ Gopalakrishnan served as the Vice-Chairman of Infosys from 2011 to 2014, and as its Chief
Executive Officer and Managing Director from 2007 to 2011. Kris is one of the co-founders of Infosys. Recognised
as a global business and technology thought leader, he was voted the top CEO (IT services category) in
Institutional Investor's inaugural ranking of Asia's Top Executives. Kris was also selected to Thinkers 50, an elite
list of global business thinkers, in 2009. He was elected as the President of India's apex industry chamber, the
Confederation of Indian Industry for 2013 – 14, and served as one of the co-chairs of the World Economic Forum
in Davos in January 2014. In January 2011, the Government of India honoured Kris with Padma Bhushan, the
country’s third-highest civilian honour. Kris holds master’s degrees in physics and computer science from the
Indian Institute of Technology, Madras.
Gopal Srinivasan, Chairman & Managing Director, TVS Capital Funds Limited; and Chairman, Indian Venture
Capital and Private Equity Association
Gopal Srinivasan is the Founder Chairman and MD of TVS Capital Funds Ltd. Gopal, part of the TVS family, is the
founder member of TVS Electronics Limited and is a Director of TVS & Sons Ltd, the holding company. He is also
a member of the Board of several Group Companies. Over a career of 25 years he has founded several companies
operating in diverse industries such as IT & ITES and BFSI. Gopal was the Chairman of the Confederation of Indian
Industry, Tamil Nadu State Council for the fiscal year 2007-2008. He was also the Chairman of the CII National
(x)
Committee for Private Equity & Venture Capital for the fiscal year 2010-2011. Gopal received his degrees from
Loyola College, Chennai and University of Michigan, USA. Gopal is also currently the Chairman of Indian Venture
Capital and Private Equity Association.
R. Ramaraj, Senior Advisor, Elevar equity

Ramaraj works with Elevar Equity as a mentor and guide. He is a serial entrepreneur who has been involved in
various ventures in IT, cellular and Internet. His last venture was Sify, where he was the Co-Founder and Chief
Executive Officer. Sify was the first Indian Internet Company to list on the NASDAQ. He was recognized as the
‘Evangelist of the Year’ at the India Internet World Convention in September 2000 and was also voted the IT
Person of the year (2000 and 2001), in a CNET.com poll in India. In 2010, the Confederation of Indian Industry
recognised him with a Lifetime Achievement Award for nurturing the Spirit of Entrepreneurship and inspiring
and mentoring numerous entrepreneurs. Until recently, he was the Senior Advisor at Sequoia Capital. He is a
Member of the Board of Governors of the Indian Institute of Management, Calcutta.
Roger Albert, Managing Director, Austin Flower Capital1

Roger is the Managing Director of Austin Flower Capital in India where he focuses on investing in Consumer tech,
Education and Healthcare opportunities. He currently serves on the board of several investee companies of
Austin Flower Capital. Prior to joining Austin Flower, Roger had worked at McKinsey Consulting and at Wipro
Technologies. At Wipro, Roger helped several venture-backed networking start-up clients design and build
customer premise equipment for next generation applications like VoDSL and the Internet over Cable.
Sarath Naru, Managing Partner, VenturEast Funds

Sarath is the Managing Partner of VenturEast Funds which has over $300 million under management. Prior to
this, Sarath built a trading and manufacturing business spanning USA and India. He gained significant experience
working for Procter & Gamble in the area of brand management in the USA and in manufacturing with British
American Tobacco subsidiary, VST Industries in India. His academic qualifications include - Bachelor of
Technology from IIT-Madras and an MBA from the University of Chicago. He was a past-secretary of the Indian
Venture Capital Association and is a member of the Investment Committees of UTI Ventures funds.
Srivatsa Krishna, IAS, Secretary, Government of Karnataka

Srivatsa Krishna, 1994 IAS gold medalist, is also the first Indian career bureaucrat to figure in the prestigious list
of Global Leaders for Tomorrow. He is also the first IAS officer in India's history to complete the Harvard Business
School MBA. Krishna co-authored a case study with Professor Michael Porter on technology clusters and
economic development in India that is used as a part of a global course taught at HBS. He was part of the team
which pioneered E-governance in India and created one of Asia’s largest IT and investment clusters, Cyberabad.
Sudhir Sethi, Founder & Chairman, IDG Ventures India

Sudhir is the Founder & Chairman of IDG Ventures India. He specialises in identifying disruptive high growth
technology firms with a strong leadership team and helps them grow rapidly with an eye for outsized financial
returns. Since 1998 Sudhir and his team have advised on investments into 60 firms across Digital Consumer,
Enterprise Software and Healthcare Sectors. Key investments include FlipKart (India’s leading e-Commerce
player), Myntra (Fashion & Sports e-Commerce), Manthan (a global Analytics product play), Perfint (a global
leader in image-guided oncology), Aujas (a global security firm), Newgen (a global software product leader),
Yatra (a leading Online Travel Company), Mindtree Consulting, Lenskart, and Zivame.
1
Name and organization disguised on request.
(xi)
Editors’ Note
Ad Augusta per angusta!
The above phrase would appropriately reflect the gladiatorial spirit and motivation of most start-up
entrepreneurs today. In a way, the report series, which is dedicated to a better understanding of start-ups,
venture financing, and entrepreneurship, is in itself an entrepreneurial journey. As I sit to write this note for the
eighth time in the last eight years, I can’t help but reminisce a bit. The annual Indian Venture Capital Report
series started as a small effort in 2009, as a part of the research project sponsored under the New Faculty Grant
of IIT Madras and later through the support of a research grant of Indian Council of Social Science Research. The
reports for the years 2012-15 were supported by the Department of Management Studies, IIT Madras and the
International and Alumni Relations Office, IIT Madras. At the end of 2015, as we were running out of gas, we got
a lifeline through the generosity of ICICI Securities Limited, which would enable us to hopefully continue this
series till 2018.
The search for a suitable theme for this years’ report started in early 2016. In retrospect, the choice of subject
for this year was not difficult. The Start-ups had captured the imagination across the spectrum – right from the
Prime Minister of the country to the ordinary citizen. India had become one of the top start-up countries globally
within a short span of time. Though India had always boasted a strong culture of entrepreneurship as seen in
the number of SME’s, Start-ups brought in a new era in entrepreneurship – one that anchored on technology,
innovation, and growth. People could experience the impact of start-ups in almost every walk of life. And
successful entrepreneurs had a rock star like following, becoming role models for students in campuses. Given
this context, we decided to have Start-ups as the focus of the 2016 India Venture Capital and Private Equity
Report.
Having decided the theme, the next question confronted us. There are several reports that have been done on
start-ups. How are we going to be different? Our differentiation anchored on the following: (i) Focus not just on
start-ups, but on the start-up ecosystem; (ii) Analyze the start-ups that are founded, and not just the ones that
get successfully funded; (iii) Provide multiple perspectives that are based on individual experiences in addition
to longitudinal data analysis. We hope that the report that you have in your hands would reflect the efforts we
have made on the above factors.
Every once in a while, the world had witnessed economic euphoria – the tulip mania in the mid-1600s, the
California gold rush in the mid-1800s, and the dot-com boom in the 2000’s to name a few. While the victims of
the euphoria far outnumber the conquerors, the winners have singularly made lasting impacts. For example,
Amazon and Google in a way belong to the dot-com era, and look at the impact they have made on the day to
day lives of so many people around the world. While the jury is still out on which of the start-ups would survive
the decade, what is evident is the overall social and economic impact that the start-ups have made in the last
couple of years.
And as they say, acta est fabula plaudit!
I hope you enjoy reading this report, and I look forward to your suggestions and comments.
Thillai Rajan A.
(xii)
Executive Summary
Overview
The context: The impact of start-ups has been significant in all walks of life. In recent years, India has emerged
as one of the top three countries globally in terms of the number of start-ups founded. The total venture
investment in start-ups during the period 2005-15 is estimated at ₹1117 billion (using 2015 as the base year).
Actual investment could be much higher since details of investment amount are not available for many of the
deals. The average annual growth rate in investment flow during the period 2005-15 is about 42 percent.
Between the years 2005-15, more than 10,000 start-ups have received funding. The average annual growth in
the number of start-ups that have been funded for the period 2005-15 has been 16 percent. In most sectors,
there has been an equivalent Indian start-up to that of a foreign start-up. While many foreign start-ups have
also started operations in India, the presence of an Indian start-up meant that the Indian consumer need not
have to wait till the foreign company started operations in India.
Global and Indian start-up landscape: Indian start-up landscape is very vibrant as seen by the number of
companies founded. In some of the sectors, the number of companies founded in India is close to the number
of companies founded globally. The average investment per round in a start-up is higher globally, but the
difference is not very large. A major concern would be the low proportion of start-ups that get funded in India.
For example, the percentage of global start-ups that are able to successfully raise capital in the grocery tech,
healthcare and consumer healthcare, and smart home and home improvement are 41 percent, 52 percent, and
36 percent respectively. The corresponding percentage for Indian start-ups are 5 percent, 10 percent, and 11
percent. There is a time lag in the setting up and funding between global and Indian start-ups. The growth and
the funding of the Indian start-ups in different sectors occurs later than what is seen for global start-ups.
The report: In this report, we analyze the key trends in start-ups and start-up ecosystem in India. Broadly, the
report includes the following components: incubation, accelerators, angel investors and angel networks, and
venture funds. An important feature of this report is an analysis of the pool of start-ups that get founded and
not just the start-ups that get funded. A comparative analysis of start-ups that have been funded and those that
have not been funded provides interesting insights.
Incubation facilities
Pivotal role of universities: About 56 percent of the incubators are located in universities, indicating the
important role played by universities in supporting entrepreneurship and start-ups. One third of the incubators
are located in private universities. Incubators in universities supported 58 percent of the total incubatees being
supported in different incubators. In addition to the traditional teaching, research, and industrial collaborations,
universities are increasing playing a very important role in creating ventures.
Sector focus: Technology sector is supported by the largest number of incubators. After technology, the
healthcare sector occupies the second position in terms of the number of the incubators supporting it.
Telecommunications, industrials, and consumer goods come close, in terms of the third spot. The number of
incubators supporting the other sectors are very limited. Incubation is not seen as the preferred approach in
commercializing innovations such as in utilities or in the oil and gas sector.
Growth in incubator presence: More than 50 percent of the incubators were set up in the last five years. While
the number of incubators in different types of cities were more or less equal till 2010, there has been a dramatic
increase in the number of incubators in Tier 1 cities after 2010.
Incubation thesis varies between incubators: Average number of incubatees supported in the different type of
incubators vary widely. While the average number of incubatees is around 36 in universities, it is only 13 in the
1
case of private non-universities. This indicates that different type of incubators could have different investment
thesis. Independent private sector incubators without any university affiliation might have more stringent
criteria because the financial sustainability of the incubators could depend on the success of the incubatees. On
the other hand, incubators supported by the government institutions could have the primary objective of
encouraging start-ups rather than just financial success, and thus they are prepared to support more number of
incubatees.
Accelerators
While incubators are present across different locations in the country, accelerators are essentially an urban
phenomenon: Except for a couple, virtually almost all of the accelerators are located in the main cities – Chennai,
Bengaluru, Hyderabad, Mumbai, Ahmedabad, and New Delhi. The highest number of accelerators are found in
Bengaluru, followed by the NCR region and Mumbai.
Scale of the accelerator programs: In our sample, 17 accelerators have supported a total number of 1816 start-
ups. Though some of the accelerators like 500 start-ups, Kyron, TiE Bootcamp have been associated with a large
start-ups, in general, accelerators are able to guide more number of start-ups as compared to that of incubators.
Angel Funding
Angel investments in Tier 1 and 2 cities: Companies in Tier 1 cities are getting funded earlier and obtaining
larger amounts of funding. Average deal sizes for companies in Tier 1 cities are about 62 percent higher than
that of deals in Tier 2 cities. Investment rounds are more than 40 percent higher in Tier 1 cities as compared to
that of Tier 2 cities.
Growth in angel investments: Angel deals have shown an annual average growth rate of 124 percent during the
period 2008 – 15. The estimated investment amount through angel deals has grown at an annual growth rate of
205 percent during 2008-15. The number of angel investors also has grown at an annual average of 107 percent
during the above period. While the number of first time angel investors has grown at a rate of 98 percent, the
growth rate of investors who are reinvesting has been 105 percent.
Age of start-ups at the time of receiving angel investment has consistently decreased: There has been a steady
decrease in the average age of the start-up at the time of receiving angel investment from 4.77 years in 2008 to
0.54 years in 2015, indicating that age of the start-up at the time of investment has reduced by about 27 percent
annually. However, the average investment amount has increased.
Profile of angel investors: Analysis of the angel investor sample indicated a good mix of experienced (i.e., who
have made five investments or more) as well as new investors (i.e., who have made less than five investments).
The proportion of the former was 48 percent while that of the latter was 52 percent, indicating that the mix of
angel investors is well balanced. In terms of their professional background, senior executives from large
corporations comprised the largest segment, accounting for more than half of the investors. Entrepreneurs
comprise the second highest category, accounting for close to 40 percent of the investors. The traditionally
wealthy, i.e., those engaged in family businesses account for less than 9 percent of the investor sample.
Location of angel investors: Analysis of registered angel investors in Lets Venture platform shows that 88
percent of those are from Tier 1 cities. The number of angels in Tier 2 and 3 cities are 11 percent and one percent
respectively. Among the six tier 1 cities. Delhi (i.e., the National Capital region that comprises of adjacent cities
to Delhi such as Gurgaon, Noida, and Okhla) has the largest number of angel investors, followed by Mumbai and
Bangalore. Taken together, these 3 cities account for 88 percent of the total angel investors in Tier 1 cities. The
remaining cities of Chennai, Hyderabad, and Kolkata account for only 12 percent of the total investors in Tier 1
cities.
2
The active as well as the occasional angel investors have a part to play in the growth of angel investing: Angels
investors were classified into two separate quartiles based on the number of deals and the amount of
investment. Based on the number of deals it was found that top quartile investors have a higher degree of sector
concentration with most investments in technology whereas the bottom quartile investors exhibit a higher
degree of diversity in terms of the number of deals in different sectors. Based on the investment amount, it was
found that the active angels invest lower amounts per deal, but make more number of investments whereas
occasional angels on an average invest higher amounts per deal. As a group, the aggregate investment made by
occasional angels are also higher than that of active investors.
The rise of angel networks: A noteworthy development in the last few years has been the evolution of the angel
networks. While many of the angel networks are organized around cities (such as The Chennai Angels, Mumbai
Angels, and so on), there are other forms of networks as well. The annual growth rate of the number of
investments by angel networks made during the 2009-15 period has been about 75 percent. In a span of 7 years,
the number of networks have increased 20 times.
Average investment amounts made by angels have consistently increased: The average investment received
from an angel round by a start-up has increased from ₹10.63 million in 2009 to ₹46.76 million in 2015 indicating
an annual growth rate of 27 percent. The average investment made by an individual angel investor has increased
from ₹2.16 million in 2009 to ₹16.95 million in 2015, indicating an annual growth rate of 34 percent. Individual
investments made by angels in a networking platform are lower. For example, data from Lets Venture indicates
that the average investment per investor was about ₹11 million. The number of investors is the highest for the
average commitment amount of ₹500,000, followed by ₹1 million. Beyond that, there is a sharp fall in the
number of investors, indicating that the sweet spot for investors in an angel networking platform is between
₹0.5 – 1 million.
Venture Funding
Contours of start-up founding differ from that of SME’s: The geographical spread of SMEs and start-ups show
interesting variations. Tamil Nadu and Gujarat has the highest number of SMEs, but they are not the top states
in terms of venture funded start-ups. On the other hand, Karnataka and Maharashtra, which account for the
highest number of venture funded start-ups do not occupy the top slot in terms of number of SMEs. This
indicates that the ecosystem for development of SMEs and start-ups could be different.
Venture funding is concentrated in Tier1 cities: The 6 Tier 1 cities of India received the largest chunk of
investment of ₹661.29 billion, accounting for about two-thirds of the angel and venture funding. Tier 2 cities
received 31% of the total investment (about ₹306 billion) and start-ups in Tier 3 cities accounted for only ₹19.74
billion, which is about 2 percent of the total investment. There exists a big gulf in investment flow between start-
ups in Tier 1 cities and the other two tiers.
Comparison of funded and non-funded start-ups
Maturity index of start-ups that have received funding are higher: Maturity index of start-ups were calculated
based on the lifecycle stage of the start-up. The average maturity index of start-ups that have received funding
was 3.54 whereas those that did not get any funding was 3.00. Start-ups that were a part of incubation or
accelerators also had a higher maturity index (3.4) as compared to those that did not receive any incubation or
acceleration support (3.0).
Incubators and accelerators can increase the probability of getting funding: In the overall sample, only 8.3 of
the start-ups are successful in getting external funding. But among those who have been a part of an incubator
or accelerator, 24 percent have been able to get external funding. Thus incubators and accelerators have been
able to increase the chance of getting funded by about three times. Similarly, 5 percent of those who have been
3
with an incubator or accelerator have been able to get funding on the LetsVenture platform, while the
proportion of those getting funded on the platform for the overall sample is only 1.1 percent. Incubators and
accelerators have thus been able to increase the chances of getting funded on the LetsVenture platform by five
times.
Odds of success for getting funded continue to be low: In our estimate, for every 875 start-ups that get founded,
only one is able to successfully raise 4 or more rounds of funding. Out of the total start-ups that get founded,
about 6 percent take part in an accelerator or incubation program. 75 of the 875 are able to get first round of
funding, out of which only 15 are able to get the second round of funding, and only 5 are able to secure the third
round of funding.
The line of separation that distinguishes the funded and non-funded start-ups can often be very thin: The case
study of Keiretsu Forum, Chennai Chapter, indicates that the average number of positives (or concerns) is just
higher by a count of 2 (or lower by a count of 2) for the invested companies as compared to that of non-invested
companies. Similarly, the average prior investment made by companies as seen from Chennai Angels is not very
different between the invested and applicant companies (₹7.98 vs ₹6.88 million respectively). However, the case
studies also provide various pointers on increasing the probability of success. The most common causes of
rejection of proposals has been limited interest among the angel network members, low traction, and scalability
issues. Data from Keiretsu Forum indicates that the strengths of the business model, the value proposition, and
market size are significant factors that influence the investment decision. The count of concerns for companies
that were not successful in receiving investment was considerably higher for the following parameters: business
model, customer traction, margins and profitability and market size.
Approaching the funders through a reference can improve the odds of funding: Increasingly, investors are
relying on developing a proprietary deal flow network. For one of the venture firms interviewed for this report,
37 percent of the deal flow was through personal contacts. In terms of the importance of references, the finding
from The Chennai Angels case study provides an important perspective. Ninety two percent of the investments
made by The Chennai Angels were sourced through or had a reference from angel investors or members of the
angel network. None of the deals that were received directly without any reference were successful in getting
funding.
4
1. The Start-up Effervescence and Impact

“…When all at once I saw a crowd, a host of golden daffodils;
Beside the lake, beneath the trees, Fluttering and dancing in the breeze...
They stretched in never-ending line, along the margin of a bay:
Ten thousand saw I at a glance, tossing their heads in sprightly dance...”1
Upendra Kumar Maurya and Thillai Rajan A.
Overview
We are no Wordsworth, but the above lines reflect the sentiment and prevalence of start-ups in India today.
Various reports have indicated that India is among the top three countries worldwide in terms of the number of
start-ups. Many of these start-ups were incorporated post 2010. The start-up storm has literally caught the
attention of everybody – policy makers, consumers, investors, regulatory agencies, prospective employees, and
so on. Unlike a conventional storm which leaves a trail of destruction in its wake, the start-up storm has resulted
in substantial positive impacts in the economy. In this chapter, we present evidence on some of the positive
impacts from the start-ups.
Investment flow
A big impact of the start-up boom has been the investment flow in start-ups. Available data indicates that the
total venture investment in start-ups during the period 2005-15 has been about ₹1117 billion. It needs to be
remembered that coverage of venture investment deals in most of the databases is not 100 percent, and
investment amount is not available for all the deals. Therefore, actual investment would definitely be higher
than the estimated amount of ₹1117 billion.
Figure 1.1: Venture investment in start-ups across time periods
Figure 1.1 shows the estimated investment in start-ups (in 2015 values) for different years. While year-to-year
investment flows could show a lot of fluctuations, a three year window shows more or less a steady increase
(except for 2009-11 and 2011-13 periods) in the investment flow. The average annual growth rate in investment
flow during the period 2005-15 is about 42 percent. An investment flow of such a magnitude would have
© Indian Institute of Technology Madras 5

definitely led to several impacts on the ground – asset creation, employment generation, development of
intellectual property, construction of office space and the resultant demand for other services, and so on. Much
of the investment that is invested in start-ups is also foreign capital. Thus start-ups have played an important
role in attracting investment capital to the economy.
Acceptance of entrepreneurship as a career choice
For a long time entrepreneurship was not considered as an attractive or acceptable career choice in the Indian
social and cultural milieu. However, with the supportive policy of the government and outstanding financial
success of some of those who chose to venture on their own, the social perception of entrepreneurship has
gradually undergone a change and venturing is increasingly being accepted a preferred option. Figure 1.2 gives
the number of start-ups that have been funded in different time periods. Between the years 2005-15, more than
10,000 start-ups have received funding. The average annual growth in the number of start-ups that have been
funded for the period 2005-15 has been 16 percent. While the number of start-ups that are founded would be
several times more than the number of start-ups getting funded, availability and growth in the funded start-ups
are attracting many to venture on their own rather than pursuing employment in established companies.
Figure 1.2: Number of venture funded companies across time periods
Venture capital and private equity as an asset class
Investing in start-ups have yielded attractive returns to many investors. This in turn has enticed several
institutions and individuals to consider allocating a part of their portfolio to venture investments. Increase in the
capital available has led to an emergence of a strong venture fund management industry. As the number of
venture firms increased, they started to aggressively scout for start-ups to deploy their capital. Increase in the
number of venture firms (along with other simultaneous progress in technology and the increasing risk appetite
among the founders) increased the number of start-ups that were getting funded. This encouraged more and
more people to start on their own, resulting in a virtuous cycle. The increase in the pool of available capital
increased the sophistication of the industry and venture capital and private equity is being recognized as a
separate asset class.
Figure 1.3 shows the number of deals for different time periods. Since a deal represents a unique investor-start-
up-date of investment combination, increase in the number of deals indicates an increase in the number of start-
ups as well as the number of investors. During the period 2005-15, the total number of deals were 11,311. The
average annual growth rate in the number of deals for the period 2005-15 is 52 percent. Though year-to-year

deal number could fluctuate, the number of deals in a three year window shows a steadily increasing trend. This
shows that the attraction of investing in start-ups has drawn several new investors to allocate a portion of their
capital to investing in start-ups. This trend can also be seen specifically for the angel investors where the number
of first time angel investors has grown at an annual rate of 98 percent during the period 2008-15.
Figure 1.3: Number of start-up deals across time periods
Innovation in products and services
The biggest contribution of the start-ups has been the innovation in products and services they have been able
to bring in different sectors. Table 1.1 provides a list of some of the top Indian start-ups in different segments.
Table 1.1: Leading start-ups from India and their overseas comparisons
Date of Date of
Segment Indian Start up Foreign Startup
Incorporation Incorporation
Taxi services Ola 2010 Uber 2009
Ecommerce and Marketplace Flipkart 2007 Amazon 1994
Ecommerce and Marketplace Snapdeal 2010 Amazon 1994
Restaurant search and discovery service Zomato 2008 Yelp 2004
Advertising platform Quickr 2008 Olx 2006
Furnishings Urban Ladder 2012 Wayfair 2002
Mobile advertising Vserve 2010 Admob 2006
Travel Makemytrip 2000 Expedia 1996
Travel Yatra 2006 Expedia 1996
Healthcare Practo 2008 Zocdoc 2007
E-Wallet Paytm 2010 Paypal 1998
Hotel aggregator Oyo Rooms 2013 Trivago 2005
Home rental Stayzilla 2005 Airbnb 2008
While the degree of innovation can differ or the quality of innovation can be contested, what has been generally
accepted is that the start-ups have been able to bring a certain amount of newness to the consumer, which they
had not experienced previously. What is interesting to note is that many of the new introductions have emerged
from the start-up stable rather than established companies. This serves to underline the often observed

phenomenon that smaller firms continue to be at the vanguard of innovation and play an important role in
driving change before the larger companies catch up.
It is also interesting to note that in each of the segments there has been an equivalent Indian start-up to that of
a foreign start-up. While many foreign start-ups have also started operations in India, the presence of an Indian
start-up means that the Indian consumer need not have to wait till the foreign company started operations in
India. For example, while Amazon started the Indian operations only in 2013, Flipkart started serving the Indian
consumers much earlier. It is also seen that the time lag between a foreign and Indian start-up is also getting
shorter, indicating that start-up entrepreneurs in India are able to quickly bring those products and services that
are experienced by consumers overseas.
Influencing consumer behaviour
In recent times, start-ups have made a significant impact on the people’s lives across the different facets of life.
For example, cab aggregators like Ola have changed the way people used to travel either for personal or
professional purposes. When it comes to buying household goods and lifestyle products, the likes of Flipkart,
Myntra and Snapdeal have made a difference in the people’s lives by offering quality goods at affordable prices,
easy access to finance and easy return. When it comes to health sector, Practo has made a difference by assuring
the way people can get the prior appointment and minimize the wait time in addition to providing the ratings of
the doctors which helps in deciding whom to approach. Lenskart has been making an attempt to change the
way people get their eyes tested and eyeglasses made. They offer free eye check-up and eyeglass test at
consumers' door step, this provides a lot of convenience to the buyers.
There have been numerous start-ups impacting the other walks of life, for example, some companies offer the
services of plumbing, technicians, and so on online. Start-ups like nearbuy has been changing the way people
used to go for dining as they bring the affordable offers which people book and take the coupons along-with
them while going for dining. If we look at mobile recharge or bill payments, there has been numerous companies
like Paytm, Freecharge, Mobwiki which are impacting the way people used to recharge their mobiles, DTH,
electricity bills, and so on. Even the way people used to consume cinema has been changed by the companies
like bookmyshow and many others. Start-ups have been also changing the way people used to buy furniture
and other accessories as start-ups like Urban ladder, Pepperfry, Fabfurnish and Gozefo are making a difference.
There has also been a change in the way people used to dispose their old goods, as web pages like olx and quickr
have really empowered the consumers and augmented the customer to customer trade. Yet another start-up
“OYO Rooms” has changed the way people used to book their accommodation by offering greater value to both
property owners and the prospective customers. These change in the consumer behaviour have been brought
by start-ups by offering better value to the consumers in comparison to existing benefits.
Start-ups have also impacted the lives of people indirectly by changing the rules of the game. Traditional
businesses or businesses with traditional mind set are now under pressure. For example, the traditional mobile
recharge points franchise by different companies are losing their business to the online recharge counterparts.
Similarly, many traditional businesses like Banarasi sari weavers, Pochampally sari cluster, and so on are at the
brink of change. If efforts could be made to skill them and connect them to the start-ups like Flipkart a huge
amount of value can be created. Therefore, start-ups offer a ray of hope for bringing change to the lives of
deprived section of society like farmers, traditional weavers and other traditional professions.
However, not all offerings by start-ups represent higher value in absolute sense. The litmus test lies in retaining
the gained customers, sustaining the growth and achieving profitability. A few start-ups like Tiny owl,
Foodpanda, Askmebazaar and many others have been also in trouble due to their inability to sustain the value
perception. However, it is very natural that with the increase in start-up formation rate, failure rates of start-up
are also bound to go up.

Scale of reach
An important feature of many of the start-ups is their scale of reach. Table 1.2 shows the scale of reach for some
of the start-ups. What is to be noted is not just the scale of reach, but also how quickly they have been able to
reach that scale.
Table 1.2: Scale of reach of start-ups

Indian Start up DoI (Indian) Scale Of Reach
Ola 2010 200000 cars; 7000 employees; 4 lakh taxi drivers
Flipkart 2007 75 million users; 35000 employees; 30000 sellers
Snapdeal 2010 10 million products; 5000 employees; 275000 sellers
Zomato 2008 90 million users
Quickr 2008 12 million listings in over 1000 cities
Urban Ladder 2012 15000 visits daily; 18 cities
Inmobi 2007 759 million users globally
Makemytrip 2000 13000 hotels in India
Yatra 2006 >15000 hotels worldwide
7.5 million unique patients; 10000+doctors; 10 million electronic
Practo 2008
patient records; 7 million appointments
Paytm 2010 75 million transactions per month; 3000 employees
Oyo Rooms 2013 6500+properties
Stayzilla 2005 1000+bookings daily
Summary
This chapter has highlighted the pervasive influence of start-ups in our day to day lives. The growth in the
number of start-ups has led to new investors and significant investment flow to the economy. Start-ups have
been able to ride on the wave of technology advances and smart phone penetration to offer innovative products
and services. These innovations have fundamentally altered the consumer purchasing behavior in many
segments apart from offering convenience and cost savings. The acceptance of the start-ups can also be gauged
from their scale of reach and how quickly they have been able to reach that scale. Many of the start-ups,
however, are bound to fail, prompting many to ask the question on the judiciousness of such large investment
flows and whether it would have been more beneficial for the economy if the investment flows had happened
in other sectors. The start-up survival rates and economic benefits of the start-ups could be a potential topic for
the subsequent reports.
Notes
1
From “I Wandered Lonely as a Cloud” by William Wordsworth.

10
PERSPECTIVE 1
Fintech Start-ups: Making the Elephants Dance

Amit Garg, Dhritiman Borkakoti, and Havisha Reddy
What is Fintech?
Financial services providers, with huge demands for computation and record keeping, have always embraced
technology. IBM 650, the first mass produced computer in the 1950s, which was marketed at the scientific and
engineering firms, also found interests from financial companies such as the Mellon National Bank. For most
parts, however, technology has been used by financial institutions to facilitate their internal operations, and in
enabling some customer interactions. The institutions themselves retained their central role.
Over the past few years, startups have started turning this relationship on its head. The rise of the connected
world, with the smartphone at its center, is enabling new linkages across and between customers and service
providers. This is increasing accessibility and inclusion, and putting the customer in the driver's seat.
This has been referred as the Fintech revolution, where technology has allowed startups to upend traditional
business models with 24x7 customer connections, unbundled services, big data, artificial intelligence and a
dramatic simplification of the banking experience. Innovators have been able to take the technology and data
first approach and are leveraging them far beyond the traditional players. This has allowed for innovation in risk
assessment, reduction in costs, and deeper penetration of financial services (Exhibit P1.1).
Exhibit P1.1: Technology and delivery of financial services
Insurance Payments Remittance Loans Investments
Traditional Model Innovation
Technology
• Access to
internet
₹ Institution
• Penetration of
mobiles
• Trust in
technology
Institution Technology
• Personalization
of solutions
• Speed of delivery
• Reduced cost
• Open
architecture
Customers Customers
11
However, the definition of Fintech does not include the traditional technology solutions used by financial
institutions: core banking solutions for banks, internet banking solutions for customers, digital money transfer
that requires knowledge of payee's bank account, card based POS solutions, vanilla share trading services, and
so on.1
The differentiated approach of Fintech startups has allowed them to grow rapidly in segments such as payment
solutions (peer-to-peer payments, wallets, and mobile payments), remittances, and consumer and small
business loans. This has led to increased investor interest - $22 billion2 of investment went into the Fintech
sector in 2015, of which India received $1.65 billion, the second largest after China in APAC.
Upsetting the cart: reimagining financial service delivery
Traditional financial service providers tend to provide a broad range of services across multiple business lines.
They carry legacy infrastructure, a historical burden of loans already made, and processes that were optimized
for a different era. On the other hand, startups, not similarly burdened, are free to explore new ways to serve
segments that are uneconomical for incumbents, explore new processes of evaluating risk or closing a
transaction, and to rethink how a service can be provided profitably. These startups have changed the landscape
in three key ways:
 With advantages such as a lower cost of servicing a client (because of greater use of technology), better
assessment of risk (because of use of alternate data in data sparse situations), they have often been able to
reach customers that are not profitable for incumbents, thus expanding the market. Even incumbents like
Bank of Baroda are tying up with alternate lenders like CreditMantri to service first time borrowers. 3
 Advanced technology enables more efficient processes (for example, by matching people who are looking to
deposit money to those looking for a loan), leading to disintermediation in the multi-step processes. This and
other such simplification leads to reduced service times and costs. Capital Float, for example, believes that
one of their differentiators is speed in loan disbursement, which is possible within a day.4
 By packaging multiple solutions (for example, a number of different credit cards into a single wallet), startups
have given users the convenience of a single simpler interface while inserting themselves as an additional
intermediary in the traditional service delivery process. Paytm started out with a focus on prepaid recharge
solutions, expanding their portfolio to payment gateway, mobile wallet, online marketplace, and payment
bank.
JAM: the sauce for Fintech growth in India
The growth opportunity for Fintech in India can be traced down to two factors: the low penetration of formal
financial services in the country, and the JAM (Jan Dhan, Aadhaar and Mobile) strategy pushed by the
Government of India for financial inclusion.
Sixty percent of Indians have traditionally had no access to any banking solution. 5 Ninety percent of SMEs have
no access to formal credit.6 Thus, a significant pool of business and individuals only had access to informal
channels - a large pool that can now be addressed by Fintech solution providers because of the three-pronged
JAM initiative.
The Pradhan Mantri Jan Dhan Yojana was launched in August 2014. In two years, it had led to the opening of
236 million bank accounts, and the issuance of 188 million debit cards.7 When the program started, about 45
percent of the accounts opened under the scheme had zero balance, which has since the reduced to 24 percent.
This pool of people with functioning bank accounts provides a large target market for Fintech companies.
12
Aadhaar, the national identification number of the Indian government, also provides for biometric identification
and online verification - both of which will facilitate digital transactions. At 1.04 billion registrations, it currently
covers 85 percent of the population of the country.8
While banking penetration has been low, 75 percent of the Indians own mobile phones and over 25 percent are
expected to have a smart phone by 2017. About a third of Indians were expected to be online by 2016, most of
them through mobile phones. Mobile banking has been growing faster than web banking. Albeit on a low base,
the value of mobile transactions in Dec 2015 was more than four times the amount it was a year ago. 9 Digital
transactions are expected to account for a quarter of all banking transactions by 2020, with close to 50 percent
of the people accessing digital banking by 2022.10 The year 2016 also saw the announcement of the Unified
Payment Interface (UPI), a set of standards that will help integrate different payment systems in India. This will
further enable the adoption of mobile and digital transactions in India, opening new use cases for Fintech
startups.11, 12
Exhibit P1.2: Penetration of digital banking in India
50% Germany
50% China
UK 57% Japan
77% 83%
45%
USA
75%
40%
India
Smartphones
18% to exceed
35% number of
Penetration of Digital Banking (%)
active bank
account
30%
holders
25%
Internet penetration to cross

20% 30%: generally a tipping
point for mass adoption of
digital banking
15%
10% Mobile transactions gains

momentum: 2x transactions
and 3x value over previous
5% year
0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
The way India leapfrogged the fixed line telephone phase and moved to mobile telephony, a similar model may
be imminent in the Indian financial sector. It is possible that a large part of the population may never open a
conventional bank account and straight away use mobile phones to do financial transactions 13 – whether for
payments, lending,14 borrowing or investing. Nandan Nilekani, the former Chairman of UIDAI that implemented
the Aadhaar programme has said that the mobile phone will be the bank account for many Indians and it could
be a "WhatsApp moment in Indian financial services."
The emerging landscape
In India, over 70 percent of the total Fintech investment in 2015 was received by companies in the Payments
sector – led by Paytm which received over $500 million from ANT Financial, followed by BillDesk who got $150
million from General Atlantic. MobiKwik received $75 million led by TreeLine Asia and Citrus received $25 million
from Ascent and Sequoia Capital to boost investments in the Wallets sector. BankBazaar received $60 million
from Amazon India, Fidelity Growth and Mousse Partners to top investments in the Credit Cards & Loans, a
13
category that received the third highest investment. Exhibit P1.3 gives the start-up investment activity in Fintech
companies during 2015.
Exhibit P1.3: Investment activity in Fintech, 2015
Payments
2.9% 4.5% Wallets
Credit Cards & Loans

3.8%
Insurance
3.9%
72.5% mPoS
4.9%
Business Lending
7.5%
Others
While some sectors are still in early stages of adoption, others have gained wide acceptance. Payments,
remittances and wallets are growing rapidly with cashless payments projected to account for over 50 percent of
transactions in India by 2020. 15,16 Tech-enabled asset management firms also known as robo-advisory firms,
such as ArthaYantra, have now opened up the market to millennials and low-value investors by using algorithms
to reduce the cost of investing17. Fintech lenders like Capital Float in India, are able to cater to SME’s rapidly
and more effectively. In India, lenders like KredX add value by assisting SME’s to become creditworthy, and are
building a data repository to better their credit assessment algorithms. Incumbents are seeing this effect and
are developing this technology or collaborating with Fintech champions to cut the cost of lending to SME’s. With
new companies launched every day, the market is seeing solutions emerge across each sector. For example:
 mSwipe is an mPoS solution that uses a card reader connected to a mobile device to allow small business
merchants to accept card payments. mSwipe sends the user’s payment to an escrow account, from where
it gets connected to the payment gateways. Thus, it does not require a bank to complete the transaction.
As of July 2016, they claimed to have 85,000 merchants onboard and were on track to increase this to
200,000 by December 2016.18
 Faircent is a Peer-To-Peer lending marketplace where borrowers and lenders can connect. Borrowers are
assigned a loan based on Faircent’s underwriting algorithm. Lenders can then make offers at interest rates
that are similar or lower than specified by Faircent for a borrower. Faircent charges an upfront fee and an
administrative fee on finalized deals.
 Neogrowth is an NBFC that provides loans to small businesses off its own book that has brought in an
innovation in collections. Neogrowth provides loans to retailers who have EDC/POS machines or online
sellers, where instead of a fixed monthly payment the repayment is a fixed percentage of each day's sale
through the EDC/POS machine or e-commerce platform. Since launched in 2013, they have disbursed over
₹6000 million in loans. In 2016, they received a funding of ₹1080 million from IIFL.19
14
 Scripbox has tried to make investment easy, by automating and simplifying the process of selecting mutual
funds for investment. The platform provides three streams of investment (tax saving, equity and debt) and
provides the user with 2-4 funds in each category. The shortlisted funds are automatically reviewed, and
single click options are provided to switch from an old fund to a new one. Seventy percent of their
customers are first time investors with investment ranging from ₹500 to ₹400,000 p.m.
 ArthaYantra uses a simple questionnaire to capture the investor’s financial goals and risk appetite. The
algorithm then runs this information and funds are recommended for investment. Artha Yantra’s mixed
model allows the investor to pay for investment advice alone and buy the funds separately or buy the funds
through the platform and receive free advice as the funds pay a commission to the platform.
Exhibit P1.4 below provides a quick segmentation of the Indian Fintech ecosystem. 20
Exhibit P1.4: Ecosystem of Fintech Firms in India

Services Equity/Debt Financial Management
Remittances Insurance Crowdfunding Personal Finance

Management
Business Lending Credit Scoring
Payments Wallets
Credit Cards and Loans
Asset Management
P2P Payments Consumer Lending
The technology revolution i.e. penetration of internet and mobile devices will only further the cause of Fintech
in the years to come. For example, the Unified Payments Interface (UPI) infrastructure facilitates a less-cash
society. Government is also taking initiatives like the MUDRA Yojana that will provide small businesses loans of
up to one million rupees at low interest rates. We have projected that online financial services (not including
payments, share trading and remittances) will be a ₹150 billion market by 2020. The market size calculations in
Exhibit P1.5 are represented by net revenue accrued to service providers and not the gross value of
transactions.21
15
Exhibit P1.5: Sector-wise 2014 vs 2020 Market Opportunity
Opportunity Size of Online Financial Services (₹ million)
Wallets Insurance Loans Mutual Funds Others
57,934
45,972 28,372 18,902
1,810
1,787 4,845 2,046 1,504 450

79% 46% 49% 32% 26%
Over 14x the 2014 Market Opportunity
CAGR (2014-20) 32%
Market size represented by net revenue accrued to Total Total
152,990 2020 10,628 2014
service providers and not the gross value of
transactions
The challenges ahead
1. Fintech regulations are still evolving in India. The principal regulator, Reserve Bank of India, has
commissioned studies on certain aspects of the emerging Fintech landscape, with a 13-member panel in
July 2016 to "look into and report on the granular aspects of Fin Tech and its implications". In general, the
RBI has advocated a wait and watch strategy. An April 2016 consultation paper on P2P lending expressed
the opinion that “Regulating an exempt or nascent sector” could create the perception of legitimacy, which,
in the context of P2P lending, could attract vulnerable lenders who do not understand the risks involved.
While the focus of the regulator is usually on borrower protection, in these segments, assuming that "the
lenders may include uninformed individuals", the regulator has also emphasized the need to protect the
individual lenders.
2. While there are many Fintech companies that have been operating in India for three or more years, most
of them are still sub-scale. Wallets are an exception, where Paytm has driven dramatic growth of the
segment. In others, such as lending, there are multiple players of similar (and relatively small) size. The
value of transactions is still small compared to the potential, or even compared to the incumbents. With
companies being at such an early stage of development, it is hard to identify one as a leader – there are
many rounds of competitive churn ahead of us. Even companies like PolicyBazaar, who have built a
reasonable position, continue to face new competitors. 22
3. Fintech startups generally have a technology first mandate, but many Indian operations can best be
described as technology-enabled. Some companies, specifically those in P2P payments, are restricted due
to regulations. In other segments such as SME lending, customers require significant amounts of hand-
holding, and the delivery of the services depends on having feet on the ground. The challenge is
exacerbated for Indian startups because key elements of the ecosystem are not yet available. For example,
SMERA, the largest credit-scoring bureau for small business, covers less than 1 in 10,000 businesses. 23 In
other cases, data is not available, or is of poor quality. For example, credit card history, a key source of data
for personal credit scores in the West, is not very useful in India because less than 2 percent of the
population have a credit card. Of course, this is also an opportunity area for entrepreneurs. Finomena, for
16
example, is trying to use alternate data and algorithms to evaluate the credit worthiness of college students
and working professionals.24
4. Incumbents in India have been forewarned by the explosive growth of Fintech in other countries. They are
aggressively trying to learn from startups and from the response of their peers in other markets. The banks
have either tried to adopt the techniques from the startups, or tried to collaborate with them. The first
approach has been demonstrated by Citibank, which started ‘Citi Fintech’ 25, a small team with a mix of
former technology and banking employees, to drive innovation and counter challenges from Fintech
startups. The goal is to mirror the speed and agility of the startups by replicating their processes, such as by
having shorter release cycles for new versions of the mobile app. On the other hand, JP Morgan Chase has
partnered with the lending startup, OnDeck Capital, where JP Morgan will use the platform from OnDeck to
provide loans to their small business customers, with OnDeck providing processing support and faster
turnaround time26. In India, SBI has started experimenting with several initiatives that replicate the game
plan of startups – such as B2C lending partnerships with ecommerce platforms. 27 HDFC bank has established
a 'Digital Innovation Summit' to "reach out and source ideas from Fintech companies". Tata Capital is
partnering with Fintech companies like Biz2Credit, an SME lending startup with an international presence. 28
The overall impact of Fintech start-ups
Startups in the Fintech space have helped redefine the financial services landscape – both directly and indirectly.
Although, many of the current firms are still relatively small, we can see several ways in which they are helping
to reshape financial services in India.
The most obvious impact is in the area of payments – where millions of Indians are now using digital wallets as
a matter of course. This has eased transactions immeasurably, especially in the mobile commerce space and
has enabled the dramatic growth of taxi-hailing services like Uber and Ola. Importantly, it is leading to a
reduction of the cash economy, evidenced already in the slow-down of ATM growth. In June 2016, Paytm also
announced a soon-to-be-launched feature of making offline payments using an app, bringing digital payments
to low connectivity users.
The second area of impact is in terms of inclusion. Digital models can scale rapidly and at low cost – removing
the limitation that traditional brick-and-mortar institutions have had. Once the models are developed, we will
see rapid improvements in the penetration of financial services – reducing the role of the informal economy.
Further, Fintech models are improving the efficiency of the financial services space. With improved data and
analytics engines, it is now possible to do segment-of-one pricing. Averages will no longer be relevant and firms
will be able to distinguish between good and bad customers in a much better way. This will result in better
pricing and efficiencies. We expect that this will reduce the overall cost of credit in the system, which has a
major GDP multiplier.
Finally, the threat of Fintech startups has galvanized the incumbents into action, bringing in more efficiencies in
the system. Many of the incumbebt institutions are developing their own digital plays and are collaborating
with Fintech companies. In June 2016, Axis Bank set up an innovation lab in Bangalore to develop startups with
the intention of absorbing their technology. SBI, in the same month, launched a ₹2 billion startup fund and
earlier in the year, launched a specialized branch catering to startups, realizing the value of collaborating with
Fintech companies to cross-sell their products. All-in-all, the startups are shaking up the establishment, and are
leading to a new order.
17
Notes
1 “Fintech India”, MXV Consulting and MAPE Advisory, June 2016

2 “Fintech and the evolving landscape: landing points for the industry”, Accenture, 2016
3 “Bank of Baroda ties up with CreditMantri to first-time borrowers, SMEs”, The Economic Times, July 25, 2016
4 “Hold on, my wallet's in my phone: Fintech firms are a blessing for small entrepreneurs”, Forbes India, July 15, 2016
5“Jan Dhan Yojana: Government loads up RuPay with Rs 30K LIC cover plus Rs 1 lakh accident insurance,” The Economic
Times, August 28, 2014
6“Fourth All India Census of Micro, Small and Medium Enterprises”, Ministry of Micro, Small and Medium Enterprise,
September, 2009
7 Pradhan Mantri Jan-Dhan Yojana, Department of Financial Services, Government of India, August 10, 2016
8 “Aadhaar – Voluntarily Mandatory?”, The Times of India, August 4, 2016
9 “Mobile banking sees dramatic surge in India”, Mint, March 28, 2016
10 “Fintech India Genesis”, MXV Consulting, July 2015
11 “Which Indian financial sector is UPI really going after?”, Yourstory, March 23, 2016
12 “Unified payments system to make mobile wallets redundant: Report”, Business Standard, May 8, 2016
13 “India's first 'mobile-only' bank is here!”, Rediff, April 26, 2016
14 “This New Kind Of Credit Score Is All Based On How You Use Your Cell Phone”, Fastcoexist, April 27, 2016
15 “Fin startups take cashless economy to bottom of pyramid”, The Economic Times, July 12, 2016
16 “Rise of digital transactions forces ATM firms to put IPO plans on ice”, Mint, March 28, 2016
17 “’Robo-advice’ approved by FCA ut axes 220 jobs at RBS”, BBC News, March 14, 2016
18 “Mswipe eyes 2 lakh merchants by Dec 2016”, Deccan Herald, July 14,2016
19 “NeoGrowth gets Rs 108 crore funding from IIFL Wealth Management’s Seed Venture Fund”, The Economic Times,
July 4,2016
22 “Backed by Ronnie Screwvala, Easy Policy aims to make insurance easy in India”, Yourstory, April 12, 2016
23SMERA has assigned 40,451 ratings, against an estimated 510 Mn MSME enterprises (2014-15, Ministry of MSME
estimate)
24 “Matrix Partners, others back fin-tech startup Finomena”, The Economic Times, March 8, 2016
25 “Citi Does Fintech”, Fortune, July 1, 2016
26 “Inside J.P. Morgan’s Deal with On Deck Capital”, WSJ, December 30, 2015
27 “Launch of SBI (e-Smart SME) e-commerce loans”, Press release, SBI, January 15, 2016
28 “Tata Capital partners with SME lending platform Biz2Credit”, Yourstory, April 11, 2016
18
REFLECTION 1
The Equitas Journey:

A Conversation with P.N.Vasudevan
Thillai Rajan A.
What was the starting point for your general, and there is a lot of sensitivity because of
entrepreneurial journey? their social and economic backgrounds. Since many
of the women are uneducated, the perception is
Before starting Equitas, I had worked been working that the well-dressed lender would be taking them
in Cholamandalam Finance for about 20 years. In for a ride. MFI loans are also unsecured loans. With
2005, because of a reshuffling in the top such high risks, one would expect the risk of default
management as a result of a joint venture, I had to to be higher than that of normal retail lending. But
quit my job. Subsequently, I moved to Mumbai in reality, the NPA in the MFI is under 1%, making it
where I joined the DCB Bank. However, since my a very different kettle of fish. It was not like any
daughter developed health problems, I had to other form of lending. Even though I did come with
return to Chennai on the advice of the doctors. lot of experience on retail lending I had to go
Opportunities for finance professionals were through a lot of learning on microfinance such as
difficult in Chennai, as there were no private bank the process, the business, the products, the
headquartered in Chennai and I was not in a customer segments, the psychology of the
position to go back to the NBFC’s. The idea of customers, before we could actually say that this is
starting Equitas came up then, and some of the something we could probably attempt.
people I knew encouraged me to start this and
that’s how the venture began. As a new entrant when you started, what were the
changes that you brought to the industry?
How did your experience in the financial services
industry prepare you for the microfinance The whole approach was to create an organisation
venture? that can sustain by itself without being associated
with the founders of the organization. When we
My professional career was centered on retail started Equitas, I took a two month journey across
lending. But the Micro Finance the country to find out how the
Industry (MFI) was definitely very …to create an MFI actually worked. What I found
different than other forms of retail during those trips was that
lending because the amount is
organization that
customers were really thankful to
very small and we deal with can sustain by itself the MFI for the services, because in
borrowers in groups. Normally addition to loan, they also got a lot
retail lending means loan sizes of without being
of respect from the loan officers
₹500,000 going up to about ₹50 associated with the dealing with them.
million. But in microfinance we
talk of a loan amount of ₹5000 – founders… But the rate at which they were
20000, which is less than the EMI actually barrowing was around 40
of the lowest retail lending. And we would be percent, which they didn’t know. The customers
dealing with a segment of customers such as the thought they were borrowing around 12 – 14
rural and low income people and in large numbers. percent, but in reality it was about 40 percent.
Since the quantum of loan is so small in MFI, there While the microfinance companies were more
is nothing that can be done if there is a default, concerned about providing quick access to money
because it would be too costly to proceed legally. In to the borrowers, they were not pushing enough
addition, the loans would be made to women in about reducing the cost. So at the end of my field
19
visits, when we sat together about creating an customers felt that we were charging double that of
organization, we decided that we should create an others, but in reality, others were charging 40
organization that is fair and percent, whereas, we were
transparent. We found that in Even before I charging only 25.5 percent. So
many cases the MFI’s were not even when there was resistance to
being transparent. An example started, I set an printing the rate in the passbook,
was the insurance premium that objective that we we stuck to our decision and made
the MFI’s charged the borrowers a lot of efforts to explain to the
to recover the loan amount in case should start only customers. Similarly, from day one
of the death of the borrower. I till today, we have never earned a
observed that they were charging
what we can scale commission on the insurance,
around ₹200 as premium from the up… both life and property/vehicle that
borrowers, but they were paying we ask our customers to take in
only ₹75 to the insurance company, thus netting a order for the insurance company to pay us in the
commission of ₹125 rupees. Our aim was to create case of the death of the borrower or damage to the
the most fair and the most transparent MFI in the property or vehicle which is secured to our loan. We
world and Equitas in Latin meant equitable which are probably the only NBFC or Bank in the country
means being fair and transparent. who doesn’t earn commission on such insurance.
So, when we fixed our lending rate for our first loan How did you raise capital for the business to start
in Dec 2007, we took a different approach. We with?
assumed a steep growth in the first five years, and
a steady state growth after that. We then Even before I started, I set an objective that we
determined what is our likely operating cost at such should start only what we can scale up. So having
steady state growth stage. We then factored in this made that promise, I needed to translate it into
operating cost into our pricing calculation. Our action. At that point in time, the highest paid-up
philosophy was that the cost of growth should be capital for an MFI at the time of starting up was ₹25
borne by the investors, and the steady state million. So, I wanted to start my enterprise with
operating cost should be borne by customers. On paid up capital four times of that, i.e., ₹100 million.
that basis, we calculated our lending rate should be I told myself that if I am not able to raise that
25.5 percent, as we estimated our steady state capital, then I am not going start the company –
operating cost as 7.5 percent, borrowing cost to be that much was clear to me. I did not want to start
13.5 percent, delinquency to be 2 percent, and a with ₹20 million and slowly grow I met several
spread of 2.5 percent. So, we gave our first loan at people with the objective of raising capital. They
25.5 percent when the market rate was around 40 were known to me for several years professionally.
percent. Four years later when the RBI stepped into Coming from a middle class salaried family I had not
regulate the MFI sector, they fixed the lending rate accumulated much in terms of savings or wealth. As
cap at 26 percent. Everybody had to drop down my contribution, I had to mortgage my house for ₹2
their interest rates, but we were exactly where the million. People such as Mr M. A. Alagappan, former
RBI wanted it to be. In a way, the Regulations Chairman of Murugappa Gorup, Mr M. Anandan,
followed our business practices. former MD of Cholamandalam, Mr V. P.
Nandakumar, Chairman & Managing Director of
In addition we also wanted to be transparent by Manappuram Finance and others contributed to
communicating the real lending rate to the the initial capital and we were able to raise a total
customer by printing the all-inclusive reducing of ₹135 million. To be able to raise that amount in
balance interest in the passbook and explaining it to those days was a big event for us.
the customer. We did face resistance on this
because everybody else was communicating a flat
interest rate of 13 – 14 percent, but we were going
ahead and telling the rate as 25.5 percent. So
20
What about the subsequent growth capital from What has been the contribution of venture funds
venture funds? to Equitas?
I started approaching the venture funds Each investor contributed differently. The
immediately after raising the initial round because contribution of Aavishkaar was the agreement that
growth was paramount importance for us. We were they gave us, which formed the benchmark for all
about 10 days into our operations, when I met the subsequent agreements with other investors.
Aavishkaar, one of the venture firms. When they That was a significant contribution. Then we had
had expressed an interest in investing in us, I had investors such as IFC and CDC. Both of them
two requests to them: one was to provided us Tier 2 capital as well as
have the investment quickly and We were able to non-convertible debentures. We
the second was to have a simple capitalize on the also had FMO as an investor, who
agreement that does not run provided tier 2 capital, at a time
more than a few pages. They strengths of the when the MFI industry in India was
actually did it. They funded us in a crisis in 2010 and no investor or
within a week, and gave probably
different investors, lender were willing to put their
a historic term sheet that was but none of the money on the MFIs. We also had
very simple. Even though the CLSA as an investor. They supported
investment they made was very investors were some of our social activities, and
small, about ₹60 million, the involved in were very closely involved with us
agreement was very critical for us in the IPO process. Many of our
because it became the basis for operational investors such as Sequoia Capital,
all future agreements. CDC, and Aquarius had significant
activities. experience in taking their
Investors in the company never companies public and they rallied around us at the
played a managerial role. The board has always time of the IPO. They helped us in managing the
been independent, with a majority of the members entire IPO process, and the relationship with the
being independent directors. The investors had bankers and brokers. We were thus able to
representation in the board if they had 10 percent capitalize on the strengths of the different
stake in the company and we always had an investors, but none of the investors were involved
independent Chairman. In our 13 member board, in the operational activities.
we had only 3 investor nominees at any point in
time, clearly indicating that independent directors Wasn’t it a difficult task to manage so many
had majority position in the board. Our agreement investors?
with Aavishkaar was also worded in such a way that
the investors had a role at the policy level at the Actually we never had any issue. Our information
Board but no specific or special rights in any of the sharing was of a very high order. We provided a
organisational or operational matters. standard set of data for all the investors, which they
could directly access from the intranet. If any of the
From the beginning, I was clear that there will be no investors wanted information in addition to what
single individual who will own the company. So we we provided, then we added that to our
had a philosophy that no investor will own more information pack, so that it reached all the
than 15 percent of the company. In every round we investors. Frankly nobody has ever came back
had a new investor and we never took follow-on asking for anything more so far, because we have
investment from an existing investor. With every given as much information as would be normally
investment round, all the existing investors were required by them. We take transparency very
getting diluted. By the time we went public, we had seriously. Our philosophy is that by being
about 13-14 investors in the company and I have transparent, we are also forced to be fair in all our
heard people telling me that it was probably a actions. We also told our customers that if they felt
record in India. that any of our staff were doing something that was
21
not looking fair or transparent, they could call back framework for the MFI sector. This Committee’s
and tell us so that we can correct it. In all our report states in verbatim what our philosophy has
activities whether it was the regulators, been from day one, which is that the cost of growth
government, public, press, customer, employees, should be borne by investors and the steady state
banker, rating agency, or to anybody, we should be operating cost should be borne by customers.
able to stand-up publicly and tell them clearly what Similarly, the RBI fixed the lending cap rate for MFI
we were doing. If we can do that, then what we at 26 percent, when we were at 25.5 percent. This
were doing was fair, but if we can’t then what we gives us a lot of pride and satisfaction. This is a
were doing was not fair. So we are very particular binding element in our organisation and the entire
about being transparent. staff are aligned to these
...by being values.
Is there a cost to being fair and
transparent? transparent, we are How is the ecosystem for
aspiring entrepreneurs
May be. It could affect the returns, also forced to be fair today?
because had we charged 40 percent
instead of 26 percent, we could have
in all our actions. It is truly wonderful because
earned more. If we I had charged today you don’t have to be
commission on insurance, we would have got an from a wealthy background to start a company and
additional profit which could have been almost 20% I think that’s makes all the difference. The urge to
of each annual PAT. But we don’t see it in this innovate, being creative, strong work ethic, and the
manner. We look at it as the building blocks or desire to create is there in everybody at varied
reinforcement of our values and belief which will degrees, irrespective of the background. But for
sustain this organization. For example, when the several decades, money was just not available to 99
MFI industry went through a crisis a few years ago, percent of the population. Only one percent of the
it gave us the moral high ground. We were one of population had access to capital and only they could
the few organizations who could stand up and talk do what they wanted. Today’s environment is
openly about our transparent practices from day fantastic in the sense that it has opened up
one. This created a good opinion amongst the opportunities for everybody. The only drawback in
Regulator and the Governments about our today’s environment is that the opportunity for
organisation and helped us deal with the crisis venture funding is heavily skewed to technological
situation in an appropriate manner. It is a different start-ups. While that is all for the good, I hope that
issue that people may still consider that 25.5 the next wave of revolution should be to create an
percent is a high interest rate, but at least there is a ecosystem that supports non-technology start-ups
rational manner in which it can be justified. also and if that happens, the percentage of
entrepreneurs benefitting will further increase.
We interacted with the Malegam Committee, which
was set up by RBI to suggest a regulatory

P.N. Vasudevan was the Managing Director of Equitas Microfinance Limited. He

started Equitas Microfinance in 2007, which subsequently went public in 2016.
After having obtained a banking license in 2015, Equitas Microfinance has since
converted to Equitas Small Finance Bank.
22
2. The Spatial Diffusion of the Start-up Ecosystem

“We have a million problems, but at the same time we have over a billion minds”1
“Competitive federalism brings economic prosperity to the country”2
Overview
The ecosystem for start-ups comprises of various components that help in providing a conducive growth
environment for the growth of start-ups. Examples of the different components of the ecosystem include,
among others, (i) availability of financing sources to support start-ups such as venture, seed, and angel funds;
(ii) facilities that provide hard and soft infrastructure support such as incubators and accelerators; (iii) a favorable
policy framework that facilitates creation of start-ups. Given the broad canvas of the start-up ecosystem, we
specifically focus on the trends in the following components in this chapter: incubators and accelerators, angel
investments, and venture investments.
Incubators
Incubators are institutions that provide various forms of support and nurture start-ups in their initial days.
Typically, the services provided by incubators include – workspace, shared facilities like laboratories, certain
amount of funding, professional services like accounting and legal support, and so on. Typically, incubators are
located as a part of the larger institution such as universities or research laboratories. Stand-alone incubators,
not affiliated to any institution, are a more recent phenomenon.
No. of incubators in
the sample: 339
Figure 2.1: Host institution of the incubators
Figure 2.1 provides an illustration of the proportion of the incubators with respect to the type of host institution.
It can be seen that about 56 percent of the incubators are located in universities, indicating the important role
played by universities in supporting entrepreneurship and start-ups. However, with more than 700 degree
granting institutions and more than 35000 affiliated colleges to these institutions, the number of institutions
that have incubators are only a small fraction of the total educational institutions in the country. The role of

state government funded universities in promoting incubators has also been marginal. Less than 10 percent of
the incubators are supported by state government universities, whereas more than 15 percent of the incubators
are located in centrally funded universities. However, the number of public state universities are about three
times that of the number of central government funded universities and institutes of national importance.
Though entrepreneurship is a private sector activity, the government plays an important role in nurturing and
supporting it. More than 35 percent of the incubators are located in government institutions. Private sector
however accounts for bulk of the incubators, with about 65 percent of the incubators hosted in the private
sector.
Central Univ
Govt. Non. Univ.
Private Univ
Private Non Univ.
State Univ.
Figure 2.2: Geographical spread of incubators
Figure 2.2 presents the location of the incubators across the country. The incubators were classified on the basis
of their host institution. It can be seen that the highest concentration of incubators are in the southern states,
specifically, Tamil Nadu, Kerala, and Karnataka. The concentration of the incubators are also a little higher in the
states of Maharashtra, Telengana, Gujarat, and the National Capital Region, comprising Delhi and nearby areas
like Gurgaon, Noida, and so on. A significant difference between the southern states and other states like
Maharashtra is that, in the former, the incubators are present even in the interior regions of the state, whereas
in the latter, it is mainly concentrated in and around the state capital. Overall, the central region and the North
Eastern region have very few incubators. Even in some of the Northern states like Rajasthan or Himachal Pradesh
the presence of incubators is sparse. Targeted interventions have to be made to encourage the setting up of
incubators in these locations as a way to encourage start-ups.
An interesting trend to be noted is that government institutions have played an important role in locating
incubators even in locations that are not commercial centres, whereas private incubators are mostly located in
large cities or those that have a significant amount of commercial activity. This also underlines the initiatives of
the public sector to support entrepreneurship in far flung areas of the country.

Figure 2.3 presents an illustration of the number of incubators by type of city. Type of city has been divided into
three categories based on population, Tier 1, 2, and 3. The area of the circle gives a relative indication of the
number of incubators in that category. At the overall level, it can be seen that Tier 1 (comprising the six metro
cities) cities have the most number of incubators, as compared to that of Tier 2 or 3.
Classification of the incubators by city type and host institution shows interesting trends. While private non-
universities hosted the largest number of incubators in Tier I cities, private universities hosted the largest
number of incubators in Tier 2 and 3 cities. This showed that private sector incubators, which are not based in
universities, continued to favor the metro cities (Tier 1). Secondly, the largest number of incubators in Tier 3
cities are hosted by private universities, indicating the important role played by these organizations in spreading
the message of entrepreneurship. The number of incubators in state government universities Tier 2 and 3 cities
has been relatively low.
Tier 1 city
Tier 2 city
Tier 3 city
Legend: 1 – Central University; 2 – Government Non-University; 3 – Private University; 4 – Private Non-university; 5 – State
university
Figure 2.3: Type of city and incubator host
Figure 2.4 and 2.5 provides a pictorial representation of the various industry sectors supported by the
incubators. In many instances, incubators supported more than one sector – in which case, it was counted in all
the sectors. Technology sector is supported by the largest number of incubators. This is as expected, since most
the incubators (at least those in universities) have been set up with the objective of commercializing the research
and development conducted in the laboratories. After technology, the healthcare sector occupies the second
position in terms of the number of the incubators supporting it. Telecommunications, industrials, and consumer
goods come close, in terms of the third spot. The number of incubators supporting the other sectors are very
limited. This shows that incubation is not seen as the preferred approach in commercializing innovations such
as in utilities or in the oil and gas sector.
Figure 2.5 indicates that incubators hosted by private non-universities show greater diversity and support
incubations across a wide range of sectors. On the other hand, incubators hosted in other institutions support
only a handful of sectors. Setting up of incubators by private non-universities can thus help to support
incubations across a wide variety of sectors, such as financials or utilities. Not only are the incubators supported

by state universities lower, the number of sectors that these incubators support is also few. Only six of the 10
sectors are supported by these incubators. In the case of central universities or private universities, eight of the
10 sectors are supported. However, in the case of government non-universities or private non-universities, there
is least one incubator exists that provides incubation support for every sector.
Figure 2.4: Sectors supported by incubators (representation 1)
Central Univ
Govt. Non. Univ.
Private Univ
Private Non Univ.
State Univ.
Legend: 1 – Oil and gas; 2 – Basic materials; 3 – Industrials; 4 – Consumer goods; 5 – Healthcare; 6 – Consumer services; 7 –
Telecommunication; 8 – Utilities; 9 – Financials; 10 - Technology
Figure 2.5: Sectors supported by incubators (representation 2)

Incubatees supported by the incubators
The start-ups supported by the incubators are called incubatees. Despite the common use of the term, the word
incubatees is still not defined in most dictionaries. Different incubators have different process of selecting the
incubatees. While some university based incubators provide incubation support only to the start-ups founded
by members of the university community, certain others have a more open policy of supporting start-ups. An
example of the former is the Incubation cell at IIT Madras which predominantly supports start-ups founded by
faculty, students, researchers, and alumni of the institute. An example of the latter is the Technology Business
Incubator at Vellore Institute of Technology, which is open to support founders from different institutions.
Typically, the incubators provide support for a period of about 2-3 years, by which time the start-ups are
expected to develop the capacity to stand on their own. At that point, the incubatees move out of the incubator
facility (or graduated as it is typically called) and set up offices elsewhere.
Figure 2.6: Incubatees in different sectors
Figure 2.6 presents the proportion of incubatees incubated in different sectors. The sample of 1970 incubatees
are supported by different incubators. The trend by and large mirrors the different sectors supported by the
incubators. Technology sector, which is supported by most of the incubators, accounts for the highest number
of incubatees. Healthcare sector, supported by the second highest number of incubators, features second in the
number of incubatees. Industrials and consumer services also account for a significant number of incubatees.
Possible explanations to the trend could be as follows. Firstly, the possibility of commercialization and the time
frame for moving from lab to market is shorter in these sectors, which explains the higher number of incubatees.
Secondly, incubators have the capacity to support start-ups in these sectors. For example, technology, consumer
services, healthcare, or industrials are not as capital intensive as that of oil and gas or utilities. Since the facilities
and quantum of financial support provided by incubators is limited, they might not be able to support start-ups
that need significant capital.

Figure 2.7 provides an illustration of the incubatees and the incubators that support them, when classified by
their host organization. The total area under the circles gives an indication of the number of incubatees
supported by different type of incubators. It can be seen that the central universities support the most number
of incubatees and the state universities support the least number of incubatees. However, in all the categories,
the highest number of incubatees are in the technology sector. The only deviation to this trend was seen in the
case of incubators supported by private non-universities - who supported 84 and 75 incubatees in healthcare
and technology respectively. For most other incubators, healthcare occupied the second position, followed by
the industrial sector.
While private non-universities hosted the most number of incubators, the number of incubatees supported by
them were the second lowest. Since most of the private non-incubators were situated in Tier 1 cities (Figure
2.3), the issue could not be the number of proposals received by them. A possible explanation on the lower
number of incubatees could then be attributed to their possible stringent selection as compared to that of
incubators supported by other host organizations. Central universities and private universities emerged
dominant supporting a total of 693 and 451 incubatees respectively. These two categories supported 58 percent
of the incubatees and covered every industry sector. Government non-universities also took a prominent spot
supporting 440 incubatees. Both private non-universities and state universities accounted for only 18 percent of
the total supporting 266 and 87 incubatees respectively.
Central Univ.
Govt. Non. Univ.
Private Univ.
Private Non Univ.
State Univ.
Legend: 1 – Oil and gas; 2 – Basic materials; 3 – Industrials; 4 – Consumer goods; 5 – Healthcare; 6 – Consumer services; 7 –
Telecommunication; 8 – Utilities; 9 – Financials; 10 - Technology
Figure 2.7: Incubatees classified by sectors based on the incubator host organizations
Average number of incubatees supported in the different type of incubators vary widely and are as follows:
Incubators in central government funded universities: 40; Incubators in government non-universities: 89;
Incubators in private universities: 32; Private non-universities: 13; and State government universities: 24. This
leads us to infer that incubators supported by different host organizations could have different investment

thesis. Private non-universities might have more stringent criteria because the financial sustainability of the
incubators could depend on the success of the incubatees. On the other hand, incubators supported by the
government could have the primary objective of encouraging start-ups rather than the financial success of the
incubatees, and thus they are prepared to support more number of incubatees. The low number of incubatees
supported by state universities could be attributed to their capacity rather than other factors. Given the wide
geographical spread of the state universities, setting up more incubators in the state universities and
strengthening their capabilities can significantly contribute to the cause of entrepreneurship.
Accelerators
The concept of accelerators is a fairly recent phenomenon, at least in the Indian context. Essentially, a private
sector initiative, accelerators help the start-ups to quickly move from the concept stage to the next stages. A key
difference between incubators and accelerators is the duration of support provided to the start-ups. While the
support provided by accelerators, in general, does not extend beyond four months, the incubators support the
start-ups for about 2-3 years. In addition, since accelerators are private sector initiatives, there is a higher degree
of intensity in the engagement with the start-ups.
Figure 2.8: Geographical spread of accelerators
Figure 2.8 provides a snapshot of the geographical spread of accelerators in India. It can be seen that accelerators
are essentially an urban phenomenon, and except for a couple, virtually almost all of the accelerators are located
in the main cities – Chennai, Bengaluru, Hyderabad, Mumbai, Ahmedabad, and New Delhi. The highest number
of accelerators are found in Bengaluru, followed by the NCR region and Mumbai. The geographical spread of
accelerators to smaller cities would help in bringing to start-ups the discipline and knowhow to scale up from
the concept stage.

Figure 2.9 gives an illustration of the number of start-ups supported by a sample of accelerators. It can be seen
that 17 accelerators have supported a total number of 1816 start-ups. Though some of the accelerators like 500
start-ups, Kyron, TiE Bootcamp have been associated with a large start-ups, in general, it is found that
accelerators are able to guide more number of start-ups as compared to that of incubators. Hence setting up of
more accelerator-type institutions can strengthen the start-up ecosystem in the country.
Figure 2.9: Start-ups supported by a sample of accelerators
Angel and Venture Funding
Angel and venture funding plays an important role in the start-up ecosystem. The primary form of external
capital to most start-ups is provided by angel and venture funds. While incubators and accelerators provide
some amount of financial support, it is not very large (typically in the range of ₹1 – 5 million) and would rarely
suffice to meet the growth capital requirements. While there are many start-ups that have boot-strapped and
have been managed to grow without any significant amounts of external capital, they are few and far between.
By and large, the dominant paradigm that prevails today is to use venture and angel funding for growing the
start-up. While angel funding can provide around ₹30 million, venture funds can provide several times of that.
Figure 2.10 provides the number of companies that have obtained angel and venture funding in the different
states of India. The colour codes indicate the relative position of different states in terms of attracting venture
funding. It can be observed that companies that have received angel and venture funding are concentrated in a
handful of states. For example, three states in India, viz., Karnataka, Maharashtra, and Delhi account for a large
number of start-ups. States like Tamil Nadu, Telengana, and Haryana come next in terms of the number of
funded start-ups. Barring these states, venture funding to companies in the reminder of the states in India have
been very limited. It is interesting to note the differences in the presence of incubators and the start-up funding
activity. While Tamil Nadu has the highest number of incubators, it does not rank high in terms of start-up
funding. Possible explanations behind this trend could be: (i) only very few of the start-ups from the incubators
are successful in attracting funding; or (ii) companies shift to other states when they graduate from the
incubators.
The venture funding industry has been active for about 15 years now. Even after such a long period, much of the
venture funded start-ups are located in a couple of states. This indicates that targeted interventions are needed
to democratize venture funding in the country. More geographical spread of venture funding in the country

would help to prevent start-up agglomeration to a few states and cities. It will help to bridge a key component
of the entrepreneurial ecosystem – which is the availability of growth capital to incubatees and other start-ups.
Figure 2.10: Geographical spread of funded Start-ups
www.indzara.com
Jammu
and
Kashmir
Himachal
Pradesh
Punjab Chandigarh
Uttarakhand
Haryana Arunachal
Delhi Pradesh
Sikkim
Rajasthan Uttar Pradesh Assam
Nagaland
Bihar Meghalaya
Manipur
Tripura
Jharkhand Mizoram
West
Gujarat Madhya Pradesh Bengal
Daman
and Diu Odisha
Dadra and
Nagar Haveli
Maharashtra
Telangana Bay
of
Bengal
Arabian Goa Andhra
Sea Pradesh
Andaman
and
Nicobar
Puducherry Islands
Lakshadweep Tamil Nadu
Lowest (Red) to Highest (Green)
Indian Ocean
Figure 2.11: Geographical spread of SMEs

The contours of start-ups in India seems very different from that of the SME sector. Figure 2.11 presents the
geographical spread of SMEs in the various Indian states. Though there are lot of similarities with the trends
with that of Figure 2.10, an interesting contrast can be seen in the top states. Tamil Nadu and Gujarat has the
highest number of SMEs, but they do not account for the top states in terms of venture funded start-ups. On
the other hand, Karnataka and Maharashtra, which account for the highest number of venture funded start-ups
do not occupy the top slot in terms of number of SMEs. This could be attributed to the differences in the
ecosystem that exists in the development of SMEs or Start-ups in these states. Start-ups need a different kind
of ecosystem, which is provided in a better fashion by Karnataka and Maharashtra whereas states like Tamil
Nadu and Gujarat provide a better ecosystem for SMEs.
Figure 2.12: Angel and venture investments in start-ups classified by city type
Figure 2.12 presents the break-up of angel and VC investments in start-ups based on the type of cities. The 6
Tier 1 cities of India received the largest chunk of investment of ₹661.29 billion, accounting for about two-thirds
of the angel and venture funding. Tier 2 cities received 31% of the total investment (about ₹306 billion) and
start-ups in Tier 3 cities accounted for only ₹19.74 billion, which is about 2 percent of the total investment. This
indicated a big gulf between start-ups in Tier 1 cities and the other two tiers. It is also possible that start-ups in
smaller cities, shift to a larger city for various reasons when they reach a certain scale. Any which way, the results
show that eco-system for start-ups is stronger and more robust in Tier 1 cities as compared to that of Tier 2 and
3 cities. To maximize the trickle down benefits of entrepreneurship, it is important to create geographically
widespread engines of entrepreneurship.
Figure 2.13 provides a representation of the start-ups funded in different sectors in some of the states. This
helped to identify whether there are differences in the pattern between different states. However, our results
showed fairly homogeneous trends across different states (to our surprise). In a sense, this also presents an
opportunity to create sector specific targeted ecosystems to develop competitive advantages. Figure 2.13 also
shows wide variation between states. For example, the ratio of start-ups funded in Maharashtra to those funded
in Gujarat is more than 9. Similarly, ratio of start-ups funded in Karnataka and Tamil Nadu is more than 3. The
ratio of Maharashtra to Kerala is more than 42!
On the whole, it was seen that the three states of Karnataka, Maharashtra and Delhi accounted for 68% of the
start-ups in India contributing a total of 2175 startups. Tamil Nadu, Haryana and Telangana together accounted

for 689 start-ups, which was less than the number of start-ups in either Karnataka or Maharashtra alone. States
like West Bengal, which houses the Tier I city of Kolkata, had only 45 start-ups comparable to the state of
Rajasthan. Thus, some states are having a superior ecosystem that enables them to host start-ups that can
attract venture funding. If components of these ecosystem are identified and replicated in other states it can
significantly contribute to the cause of entrepreneurship.
Figure 2.13: Patterns in start-ups funded in different states
Start-up Classification
Figure 2.14: Patterns in start-ups funded in different cities
The number of start-ups funded in different categories also indicates an interesting trend. Figure 2.13 indicates
that start-ups in the software and internet services account for more than one-third of the companies that have
received angel and venture funding. The next was Fintech and payments, which had 592 funded companies,
accounting for 18.4 percent of the total. Figure 2.14 presents the patterns in specific cities. NCR of Delhi,
Bengaluru, and Mumbai account for the largest number of start-ups. Then there is a big gulf between the second

level cities, which includes Chennai, Hyderabad, and Pune. The number of funded start-ups in other cities, such
as Vadodara, Ahmedabad, or Kolkata is relatively very small. This shows that by virtue of being present in a city
like NCR, Bengaluru, or Mumbai, a start-up has a better chance of getting funded. Alternatively, the quality of
start-ups that originate in the above three cities could be better than those seen in the other cities or the initial
movers in any category originate in these 3 cities. There are some components of the entrepreneurial ecosystem
that the three cities have, which help them to create start-ups that are more successful in getting funded.
Identifying and replicating those factors would be important from a public policy perspective, as it would help
to create more hubs of entrepreneurship across the country.
There are differences in the kind of start-ups that gets funded across the cities, but they seem to be marginal
and are along expected lines. For example, Bengaluru is considered to be the information technology capital,
and therefore the city having the highest number of funded start-ups in software and internet services comes
as no surprise. Similarly, Mumbai, considered to be the commercial capital of the country, has the most number
of funded start-ups in Fintech and payments. Apart from such minor variances, the trends in the start-ups funded
in different cities has been more or less the same.
We specifically analyzed the age of the start-up at the time of receiving angel funding in different cities. Our
sample consisted of 563 start-ups in these cities, founded during the period 2006-15. The results are shown in
Figure 2.15. It was interesting to note that, among all the major cities, the age of the start-up at the time of
receiving angel funding is the highest in Chennai. The start-ups in Mumbai and NCR have the lowest average
age, while that of start-ups in Bengaluru or Hyderabad are not far behind. If we assume that the quality of start-
ups that originate in the cities are by and large no different (since these are large cities), then the differences in
the age could be attributed to the differences in the start-up ecosystem.
Figure 2.15: Average age of start-up in different cities at the time of receiving angel funding
Figure 2.16 shows the average angel investment received by the start-ups in different cities. The start-ups in
Bengaluru has received the highest average investment followed by those in Mumbai. Similarly, the start-ups in
Pune and Chennai have received the lowest average investment. The quantum of funding is a function of several
factors such as the start-up sector, growth possibilities, and operating costs. The sector-wise patterns in the
start-ups that get funded in different cities does not show large variations. If we also assume that since most of
the start-ups target the pan-India market (except those in the hyper-local segment), then the growth

opportunities should not be very different between start-ups. Therefore, we interpret that operating costs play
an important role in the fund requirement. Start-ups in Bangalore and Mumbai are probably operating in an
environment of high costs, whereas those in Chennai and Pune are having the benefit of lower operating costs.
In a sense, it is probably a trade-off. Bangalore and Mumbai, presumably have a better ecosystem as compared
to that of Chennai or Pune, which offer a comparatively low cost environment for the start-ups.
Figure 2.16: Average angel investment received by start-ups in different cities
Table 2.1: Comparison of angel investments in Tier 1 and Tier 2 cities

Tier 1 City Tier 2 City
Percentage of deals 83% 10%
Percent of investment amount 86% 6%
Average deal amount (₹ Million) 16.12 9.95
Average round amount (₹ Million) 27.26 19.28
Average age at first funding (Years) 2.12 2.28
Average no. of angels per round 1.69 1.94
Table 2.1 provides an interesting comparison of trends in angel investments in Tier 1 and 2 cities. This is based
on a sample of 3791 angel deals. Details on investment amount were available only for 799 deals. More than 80
percent of the angel investment (both in terms of number of deals as well as investment amount) have been in
the six Tier 1 cities. Companies in Tier 1 cities are getting funded earlier and obtaining larger amounts of funding.
Average deal sizes for companies in Tier 1 cities are about 62 percent higher than that of deals in Tier 2 cities.
Investment rounds are more than 40 percent higher in Tier 1 cities as compared to that of Tier 2 cities.
Summary
The turn of the millennium has been literally a coming of age for the Indian start-up and venture funding
industry. The Internet and the dot-com phenomena that characterized those years was the first major wave of
technology based start-ups that was witnessed in the country. While entrepreneurship in itself was not new in
the country, as seen in the statistics of the number of SME segment, a large number of professionals and first
generation entrepreneurs venturing on their own was witnessed only after the 2000s. In the last 15 years or so,

there has been significant acceptance to entrepreneurship in the Indian society, which in turn has resulted in a
boom in the number of start-ups being created.
Our results in this chapter show that this growth in the number of start-ups has been restricted to a handful of
the cities, leading to a phenomenon of start-up agglomeration. Bengaluru, Mumbai and NCR are the top three
cities in terms of the number of funded start-ups, by virtue of which the states of Karnataka, Maharashtra and
Delhi have emerged as the top three states. The contours of growth for the SME sector seem to be different as
compared to that of the start-ups, as evidenced by the ranking of Tamil Nadu and Gujarat in the SME sector and
Karnataka and Maharashtra in the start-up segment. This indicates that the ecosystem that supports SME’s and
Start-ups could comprise of different components.
In this chapter, we specifically looked at the following components of the start-up ecosystem: incubators,
accelerators, and angel and venture funding. While all of them are widely prevalent only in large cities,
incubators have a relatively higher presence even in smaller cities. On the other hand, accelerators and start-
ups that receive angel and venture funding are significantly seen only in the Tier 1 cities. There is a strong case
to replicate the favorable ecosystem in the cities of Bengaluru and Mumbai in other tier 1 and smaller cities to
democratize the benefits from the start-up boom to different parts of the country. This would also provide
increased opportunities to prospective and deserving entrepreneurs, since many of them from smaller cities do
not have access to in the current milieu. The “power of the hidden hand in the market” would ensure that capital
would flow to most profitable opportunities. As it stands, the market perceives companies in Tier 1 to be more
attractive than those in other locations. But if entrepreneurship is considered as a public good, going beyond
just financial returns, then appropriate interventions are needed to develop the start-up ecosystem in smaller
cities.
Notes
1
A tweet by Shri. Narendra Modi, Prime Minister of India.
2 Attributed to Shri. Arun Jaitley, Finance Minister, Government of India.

PERSPECTIVE 2
Should incubators romance the equity share?

G.Sabarinathan1
There appears to be a renewed interest in setting up incubators and accelerators 2 with the emphasis on
entrepreneurship coming all the way down from the Prime Minister of the country himself. This is a positive
development for the ecosystem as a whole even if one were to accept for a moment that all of them are not
well thought out or that not all the sponsors do appear to be organizationally prepared and so many of them
might potentially fail.
Incubators are a fairly time tested phenomenon by now. Universities and research institutions have tried setting
up incubators as a mechanism for taking their technologies to the marketplace. Traditionally incubators were
conceived as a common facility that allowed the entrepreneur who was a scientist or technologist to focus on
what she was good at, namely building great products, while the incubator supported her with a number of
complementary services such as providing lab or workshop and office facilities, legal and accounting services,
and referrals to providers of equity capital that were essential to building an enterprise.
Over time as our understanding of the process of evolution of enterprises developed, incubation centres also
grew into being full-fledged ecosystems by themselves, creating an entire community of entrepreneurs among
themselves and connecting them to a host of other agents such as customers, talent for staffing, consultants,
academic experts and so on, in addition to providing all the other resources mentioned earlier.
Organisational and financial model of incubators
Incubators originated as an institutional mechanism to help move scientific innovations out of the laboratory to
the marketplace. The thesis was that by providing many of the collateral resources required to start and grow
an enterprise many innovators could be persuaded to commercialise those innovations. Not surprisingly most
incubators in the initial days, and to a significant extent even today, were captive facilities meant for researchers
in the university.
These origins and their institutional raison d etre defined their financial model. Conceived as a developmental
initiative they were never meant to be financially self reliant, let alone be profitable enterprises. However, as
academic and research institutions began to feel the need for greater fiscal self reliance, incubators began to
realise the need to support themselves financially. There was also a growing realization that universities in
general and incubators in particular, because of their proximity to the enterprises they helped grow, should also
benefit from the wealth created by those enterprises. The case of Stanford University not benefiting from the
phenomenal commercial and financial success of enterprises such as SUN Microsystems 3 is often cited as a
telling example of how academic institutions needed to think of ways by which they could benefit from the
knowledge and entrepreneurial wealth that they helped create.
When it comes to thinking of a financial model incubators have often been viewed as a real estate or
infrastructure play. As such the charges that the incubatee pays have often been treated as “rent”, with the
rate of the rent being “loaded” depending on the level and kind of infrastructure available. Much of the financial
innovation in the incubator space over the past few decades has been around developing flexible rental plans
that make it affordable for early stage enterprises. Thus a seed stage enterprise which has just the founder(s)
working on developing the idea could start with as low an expense as it could afford. As the enterprise grows it
37
could hire larger facilities and pay an increasing rental in return. 4 Incubators have also extended this model of
“pay per use” to more sophisticated and expensive facilities such as the wet lab in a bio-sciences or engineering
workshop.5
There is however a fundamental tension between the idea of an incubator and the philosophy of self-reliance.
On the one hand, incubators are essentially meant to be a public good to help innovators overcome the difficulty
in getting support from a financial marketplace that is driven by considerations of commercial return. On the
other, the incubatee does not have the cash flow to afford commercial charges on space and other critical
infrastructure that a startup might need. The scientist or innovator typically does not have personal resources
and at that stage of evolution it is not easy to raise capital from investors. Thus there is a financial case for a
service that will allow him access to these critical resources without having to pay market-rate charges for the
same. Conceptually incubators are thus relevant or important at that stage of the evolution of an enterprise
where the risks are so high that providers of capital and other resources, who are expected to earn a risk adjusted
rate of return on their resources, 6 shy away from providing that resource because of their inability to assess the
risk in the enterprise.7
This fundamental financial or economic conundrum is behind the inference that researchers have come to;
namely, incubators have not been a financially viable proposition in the past five or six decades, let alone be
profitable. It is important for us to point this aspect out at this juncture, given the number of new incubators
that seem to be coming up with the hope of becoming profitable investments.
The emerging preference for equity shares as compensation for incubation
Even as incubators evolved in terms of their engagement with entrepreneurs and enterprises they always found
themselves struggling to find a viable financial model for themselves. One of the innovations that they came up
with was that of acquiring an equity stake in the incubatee. 8 The idea seems to be that like a venture capital
investor there would be this rare extraordinary success of an enterprise whose equity when sold would top up
the incubator’s corpus and then there would be a few other not so spectacular successes that would from time
to time bring in a few tidy dollops of cash.
This is a financially appealing proposition. It recognizes at one level that fundamentally an incubator cannot
generate enough revenue to be profitable, recurring year on year, given that it works with highly risky
enterprises. But then it would bring out the occasional star that can then make up for the many other poor
performers in the incubator and thus wean the incubator away from perennial financial reliance on its sponsors,
whoever they may be – universities, governments, research or educational institutions.
Acquiring equity shareholding in the incubatee was not very common among Indian incubators until recently.
Early beginnings were made when some of the public incubators such as the one in the NS Raghavan Centre for
Entrepreneurial Learning (NSRCEL) at Indian Institute of Management Bangalore popularized the idea of
acquiring an equity stake in the incubatee as part of the compensation for the incubation services that they
rendered.
Soon enough, with the transformation of the kind of enterprises that were being established in the information
and communication technology space a number of private incubators like Morpheus and GSF emerged to
support these new product or technology development startups. These appear to be highly focused institutions
specializing in some technology area or vertical to be able to add sector or technology specific mentoring and
other forms of value addition.
38
Encouraged by these developments in India and elsewhere in the world perhaps, one common interesting
feature among many of the incubators in the public as well as the private sectors is that many of them plan to
seek equity shareholding in the incubatee enterprise. That is a laudable idea for two reasons.
One, when an incubator holds equity in the incubatee its own financial rewards are more closely linked to the
success of the latter enterprise. Thus acquiring an equity stake will presumably motivate the incubator to select
their incubatees more rigorously. It will further make it worth the incubator’s while to engage with the
incubatees more actively to make the enterprise more valuable. Some observers tend to opine though that
early stage investors and institutional stakeholders tend to occasionally act in their self-interests which may
diverge from that of the entrepreneur. Secondly, from the incubatee’s perspective an incubator might typically
be expected to charge lower than market rates for its incubation services since it is taking an equity stake in the
enterprise. This helps the early stage enterprise save on cash outflow towards rental and other services. This is
in addition to the community and networks that the incubatee gets to enjoy in a good quality incubator.
However, there could be a flip side to this argument. An entrepreneur who is sure of the value of the enterprise
that she is building would be reluctant to part with equity unless she absolutely has to. The standard five percent
that many incubators in India seem to charge would be viewed by such an entrepreneur as too high a price to
pay for the lower cash outflow towards the services provided by the incubator. Similarly control oriented
entrepreneurs would also be reluctant to part with their equity, unless they have no choice whatsoever. Thus a
share based compensation arrangement might render the incubation programme unattractive to some
entrepreneurs at least and might prove to be a source of competitive disadvantage to the incubator in attracting
high quality incubatees.
Caveats in seeking equity as compensation
The positive aspects of equity based compensation aside, it may be worthwhile to keep in mind the following
points of caution while designing equity shareholding as a part of the compensation payable to the incubator.
Managing equity investments requires a great degree of financial and legal sophistication. It is well-recognised
that investing in the equity of early stage enterprises requires specialized skills at every stage of the investment
management process: from sourcing investment opportunities to screening and evaluation, structuring and
valuation, post financing engagement with the investee and exiting from the investment. These activities are
even more challenging in the case of acquiring equity shares in incubatees, given that very often these
enterprises do not even have the proof of concept at the time they seek incubation support. In the same manner
they may not have raised any equity or debt funding. Hence they would not have been subject to a critical
evaluation of the idea from a sophisticated investor that the incubator may free-ride on.
Most incubators are not in a position to provide continued funding to the enterprise. At some point in their
evolution therefore incubatees that require continued funding will need to approach professional providers of
equity funding such as angel investors or venture capital investors.
The process of acquiring equity shares in an enterprise and disposal of the same are affected in a number of
ways by Indian laws that govern the purchase and sale of shares. Chief among these are the law governing
companies, tax laws and regulations governing cross border purchase and sale of shares. 9
Non-compliance with some of these laws can have serious consequences ranging from the incubator acquiring
shares that have not been properly allotted (and so ending up as worthless pieces of paper even though the
enterprise is doing well) to falling foul of the tax laws and finally getting on the wrong side of the enforcement
directorate being the most dangerous of these infractions. At the same time ensuring compliance with these
39
laws requires having the requisite knowledge of these laws in house or outsourcing the compliance work to
professionals.10 It also means that the management of the incubator would spend a non-trivial amount of effort
in filings and other statutory activities, no matter whether the work is outsourced or not.
If the incubator management seeks seats on the board of the incubatee enterprise that throws a challenge of a
different level and dimension altogether. Under the provisions of Companies Act 2013, one needs nerves of
steel to be on the board of any company, given the disproportionately draconian nature of the punitive
provisions and the acts of non-compliance that could trigger those provisions. While many of the deterrent
provisions might appear theoretical, if the authorities chose to invoke them there are several grounds for
imprisonment of directors or, at the minimum, disqualifying them for a period of five years. 11
The cost of ensuring that the activity of acquiring, managing, and disposing of equity investments can be far
higher than most people who are not familiar with this activity might imagine. Quite apart from the observable
financial cost, when one factors the unobservable emotional cost of coping with the stress of things going wrong
due to legal non-compliance, it makes one want to reconsider the proposition of equity based compensation.
The additional challenges of a public incubator
In the case of incubators in the public sector there is the additional layer of accountability expected of the
officials managing a public institution. The added complexity arises out of holding equity shares as opposed to
providing loan financing. In order to understand better the nature of this problem it is useful to draw a
comparison between an equity investment and a lending transaction.
When an official sanctions a loan, the number of variables over which she can exercise discretion can be
significantly restricted through prudential norms or guidelines that may be laid down by an internal supervisory
body like the board of directors of the institution providing the loan. 12 In a bureaucratic environment, both the
decision maker, who would typically be a risk-averse bureaucrat as well as the supervisory regime, would like to
limit the extent of discretionary authority that the decision maker has. This in turn would minimize the concerns
that the decision maker might pursue private gains by providing loans on terms attractive to the borrower and
unfavourable to the lender.
In the case of equity investments there are a number of terms for which a prudential body cannot provide similar
guidelines. These can relate to the purchase of shares, sale of shares, terms of purchase as incorporated in the
shareholders’ agreement, many decisions that can affect the welfare of the shareholder such as terms of
issuance of additional equity capital, changes in the shareholder’s rights and protective provisions and so on.
Given the difficulty in enumerating all the instances where the shareholder’s welfare can be affected,
professional equity investors therefore seek rights to approve a wide-ranging set of decisions by the
management of the enterprise. And they enforce these rights either through either a seat on the board or an
observer status with special privileges.
Each of these aspects can potentially call for a decision to be made that has implications for the financial welfare
of the shareholder. At the same time each of such decisions however is open to debate on whether the decision
maker acted in the best interests of the incubator. 13
Private investment funds address this potential concern by aligning the interests of the manager of the fund
who exercises these decisions on behalf of the investors in a fund (as a shareholder in an enterprise) by tying
the financial incentive of the fund manager to the returns provided to the investor. The importance of this
incentive compensation structure in addressing agency and other related issues that are known to prevail in the
early stage equity investment business have been known to practitioners for a long time and have been
40
acknowledged in academic literature too. Public institutions and, to a certain extent, corporates often cannot
provide such incentives. And their inability to provide such incentives have been identified as one of the main
reasons for the relatively low success rate in public and corporate venture capital programmes.
The alternate solution to this problem lies in creating an elaborate governance and decision making structure.
That said, it is not clear if merely setting up an elaborate oversight structure would address all the likely issues
related to governance. Assuming it can, there are problems with setting up such a structure. One, such an
elaborate structure adds to what economists would refer to as the transaction cost of equity investing. Second,
a specific manifestation of that cost is that it slows down the ability of the shareholder to respond to offers to
buy or sell shares and the many approvals that the incubator has to accord as a shareholder to decisions to be
made by the incubatee enterprise. These delays in decision making would render the incubator an unattractive
incubation alternative.
Public incubators that are established as a part of an educational institution often also have to set up a separate
entity to hold the equity in the incubatee because the university’s charter does not permit them to engage in
the purchase and sale of shares. In some instances such activities can potentially affect their taxation status.
The practice that has been followed in those instances is to set up a company under Section 8 of the Companies
Act, 2013 or Section 25 of Companies Act 1956.
Managing the regulatory compliance of these enterprises set up for the purpose of holding shares adds to the
effort and cost of equity investment for the incubator. Ideally speaking, taking into account the canons of good
governance the educational institution that is setting up the Section 8 enterprise will also need to establish a
formal relationship with the latter. The terms of the relationship will need to address important issues such as
the disposal of the income and gains of the latter, keeping in view the restrictions relating to the distribution of
gains and income of a Section 8 (or Section 25) enterprise.
The risk of premature exits for the incubator
In the unlikely event that the incubator management has the bandwidth to embark on this rather tumultuous
ride here is a final caveat. Incubators take equity stakes in the hope that one of those many enterprises that
they incubate will be the proverbial home run that every VC investor dreams of. Two important questions are
pertinent in this regard. One, what is the likelihood that the incubator will remain invested till the incubatee
turns out to be the home run that it has the potential to be? Second, in the event that it does what will be the
likely financial gains after accounting for the low rates of success among start-ups?
To answer the first question incubators must realise that successful incubatees will need to raise equity funding
from professional early stage equity investors like angel investors and VC funds to meet their growth financing
needs. In fact the ability of the incubatee enterprise to raise professional equity funding from unrelated or arm’s
length investors is often treated as a measure of the success of the incubator. 14 Most of the time, the public
incubator does not participate in that round of financing either because it does not have the funds or more
fundamentally because it is not a part of the mandate of the incubator.
Given the relatively low level of shareholding that incubators have and given further their inability to participate
in subsequent rounds of funding, the incubator has little negotiating power with the investors on the terms of
the subsequent funding rounds. Often professional investors insist that many of the smaller shareholders sell
their holding to them as a precondition to their funding the enterprise. Their reasons for such a precondition
are sometimes genuine and sometimes not so genuine. Incubators thus end up selling their shareholding
prematurely and against their wishes. 15 While this does not happen all the time, it does occur often enough to
41
stack the odds of realizing a financial upside against the incubator who did all the hard work in the first twelve
or twenty four months of the formation of the enterprise.
Incubators acquire equity shareholding with aspirations of a grand sale of their holdings in an initial public
offering (IPO) or as part of an acquisition of the incubatee enterprise at a huge valuation and realizing significant
financial gains. Their aspirations are put paid to by such premature exits.
Having discussed all of those pros and cons we come to the second question above: What can all this potentially
amount to for the incubator in terms of cash realization? We ran some back of the envelope workings as part
of a discussion at a committee recently. We made some generous assumptions as part of these workings. While
our inferences are preliminary and they would need to be understood more thoroughly the rough sense we get
is that on a risk-adjusted basis the present value of the exit realisations from these shareholdings do not justify
all the institutional overheads and the typical angst that accompanies the business of acquiring and selling shares
in an early stage enterprise. It could be as little as a tiny fraction of the fee income of a public higher education
institution in India.
NS Raghavan Centre for Entrepreneurial Learning16
The NS Raghavan Centre for Entrepreneurial Learning (NSRCEL or the Centre, hereafter) was established at
Indian Institute of Management Bangalore (IIMB), circa 2000 AD, with the help of an endowment from Mr NS
Raghavan, co-founder of Infosys Ltd., a leading information technology service provider. Apart from offering a
variety of courses and promoting academic research relating to entrepreneurship, the Centre is known for its
incubation centre which is the centerpiece of its numerous developmental initiatives to foster entrepreneurship
in India.
When NSRCEL set up its incubation Centre in 2000 with funding from Bill Melton promoted Global Internet
Ventures it was among the first business incubation centres to be set up by a management school. Most, if not
all other, incubation centres had been set up as an initiative supported by the Department of Science and
Technology, Government of India (DST, hereafter). NSRCEL was perhaps one of the first incubators to come up
in an academic institution that did not seek financial support from DST for its operations. This was possible
thanks to the income from the endowment as well as the institutional support from IIMB in the form of allocation
of land for the physical infrastructure and access to the many facilities on the campus for the Centre and its
incubatees without being charged a fee. This is in contrast to many other academic institutions that seem to
levy the entrepreneurship Centre a fee for use of their infrastructure.
As part of its incubation activity the Centre supports its incubatees by providing mentoring, referrals to its
networks for acquiring customers, developing strategic affiliations and above for all for funding attractions.
Incubatees receive a fair amount of media coverage through the Centre. They have also said that they benefit
from the reputation of having incubated at NSRCEL.
Apart from incubation the Centre runs an open mentoring programme and variety of events. Both the events
as well as the mentoring programme are run on a pro bono basis. The mentoring programme is run on the
second and fourth Friday of every month. The Centre has a panel of nine mentors who are all either former
executives or entrepreneurs. Unlike many other ad hoc mentoring initiatives NSRCEL’s mentoring is
institutionalized in the sense that it works with a constant set of mentors as opposed to mentors who come for
one off engagements. Over the past five years the number of mentoring sessions has grown steadily from 72 in
the calendar year 2011 to 113 in 2012, to 177 in 2013, 292 in 2014 and 490 in 2015. In calendar year 2015 the
Centre ran over thirty events related to entrepreneurship.
42
Apart from charging rent from the incubatees, which is well below market rates and cost of running the
incubation and related operations, the Centre also takes an equity stake in all the incubated enterprises. The
Centre also provides funding out of grants received from the DST as well as Department of Electronics and
Information Technology, Government of India (DeITY). The Centre receives equity in return for this funding as
well.
Given the restrictions on IIMB holding equity in enterprises, a company by the name IIMB Innovations (IIMB-I,
hereafter) was incorporated under Section 25 of Companies Act 1956. As per data as on March 31, 2015, filed
with the Registrar of Companies, IIMB-I’s meagre share capital, which suggests that it does not have much of an
operational mandate, is held entirely by the officials of IIMB. This is further borne out by a casual perusal of the
profit and loss account of the IIMB-I.
The balance sheet indicates that IIMB-I held equity investments in 19 enterprises as on March 31, 2015, while
the website indicates that NSRCEL had supported 45 enterprises as of that date through its incubation activity.
The difference is perhaps due to the fact that for a brief period the Centre had chosen not to take equity stake
in its incubatees. Press releases from NSRCEL indicate that the Centre has sold its stake in four enterprises, all
through acquisitions.
Looking at the range of activities of the Centre, the staff complement that the Centre has and the fact it is all
done pro bono, it would appear that the cost of the operations cannot possibly be supported from the rental
income from incubation alone. This is so nearly fifteen years after the Centre commenced operations. This
inference has an important lesson for all those who plan to set up incubators – it is difficult to sustain an
incubation Centre on rental or services income. It is important to emphasize this aspect for another reason: The
DST and other government agencies such as the Department of Bio Technology, Government of India (DBT,
hereafter) expect that the supported incubators will become financially self-reliant in the first five years.
The case of CIC referred to in this article appears to be an exception that has not been replicated successfully
anywhere else yet. The other often cited example these days is that of Y Combinator, 500 startups and so on.
These are essentially accelerators. The stage at which these new accelerators on-board enterprises and the
gestation period of the enterprises are fundamentally different from that of the incubatees in a public incubator
in India.
What is the way forward then? Academics who have looked at this problem realize that a fundamental lack of
viability is an inevitable reality of the incubation space. Practitioners agree that it is a difficult, if not intractable,
problem. The silver lining is the far sighted move of Indian corporate law in the form of a provision that has been
ironically considered unwelcome for many reasons, namely, to mandate that two percent of corporate profit
after tax will be set aside for initiatives under the banner corporate social responsibility (CSR). The silver lining
is that funding of recognized academic incubators is among the permissible activities. Incubators could use the
DST funded period as a runway for establishing a track record based on which they could approach corporates
to endow their incubation activity. That approach has some potential positive spillovers too. It would make
both the academic institution as well as the supporting corporate to ask each other, how they could be relevant
to each other’s needs. The answer to that question in turn will have many other positive knock-on effects, which
could be the topic for another article.

Notes
1The author is Associate Professor, Finance and Accounting at Indian Institute of Management Bangalore (IIMB). Views
expressed are his own.
43
2The incubation industry and academics draw sharp distinctions between incubators and accelerators. In this article we use
the two terms to refer to the idea of supporting startups at their very early stage of evolution, institutionally, in a structured
way. That said, this article refers mainly to those institutions that support enterprises for at least twelve months, may be
even longer and bring on board enterprises as early as even prior to their developing proof of concept. In contrast,
accelerators are known to host enterprises for as little as four months and are known to engage with enterprises that have
acquired paying customers.
3Now that it is many years since SUN Microsystems fell off its zenith it is probably worth reminding readers of the current
generation that even the name SUN stands for Stanford University Network.
4
The incubation centre in Cambridge University in the UK is a classic example of a university incubator that provides this
kind of an arrangement that could scale with the growth of the enterprise, starting with as little as a deskspace on a shared
basis, now fashionably known as “co-working space”. The Cambridge Innovation Centre (CIC) outside the Massachusetts
Institute of Technology (MIT), in Cambridge, on the outskirts of Boston, USA, is an example of a similar initiative in the private
sector. Located right on the perimeter of MIT, tenants of CIC can benefit from the social, physical and intellectual
infrastructure even though they are not located inside the university or the even though enterprise was not conceived there.
5 An interesting example of such innovation in sharing facilities is the case of Artisan’s Asylum (AA) at Somerville,
Massachsuetts, USA (www.artisansasylum.com). AA has created a makerspace with a wide range of equipment, each of
which has been brought in by one of the occupants of the community at AA. Apart from creating a shared infrastructure it
has also helped build a community of like-minded innovator and product developers who also benefit from the collective
creative and problem solving capabilities of the community. It has led to the creation of interesting products such as the
first programmable watch (Pebble Watch) which received the largest crowdfunding from Kickstarter.
6The idea here is that an enterprise is an assembly of various forms of capital such as financial, intellectual and other types
of capital. Economic theory would postulate that each of these forms of capital should earn a competitive rate of return.
Opportunities that cannot provide such a return would fail to attract such capital.
7 Enterprises at that stage of the evolution are believed to be subject to Knightian uncertainty as opposed to the standard
risks of an on-going enterprise. The idea of Knightian uncertainty, named after Alfred Knight, refers to “unknowable
unknowns” or sources of risk that cannot even be identified or known upfront. In terms of the language of risk management,
risks are those sources of uncertainty that can be identified upfront and a probability assigned to its likelihood of occurrence.
8 We use the term incubatee to refer to enterprises and entrepreneurs that are based out of (in the case of physical
incubation) or attached (in the case of a virtual incubator) to an incubator. It is useful to point out that although the term is
commonly used in the world of incubation, the dictionary does not recognize the term. The online version of Oxford
Dictionary at www.oxforddictioanries.com for example does not recognize this word.
9 If these transactions involve other entities that are domiciled outside India it is possible that they may be affected by the
laws in that other country as well. A discussion on those aspects would be outside the scope of this article.
10
For many specialized requirements of this nature outsourcing is a very tempting option for thinly staffed organisations
such as incubators. However this author’s own experience has been that the quality of service from professional agencies
in the accounting, legal and compliance fields is highly variable and patchy. The incubator that this author was managing, as
well as many of the incubatees in that centre, have had to deal with the poor quality of service. The poor quality was
sometimes due to the demands on the service providers’ resources were more than they could manage. But worryingly
enough, there were plenty of instances where the professional members of the staff at the service provider were not up to
the task of coping with the complexity of these laws and /or the rate at which many of the rules under these statutes as well
as the statutes themselves changed.
11 This author is aware of at least one instance of a perfectly respectable senior professional having been declared a director
in default and having been disqualified from being on the board of any company for a period of five years. The irony of it is
that the poor soul did not realise the kind of situation he was in until well after he had been declared a director in default.
This author therefore advises most startup entrepreneurs to form an advisory board that does not have a statutory role
under the law. This would hopefully encourage eminent professionals to be associated with and advise the startup without
fear of the many things that could go wrong statutorily.
12 The most important variables in a lending transaction can be categorized as (i) the decision to lend itself; (ii) the amount
of funding; (iii) the tenor of the loan and the repayment terms; (iv) rate of lending; (v) collateral securing the loan, if any; and
(v) other covenants protecting the interests of the lender. Each of these can potentially have a financial consequence for
the lender and the borrower. The boundaries within which the official can function can be reasonably well-defined. This
44
assumes that it is a straight loan and does not have any exotic features such as convertibility into equity shares or other
instruments.
13
An example of such a decision would perhaps illustrate this concern better. Take the case of an event that can commonly
occur in an incubatee enterprise: The founders wish to subscribe to the share capital of the enterprise a year after the
enterprise has been in incubation. The founders may wish to do so because they have got access to some funds of their own
and the enterprise needs funding. Founders would typically bring in these funds at par. In the normal world this would be
highly welcome and seen as an instance of the founders showing increased commitment to the enterprise. The difference in
the case of a startup though is that during the year it is likely that the company’s fortunes have either improved dramatically,
declined drastically or have not shown any noticeable change. The price at which the founders subscribe to the share capital
will need to take into account the changed circumstances and prospects for the company. That is the basis on which an
incoming investor will price his subscription to the share capital. If the fortunes of the enterprise have improved and the
founders still subscribe to share capital at par value there is a transfer of wealth from the incubator (and other shareholders,
if any) to the founder. In fact an institutional VC investor or an angel investor would treat the founder’s right to subscribe to
share capital at a price lower than the intrinsic value of the shares as a mechanism to incentivize the founders.
14
Raising equity from an equity investor who has no prior relationship to the founders of an enterprise or pre-existing
investors is considered to be one of the ideal validation of the investment-worthiness and the value of an enterprise. This is
in contrast to raising capital from investors who have a prior relationship who could potentially provide funding for various
considerations other than relating to the investment merit of the enterprise.
15Legally speaking, a shareholder cannot be compelled to sell her shares in an enterprise unless there is a pre-existing
contractual obligation to do so. However, practically speaking the incubator could be constrained to do so in order to enable
the incubatee raise the much needed funding.
16Disclosure: The author was Chairperson NSRCEL from 2012 to 2016. The discussion here is based entirely on information
that is available in the public domain and is being presented as an illustration of a public incubator.
45
46
REFLECTION 2
Contours of Venture Investing in India:

A Conversation with Samir Kumar
Thillai Rajan A.
Has the characteristics of successful start-ups when I got into the venture industry, entrepreneurs
changed over the years? had a deep technology background but a limited
understanding of what the customer needed. They
Not really. The basic requirement of a successful were clear about what they could build or develop,
start-up is a solid entrepreneurial team. Most start- but did not have great clarity on what the
ups go through tough times in their initial years, and customers’ problem was, how they were going to
the distinction between successful and failed start- solve that problem, and who else was solving it.
ups is usually the quality of the entrepreneurial That has now changed significantly and the
team. This requirement remains just as critical entrepreneurs we now see have a much sharper
today, as it was in the past. Some other traits that sense of customers’ requirements as well as
make for successful start-ups are competition.
focus on large, fast-growing
markets, lesser competition,
Over the years, the What has been the driver behind
unique differentiation in the maturation of the this change?
product or service offering, and an
intimate knowledge of customer technology sector is I can talk only with reference to
requirements. In sum, I don’t think technology entrepreneurs
also getting reflected because I’m more familiar with
much has changed from the past in
terms of the characteristics of in the them. We can clearly see that the
successful start-ups. technology industry has deepened
entrepreneurial over the last 20 – 25 years. In 2001,
Then, what has changed? In a I would say the technology
teams.
dynamic environment such as the industry in India was really only
start-ups can the saying, plus ça change, plus about 8-10 years old. Multinational companies like
c'est la même be true? Microsoft, Oracle, SAP and so on had just set up
their offices and domestic companies like Infosys,
While the criteria for a start-up to be successful TCS or Wipro, who had grown significantly in the
have largely remained constant, the quality of previous ten years, had just started focusing on
entrepreneurial teams has significantly improved building IP. Over the years, the maturation of the
without a doubt. Also, if you ask me, markets in technology sector is also getting reflected in the
India have become bigger, entrepreneurial teams entrepreneurial teams. In addition, the ability and
now have a better understanding of these markets, willingness to take risk has changed significantly
and their knowledge of customer requirements has from earlier. Society is now more tolerant in terms
become sharper. Entrepreneurial teams today are of accepting failure and more people are willing to
more mature, even though they may be younger in take risks.
age. With markets having become large enough in
India, one doesn’t necessarily have to go overseas Venture funds have funded very limited number of
to build a successful start-up. Understanding of deep innovations in India. What needs to be done
customer requirements has been a big to change this trend?
improvement area. If I look back 15 years, which is
47
It will change on its own, and in fact we can already up. Then there are incubators, accelerators and
see the green shoots of this change. In the many new venture funds. However, given that the
beginning of my career, the proportion of deep number of new entrepreneurs has risen
innovations that were getting funded was close to significantly, and the capital available has not
zero. Today there is a better understanding of the increased at a similar pace, it is likely that
culture of deep innovation in India, in part because entrepreneurs may feel that fund-raising is still very
of people who have done such start-ups abroad and hard.
have migrated back. Customer attitudes towards
start-ups have also begun to change, albeit a tad Would better intermediation help?
slower than one would have liked. And global
Honestly I don’t think intermediation would help.
markets for such start-ups are more accessible
The point is we will not do 15-20 deals per year,
today, lowering the risks of customer adoption.
given that we seek time diversity in our portfolio.
Deep innovation start-ups are certainly more risky, We want to build a portfolio across 4-5 years, which
and therefore the probability of failure is also much means we cannot do more than 4-8 investments a
higher. On the other hand, rewards are also higher year. If we take the entire pool of early stage capital
in a deep innovation start-up. across the country and if this is not sufficient to
fund the capital requirements, then I’m not sure
The Indian venture industry is also really just about whether any type intermediation would make a
a decade old, which is when most of the current difference, more so since founders today have
venture firms started. In their initial years, venture much better direct access to investors.
firms need to show returns and establish
themselves, in order to What have been the common mistakes
be able to raise their
...as Indian venture firms made by the founders that has led to
next funds. Therefore, start-up failures?
get more and more
it is possible that many
To my mind, indiscipline on cash
funds did not want to established, their ability
management has been a big worry.
make very risky
investments that could
to take risks will also Capital was too freely available in the
last 2 years, though, luckily, that has
impair their chances of increase and more deep stopped now. But I think the pain that
raising future funds. In
innovation type start- we see today of companies shutting
the US, many venture
down and so on was because they didn’t
funds are over 30–35 ups would get funded. respect cash. The second common
years old, and are in
mistake is me-too business models.
their seventh, eighth or even later funds. Since they
There were too many such start-ups. Many
have proved, over time, their capabilities to
businesses were started with the assumption that if
generate returns and obtained the confidence of
it worked in the US and worked in China, it will work
their investors, their willingness and ability to take
here. Entrepreneurs will have to understand the
higher risks has also gone up. My belief is that as
unique requirements of the Indian market /
Indian venture firms get more and more
customer, and create unique products or services to
established, their ability to take risks will also
meet these requirements. Even companies like
increase and more deep innovation type start-ups
Uber are modifying their global practices in India
would get funded.
(like taking cash payments, allowing pre-booking of
Have the chances of securing funding by cars, having people at airports to guide customers
entrepreneurs increased in recent years? How? to the cabs)!
Yes, definitely. There are a lot more avenues to Syndication with other investors is a very
raise capital today. For example, we have more commonly observed practice in venture investing.
angel investors and angel networks that have come How does it benefit the investor or the
entrepreneur?
48
Yes, syndication is a common strategy in early stage enough deals are getting done. Sure, they are fewer
venture investing. Start-ups usually need a lot of than what was done in 2014 & 2015, but what we
help, and multiple investors can mean additive saw during those years was an aberration. The
networks to aid customer access, hiring, and even slowdown is only when compared to the previous
next round financing. Sometimes start-ups need year. The key for the entrepreneur is being careful
some kind of bridge about cash. Since capital is not as
financing, to reach a certain The key for the easily available, entrepreneurs
milestone. If there is more should make sure that the money
than one investor, it is entrepreneur is being they have lasts longer. For example,
possible for the the practice of stapling rupees with
entrepreneur to cover the
careful about every order that some ecommerce
gap a little more easily. On cash...should make sure companies followed is untenable.
the downside, the The good thing is that
entrepreneur carries an that the money they entrepreneurs have recognised this
additional burden of have lasts longer. and are trying to cut down on that
dealing with more practice. However, investors also
investors. But, I think the benefits of syndication have to accept blame for this. If they demand that
outweigh the costs. the entrepreneur quadruple revenues every
month, then the only way it can be met is by bribing
We tend to syndicate with like-minded investors. the consumer to buy more.
For example, if we have a 5-7 year investment
horizon, we would rarely syndicate an initial round Angel investment in ventures have been very
with somebody who has a 2-3 year horizon. For an robust these days. How has it impacted
investor like us, syndication is a strategy to not just investment by venture funds?
get the money, but bring complementary skills to
the table. While many say that it’s a lonely journey The growth in angel investments has had a huge
for the entrepreneur, it is also a similar experience positive impact for funds like us, and also for
for the investor. Having another investor alongside entrepreneurs. Having access to angel investments
helps to clarify thoughts for everybody. helps start-ups show some progress (like building a
product, having a few customers, etc.), before
What is the role of the entrepreneur in the approaching VCs. Angel capital has certainly given a
syndication process? boost to the entrepreneurial ecosystem. As a result,
today we meet start-ups that are already along on
Let's say for example we’ve decided to invest $1.5 their journey. Founders who have raised angel
million in a company, leading a $2 million round. capital and built something, have a much better
We work alongside the entrepreneurs to syndicate understanding of their customers, technology, and
the remaining $0.5m. The syndication process is a competition. Today, less than 20% of the deals we
joint effort of both the lead investor and the see are at a stage that requires angel investment
entrepreneur. If the entrepreneur does not co- (where Inventus doesn’t play) compared to 50-60%
operate, it might be difficult to find a syndication in the past. The growth in angel capital has resulted
partner. Thus, the entrepreneur puts in the effort, in start-ups that are better prepared to receive
and the lead investor usually makes the connects venture funding.
with other investors.
What factors have resulted in the emergence of
How should entrepreneurs equip themselves to Bengaluru as a leading destination for venture
handle deal winter that people are talking about? investments in the country?
I wouldn’t characterize today’s environment as a Certainly not the traffic! On a more serious note, a
deal winter – to me, it’s more like a return to virtuous cycle of entrepreneurship has been
normal. I would say 2009 was a deal winter when created. Many investors who previously did not
very few deals were done, but in 2016, I think
49
have an office in Bengaluru are now setting up shop I must also add that the Government of Karnataka
here because of the presence of good has also been contributing its bit to encourage
entrepreneurs and talent. Large multinational start-ups. The State Government has multiple
companies such as Google, Microsoft, and Oracle policies for start-ups. For example, there is this
have set up their R&D centres here. Virtually, all the Electronic System Design and Manufacturing
semiconductor (ESDM) policy, which provides good
companies in the nation The growth in angel incentives for start-ups in that space. Under
are headquartered here. capital has resulted this policy, for e.g., there is an incentive
When employees which covers up to 50% of the R&D costs.
working in these in start-ups that are Marketing expenses are also covered to an
organizations get the extent. If the start-up is exporting, then
confidence to start on
better prepared to state taxes are also offset. In addition, they
their own, they start their receive venture also have a start-up policy, where they work
venture in Bengaluru closely with organizations such as
because that’s where funding. NASSCOM Startup Warehouse in providing
they’ve been living. So facilities for start-ups. Such measures have
talent availability fuels more start-ups; more start- encouraged start-up activity. Successive
ups fuel more investors; and more investors in turn governments in Karnataka have shown a
fuel more start-ups. While there are investors in progressive approach towards start-ups, which has
Mumbai also, most of them are growth investors. clearly also been a factor in the growth of start-ups
On the contrary, most of the venture investors are in Bangalore.
in Bengaluru.
Samir Kumar has been associated with the Indian venture industry since 2001,
and is currently a Managing Director at Inventus. Previously he was with Acer
Technology Ventures, and before venturing into venture, had a 15 year career
in the IT industry, in various sales, marketing and product management roles,
including a 10+ year stint with Wipro. Inventus is a technology focused venture
firm with over 40 investments to date, across the US and India, in both consumer
and enterprise sectors. Inventus also has many successful exits under its belt,
including Redbus.
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3. Trends in the Sands of Time
“History never repeats itself, but it rhymes”
“Those who cannot remember the past are condemned to repeat it."
Overview
An important feature of the India VCPE report series has been to track the contours of the evolution of this
industry using longitudinal data. While the data accuracy becomes limited as we go too far back in years, since
there were limited data providers back then, we believe the data available since 2000 is representative, though
it is far from complete. The completeness of the data availability has increased in more recent years as the
industry has flourished and more service providers who are tracking the industry have emerged. With these
developments, we believe we are in a position to be able to identify the trends with lot more clarity than what
has been possible before.
In this chapter, we present the time trends observed in the different components of the start-up ecosystem in
India. A single line summary of the overall trend would be to say that the start-up ecosystem in India has
significantly developed in recent years. But, it is as obvious as saying roses are beautiful. Our objective here is
not just to look at the flower as a whole but also appreciate the shades of colors that exist within it. So, here we
go.
Incubators
Figure 3.1 provides the growth in the number of incubators set up in different time periods. We chose a five year
time period because of the lumpiness associated in the setting up of incubators and to moderate the effect of
year to year short term swings. Year of setting up was available for 255 of the 339 incubators in the sample. The
upward sloping trend clearly indicates the growth in the number of incubators set up in recent years. According
to our estimates, more than 50 percent of the incubators were set up in the last five years. This shows that the
policy thrust for creating an enabling environment for start-ups has had visible impact – with more number of
incubators being set up.
Figure 3.1: Growth in the number of incubators
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Figure 3.2 provides the contours of the number of incubators, depending on the city in which they were set up.
A cross section during the years 1996-2000 would reveal that the number of incubators in each of the three
types of cities were more or less equal. The trend persisted in equal measure even till 2006-10. However, since
then there has been a dramatic increase in the number of incubators set up in Tier 1 cities. While there are just
a handful of Tier 1 cities (the six metropolitan cities), the number of Tier 2 and Tier 3 cities are much higher.
Despite the higher number of cities, the total number of incubators set up in Tier 2 or 3 cities is lower than that
of Tier 1 cities. This shows that the trickle-down effect of start-up ecosystem to smaller cities has been meagre.
Number of Incubators
2011-2016
Tier 1 city Tier 2 city Tier 3 city
Figure 3.2: Year of founding of incubators by type of city
Technology Others Industrials Healthcare Consumer services
Figure 3.3: Incubatees classified by sectors
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Figure 3.3 shows the trend in the incubatee companies supported by the incubators, analyzed based on a sample
of 1970 incubatee companies. More than half of the companies are in the technology sector. This is but natural,
because most of the incubators are hosted in universities and research laboratories and the incubatees that
these organizations support basically explore the possibility of commercializing technology spin-offs from the
laboratories. The illustration also shows the dramatic increase in the number of incubatees during the five year
period 2006-10. Other sectors that account for a significant number of incubatees are healthcare, industrials,
and consumer services.
2011-2016
State University Private Non-University Private University
Government Non-University Central University
Figure 3.4: Incubatees classified by the host organization
In Figure 3.4, we capture the trend in the number of incubatees supported by incubators that were classified by
their host organization. In recent years, much of the incubatees have been supported by the central universities.
Central universities include institutes of national importance such as the Indian Institute of Technologies (IIT).
Our results indicate the important role played by these universities in promoting entrepreneurhip and start-ups.
On the other hand, the number of incubatees supported by state universities has been much lower, indicating
that the states in general have not accorded the importance to incubation and supporting start-ups in the same
way as that of the central government. While some states like Karnataka have given priority in creating a
framework and have set up institutions, many other states have lagged. More importantly, the state
governments have not been leveraging the vast network of the educational institutions supported by them to
promote start-ups. The share of incubatees supported by the private sector, has been increasing – though not
in the same manner as seen in the case of central universities.
The share of incubatees supported by private sector non-university incubators in itself is small, indicating that
the segment has not been very active in setting up in incubators. We also found that incubatees supported by
private universities have grown in recent years. However, a striking trend has been the role of the central
universities and government research institutions and laboratories in supporting the case of entrepreneurship.
While entrepreneurship is essentially a private sector activity, the policy of the central government to back start-
ups in the institutions suported by them indicates the policy thinking of the government – that promoting
entrepreneurship can lead to positive externalities in the economy. It would have been ideal to find how
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effective the support has been in creating scalable and sustainable start-ups, but that can be a subject of one of
the future reports.
2011-2016
West South North East
Figure 3.5: Incubatees classified by geographical region

Number of Incubatees
2011-2016
Tier 3 city Tier 2 city Tier 1 city
Figure 3.6: Incubatees classified by type of city
In order to track the spatial trends over time, we plotted the incubatees supported by the different incubators
in each of the four regions. Figure 3.5 shows the results. The southern region accounts for a very large share of
the incubatees, followed by the West. While the number of incubatees from the West has been steadily
increasing, there has been slight decrease in the number of incubatees from the South during 2011-16. What is
interesting to note is the contrast in the development of start-ups in different regions of the country. While the
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trend for Eastern region is as expected (since the proportion of start-ups has traditionally been less from the
region), additional studies may be needed to understand the reasons behind the differences in the prevalance
of incubation model between the North, West, and South regions.
Figure 3.6 classifies the trend in incubatees based on the city in which the incubator is located. Incubatees
supported by incubators in Tier 2 cities have been noticeably higher, and this is a trend that has been consistent
across time. While the incubatees supported by incubators in Tier 1 cities have grown since 2000, Tier 2 cities
account for close to three-fourths of the total share of the incubatees. This shows the important role played by
the incubators in taking the culture of entrepreneurship and start-up to some of the smaller cities. As we will
see later, start-ups in Tier 1 cities account for a major share of the funding from angel and VC investors. Seen in
that sense, incubators form a key part of the support ecosystem for start-ups in the country – as they are able
to nurture entrepreneurs in smaller cities, where the penetration of angel and VC investors has traditionally
been weak.
Angel investments
We specifically studied angel investments, given the significant growth in this segment in recent years. Figure
3.7 provides the number of angel deals over the years. A deal refers to an individual angel investors’ investment
in a start-up. If there was more than one angel making an investment, then investment made by each angel was
counted as a separate deal. Here we do not include angel networks, which have been analyzed separately in the
next section.
Figure 3.7: Angel deals over the years
Figure 3.7 is based on a total of 3791 deals during the period 2008 – 15. A striking observation is the significant
growth in angel deals during the period. Year-wise analysis shows an annual average growth rate of 124 percent.
While year-to-year count of deals shows mildly fluctuating trends, a three year window as indicated in Figure
3.7 shows a steady increase in the number of deals. The fact that so many angels are making investments in
start-ups has been one of the biggest changes in the entrepreneurial ecosystem in recent years.
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Figure 3.8 provides an estimate of investment amount made by angel investors. Similar to the trend seen in the
number of deals, the total estimated investment amount has seen significant growth, with an average annual
growth rate of 205 percent during 2008-15.
Figure 3.8: Estimated amount invested by angel investors
Figure 3.9: Number of angel investors in different years
Figure 3.9 gives the number of angel investors investing in different years and Figure 3.10 gives the number of
angel investors reinvesting in different years. Similar to the number of deals as well as investment amount, the
number of investors also show an increasing trend. The number of angel investors, despite the occasional
downtrends, has grown at an annual average of 107 percent during 2008 – 15. The number of first time angel
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investors, during the same period has grown at an annual average rate of 98 percent. The growth rate of
investors who are reinvesting has grown at a rate of 105 percent. Thus, there has been a secular growth trend
in the angel investor segment. The growth in the rate of repeat investors (i.e., who have made at least one
investment previously) indicate that many don’t view angel investments just as a one-off investment activity.
Figure 3.10: Number of angel investors who are reinvesting in different years
Figure 3.11: Average investment in an angel round
Figure 3.11 gives the average investment received from an angel round. In a round, there could be more than
one angel investor investing, and therefore the round investment refers to the total investment made by all the
investors together. During 2009-15, the average round investment has grown about four times, at an annual
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growth rate of 27 percent. Figure 3.12 gives the average investment made by an individual angel investor. It can
be seen that this has grown about eight times during 2009-15, indicating an annual growth rate of 34 percent.
Figure 3.12: Average investment made by an angel investor
Figure 3.13: Number of angel investors in a round
Figure 3.13 indicates a declining trend in the number of angel investors in a round. This is as expected, since the
average investment made by angel investors have been growing at a faster rate (Figure 3.12, 34 percent) as
compared to that of the average investment received by the start-up in an angel round (Figure 3.11, 27 percent).
An inference to this trend is that angel investors are increasingly comfortable in making larger investments.
Angel investors are today making investments as high as what early stage venture funds used to invest in the
2000s, thus providing a significant source of capital for start-ups.
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Figure 3.14: Average age of start-ups at the time of receiving angel investment
Figure 3.14 shows the average age of the start-ups at the time of receiving angel investment. Our analysis is
based on a sample of 873 start-ups during the years 2006-15. The trend is striking. There has been a steady
decrease in the average age of the start-up at the time of receiving angel investment. During 2008-15, the annual
average investment age has reduced by 27 percent. The finding becomes all the more remarkable, when we
consider the increasing trend in the average investment amount. Possible reasons could be attributed to both
the demand and supply side. On the demand side, entrepreneurs have been able to create robust start-ups,
which are “ready for funding”. Given the knowledge of what the investors expect becoming widely available,
entrepreneurs are able to incorporate those elements in their business plan to give the investors more comfort
while making their investment decisions. On the supply side, more and more investors are getting the comfort
to make angel investments – through a better appreciation and appetite of risk that exists in such ventures.
Needless to say, the entrepreneurial ecosystem has played an important role in this convergence.
Figure 3.15 traces the number of angel deals in different start-up categories. We traced the number of deals
rather than the investment amount because the quantum of investment was not available for a large number
of start-ups. Our results show that software and internet services account for the largest number of deals, and
the trend has remained consistent over the years. Coming up next was Internet marketplace and e-commerce,
the share of which has shown an increasing trend more recently. The remainder of the sectors do not account
for a significant share. In a sense, the trends in angel investment are consistent with those seen in incubators
and accelerators – where technology and technology enabled sectors accounts for the bulk of the investment.
Software and internet services are considered as a part of technology sector in the ICB classification.
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Figure 3.15: Number of angel deals in different sectors
Figure 3.16: Trends for quartile classification of angel investors
Figure 3.16 gives the deal trends for angel investors classified by quartiles based on the number of deals they
have invested. The sample was 3791 deals during 2008-15 and quartile classification of investors were done as
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follows: Quartile 1 – investors who have made only one investment; Quartile 2- investors who have invested up
to 4 deals; Quartile 3 – investors who have invested up to 12 deals; and Quartile 4 – who have invested in more
than 12 deals. The total deals in the different quartiles are: Quartile 1 – 927; Quartile 2 – 1088; Quartile 3 – 927;
and Quartile 4 – 849. The trends are quite interesting. The top 3 sectors for all the four categories are software
and internet services, internet marketplace and ecommerce, and consumer products and services. However,
occasional investors, i.e., Quartile 1 and 2 investors are characterized by a higher degree of diversity in terms of
the number of deals in different sectors, whereas Quartile 4 investors are characterized by a higher degree of
concentration. Bulk of the investments made by Quartile 4 investors are in the top 3 sectors indicated above,
with very little in the remaining sectors. A possible explanation could be that most active angel investors
(Quartile 4) have prior experience in the technology sector and are therefore making a majority of the
investments in the sectors they are familiar with.
Figure 3.17: Trends in investment amount for quartile classification of angel investors
Figure 3.17 illustrates the average deal investment amount and the total investment made by different angel
investor quartile. This was based on a sample of 799 deals for which investment amount was available. Quartile
1 comprised of investors who have invested only once; Quartile 2 comprised of investors who have invested
twice; Quartile 3 comprised of investors who have invested up to 5 deals; and Quartile 4 comprised of investors
who have invested in six or more deals. Average deal investment amount is considerably higher for investors in
Quartile 1 and the total investment made by investors in this category is also the highest. As the number of
investments increase, the average deal investment amount also reduces and so is the total investment made by
the category of investors. More active investors are thus diversifying their risk by spreading their investment
across more companies, as seen for Quartile 4. Our results highlight the important role played by the occasional
investors – not only are their average investment higher, as a group, their investment amounts are also higher.
Angel networks
A noteworthy development in the last few years has been the evolution of the angel networks. While many of
the angel networks are organized around cities (such as The Chennai Angels, Mumbai Angels, and so on), there
are other forms of networks as well. A prominent example is the Indian Angel Network, which is the pan-India
network of angel investors. Some of the features of the angel network are as follows:
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 In an angel network, a group of members come together to make an investment. Therefore, individual
investments made by each angel investor is lower. While the average investment amounts for an angel
and angel network investment does not vary significantly, the number of investors vary considerably.
In angel funding, typically about 3-4 investors come together, whereas in an investment facilitated by
an angel network, the number of investors are typically about 5-10.
 A potential investment opportunity is analyzed and discussed by many interested investors. This helps
the investors to reduce potential mistakes in decision making. By bringing in like-minded angel
investors, the networks helps to enable interaction between fellow angel investors.
 The angel network facilitates the entire selection process, starting from receiving applications to
arranging screening committee meetings, doing due diligence, and the final documentation for
investment. Since there is a dedicated operational team to manage the activities, the processes are
streamlined and there is often good online process for submission of proposals by the entrepreneurs.
The angel network office acts as a single point of contact for the founder.
 An investment director is usually appointed to represent the investors who have invested in the deal.
This ensures a single point of contact between the investors and the company. However, in practice,
the entrepreneurs would have to take into account that there could be occasions where the views of
the individual investors could diverge.
 Since the individual investment amount made by each member is not very large, some feel that the
commitment of the investor could also be lower as compared to instances where the angels invest
directly and the investment amounts are larger.
Figure 3.18: Number of investments made by angel networks
Figure 3.18 shows the growth in the number of investments made by angel networks over the years. As it can
be seen, there has been a steady growth over the years. The annual growth rate of the number of investments
by angel networks made during the 2009-15 period has been about 75 percent. However, a significant part of
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the growth can be attributed to the year 2015, when the number of investments increased more than three-
fold from 33 in 2014 to 116 in 2015. While year-on-year trends can show growth spikes, a moving window
aggregate as seen in Figure 3.18 shows a fairly steady growth in the number of investments.
Figure 3.19: Number of angel networks that have made investments in different years
Figure 3.20: Average number of investments made by angel networks
Figure 3.19 shows the number of angel networks that have made at least one investment in different years. In
the span of 7 years, the number of networks have increased 20 times. Though there is a slight decrease in the
number of networks that made an investment in 2014, the overall trend is that of positive growth in the number
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of angel networks. However, there has been a big jump in the number of networks in the year 2015. Figure 3.20
shows the average number of investments made by different angel networks. Overall average works out to be
approximately 3.5 investments per year.
Venture investments
Figure 3.21 and 3.22 presents the trends in start-up funding from all sources - angels, angel networks, and
venture funds. Figure 3.21 shows the pattern in funding by sector. Interesting trends could be noticed in most
of the sectors – the investment picks up slowly (possibly a period of learning and understanding for both the
investor and the entrepreneur), reaches a peak, and then gradually tapers down. It is clearly evident that
entrepreneurs have a better chance of getting funded during the growth period of the sector. The sector that
has bucked the trend has been software and internet services sector. The number of start-ups getting funded in
this sector has been steadily increasing over the years. An implication of our finding is that the probability of
getting funded from angels and venture funds, in addition to so many factors, also depends on the sector as well
as the timing in approaching the investors.
Figure 3.21: Start-up funding classified by sector
Figure 3.22 presents an illustration of funded start-ups in different cities, based on the year in which the start-
ups were incorporated. Trends are very similar to the ones seen in Chapter 2. Bengaluru, Mumbai, and Delhi
show an increasing trend. However, for cities such as Chennai, Hyderabad, and Pune the trend is more or less
stationary. In the case of Chennai, the number of start-ups incorporated in recent years that have been funded
have actually reduced.
Figure 3.23 gives the number of start-ups funded in different cities during the period 2000-15. The prominence
of Bengaluru, Mumbai, and NCR cannot be missed. In each of the three cities, there has been a sharp increase
in the number of start-ups funded in 2015. Over the years, the gap between these three cities and other cities
such as Chennai, Hyderabad and Jaipur has considerably increased. This has prompted many to ask the question,
what makes the successful cities tick? In order to ensure that the gap does not further widen between cities,
policy makers need to identify the components of the entrepreneurial ecosystem in cities such as Bengaluru that
makes more number of start-ups to get funded.
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Figure 3.22: City wise funding of start-ups by the year of incorporation
Fig. 3.23: City wise funding of start-ups

Summary
A striking feature of the longitudinal analysis of the Indian entrepreneurial ecosystem has been the express
growth across different components. This chapter specifically looked at incubators, angel investments, angel
networks, and venture capital for different time periods. While year-to-year analysis could show fluctuations, a
three year moving window shows a consistent growth trend over the years. The technology sector that
comprises software and internet services has been the dominant sector in terms of the number of investments
across all the components that has been studied.
Two concerns remain. First, the development of the ecosystem has been restricted to a few states and within
those states, only to the state capitals. The velocity of trickling down to other cities has been very slow. While
the pattern of having start-up hubs is what prevails globally, the global hubs (such as the Silicon Valley in the US)
are known for their start-ups in certain specific sectors. On the other hand, the start-ups in India, viz., Bangalore,
Mumbai, and Delhi are more or less similar in terms of the start-up sectors. A slight exception could be
Bangalore, which has a slightly higher proportion of technology and software services start-ups.
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Second, the growth in the number of investors and the amount of investment has been significantly high, which
cannot be sustainable in the long run. Such exuberance can have undesirable side effects. For example, many
naïve investors could be attracted by the euphoria of investing in start-ups, without fully aware of the risks
involved. While some years ago, founders and members of the industry bemoaned of lack of seed and early
stage funding to ventures, today the pendulum has swung the other way. Several members indicate the “spray
and pray” practice that seemed to have crept – where investors make small investments, but do not show the
required commitment to provide guidance or mentoring to their investment. When such investors are
disappointed by the outcome of their investments, they may move away from making such investments in the
future, resulting in dwindling investments in start-ups.
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PERSPECTIVE 3
The Acceleration of the Indian Start-up: A Brief Outline of

the Regulatory Changes
Aarthi Sivanandh
India has come a long way from just being an outsourcing hub. The initial outsourcers reframed their mind from
perceiving India as an outsourcing hub, to see, if they could also get their strategic work executed in India. The
evolution of startups began in the early 2000s when the transformation of India from an outsourcing hub to an
entrepreneurial hub took seed. The look-alike entrepreneurs of the West slowly faded away and real unique
ideas that were critical to the Indian economy and those companies that solved problems unique to India
evolved.
However, the regulatory framework that existed during the period did not adequately support the
entrepreneurial surge. For example, governing the company form of structure was cumbersome. The paperwork
involved in setting up and operating a business was a huge paper based exercise. It wasn’t the digital age that
we are familiar with today and India was ranked 130 out of the 189 countries by the World Bank in its 2015
country report of ease of doing business. A combination of myriad factors led promoters to spend scarce energy,
resources and time to incorporate companies in the Silicon Valley, New York, London, or Singapore for their
favourable tax regimes and for privileges such as incorporating companies in less than a week.
The flight of capital, talent, earnings and the external verdict of the World Bank and industry lobbies, led the
government to realize the urgent need to stop the leakage of start-ups to other jurisdictions. Simultaneously,
the political climate (and therefore the business climate) changed after a majority government took its place at
the Centre in May 2014. The new government has worked on several fronts to improve the ease of doing
business rankings as well as enhancing a conducive environment for industry, especially for start-ups. These
efforts will remain the singular reason for India rising to the third position among all the start-up hubs in the
world. And for all players in that ecosystem - founders, angel investors, incubators and young employees, India
is no longer a last choice.1
This article briefly reviews the regulatory changes that have served as a stimulus to the start-ups. It examines
the company form of start-up and the issues relating to the ecosystem in which the start-up operates, with
specific reference during the 2014-16 period. The key developments during the period that has given a fillip to
the start-up entrepreneurs include entity structures that are available to an entrepreneur to conduct business,
and measures taken by the central bank to ease the procedural norms to raise investment capital from foreign
investors. Given the substantial developments in the e-commerce sector, this article also traces the regulatory
changes that are especially relevant for the e-commerce sector.
The legal vehicle for entrepreneurship to take form: The Company
For the entrepreneurship skills of a person to manifest itself in a corporate form, there is a need for a legal entity
or structure. The legal vehicle allows the person to take risks and give shape and form to business ideas without
the constant concern of personal liability, while at the same time assuring legal rights to all those who do
business with that entity. There are several choices available for the legal entity, such as a company, limited
liability partnership (LLP), a vanilla partnership and a one man company. The typical and often preferred choice
is that of a company set up under the Companies Act 1956 and its amended version in 2013. The company
structure lends itself to separation of personal liability and corporate liability. Courts have rarely pierced this
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corporate veil to say the company and the founder are one and the same. A clear sense of risk and liability
propels the choice of entity structure. Further, this structure is more investment friendly as investors prefer the
rigors the company is obliged to, viz., operate in a transparent manner with accountability and governance
requirements pursuant to the requirements of company law. Also, the investments made in such company
structure gain ‘marketability’ when the company eventually makes a public offering of its stock. In comparison,
while the LLP structure allows for its partners to be liable only to the extent of their contribution to the LLP, it
has scored lower in choice because of reasons related to shareholder control. Unlike the Companies Act, the
Limited Liability Partnership Act, 2008 does not secure for its limited partners any protection against oppression
and mismanagement by its shareholder partners.
As the start-up traverses through the stages from establishment to early business and then to growth and
maturity, the awareness of the regulatory aspects involved in growing companies becomes the key differentiator
between outstanding entrepreneurs and sightless entrepreneurs. For instance, an entrepreneur who had
headquartered her company in Singapore owing to its intellectual property friendly jurisdiction, investor appeal
and tax regime had attracted an investor who was keen on making an investment in her company. The company
however had an operating subsidiary company in India. A then existing law required that individuals cannot
invest in shell companies or holding companies in foreign jurisdictions. In the instant fact pattern, the investor
flagged the investments made by the entrepreneur in Singapore holding company as a violation of law. However,
a closer reading and interpretation that clarified such investments were kosher if such holding companies or
shell companies in fact held operating and functional subsidiaries, was unacceptable to the investor. The
entrepreneur thus reversed his structure of companies so as to facilitate the investor at great cost of time,
money and resources. A keen awareness of the market, regulatory aspects and the maturity to deal with
investors in this context would have saved this entrepreneur valuable time in the early stages of growth.
Evolution of the legal landscape concerning formation of companies
Single founder companies
A start-up set up as a company structure, shall be governed by the Companies Act 2013 (that has replaced the
Companies Act 1956). While most provisions of Companies Act, 2013 (Co. Act) have come into force, some
sections such as those relating to mergers and amalgamations are still regulated by the provisions of the
erstwhile Companies Act, 1956 (“Co. Act 1956”). The Registrar of Companies (“RoC”) in each state is the nodal
authority for registration of companies.
Under the new Co Act, a natural person who is an Indian citizen and resident in India can incorporate a one
person company. This has been a welcome move to single founder companies that traditionally required two
persons at the minimum to start a company. This imposed a requirement on the founder to enlist a spouse,
friend or relative who could be entrusted with minimal stock so as to comply with the requirements of the Co.
Act 1956. The new amendment eases this completely and permits one man companies. The singular advantage
of such companies is the number of persons required to set up the company. It shall be required to convert itself
into public or private company, in case the paid up share capital of such a one man company is increased beyond
₹5 million or its average annual turnover exceeds ₹20 million.
Registering as a start-up
The government in 2016 announced the “Start-up India-Stand up India” action plan, which laid more stress on
governance with lesser government interference. In tune with that sentiment, there was the launch of the Start-
up India mobile portal and website, where an entity can also directly be incorporated through the Start-up India
portal and then register as a Start-up. However, in order to obtain tax and IPR related benefits, a Start-up shall
be required to be certified as a business, which involves innovation, development, deployment or
commercialisation of new products, processes or services driven by technology or intellectual property by the
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Inter-Ministerial Board of Certification. The members of the board comprises of the Joint Secretary, Department
of Industrial Policy and Promotion, representative of Department of Science and Technology, and representative
of Department of Biotechnology.
The Government has defined a start up to include only those companies that satisfy the below criteria
 It has been in existence for less than 5 years from the date of its incorporation/ registration (A company
or other entity already in existence at the time of the Start-up India Action plan can still avail of the
benefits of the plan provided it has been in existence for less than 5 years at the time it seeks the
benefits),
 If its turnover for any of the financial years has not exceeded ₹250,000,000 (approximately USD
3,687,810) and;
 It is working towards innovation, development, deployment or commercialization of new products,
processes or services driven by technology or intellectual property.
Amendments to the Companies Act
The company incorporation process has now been made completely electronic making the whole process very
business friendly. This is reflected in the number of companies incorporated: in 2014 around seventy thousand
companies were reportedly incorporated, whereas in 2015 it was around seventy five thousand.
As per the amended Companies Act, 2013:
 company should receive its initial capital and shares shall be issued within 60 days of certificate of
incorporation.(previously, the Co. Act 1956 required such issuance be made within 3 months)
 the entire process of incorporation shall be completed within 120 days
 there is no requirement for minimum paid up capital and notable changes were made with respect to
issue of sweat equity and ESOP as given in Exhibit P3.1
Exhibit P3.1: Changes made with respect to sweat equity and ESOP in Co Act., 2013
Particulars Position under the Co. Act 1956 Position under the Co. Act 2013
Issue of Sweat Equity Company cannot issue sweat equity Start-up company may issue sweat
Shares shares for more than fifteen percent of equity shares not exceeding fifty per
the existing paid up equity share capital in cent of its paid up capital up to five
Exception to Start-up a year or shares of the issue value of ₹50 years from the date of its
Company with respect to million, whichever is higher. incorporation or registration.
quantum of issue.
Provided that the issuance of sweat
equity shares in the Company shall not
exceed twenty five percent, of the paid up
equity capital of the Company at any time.
Employee Stock Option As per section 12(1)(c) Company cannot In case of a start-up, the provision
issue ESOP to (a) employee who is a shall not apply up to five years from
Exception to Start-up promoter or person belonging to the date of its incorporation or
Company with respect to promoter group; (b) director who either registration.
issue of ESOP to Promoters himself or through his relative or through
and Directors (directly or any body corporate, directly or indirectly,
through relative) holding holds more than 10 percent of the
more than 10 percent outstanding equity shares of the
company.
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Simplification of processes
Several processes have been instituted to benefit the start-ups, some of which include:
 A simplified form can be filled for registration of start-up with various government agencies. Impor-
tantly, this mobile application has been integrated with the Ministry of Corporate Affairs for seamless
integration
 A checklist of various applicable laws, licenses and FAQs has been provided for founders to know of
various compliances
 Filing for compliances and obtaining information on the status of various clearances and approvals has
also been made possible on the app.
Measures by the RBI
To complement the start-up regulations under the Co. Act, the Reserve Bank of India (RBI) has also focussed on
measures to ease doing business in India and enhance a conducive ecosystem for the start-ups. Some of the key
measures are as follows:
 Registered Foreign Venture Capital Investors can invest in all start-ups regardless of the sector that the
start-up would fall under. Previously, these investments were restricted based on sectoral limits of the
RBI and the relaxation has benefitted the start-ups
 A hurdle that often stalled investments in start-ups was the inability of the investor to value the
company especially if it was a pre/early stage investment opportunity. In such instances, investors
would propose a deferred investment structure wherein their investment was conditioned on the
founders achieving certain performance milestones. The erstwhile regulations required that the
permission of the RBI be obtained for such investment structures with delayed or deferred
consideration to the Indian founders. This has now been eased and the RBI permits transfer of shares
or ownership which allows deferred consideration structures and facilities for escrow or indemnity
arrangements for a period of 18 months; and
 A company receiving funds from abroad has had to report the same to the RBI and until now a delayed
filing has attracted a compounding of the offence or a penalty. The RBI has now simplified the process
for dealing with delayed reporting of foreign investment related transactions by building a penalty
structure into the regulations itself. And all outward remittances to foreign parties can be reported
online through a form based process, which is intended to provide ease in doing business. All electronic
reporting of investment and subsequent transactions is now on e-Biz platform only and submission of
physical forms has been discontinued with effect from February 8, 2016.
Dealing with insolvency and bankruptcy
In tune with the government intent, a fast track process has been put in place for start-ups to deal with
insolvency and bankruptcy. The Insolvency and Bankruptcy Bill 2016 received Presidents’ assent on 28 May 2016
wherein the Start-ups pursuant to Section 56 can apply for a fast track process that enables winding up of the
company in ninety days. The Board may enable such fast track process once it determined the eligibility of the
start-up as a corporate debtor.
Self-certification of compliance
The start-ups have been allowed to self-certify compliance through the start-up portal with respect to certain
specified labour laws and environmental laws (listed below).
70
1. The Building and Other Construction Workers (Regulation of Employment & Conditions of Service) Act,
1996
2. Inter – State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
3. Payment of Gratuity Act, 1972
4. Contract Labour (Regulation and Abolition) Act, 1970
5. Employees’ Provident Fund and Miscellaneous Provisions act, 1952
6. Employees’ State Insurance Act, 1948
7. Water (Prevention & Control of Pollution) Act, 1974
8. Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003
9. Air (Prevention & Control of Pollution) Act, 1981
The self-certification process helps the entrepreneur shrug off regulatory concerns in the initial stages and
concentrate on the business. The erstwhile license raj system thrived on the entrepreneur being caught off guard
by labour inspectors and such other government authorities. The provision of a self-certification process
provides a trust based governance for the business ecosystem. The Start-up Action Plan has also exempted the
start-ups from labour inspections for a period of 3 years except in a case of credible and verifiable complaint of
violation. These relaxations are particularly beneficial for those start-ups which are engaged in the
manufacturing sector. However, India has not one but 200 legislations relating to labour laws that will still need
to be reviewed and a determination made as to what is applicable to the start-up. The idea of self-certification
for the few crucial ones required of a start-up is bound to ease the start-up compliance anxiety and save time
and resources in this regard.
Case study of the ecommerce sector
India has a huge internet user base that doesn’t necessarily translate into a huge consumer base for products
and services online. Flipkart and Snapdeal, the touted unicorns in the industry leave behind several thousand
internet start-up companies that struggle to live past their second year and travel aggregators such as Ola, Taxi
For Sure are at the centre of debates that rally arguments for and against their protection from external
competition. The regulator and the government have thus had to parry and balance various interests to allow
the growth of the ecommerce sector in India.
The prime fuel for the growth of the ecommerce industry has been capital – how fast the companies are able to
attract it both domestically and from foreign investors. As regards foreign investments the companies have been
able to attract a fair share of interest from the US and China despite the absence of a clear Foreign Direct
Investment (FDI) policy. And a tug of war is often witnessed between the brick-and-mortar stores and e-
commerce sites, with allegations that, since the government doesn’t allow FDI in multi-brand retail companies,
the latter are flouting policies to attract FDI and therefore gain an unfair advantage in the market. The deep
discounts offered by the e-tailers have also been a cause of concern. This led to the filing of a case by the Retailers
Association of India (RAI) in the Delhi High Court wherein the e-commerce models came under scrutiny and RAI
sought parity with e-commerce companies in that they were equally entitled to attract investments as their e-
commerce peers.
Thus, the Department of Industrial Policy and Promotion (DIPP) released a Press Note (PN) on March 29, 2016
to bring clarity to the policies governing the e-commerce sector. The Press Note (PN3) provides definitions for
terms such as e-commerce, e-commerce entity, inventory based model of e-commerce and market place based
model e-commerce.
The inventory based model of e-commerce (“Inventory Model”) or the Business to Consumer (“B2C”) model
means an e-commerce activity where the inventory of goods and services is owned by the e-commerce entity
and is sold to the customers directly. The Marketplace based model of e-commerce (“Marketplace model”) or
71
the Business-to-Business (“B2B”) model means an entity providing an information technology platform on a
digital or electronic network to act as a facilitator between the buyer and the seller.
However, there are ambiguities within the PN3, such as the suggestion that B2B entities may do cash and carry
business, and yet, prohibiting any ownership of the inventory by them. The PN does not define ‘digital products’.
The absence of such a definition might create confusion around the way the term is understood. Furthermore,
it does not provide sufficient time for companies to comply with its provisions. It is hoped that in order to make
the PN effective, the DIPP will soon issue clarification to ambiguities and a compliance timeline to give the e-
commerce companies some breathing space and time to restructure their current models. PN3 has left open
many grey areas, which might be a source of new litigation between various stakeholders. Further, given its
immediate implementation from March 29, 2016 and lack of time to existing entities to restructure their
business and operation model, businesses could suffer if they don’t structure their operations quickly. The
necessary clarifications on marketplace model and inventory model in PN3 have acted as an impetus for
investors, who want to invest in marketplace e-commerce entities. Only time will tell as to whether this PN has
been an impetus or roadblock for e-commerce business, but it is a step regulation for e-commerce industry.
Other than the issues relating to FDI in the e-commerce sector, the domestic e-commerce sector is governed by
the Information Technology Act, 2000. This makes India only the twelfth country in the world to have such a
comprehensive legislation for e-commerce. This Act has led to amendments in the Indian Penal Code, 1860 the
Indian Evidence Act, 1872, and the Reserve Bank of India Act, 1934 to make them align with the requirements
of a digital economy.
With the hyper activity around e-commerce activities in general, it maybe noteworthy to examine what
responsibility does the e-commerce player owe and to who. The minimization of the liability of the start-up on
the internet largely depends on the nature of representations made by the start-up on its website, like Terms of
use, privacy policies, and the usage agreements. Each of these has to be customized for the website to effectively
manage the liability of a company. These would necessarily carry certain disclaimers to at least help minimize
the liability of the start-up if not eliminate it. A start up should also regularly review their website to flag off
potential areas of liability.
Outlook
It maybe “acche din” in the days to come in the Indian start up scenario as the government has been extremely
keen to boost this sector and erase any regulatory differences that foster growth between the Indian and foreign
ecosystems.
While this piece focusses on the government impetus given to the start-up scenario there are several other
initiatives that have been undertaken in the areas of infrastructure (to build better connectivity between cities
and basic amenities for growth), tax regimes (rationalising taxes for start-ups, angel investments tax and
measures to spur domestic investment), and exit mechanisms for investors. While the regulator is beginning to
whistle to the tune of the industry, synchronization remains the ultimate aim.
Notes
1
Start-up India 2015 report, published by NASSCOM.
72
REFLECTION 3
Bootstrapping to $500 million:

A Conversation with Sridhar Vembu
Thillai Rajan A.
When you started your venture back in 1996, the for getting introductions to the investors. They
number of people starting on their own was not don’t simply fund otherwise. In our case, we simply
very large. What was the major factor that had an idea and it was not even clear whether we
influenced your decision to be an entrepreneur? could put together a business plan based on the
idea. Our plan was to figure it out as we went along.
I came to the US for doing a Ph.D. after completing While we had the confidence that would be able to
my under graduation at IIT Madras. My initial goal figure it out the VCs cannot be sure whether we will
after completing my doctorate was to get into an be able to figure it out. Given these circumstances,
academic job. But after completing my Ph.D. from there was no real possibility for us to get money
Princeton University in 1994, I realized that I was from VC’s. So we just plunged into starting our
not mentally prepared for an academic job and it venture on our own. This gave us the discipline to
was not my cup of tea. Therefore, I decided to get find out how we could generate revenues
into the private sector. I ended quickly, because we needed the money to
up working in Qualcomm While VC
survive.
working as an engineer. It was provided lot of
during that time that I realized Fortunately, we were able to quickly start
that there was so much that benefits, there generating profits and we could sustain
could be done in India. ourselves. We started getting the
Qualcomm itself was a great
were undesirable attention of the VC’s after about 3-4 years,
company to work for and the side effects as but by then we were already profitable.
founders of the company were We had an established product in a small
actually professors before they well. market, and we knew that eventually we
started out on their own. This have to create a broader suite of products
was definitely an inspiration for me. My brother for a larger market. While the VCs saw the market
was also in the US at that time, and we discussed a for our initial product as big in itself, we wanted
lot about starting on our own which finally more time to think about what we should be doing
culminated in starting our own venture. in our business. The interest of VCs in our company
coincided with the dot-com phenomenon of 1999-
As they say, omne initium difficile est. But you 2000. By this time, I could see that VC investment
have chosen a path that is different from the had resulted in several companies spend capital
dominant paradigm that prevails today, which is unwisely thereby wasting a lot of money.
to use venture capital to finance the business. Was
it a conscious decision not to seek external funding While VC provided lot of benefits, there were
from the beginning or was it something that kind undesirable side effects as well. We decided not to
of emerged along the way? take VC funding when we saw that there was so
much capital floating around. Companies were
First of all in 1996, when we began, venture capital spending recklessly and we decided that it was not
was not as easily available as it is now. One needed worth taking the money and changing our culture
to have the right background, pedigree, or a track as a result of that capital.
record. We also did not have the necessary network
73
Why did you think that VC investment would Since Java was a new language at that time, we
change your culture? created this protocol and on top of it, built a
platform for network management. This product
VCs would typically encourage their companies to interested some big printer companies whom we
grow faster and faster. It is normal behaviour met in a trade show and they wanted to customize
because the perception is that many of the new this platform to their requirement for bundling with
markets are like land grab. The companies have to their product. We were able to strike such deals
become big very fast or else the market will be which gave us the initial revenues. We also had a
dominated by another company. There is some services component. For example, my brother
rationale to this thinking, because for some worked in Prof. Ashok Jhunjhunwala’s lab along
companies like Facebook, the winner takes it all is with 2-3 engineers on a small project. Such
true. But there are a lot of areas where that does engagements provided the initial revenues to
not necessarily apply. Chasing growth and market sustain our venture.
dominance at the cost of all else in such sectors is
like pumping the company full of steroids. For an There is a perception that VC funding provides a
athlete, taking steroids (if it is made legal) may lead kind of “certification effect” to the start-up and
to short term wins. But, in the long term there gives more comfort to the customers?
would be a breakdown of the body. Exactly the
same thing can happen in businesses as well. With I would say the effect is marginal at best. It does not
excessive capital, the discipline in the internal really matter to the customer which VC has funded
culture of the company gradually tend to fade a company. In the early stages of the venture, the
away. The companies tend to build customers are apprehensive
very flashy headquarters and
Chasing growth and whether the start-up is going to
corporate offices or spend a lot of around for some time, but they are
market dominance not concerned whether the start-
money on sales and marketing. By
contrast, investing in R&D, takes a at the cost of all else up has VC funding or which VC firm
long time to produce results. has funded. Customers are fully
in such sectors is like aware that a lot of VC funded
Companies have a flashy office or
throw money on sales and pumping the companies fail too. There is no
marketing, because it is like making guarantee that just because a
a statement that they have arrived.
company full of famous VC has funded a start-up, it
These things have an impact on the absolves the risk of non-survival.
steroids. For that matter, risk of non-
company’s culture.
availability of product service and
What were the initial sources of funding for your support exists even for established companies.
business? Many large companies are rapidly changing their
product portfolios, and there is a good chance that
I come from a typical Chennai middle class the product line may be dropped in 5 – 10 years and
background, and there was no family money. My we may not get product support. Thus the risk
father was working in the High Court as a exists, whether it is a large company or small
Stenographer and we did not have any business company. Having a VC investment may confer a
background. We funded the business with small advantage, but it is not a big deal.
whatever little we had in terms of personal capital.
We went without pay for the first one and a half Value addition to the portfolio companies is
years, and for the next 2-3 years we took only another area VC firms are known for.
nominal pay to meet our living expenses.
The situation, in my view, is a little different in
Whatever revenues we made, we ploughed back in reality. The problem I see is that a lot of VCs have
the business. Our first product was a stack for extended themselves, because it is in their own
Simple Network Management Protocol in Java. interest to diversify their portfolio. What they are
74
doing is really portfolio diversification and how deal making because we do not have an unending
much attention they can provide to individual source of capital. If we are not disciplined, we
companies is a big question. Often each VC partner would run out of business.
could have as many as 20 companies in their
portfolio. In addition, they could have seed or angel Wouldn’t a listed company bring more trust or
investments in their personal capacity. Moreover, comfort – to the customers, employees, and so
the VCs are also constantly prospecting for new on?
investments. Therefore the kind of attention that
That is the story being told in the market. But I am
they could provide to every portfolio company
not sure. Customers care for a really good product,
becomes very limited. Occasionally, they are able to
good after sales support and the durability of the
refer suitable candidates for recruitment. Many of
company. We can convince our customers today
them are often from the start-ups in which they
that we have been around for 20 years in business,
have invested. Whether it produces a durable team
and that is definitely a long time. Given the dynamic
is questionable, since many of these referrals stick
conditions in the market today, there is no
only for about 3-4 years. Thus with multiple fires
guarantee that a public company would continue to
demanding their attention, the only time the VCs
exist after 10-15 years. So far, no one has ever
show up is during board meetings. Other times, we
refused to buy our product because are not a public
can consider lucky if they respond to our emails!
company. We may have lost a deal for some other
You have also stated your intention to keep Zoho reason such as lack of certain features in the
private and not go for a public offering. Wouldn’t product and so on, but not because we are a private
being a public company provide many benefits, company.
say for example liquidity to the stocks that your
As far as the employees are concerned, we have a
employees could be holding?
good compensation, bonus, and profit sharing plan.
To go public or not is the issue. Even while recruiting, we tell them
But why bother when we are …we cannot indulge upfront that we are an unlisted
well capitalised and are able to company and intend to stay that way.
in reckless deal Therefore, when they join the company
grow on our own internal
accruals? Going public is a very making because we they know fully well that it would be a
complicated process and we privately held company. People who
have to subject ourselves to
do not have an have concerns on joining a privately
owned company, don’t join us. The
external oversight. There is no unending source of
reason for us to subject question is whether the employees are
ourselves to this complexity. A capital. If we are not happy after spending 3-5 years in the
common reason given to go organization. We are inclined to think
disciplined, we that they are, if we look at the attrition
public is to provide some
liquidity to the shareholding would run out of rates. While the industry average
that the promoters have. I attrition rates are 15 - 20 percent, our
don’t care so much for liquidity
business. rates are 5 – 6 percent.
and my modest expectations are met. We are able
What message do you have for the current set of
to generate enough capital for expansion within our
entrepreneurs? A prevailing paradigm that exists
firm. A second reason to go public is to raise large
today is to quickly scale up a business and sell out
sums of capital that enables us to make
after some time.
acquisitions. But in my view, when we have large
amounts of capital, we are tempted to do deals that I have been in the business for 20 years now, and it
are most likely to fail. With limited amounts of is my desire to be in this for as long as possible. That
capital, we become more disciplined, we could to means, I do not have any particular advice to
smaller acquisitions that are more likely to pay off. entrepreneurs who are thinking of a 5-6 year cycle.
As a private company, we cannot indulge in reckless I am not comfortable with the short term thinking
75
for the following reason. Given the unpredictable investments to generate surplus returns, long term
nature of the business, it is very difficult to forecast investors would tend to be more judicious with
what could be accomplished in six years to sell the their investments.
business. So, out of sheer necessity, it would be
better to take a long term orientation. Because, How would you characterise the entrepreneurship
that enables us to constantly reinvent and adapt to ecosystem in India today?
the changes in the market. On the other hand, if the
Today a lot of investment is driven by the
entrepreneur has a fixed timeframe in mind, and
expectation of a quick return. Lets’ take the case of
has not produced a good product in that timeframe,
angel investments, which has seen significant
then the entrepreneur gets fidgety and worried
growth in recent years. The
that he has not been able to make
Today a lot of prevailing thinking is that an
much progress.
investment of ₹0.5 – 1 million can
While there is a lot of VC available
investment is driven grow to ₹10-20 million in a very short
in the market today, there are not time frame, giving attractive returns.
by the expectation While some of the investments are
that many high quality companies
that can be supported. However, of a quick going to be successful, a lot are not
we still have a long way to go going to. Too many companies are
return…While some being funded today with the
because the per capita GDP of
India is only $1500. There is scope of the investments expectation that they could sell to
for the GDP to grow another 5 – someone, but it is not realistic to
10 fold, which means companies
are going to be expect that all these companies can
that take a long term view are get acquired. There is going to be a
successful, a lot are period of healthy shake out, and
more likely to do better, because
it is the process of GDP growth not going to. there will be a return to normal
that also creates more levels. However, I am bullish in the
opportunities for the companies. Therefore, long term, if we look at 10-15 year growth cycle.
entrepreneurs are more likely to do better if they a The favourable policy environment, demographics,
long term orientation, which then precludes the and development focused agenda of many
very short term. While short term investors invest governments would lead to positive results.
substantial amounts and quickly flip their

Sridhar Vembu is the founder and CEO of Zoho Corporation. Zoho Corporation
are the makers of the online Zoho Office Suite as well as several business
applications. The company has annual revenues of about $500 million and
provide employment to close to 4000 people. Despite the increasing growth and
market presence, Sridhar has focused on the boot strapped model and Zoho has
remained independent without any venture funding.
76
4. The Gladiatorial Arena of Start-ups
“I will win the crowd…I will give them something they have never seen before...”1
“Gladiators seek to best all. It is how they survive.”2
“The real gladiators of the world are so humble in their origins and unremarkable in appearance that when we
stand next to them in a grocery store line, we never guess how brightly their souls can burn in the dark.” 3
Thillai Rajan and Atit Danak
Overview
India has grown up to be one of the leading start-up countries in the world, in terms of the number of start-ups
being founded. In this Chapter, we analyze the landscape of the start-ups that are founded, and also provide a
perspective with those that have been successful in raising initial capital. An important source of initial funding
to start-ups is provided by angel investors. Therefore, we also provide a brief analysis of the angel investor
landscape. In the end, we also provide a short comparison of the global and Indian trends in venture financing
for select sectors.
The primary data source for this Chapter was obtained from LetsVenture (LV), India's largest startup funding
platform. Founded in late 2013, LV is India's first and now the largest platform for startups to create their
investment ready profile and connect to global, accredited investors for early stage fundraising. By mid-2016,
11000+ startups, 1800+ angel investors, and 300+ institutional investors from 21 countries were connected to
the platform. The company uses technology – with focus on personalization & match-making - to build world's
largest network of startup ecosystem stakeholders - startups, angels, institutional investors, family offices, policy
makers, corporates, accelerators and incubators - to discover and connect with each other. Till mid-2016, 130
start-ups have been successful in raising capital through the LV platform. In its public metrics, LV only counts the
deals where it helped startup close the round along with paperwork and charged a success fee.
The Start-up Landscape
Table 4.1 provides the number of start-ups on the platform based on the year of founding of the start-up. It can
be seen that there is a sudden jump in the number of start-ups from the year 2013. While it is also possible that
fewer of the start-ups founded during the years 2010-12 have registered on the platform, we believe the number
of start-ups founded in different years reflects the trend in start-up formation in the country.
Table 4.1: Founding year of start-ups

Founding year Tier 1 Tier 2 Tier 3 Grand Total
2010 148 43 5 196
2011 224 65 12 301
2012 437 100 24 561
2013 770 262 37 1069
2014 1664 488 75 2227
2015 3162 875 130 4167
2016 (part year) 1118 391 59 1568
Grand Total 7523 2224 342 10089
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Consistent with the results of the previous Chapters, a large majority of the start-ups are based in Tier 1 cities.
In a sample of 10089 start-ups (for which founding year was available), about 75 percent of the them are from
Tier 1 cities. Tier 2 cities accounted for about 22 percent of the sample, while the remaining 3 percent are from
the other cities. Policy makers need to be cognizant of this skew in the start-up formation trends and make
efforts to create conditions that democratizes the start-up formation.
Table 4.2 provides details on the lifecycle stage of the start-up. Start-ups were classified into 5 categories based
on the lifecycle stage, viz., ideation, proof of concept, beta launched, early revenues and steady revenues. We
calculated the maturity index of the start-ups based on the number of start-ups in each stage for the different
city types. The stage of the start-ups was given a value of 1 to 5 for the different stages, with a value of 1 for
ideation and a value of 5 for steady revenues. Maturity index was calculated as a weighted average of the
number of start-ups in each stage and the value assigned to each stage of the start-up. The maturity index of
the Tier 1 cities is the highest at 3.1. This indicates that a higher proportion of the start-ups located in Tier 1
cities are at the later stages of the life cycle as compared to those in Tier 2 or 3 cities. While the results are
expected, the trend could be attributed to a more conducive environment for start-ups in Tier 1 cities to progress
quickly across the different stages.
Table 4.2: Maturity index for start-ups in different cities

Start-up stage Tier 1 Tier 2 Tier 3 Grand Total
Ideation 1125 439 84 1648
Proof of Concept 1557 468 88 2113
Beta Launched 2166 640 89 2895
Early Revenues 2858 841 102 3801
Steady Revenues 868 191 29 1088
Grand Total 8574 2579 392 11545
Maturity index 3.1 3.0 2.8 3.0
Table 4.3 gives details on the number of start-ups and those that have been funded. Two types of funding details
are available, those that have successfully raised money on the platform and those that have received
commitment from other sources (as disclosed by the founders). The number of companies that have received
funding is very small – just 1.07 percent of the companies successfully raised capital on the platform. The
proportion of companies that have received outside commitment is higher at 7.9 percent. In total, only 8.3
percent of the total start-ups in the sample has received some form of external funding.
Table 4.3: Number of start-ups founded and funded

Count Percent
Total number of start-ups 12073 100%
Total funded in LV platform 130 1.07%
Total outside commitment 957 7.9%
Total funded 998 8.3%
Table 4.4 shows the percentage of companies that have got funding by city tier. Among the transactions that
got closed on the platform, 90 percent of the companies that got funded were from Tier 1 cities. Overall
(including other external commitments), about 83 percent of the companies that obtained some form of funding
were from Tier 1 cities. The proportion of companies from Tier 1, 2, and 3 cities that got funding from the
platform was 1.5 percent, 0.5 percent, and 0.25 percent. Overall, the proportion of companies that have got
external funding from Tier 1, 2, and 3 cities was 10 percent, 6 percent, and 5 percent respectively. Not only has
the start-up formation rates in Tier 2 and 3 cities lower, the probability of getting funding is also considerably
78
lower. Targeted interventions would be needed to augment the capabilities and access to finance for the start-
ups in the mid and smaller cities.
Table 4.4: Percentage of start-ups funded by type of city

Other
City type LV funded All funded
commitment
Tier 1 90.0 82.7 82.9
Tier 2 9.2 15.5 15.2
Tier 3 0.8 1.9 1.9
Total 130 957 998
Table 4.5 gives the proportion of companies funded in the six Tier 1 cities out of the total companies that got
funded on the platform. Strikingly, the cities of Bengaluru, Delhi and Mumbai account for more than 94 percent
of the companies that have got funding in the six Tier 1 cities. The remaining 3 cities, viz., Chennai, Hyderabad,
and Kolkata account for only 6 percent of the share of companies that got funding. The maturity index of the
start-ups in Bengaluru, Mumbai and Delhi are also higher than that of Chennai, Hyderabad, and Kolkata. Among
the six cities, Bengaluru has the highest percentage of companies that got funded (39 percent), whereas the
share of Chennai is just one-eighth of that of Bengaluru. Presence of LV team in Bengaluru could be a possible
reason for the trend.
Table 4.5: Tier I cities: Maturity index and percentage share of start-ups funded
Percentage share of Maturity
City
start-ups funded index
Bangalore 35.50 3.1
Chennai 4.27 3.0
Delhi 24.79 3.1
Hyderabad 0.85 3.0
Kolkata - 2.9
Mumbai 26.50 3.1
Total start-ups in Tier I funded on platform 117 3.1
A comparison of funded and non-funded start-ups
Figure 4.1 presents a plot of the percentage of start-ups at different stages of their lifecycle separately for start-
ups that got funded on the platform and those that did not get funded. It can be seen that the percentage of
companies that get funded in the ideation and proof of concept stage is low. However, after the beta launch
stage, the probability of getting funded dramatically increases as indicated by the cross-over point in the
pathways of funded and non-funded companies. The sweet spot for funding seems to be the early revenues
stage, which has the maximum number of companies. Surprisingly, the percentage of companies declines in the
late revenue stage. The possible explanation that we could think of is that start-ups are not inclined to raise
angel funding when they reach the late revenues stage. They could be approaching institutional sources to raise
larger sums of capital leading to a reduction in angel funding.
Figure 4.2 shows the pattern for the companies that have got some external funding (either funding from the LV
platform or other external sources or both) and those that did not get any external funding. The trend is similar
to that of Figure 4.1.
79
Figure 4.1: Proportion of start-ups at different stages (LV funded and not funded)
Figure 4.2: Proportion of start-ups at different stages (Overall funded and not funded)
80
The founders have also seemed to have realized the importance of launching and reaching early revenues stage
quicker to increase the chances of getting funded. For example, in a 2016 study on State of Indian Start-ups, a
sample of 532 startups were asked on what they would have done differently to accelerate their progress. The
top response that was given was “launched earlier and got customer feedback.”4
Table 4.6 gives the maturity index values for different start-up groups: those that have been funded on the
platform, those that have received commitments from other sources, start-ups with overall external funding,
and those with no external funding. The trend conforms to a pattern. Those start-ups that have obtained
commitments have a higher maturity index as compared to those that do not have any external funding. It needs
to be seen whether the higher maturity index is a result of prior funding raised by startup or frugality of startup
founders.
Table 4.6: Maturity index for funded and non-funded start-ups

LV Other Overall No external
Stages
Funded commitments funding funding
Ideation 1 39 40 1608
Proof of Concept 6 121 125 1988
Beta Launched 23 222 230 2665
Early Revenues 60 437 456 3345
Steady Revenues 39 133 142 946
Grand total 129 952 993 10552
Maturity index 4.01 3.53 3.54 3.00
Effect of incubators and accelerators
An important development in the start-up ecosystem in recent years is the setting up of incubators and
accelerators. Start-ups on the platform have indicated whether they have been a part of any such incubation or
acceleration facility. Table 4.7 gives details of the number of start-ups that have been part of an incubation or
acceleration facility. Out of a total of 11,545 start-ups about 6 percent have been part of an incubation or
accelerator facility. It is interesting to note that the maturity index of start-ups that have been part of an
incubation or acceleration facility is higher than that of start-ups have not been part of such a facility. This
indicates a possible correlation between the maturity of the start-up and the influence of incubator or
accelerator.
Table 4.7: Profile of start-ups that have been part of incubation or acceleration facility
Part of incubation or acceleration facility
Start-up stage
Yes No Grand Total
Ideation 4.4 14.9 14.3
Proof of Concept 14.1 18.5 18.3
Beta Launched 24.3 25.1 25.1
Early Revenues 44.3 32.3 32.9
Steady Revenues 12.9 9.2 9.4
Grand Total 637 10908 11545
Maturity index 3.4 3.0 3.0
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Table 4.8: Funding trends for start-ups in incubators or accelerators
Present in incubator or Other
LV funded All funded
accelerator commitment
Yes 23.1 15.4 15.2
No 76.9 84.6 84.8
Grand total 130 957 998
Table 4.8 provides a cross tabulation of the start-ups that have been funded and whether they have been a part
of the incubation or acceleration facility. It can be seen that about 23 percent of the start-ups that have received
funding on the LV platform have been with an incubator or accelerator. At the overall level, 15 percent of all the
start-ups that have received external funding have been part of an incubator or accelerator. In a way, a majority
of the start-ups that do get funding have not been a part of an incubator or accelerator. A possible reason could
be that start-ups that are able to get external funding on their own do not apply to incubator or accelerators.
These results also suggest another interpretation. Being a part of an incubator or accelerator can increase the
possibility of getting external funding. For example, only 8.3 of the start-ups are successful in getting external
funding. But among those who have been a part of an incubator or accelerator, 24 percent have been able to
get external funding. Thus incubators and accelerators have been able to increase the chance of getting funded
by about three times. Similarly, 5 percent of those who have been with an incubator or accelerator have been
able to get funding on the platform, while the proportion of those getting funded on the platform for the overall
sample is only 1.1 percent. Incubators and accelerators have thus been able to increase the chances of getting
funded on the platform by five times.
Landscape of angel investors
Figure 4.3 gives the number of angel investors who have listed themselves on the platform. Investor location
information was available for a total of 1718 investors, out of a total of 1811 investors who were present on the
platform. Of that, about 80 percent of the investors are from India, while the remaining 20 percent are located
abroad. The angels from India are spread over 46 cities, and investors from abroad are spread over 77 cities in
34 countries. The fact that there are 346 investors from overseas locations are interested in making investments
in India is very encouraging. Getting the interest and the feasibility of sourcing investment from overseas angels
would have not been possible without such online platforms created by LV. A biggest contribution of these
investor platforms have been to increase the interface area between start-ups and investors.
Figure 4.3: Location of angel investors in LV platform
Figure 4.4 gives the number of angel investors in the platform based on their year of joining. The numbers for
2016 is only for part of the year. Number of angel investors who joined the platform has grown since 2013. While
there was a big jump in the number of investors between 2013 and 2014, the growth was also healthy during
2015. These statistics underlines the increasing interest among the angel investors to invest in start-ups. Figure
4.4 also gives the number of investors who have made at least one investment within the calendar year of
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joining. The number of investors who make commitments as a percentage of those who express interest has
continued to remain healthy. Despite the increase in the number of investors registering on the platform, the
percentage of investors who make commitments have stayed above 20 percent, indicating that more than one
in five who register in the platform have actually made an investment within the calendar year of joining.
Figure 4.4: Number of angel investors who joined the LV platform in different years and the number who have
made their 1st investment on the LV platform in the corresponding year
Figure 4.5: Percentage of angel investors from different city categories
Figure 4.5 shows the percentage of angel investors in India by the type of city in which they are located. It can
be seen that the bulk of the registered investors (88 percent) are from Tier 1 cities. This probably explains the
reason why most of the start-ups are also located in the Tier 1 cities. Previous academic research has also
indicated that location proximity of the start-up is an important characteristic of angel investment. It is also one
of the reason why city specific angel networks have been established in India and elsewhere. The number of
angels in Tier 2 and 3 cities are 11 percent and one percent respectively. The reason behind this is not difficult
to hazard. Most of the entrepreneurs who have become successful turn angel investors and the proportion of
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those who become angel investors are higher in Tier 1 cities because of the ecosystem that exists in the Tier 1
cities.
Figure 4.6 provides the percentage of angel investors in the six tier 1 cities. Delhi (i.e., the National Capital region
that comprises of adjacent cities to Delhi such as Gurgaon, Noida, and Okhla) has the largest number of angel
investors, followed by Mumbai and Bangalore. Taken together, these 3 cities account for 88 percent of the total
angel investors in Tier 1 cities. The remaining cities of Chennai, Hyderabad, and Kolkata account for only 12
percent of the total. A campaign to increase the number of angel investors may be in order as increase in the
number of investors would lead to an increase in the number of investments.
Figure 4.6: Percentage of Tier 1 city angels from different cities
Figure 4.7: Number of investors and average commitment amount
Commitment details were available for 448 individual investors with a total commitment amount of about ₹1145
million. The total number of commitments made by the angel investors are 1018, i.e., on an average each
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investor has invested in about 2.3 companies. The number of start-ups that has successfully raised funding is
130, indicating that on an average about 8 investors join together to make an investment. The average
investment per investor was about ₹11 million. Figure 4.7 provides the profile of the investors in terms of their
average investment amount. The peaks indicate that the investors seem to have a preference to invest in nice,
rounded numbers. The number of investors is the highest for the average commitment amount of ₹500,000,
followed by ₹1 million. Beyond that, there is a sharp fall in the number of investors, indicating that the sweet
spot for investors on the platform is between ₹0.5 – 1 million.
Figure 4.8 shows the cumulative investment against the number of investors. It was seen that the top 20 percent
of the investors (in terms of the investment amount) accounted for 50 percent of the total investment, while
the bottom 80 percent of the investors accounted for the other half. Thus, both active and occasional investors
contribute significantly (in equal amounts) to the investment amount.
Figure 4.8: Cumulative investment and number of investors
Figure 4.9: Profile of angel investors
Figure 4.9 gives the proportion of angel investors in terms of their experience. Investors have been classified
into two categories: new, i.e., who have made fewer than five investments; and experienced, i.e., who have
made five or more investments. The difference in the proportion of experienced and new investors is not very
high, indicating that the mix of angel investors is well balanced. Figure 4.10 gives the profile of angel investors
in terms of their professional background. Senior executives in large corporations comprise the largest segment,
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accounting for more than half of the investors on the platform. Entrepreneurs comprise the second highest
category, accounting for close to 40 percent of the investors. The traditionally wealthy, i.e., those engaged family
businesses account for less than 9 percent of the investor sample. This indicates that emergence of investment
platforms such as LV help to draw out professionals to make angel investments. For the entrepreneurs, getting
investment from experienced industry professionals can be very beneficial given their rich corporate experience.
Figure 4.10: Professional background of angel investors
Odds of success for the entrepreneur
An aspiring entrepreneur should be fully aware that the odds of success are stacked up against the venture.
Similar to that of the gladiatorial arena, the entrepreneur needs to demonstrate courage and pluck in the most
adverse of circumstances to emerge victorious in the marketplace. While it is difficult to get reliable data on the
survival rates of start-ups, we have used the number of rounds of financing as one indicator of growth and
progress made by the start-up.
Figure 4.11: Proportion of start-ups that get founded and funded at every successive round
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Figure 4.11 shows the proportion of start-ups that get founded as compared to those that get funded at every
successive round. As it can be seen, the numbers are illustrative, and the trends have been interpolated based
on two independent data sets. In sum, for every 875 start-ups that get founded, only one is able to successfully
raise 4 or more rounds of funding. Out of the total start-ups that get founded, about 6 percent take part in an
accelerator or incubation program. 75 of the 875 are able to get first round of funding, out of which only 15 are
able to get the second round of funding, and only 5 are able to secure the third round of funding.
While the chances of funding are difficult, our analysis show that the Indian entrepreneurs do demonstrate a lot
tenacity to survive. We used the date of last update made by the start-ups to infer about the survival and
existence of the venture. Figure 4.12 gives the trends on the days elapsed since the last update made by the
start-up (Panel A) and days elapsed since the start-up joined the LV platform (Panel B). Panel A shows that about
90 percent of the start-ups on the platform have made an update within the last 90 days, indicating that they
are active (otherwise, they would not be making updates). Panel B shows that the days elapsed for a majority of
the start-ups since they joined the platform was between 6 months to 2 years. This shows that many of the start-
ups are quite active and are promptly updating their progress made, possibly to strengthen their chances of
getting funded.
Figure 4.12: Days elapsed since the last update made by the start-up and joining the platform
Comparison of the global and Indian start-up landscape
In order to get some insights on the relative standing of the Indian start-up landscape we did a comparison with
the global start-up landscape. This comparison was made for three sectors – grocery tech, health tech and
consumer healthcare, and home improvements and smart homes. Data for these comparison was obtained from
the global and India focused reports produced by Tracxn. The results are given in Figures 4.13 – 4.15. While
there are differences between the three sectors, there are commonalities too. The common trends contain both
features: some comforting and some concerting.
The comforting trends are broadly two. First, is the vibrancy in the Indian start-up landscape, as seen by the
number of companies founded. In two of the three sectors, the number of companies founded in India is close
to the number of companies founded globally. For example, in grocery tech, the number of companies founded
globally was 561 whereas the number of companies founded in India was even higher at 615. In healthcare and
consumer health tech, the number of companies founded globally was 1000 and the number of companies
founded in India was 841. In the case of home improvement and smart homes category, the number of
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companies founded in India was reasonably lower (259) as compared to that founded globally (628).
Nevertheless, the evidence suggests a very bullish sentiment (which some may consider an exuberance,
bordering on the alarming) on the founding of start-ups in India. Second, is the average investment per round.
Though the average investment per round is higher globally, there is not too much of a difference from the
average investment received by start-ups in India. In the case of health tech and consumer healthcare sector,
the global average is significantly higher as compared to that the average for Indian start-ups, particularly in
recent years. However, in the smart home and home improvement category, the average investment per round
in Indian start-ups is higher than that of the global average. In general, no conclusive trends could be established
on the average investment per round between global and Indian start-ups. But since most of the institutional
investors who invest in India are overseas investors, the average investment size is likely to very similar.
The most striking concerting trends are two. First is the low proportion of start-ups that are able to raise external
funding in India. A possible reason could be the number of investors itself. For example, while India has about
1800 active angel investors overall, while US has close to 300,000.5 The percentage of global start-ups that are
able to successfully raise capital in the grocery tech, healthcare and consumer healthcare, and smart home and
home improvement are 41 percent, 52 percent, and 36 percent respectively. The corresponding percentage for
Indian start-ups are 5 percent, 10 percent, and 11 percent. This is also reflected in the number of rounds of
funding in global and Indian start-ups. The number of rounds of funding in global start-ups are several orders of
magnitude higher than of Indian start-ups. Possible reasons for this could be two fold. One, capital availability
for start-ups is scarce in India. Two, investment worthy start-ups that are being founded in India are fewer. If
the former is the dominating cause, policy interventions that increases investment flow to start-ups should be
implemented. If it is the latter, then it is more disconcerting. Creation of “me-too” start-ups is a waste of capital,
which could be productively invested elsewhere in the economy. To avoid such wasteful expenditure becoming
a drain on the economy, there should appropriate capacity strengthening activities to strengthen the
entrepreneurial ecosystem, which would create more awareness among the founders on the need to create
investment worthy start-ups.
The second concerting trend is the time lag in the setting up and funding between global and Indian start-ups.
The growth in the number of Indian start-ups in different sectors occurs later than what is seen for global start-
ups. The number of Indian start-ups that are set up continues to increase even after a dip in the global growth
rates (as seen in the case of home improvements and smart homes category). First movers have a definite
advantage in terms of getting funding from prospective investors. If Indian start-ups come to the market later
as compared to their global counterparts, not only will it affect the ability to raise funding, but also the valuations
they would receive and the market share that they can garner.
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Figure 4.13: Comparison of global and Indian trends: Grocery tech start-ups
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Figure 4.14: Comparison of global and Indian trends: Consumer Health-care and Health-tech
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Figure 4.15: Comparison of global and Indian trends: Home Improvements and Smart Homes
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Summary
This chapter has provided several interesting insights on the Indian start-up arena. Firstly, the start-up landscape
is vibrant in India as seen by the number of start-ups that are being founded. Secondly, a majority of the start-
ups are located in Tier 1 cities. Further, the maturity index of start-ups located in Tier 1 cities are higher than
that of start-ups located in Tier 2 or 3 cities. Among the six Tier 1 cities, Bengaluru, Delhi, and Mumbai account
for 94 percent of the start-ups that get funded, while Chennai, Hyderabad, and Kolkata account for only 6
percent of the start-ups that get funded. Thirdly, the proportion of start-ups that get external funding is very
small. A comparison of Indian and global start-ups for some of the sectors indicate that the proportion of global
start-ups that get funding are much higher. Fourthly, the investors have a preference to fund start-ups that are
in the later stages of their lifecycle. The sweet spot for funding seems the early revenue stage, as the largest
proportion of start-ups that have been funded are in that stage. Revenues indicate customer validation of
product and services and this can be a big comforting factor to the investor. Fifthly, being part of the incubators
and accelerators need not be the preferred route to get external funding. Our results show that only 15 percent
of the start-ups that have been funded have been a part of an incubator or accelerator. However, being a part
of an incubator or accelerator can significantly improve the chances of getting funded for a start-up. Sixthly, we
find that the odds of getting funded are severely stacked against the entrepreneur. Only 75 of the 875 start-ups
are able to get the first round of funding. Out of the 75, only one is able to get four or more rounds of funding.
The biggest hurdle seems to be in the first round of funding, as only about 8.5 – 9 percent of the start-ups are
successful in getting the initial round of funding. The proportion of companies that are able to raise subsequent
rounds of funding increases considerably after the first round. Finally, the landscape of angel investors show
that about 20 percent of those who are registered are from overseas cities. While this indicates the interest
among the overseas investors to invest in Indian start-ups, this also underscores the impact of online platforms
such as LV in overcoming geographical barriers between investors and start-ups.
Notes
1
From the movie “Gladiator”.
2
Quote attributed to Spartacus.
3
Quote attributed to James Lee Burke.
4
State of Indian Start-ups 2016, A survey by LetsVenture – Axilor, 11 March 2016.
5
India angel investing landscape 2016, LetsIgnite Presentation by Shanti Mohan, 11 March 2016
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REFLECTION 4
Evolution of Start-ups:
A Conversation with Mahesh Murthy
Thillai Rajan A.
You have been through multiple cycles in the Google, and so on. Several of the founders of these
venture industry. How would you characterize the start-up companies were drawing ridiculous
evolution of the Indian start-ups over the years? salaries, in the range of ₹350 – 450 million. It was
like a high-paid job for an IIT-IIM graduate. People
I think we have probably had 2 cycles of start-ups in started companies with the objective of taking
India so far. The first cycle was during the period advantage of the easy money available.
1999-2003 – inspired by Sabeer Bhatia and the
Hotmail story. It was during this phase that people The second cycle was also associated with
were slowly warming up to the idea of starting on exuberance in valuations, which has resulted in an
their own. People were very sceptical of start-ups implosion of sorts. Many of the so called ‘Unicorns’
before this and the first seeds of start-ups were are now facing difficult times.
sown during this cycle. Companies which originated
during this period that come to my mind are Naukri For me, this downturn is a healthy development.
and Make My Trip. Even after the dot-com crash, Now we are beginning to see in 2016, the first green
these companies were committed and stayed on shoots of the 3rd generation of start-ups.
course.
This time there are fewer mercenaries – and more
The second cycle was during the period 2010-14. sincere, committed founders. And yes, there is
Start-ups came out in droves during this period, more capital too. So this generation should produce
probably because of global economic trends. There even better companies over the long term than the
was unrestrained flow of capital to India first two.
because markets elsewhere in the People started Does academic pedigree matter
world: China, Europe and the US were
not growing as fast.
companies with in entrepreneurship or start-
ups?
The difference I found between the two
the objective of
May be from a psychological
cycles was this: In the first cycle, we had taking advantage point of view, but certainly not
many sincere start-ups, but they were
of the easy money from any real experience.
not able to obtain financial
commitments. available. For example many folks in the VC
industry have studied in
In the second cycle, we had probably
institutions like the IITs and IIMs and have never
lots of insincere start-ups, mercenaries if you will,
been entrepreneurs themselves. So, in the absence
but which were able to attract investment. Since
of personal knowledge of what makes for a good
there was lot of capital available, many of the start-
start-up, they instead take decisions as per their
ups came with the attitude of going out and making
personal comfort.
hay while the sun shone. Investors also should be
blamed for the situation. During this period, many So, if they receive a proposal from a fellow alumni,
of the start-ups were nothing but clones of they get sent to the front of the line. And, in the
companies in the West. We had companies that absence of any other indication, it is comforting to
were nothing but replicas of Amazon, Facebook, invest in your batch mates, seniors and juniors.
93
That’s the psychology here, and this preference to Many of them want to become wealthy quickly, in
invest in your clan’s companies has nothing to do contrast to the preference for long-term wealth
with the investee’s merit or in the plans merit creation.
themselves. You can see the result – there is no
correlation (or if anything, there is a negative In the 54 companies that I have invested in, not one
correlation) between the IIT / IIM credentials of a of the founders, in retrospect has had an IIT + IIM
founder and the success of their start-up. background. Which may be one reason why the
fund’s performance has been industry-leading.
I do not attach a lot of importance to the quality of Now, this was never a conscious decision when we
educational institutions where the founders started investing, but it’s really an observation after
studied. I personally am not even a graduate, and I the fact.
tend to have a lot more belief in an uneducated risk-
taker than an educated and risk-averse IIT/IIM I am also surprised by the attitude of many of these
graduate. 3-rd cycle VCs and entrepreneurs. They want to
build a business in 3 or 4 years and then sell it, and
Students go to IIT’s to ostensibly study engineering, move on to the next one, glorifying the concept of
but as it happens almost no one ends up working in “exit”.
the field they studied in. This is because the youth
that have come here have not come from any love But to me, entrepreneurs who make a huge impact
of the subject – but instead arrived there from a are those who spend a life time building the
desire to de-risk their lives and to get high-paying companies that they create. For example, there is
jobs, no matter what field they are in. Many IIT-ians Richard Branson, Bill Gates, and Steve Jobs. In India,
also follow up with a management degree we have business leaders like Azim Premji,
subsequently to even more underline the fact that Narayana Murthy and so on.
they never intended to work in the field they
But somehow, we have let that true
studied in, but were simply
ideal go and instead started
optimizing for better-paying jobs. ... entrepreneurs celebrating small-term pops by
Hence the ludicrous situation that
the typical student spends 4 years
who make a huge glorifying serial entrepreneurs, who
aim to start and exit a business every 4-
studying computer science impact are those 5 years. Not that it is necessarily a bad
followed by two years studying
who spend a life thing – but you need a balance of both.
marketing – all to become an
investment banker. time building the Does the 8 year life of venture funds
encourage short term thinking among
These are safety players, and companies that entrepreneurs?
quite the opposite of what
successful start-ups really need. they create. I would tend to think so. Most funds in
India today are 8 plus 2 year funds. It basically
Start-ups on the other hand need risk takers. The
means that if I raise money in 2016, I need to return
founders need to show a certain amount of
it by 2024. It takes 2-3 years to deploy the capital,
commitment to the venture, which, among other
which generally means, I can finish investing by
things could be in terms of working with little or no
2019 and need to start getting money out by 2023
salary for the initial years. For those who are
or 2024 – giving about 4 to 6 years that I can stay
conditioned to aim for top dollar salaries in
invested in any investee.
established organizations, this is a scary prospect.
This, especially in India, is too short a period.
IIT-IIM founders and other ‘safety players’ now
draw large salaries in the initial years, thanks to We have somehow copy-pasted the structure of
venture investors who come from similar American venture capital industry in India, and it
backgrounds and have as little understanding of the just doesn’t work. Four to six years is too short a
need for risk and commitment as the founders do. time frame for companies to create an impact in
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India, or even to create exitability. If funds take a 4- entrepreneurs should rightfully shun such
5 year perspective, then they would be essentially investors.
seeking mercenaries among founders, who promise
a quick hump and dump. Because it’s not just about the money. An
important feature of angel investing is to provide
I am therefore keen to start a long term venture guidance, mentorship and to open doors for the
fund in India. I’m working towards one of my next entrepreneurs.
funds being a 20+ year long term fund.
But many investors today are HNI’s such as doctors
I’ve spent a couple of years figuring out how this is and lawyers, who do not have any entrepreneurial
possible – it is unprecedented in India. But I know it experience. They are thus not able to provide any
is possible. mentorship to the entrepreneurs.
There are investors that can do Funding is seen as Angels, like any other investors, need
long term funding such as to have an investment thesis – such as
something to
endowments and family offices. It the activities they would do, the
is also possible to create structures celebrate…The sectors would like to dominate, and
that can lead to long term funding, the type of companies they will fund
such as having a publicly listed
point is funding is and so on. The investment thesis
fund, where investors can exit the beginning of cannot be just “fund anything that
whenever they want. moves”.
the road.
On creation of such a vehicle, we However, the positive aspect of an
will be able to support entrepreneurs who actually angel investment is the staying power. The VCs
create long term value. So far, the returns that have a 5 year window, after which they say, “Ok,
venture funds have generated in India has been time’s up.” They then merge the company or sell it
generally disappointing. In our first fund, which was to one of their portfolio companies.
$15 million, we have been able to return 4.0X, cash-
on-cash – which, I am told is some sort of record in Some companies can grow to huge sizes just on the
India. In our second fund, which was $55 million, we back of angel investment without having to touch
should return about 3x if not more – there are still VCs and PEs. Angels can indeed play a huge role in
4 years to play there. India.
But anybody with a fund size in excess of $200 You have seen several cycles of start-ups. What
million is unlikely to offer any significant return to are the common mistakes made by the founders
their investors. The magic is in smaller, more and your suggestions for avoiding them?
strategic funds.
The key aspect that the founders have to decide is
In the last few years, there has been a substantial whether they want a high salary or whether they
growth in angel investing. What has been the want to make a difference.
impact of this?
Today, many people, right from college are thinking
Angel investors do not have an 8 year time period. of founding start-ups as an opportunity to get a high
They can even provide long term funding and the salary. The Start-up page from Economic Times and
best among them do not have a time pressure to breathless blogs that cover start-ups are part of the
exit. problem.
But a few among them now are coming in with Funding is seen as something to celebrate – an end
unnatural expectations for ridiculously high in itself as in “Wow, see how much they got
returns. A few are even asking for guarantees from funded!” The point is funding is the beginning of the
Series A investors lined up before they put in angel road. It should scare you, if you’re a good founder,
rounds. This, of course, is ridiculous – and when you take ₹100 million or ₹1000 million from a
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VC. Because you are expected to return 10 times particularly coming from me, but avoiding VC and
that amount in 6 years. Can you do it? If you can’t, PE can actually be a route to success.
you’re going to lose your company. Are you ready
for that? What are you celebrating? You should be In terms of another personal learning: my biggest
shit scared. exit was from a company called RedBus. As a fund
we made 24 times our investment back but the
Our media is celebrating the wrong kind of heroes. founder had to sell his company at the 7 year mark.
People who have raised billions of dollars, bought The founder made some money but he lost
large residences and office spaces, even turned something that he had created from scratch.
angel investors – before returning any money to
their investors and before building a viable, The entire system is biased against producing
profitable business themselves. It is hubris. enterprises that create long term value.
The message going across is – “Hey – no one is here My advice to people if they want to be long term
to build a lasting or profitable company. They’re entrepreneurs is that it takes 10 – 20 years to build
being rewarded for their short-term thinking with a company. For this one must be careful with taking
tens of millions of rupees in salaries. Why should I institutional venture capital at all costs.
also not do the same?”
I am an institutional VC myself, and I can tell that
My advice to prospective entrepreneurs is not to when I make an investment I want to exit from it. I
look at the current generation of media heroes as would therefore encourage entrepreneurs to take
many of them are likely to lose out. investment from angels or even through loans, but
stay away from institutional VC as much as possible
If they truly want to make a difference, they have to –unless you’re certain that you can work within
understand a few things. For example, it is going to their timeframes.
take more than 4 to 6 years to
create an impact in the How should entrepreneurs handle
business.
My advice to people if the deal winter that is being
they want to be long currently talked about?
Therefore, they have to be
careful with taking capital from term entrepreneurs is I don’t think there is a deal winter in
investors who have a shorter the market now. Today we have
horizon. To give an example, I
that it takes 10 – 20 great deals at a reasonable price.
have invested in a micro- years to build a Three years ago, we had very poor
brewery company nine years
company. deal quality and everybody running
ago, and the company is now
after deals and hence those were at
doing revenues of ₹200 million
terribly high prices.
or so. Having stayed invested in the company so far,
I know I have to continue to be invested for maybe Today, we know at first glance that we would throw
five or ten more years, before it can reach a value such deals out, and they don’t have a chance of
of ₹10 – 20 billion. If I’d tried to get out at the 4 year getting one rupee of funding. But we are seeing the
mark, I’d have had almost nothing to show for it. right kind of entrepreneurs coming back and they
But, with a longer timeframe, you radically improve are talking what seems like a fair valuation. I have
your chances of creating a truly ground-breaking in fact made 6 investments in the last 12 months
large and sustainable enterprise. and it’s the best time to invest in.
We need to have patience, and the only way this However, some of the venture funds are going slow
company could do that was by saying no to because they were victims of the explosion and
institutional capital. We now five outlets, and have their investment values are all down by about 80 –
plans of scaling up organically to around one 90 percent. We have been a little lucky in the fact
hundred outlets. Ironic, as it may sound,
96
that we never did that kind of investments at high We are now going through a phase where investors
valuation. So it’s a great time for us to buy. are exercising a lot of caution. There is lot capital
available, but there are very few unique investment
How have the venture investors in India evolved theses. The earlier norm investment thesis of “Jo
over the years? tum karega mein bhi karoonga”, has proved to be
the undoing of many large investors.
Most of the venture firms in India are employee-
managers of their funds, they are not owners of the In hindsight, how did you manage to stay clear of
fund. the exuberance?
Fund raising for them is largely done by others We were very clear from the beginning that we
abroad and there are very few purely Indian funds. would not support any deal that did not
The partners of most funds look good in terms of valuation.
are generally concerned
The earlier norm
about protecting their investment thesis of So, we passed on the opportunities
salary incomes. where we had a chance to invest, such
“Jo tum karega mein as Flipkart or Snapdeal. Jabong, which
There are two ways to at one time was valued at $1.2 billion,
achieve that – the first is to bhi karoonga”, has
was sold at a 95 percent discount.
have great performance in proved to be the
terms of returns, so that We also carefully looked at the type of
they are able to raise undoing of many entrepreneurs that we would fund.
successive funds. The Many entrepreneurs are not here for
second way is to just follow
large investors. the long term, and they don’t care
the market trends because most investors have no much about the investors either. They are more
entrepreneurial experience. So they want to bask in concerned about how much money they will make,
the comfort of “they all did broad e-commerce, I and don’t care about anything else. Such
also did it, they all did food tech, I also did it, so entrepreneurs are like those who take up the jobs
please pay my salary” kind of thinking. that are the highest paying, and not what they are
actually doing. We have avoided those. We have
Investors also had an investment strategy of always looked for entrepreneurs who had the drive
investing in the Amazon of India, Facebook of India, and wanted to make a difference.
Google of India, and so on. So, unlike China where
the model has worked well, where Alibaba is the Its’ not that I have not had losses. In this profession,
Amazon of China, what has happened in India is losses are inevitable. But we have learnt valuable
that Amazon of India has been Amazon, Facebook lessons from these losses. Otherwise, what is the
of India has been Facebook, and the Google of India point of losing money? The money that we lost
has been Google, and so on. There’s no room to be should be helpful in educating ourselves on the
a copy paste in India. mistakes that we should not be making.
Mahesh Murthy is a founder of Seed Fund, an early stage, sector agnostic venture
fund. Before becoming as a venture investor, he has had a very successful stint in
the advertisement industry. He started his career in active investing, in 2000, when
he founded Passionfund, focused on early stage startups. Over the last 17 years, he
has made 54 investments.
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PERSPECTIVE 4
Summary of the Case Studies

“I wake up to a smoking gun. The evidence is in your head. There is no proof of guilt or innocence”1
Thillai Rajan A.
Overview
A runaway Aamir Khan’s hit of the early 1990’s was the Bollywood flick, “Jo Jeeta Wohi Sikandar”. True, the
world recognizes winners and also needs winners. Naturally, most of the reports on the VC industry has anchored
on the winners, i.e., startups that have successfully raised venture or other forms of external capital. While this
report series has been equally guilty of applauding only the winners so far, we are trying to atone for the
omissions of the past editions. Therefore, starting with this report, we hope to also focus on the participants
and not just the podium finishers. We believe this will help in a better understanding of the start-up landscape
and also help us to understand what separates both.
In this report, we feature case studies of four organizations in the start-up ecosystem and deal flow landscape
in these organizations. We are thankful to the organizations who have graciously provided stripped data on the
pool of applications that they receive. This is a significant step forward and taken together, these case studies
help to understand the pulse of the entrepreneurial ecosystem. While we are still far away from the clinching
smoking gun evidence that we all aim to, these case studies provide us with a reasonably strong evidence on
what is happening on the ground. The case studies that form a part of this collection include Bengaluru based
Axilor, The Chennai Angels, Keiretsu Forum Chennai, and Saffron Incubation and Acceleration2. While the case
studies themselves provide descriptions and findings of the cases, I have tried to consolidate the main findings
in this summary. The key findings that emerge are as follows.
1. There are significant odds against the entrepreneur in raising external private capital
The number of proposals that the institutions receive are high and continues to grow. For example, the average
batch-to-batch growth in the number of applications received by Axilor has been 57 percent (Exhibit C1.1). In
the case of Chennai Angels, the annual growth in the number of proposals has been around 60 percent. A
venture fund organization whom we interviewed for this report had an annual average deal flow growth rate of
28 percent during the period 2010-16. More importantly, the highest growth was seen in the early stage deals,
where the probability of getting funded is the lowest. Exhibit P4.1 shows the deal flow by stage of the venture
and Exhibit P4.2 shows a comparison of the deal flow snap shot in 2010 and 2015. Both of these indicate that
the type of deals that flow has considerably changed over time.
While the deal flow is characterized by high growth rates, the proportion of successful companies continues to
be less. For example, in the case of Axilor, the proportion of applications that go to the interview stage is about
10 percent and the proportion of selected applications is only 3 percent (Exhibit C1.1). In the case of The Chennai
Angels too, the ratio of successful companies is only around 3 percent of the applications received. One of the
venture fund organizations that we spoke to had invested in only 0.67 percent of the deals that it assessed.
Entrepreneurs thus trying to raise capital should be aware of the low success ratios. Given the low success rates
in raising funding, very often the fact a start-up got funded becomes an occasion for celebration more than the
success of the venture itself. However, such low success rates in India are nothing unique to the venture capital
industry. For example, the acceptance rate in the Joint Entrance Examination for admission to the IITs is only 0.7
percent. Similarly, the percentage of successful candidates in the UPSC Civil Services Exam is estimated to be

between 0.1 – 0.3 percent. Having said that, a higher percentage of success rate would definitely boost the spirit
of entrepreneurship.
Exhibit P4.1: Deal flow by the stage of the start-up
Exhibit P4.2: Snap-shot of the deal flow in 2010 and 2015: A comparison
2. Start-ups that demonstrated more progress at the time of approaching investors have
a better chance of getting funded
This could be criticized as an obvious statement. However, this trend indicates that there is no randomness
associated with the selection process. In the platter of companies that the institutions gets to assess, they select
those companies that demonstrate a higher degree of commitment or have made relatively better progress. For
example in the case of Axilor, none of the companies that are in the “idea” or “concept” made it to the final
selection. The proportion of those having a legal entity is higher among those selected as compared to that of
the application stage (Exhibit C1.2). Results from The Chennai Angels (Exhibit C2.8) show that the proportion of
companies in the pre-revenue stage is considerably lower (14 percent) for invested companies as compared to
that of companies that apply for funding (46 percent). The average annual revenue run rate is also higher (₹48
million vs ₹22 million) for companies that were successful in raising investment.

3. The line of separation that distinguishes the winners from the participants can often
be very thin
The data from Keiretsu Forum indicate that the average number of positives (or concerns) is just higher by a
count of 2 (or lower by a count of 2) for the invested companies as compared to that of non-invested companies
(Exhibits C3.10 and C3.11). Similarly, the average investment made by companies as seen from Chennai Angels
(Exhibit C2.8) is not very different between the invested and applicant companies (₹7.98 vs ₹6.88 million
respectively). However, the case studies also provide various pointers on increasing the probability of success.
The most common causes of rejection of proposals has been limited interest among the angel network members,
low traction, and scalability issues (Exhibit C2.7). Data from Keiretsu Forum indicates that the strengths of the
business model, the value proposition, and market size are significant factors that influence the investment
decision (Exhibit C3.8 and C3.9). The count of concerns for companies that were not successful in receiving
investment was considerably higher for the following parameters: business model, customer traction, margins
and profitability and market size. The entrepreneurs could bear this in mind when making their business plans.
4. As we move up in the lifecycle stage of the start-up, the source of applications become
more concentrated
Start-ups seeking incubation support are in the initial stages of their lifecycle as compared to that of start-ups
applying for acceleration. Data from Saffron Incubation and Acceleration Limited (SIAL) shows that the
applications for incubation come from more number of cities as compared to that of applications for acceleration
(Exhibit C4.1 and C4.2). This indicates that the sustaining power of the start-up founders is not very high in the
smaller cities. Much of the applications are being received from applicants in Tier 1 cities, indicating that the
path to entrepreneurship still remains the untrodden path for many in the smaller cities. If the investors’ choices
are anything to go by, then the start-ups from metro cities seem to have more potential for success as compared
to those from non-metro locations. While the data from Axilor indicates that though a majority of the
applications that they receive are from founders in non-metro locations, the final selection consists of founders
only from metro locations (Exhibit C1.2). An underlying trend that was seen consistently was that metro cities
accounted for a large proportion of the deal flow. Even among the metro cities, Bangalore, Delhi, and Mumbai
accounted for a lion’s share of the deal flow. Exhibit P4.3 provides the pattern in deal flow provided by a venture
firm interviewed for this study. It can be seen that the share of Bangalore, Mumbai, and Delhi has grown
significantly in recent years.
Exhibit P4.3: Deal flow from different cities

While several reasons could be attributed to this trend, it can be summed up as follows: Man is nothing but a
product of the social environment. Similarly, the overall ecosystem for start-ups is of a much higher order in
metro cities leading to entrepreneurs from these cities being better equipped on various dimensions.
Establishing a more robust ecosystem in the smaller cities is therefore very critical in expending the frontiers of
entrepreneurship beyond the metro and larger cities.
5. The start-ups are increasingly seen using the right ingredients that prepares them for
success
There is a strong dominance of technology and related sectors such as software and internet services, internet
marketplace and ecommerce, consumer products and services, and so on in the application stage. This is also
reflected in the investments, and a significant number of companies that have received investments are in the
technology and related sectors. When the start-ups were classified into five stages based on their lifecycle (just
an idea, having a landing page, prototype built, in private beta, and initial traction), the highest number of start-
ups were in the prototype built stage (Exhibit C4.10). Data from Axilor shows that a majority of the applications
that they received for the most recent batch has been in the launch phase (Exhibit C1.1). This indicates that a
majority of the founders are showing progress and demonstrating seriousness at the time for applying for
funding. More importantly, the strength of the average application has continued to increase with every
successive batch as seen by a higher proportion of the applications in the later stages of the start-up life cycle.
A single founder venture is unlikely to succeed or continue to remain as a single founder venture in today’s
context. Our findings show that though there are many single founder applications, a majority of them have two
or more founders (Exhibit C1.2 and C4.3). The team size seems to be correlated to the lifecycle of the start-up
as seen in the number of founders for incubation and accelerator applications. The founder team size, in general,
is larger in the applications for acceleration as compared to that of applications for incubation (Exhibit C4.3). It
is also interesting to note that family members as co-founders form a very low proportion, indicating that
founders are increasingly open to choose their business partners from outside their families. The educational
backgrounds of the founders also indicate that the highest number of applications have almost equal number
of people in both engineering and business backgrounds (Exhibit C4.9).
6. Approaching the investor through a reference can improve the odds of funding
It is well known that VC investors receive several deals for consideration, but they pay more attention or respond
promptly to deals that they receive from known sources. While investment bankers have played an important
role in providing deals to the investors traditionally, the trend is gradually changing. In recent years, angel
networks and VC firms have tried to strengthen their proprietary deal flow networks in order to be able to
identify deals ahead of the competition. In addition, there is a view (and rightly so) that a “banked” deal (i.e.,
mediated by investment bankers) are usually fully priced. Therefore, in the fund raising process, the VC firms
specifically stress on their networks and ability to achieve quality deal flow. Exhibit P4.4 provides the proportion
of deal flow from different sources for one of the VC firms that we had interviewed for this report. It can be seen
that personal contacts of the firms’ employees account for the largest number of deals. Therefore, it is important
for the founders to develop network of contacts within the VC industry to strengthen their prospects of funding.
The trends seen from Chennai Angels also support this premise. Ninety two percent of the investments made
by The Chennai Angels were sourced through or had a reference from angel investors or members of the angel
network (Exhibit C2.9). None of the deals that were received directly were funded. A possible explanation for
this trend is that references act as gate keepers and provide a layer of selection. Since many of the individuals
who have deep connection with venture investors are reputed and well known, they would like to protect their
reputation and forward to investors only those deals that they think has merit.

Exhibit P4.4: Deal flow from different sources
Summary
The findings highlighted above are some of the salient ones. The individual case studies themselves provides
several interesting insights. We invite the readers to read each of the case studies that follow and derive their
own conclusions.
Notes
1
From “The Pain” by Lacuna Coil.
2
Name changed at the request of the organization and confidential reasons.

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CASE STUDY 1
The Accelerator Program at Axilor

Thillai Rajan A.
Axilor, based in Bengaluru, has been set up as a platform to support early-stage entrepreneurs. Founded in 2014,
Axilor helps founders improve their odds of success through various programs and funding support. Improving
the odds of success included one or more of the following activities: refining the idea, helping the founders build
products that have value for users, reaching and connecting customers, providing funding, and helping the start-
ups to scale up.
Axilor was founded by Kris Gopalakrishnan, S D Shibulal, Tarun Khanna, Srinath Batni and Ganapathy Venugopal.
Kris and Shibulal were co-founders and members of the Board of Directors at Infosys Technologies. Tarun Khanna
is the Director, South Asia Institute, Harvard University and the Jorge Paulo Lemann Professor at the Harvard
Business School. Srinath Batni was previously a member of the Board of Directors at Infosys Technologies.
Ganapathy Venugopal, also the CEO of Axilor, was previously the head of strategy and planning at Infosys
Technologies.
The Accelerator program
The flagship program of Axilor is the accelerator program, which aimed to take the business from the idea to
pilot stage. The program helps founders to build their products become investible faster. The expectation is that
the start-ups in the program would be able to move 3 to 5 times faster than that of working independently.
Many start-ups were able successfully raise funds even during the course of the program.
Participating the accelerator program helps the start-ups to move quickly from market validation to business
model quickly and get prospective funding from the scale-up program. Structured as a 100 day program, the
participants in the program are provided free space in the Axilors’ start-up campus and also get access to an
entire gamut of partner benefits and tools. In addition, those selected are also receive a nominal grant of One
hundred thousand rupees.
The accelerator program was aimed at founders who were in early stages of their start up (up to 6 months of
their start-up journey). Axilor specifically targets companies in three specific areas: e-commerce, enterprise and
healthcare. In the e-commerce segment, they specifically, target start-ups which enable e-commerce (improve
consumer experience through better search, recommendations or product discovery, reduce consumer
acquisition costs, categorize better, increase conversions, promote loyalty, improve fulfilment, streamline
logistics or make payments easier). In the enterprise segment, they seek start-ups that are focused on large
global opportunities with a low friction sales model. In healthcare, Axilor is keen on start-ups in the following
areas: affordable access, achieve break-through improvements for chronic illnesses, harness the potential of
preventive healthcare, and improve the efficiency of providers.
Program administration and process
Normally, there are 2 batches of the accelerator program every year, which start in March and September. The
company accepted applications for its second batch (Winter 2015) between July and August 2015, third batch
(Summer 2016) between February and March 2016 and the fourth batch (Winter 2016) between June and
August 2016. Exhibit C1.1 gives the number of applications, shortlist and final selected for Batches 2, 3 and 4.
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Exhibit C1.1: Number of applicants at different stages of the selection process
Batch 2 - Winter 2015 Batch 3 - Summer 2016 Batch 4 - Winter 2016
Application Stage
Application Stage
Application Stage
Interview Stage
Interview Stage
Interview Stage
Selected
Selected
Selected
No. of applications 178 17 6 244 24 9 437 44 11
(Source: Axilor)
Selection to the accelerator program
Given the inherent uncertainties in start-ups, assessing their potential is a difficult task. While the team and idea
of the start-up, it is difficult to judge the idea in the early stages. Accordingly, Axilor has focused on things that
they can validate. It was found that successful applicants had two things in common: (i) the founders had some
proprietary insights about the start-up idea; and (ii) the founders have solved some tough problems previously
and had smartly overcome challenges. In general, successful applications had more evidence than promise.
Exhibit C1.2 shows the comparative characteristics of applications at different stage.
Exhibit C1.2: Comparative characteristics of applications

Batch 2 - Winter 2015 Batch 3 - Summer 2016 Batch 4 - Winter 2016
Application Stage
Application Stage
Application Stage
Interview Stage
Interview Stage
Interview Stage
Selected
Selected
Selected
No. of founders 1.5 1.59 2 2.4 2.3 2.2 2.0 2.3 2.3
Percentage of founders from 13% 0 0 14% 13% 0% 20% 14% 0%
non-metro locations
Sector wise split
Ecommerce 40% 41% 50% 32% 29% 22% 32% 30% 46%
Healthcare 14% 18% 17% 11% 4% 11% 11% 7%
Sustainability and CleanTech 7% 18% 17% 4% 4% 5% 5% 9%
Others 38% 24% 16% 54% 63% 66% 52% 59% 46%
Percent having previous start-
63% 78% 100%
up experience
Stage of the idea
Concept 26% 17% 17% 7% - - 8% - -
Mock / Scale model 10% 11% - 6% - - 5% 5% -
Prototype 28% 22% 50% 19% 25% 56% 22% 30% 18%
Beta 24% 39% 17% 25% 25% 22% 26% 30% 27%
Launched 13% 11% 17% 42% 46% 22% 37% 35% 55%
Others - - - 2% 4% - 7% - -
Percent having a registered legal
76% 87% 89% 71% 73% 82%
entity
Percent having previous
7% 0% 0% - - - 16% 33% 36%
external funding
(Source: Axilor)
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Benefits from the accelerator program
The broad range of benefits from participating in the accelerator program are as follows:
 Most start-ups get funding after the successful completion of the accelerator program from the scale-
up program
 Dedicated access to experts and other entrepreneurs for mentoring and other help
 Differentiated partner benefits from AWS, Google, Microsoft and Facebook. Access to tools for market
validation, prototyping and testing.
 Free memberships to industry bodies to help in networking
 Provide more visibility to the start-ups.
Scale up and Early stage funding program
In addition to the accelerator program, Axilor also has the scale-up and early stage funding program. The former
helps the start-up to go from pilot to launch stage, while the latter takes the start-up from the launch phase to
scale. As a part of the scale-up program, Axilor provides funding of up to ₹2.5 million, in exchange for a minority
stake. Even those start-ups that are not part of the accelerator program can apply for the scale-up program,
provided they meet the investment criteria and sectors of interest. Early stage funding program is for those
companies that have demonstrated a market fit and have had good customer traction and revenue visibility.
Axilor is prepared to provide funding support in the range of ₹75 – 30 million for a significant minority
shareholding.
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CASE STUDY 2
The Chennai Angels

Ramesh Kuruva
The Chennai Angels (TCA), formerly known as Chennai Entrepreneurship Trust Fund, was established in
November 2007 with a focus on nurturing and mentoring new generation entrepreneurs. Set up by a group of
successful entrepreneurs, TCA provides significant mentoring in addition to funding for the selected enterprises.
Since the members of TCA have had significant experience in founding ventures, growing them into successful
businesses, before exiting them, they are able to provide considerable value-addition and handholding to the
businesses that they invest in.
As of July 2016, TCA has invested more than ₹500 million in 34 companies. In 2015-16, the total number of angel
investors in its network increased to 96, from 35 in 2012-13. Exhibit C2.1 gives the number of proposals received
over the years by TCA. The number of proposals received in the consumer products and services category was
the highest at 258, followed by 181 in the software and internet services category. The number of proposals
received in other categories are: Technology – 84; Internet marketplace and ecommerce – 83; Edu-tech – 79;
Health-tech – 68; Fin-Tech and payments – 36; Hyperlocal and logistics – 33; and Media, advertisement and
gaming – 31. Ninety five of the proposals could not be classified in any of the categories and were grouped under
others. Exhibit C2.2 gives a visual representation of the number of proposals received in different sectors.
Till July 2016, TCA has invested in 35 start-ups. Category wise break-up of the investments are as follows:
Consumer products and services – 8; software and internet services – 5; Technology – 7; Internet marketplace
and ecommerce – 5; Edu-tech – 4; Health-tech – 2; Fin-Tech and payments – 3; and Media, advertisement and
gaming – 1. Exhibit C2.3 gives a visual representation of the investments made.
Exhibit C2.1: Number of proposals received by TCA
(Source: Chennai Angels, IIT analysis)
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Exhibit C2.2: Proposals received in different sectors
Exhibit C2.3: Investments classified by sector
The selection process
The selection process at TCA starts with an application submitted by the start-up in an online system. Once the
completed application is submitted the start-up, the analyst team at TCA takes it up for analysis. Based on the
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information provided, the analyst studies the proposal carefully to get an understanding of the business idea,
market potential, competition, and other details. The analyst then completes a pre-defined template with the
necessary information, which is then presented in a pre-screening meeting. The pre-screening meeting, held
every Thursday, is attended by three members of TCA, who have been previously identified. To ensure
consistency, the members comprising the pre-screening committee does not change from meeting to meeting.
All applications that are submitted till Tuesday of the respective week, is normally taken to the pre-screening
committee meeting of the same week. Applications that arrive after Tuesday, are taken up for the next weeks’
meeting. Though the number of proposals taken up depends on the applications received, on an average about
6-7 proposals are discussed every week in the pre-screening meetings.
The proposals that show promise are then shortlisted by the pre-screening committee and are presented in the
screening committee meeting held on Friday. Members of TCA who could be potentially interested in the
investment opportunity are invited to participate in the meeting. A member of the pre-screening committee
then presents the short listed deals to the screening committee. On an average, about 2-3 proposals are
presented to the screening committee. For those deals that generate interest among the members, the
entrepreneurs are invited to have personal interaction with 2-3 members of TCA. During this interaction, called
the deep-dive session, the entrepreneurs get an opportunity to have a detailed and thorough discussion on the
various issues raised by the members.
Proposals to TCA come through different sources. If the proposal is mentored or recommended personally by
any of the member of TCA, then they are directly taken to the deep-dive stage, skipping the pre-selection and
selection steps. Exhibit C2.4 provides the proportion of proposals received via different sources.
Exhibit C2.4: Source of all the proposals received
Based on the experience of the deep-dive session, the entrepreneur could be invited to make a presentation to
the larger group of TCA. Attended by about 25 members, these presentation sessions are held on alternate
Saturdays. Normally, 3 presentations are scheduled at these meetings. After the presentation by the
entrepreneurs, members are asked through a show of hands whether anyone would be interested in the
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opportunity. If 4-5 members are keen to take it up, then the deal is taken to the next stage. One of the members
who showed an interest, is identified as a deal champion and a polling mail is sent to all the 95 members of TCA
to check whether they would be interested in investing in the opportunity. Among other details, the polling mail
would also contain details about the valuation of the start-up as well as the amount that the entrepreneur is
seeking to raise. Exhibit C2.5 gives details of the average investment asked by the entrepreneurs in different
sectors.
Exhibit C2.5: Average fund requirement indicated in the proposals
The investment process
Once the polling mail generates commitment interests of about 60 – 70 percent of the investment requested,
TCA begins the process of business, legal, and financial diligence. The due diligence activities are outsourced,
and are done by reputed professional firms. To avoid conflict of interest in the due diligence process,
membership to TCA is not granted to professionals who have their own legal or accounting practice. If the
outcome of the due diligence process is successful TCA issues a call for money notice to investors who indicated
their commitment to invest in the deal. In case of a shortfall in the commitment amount from the “ask”, the TCA
team would contact prospective investors individually in an attempt to bridge the shortfall.
Since the investment is made by a group of TCA members, an investment director is identified by TCA to be a
single point of contact between the company and investors. Typically, the deal champion is identified as the
investment director for the investment. Having a single point of contact helps the company to avoid the
distraction of responding to multiple investors and focus on business operations. Typically, each investor
contribute in the range of ₹1 – 2 million, though occasionally it could even be higher. The minimum expected
investment from each investor is usually ₹0.5 million. However, when the commitment bids made by the
members exceed the ask amount of the start-up, the commitments are gradually scaled down. Usually, the
investment made by TCA in a company would range between ₹25 – 30 million. When the investment
requirement is higher, TCA would attempt to syndicate the investment with other angels, angel networks, and
even seed funds.
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Exhibit C2.6 gives the average investment made in different sectors. Even at the time of submitting the proposal,
the founders have invested significantly in their start-ups. Exhibit C2.7 gives details on the average investment
made by the founders in the start-ups at the time of submitting the proposal. It can be seen that there is
significant variation in the investment made by the founders in different sectors.
Exhibit C2.6: Average investment made in companies
Exhibit C2.7: Investment made by the founders in the company till the time of proposal submission
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Proposals vis a vis investments made
TCA also documents the reasons behind the proposal not being selected. Exhibit C2.8 gives the split up between
the different reasons provided behind the proposal not being selected. Exhibit C2.9 provides a comparison of
proposals that received investment and those that did not receive investment.
Exhibit C2.8: Reasons for proposals being rejected
Exhibit C2.9: Comparison of invested and not-invested proposals

Category Invested Not-Invested
Company stage
86:14 54:46
Post revenue: Pre revenue
Investment requested (₹ Mn) 24.00 42.29
Average annual revenue run rate in the year

48 22
of investment (₹ Mn)
Average investment made by the companies

7.98 6.88
at the time of application (₹ Mn)
Reference form angel investors and

92% 8%
members of angel networks
No reference (direct applications) Nil 57%
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CASE STUDY 3
Keiretsu Forum, Chennai

Ramesh Kuruva
Keiretsu Forum is a global angel investor network with 2,500 accredited investor members through 46 chapters
on 3 continents. The Chennai chapter of Keiretsu Forum, which was the 34th chapter for the investor network
was founded in February 2015. The founders of the Chennai chapter and the leadership team comprised of Rajan
Srikanth, Subra Iyer, and S.V.Krishnamurthy.
Rajan Srikanth has over 20 years of experience in management consulting. He is also the Managing Director of
SmartKapital, a venture advisory firm designed to facilitate rapid revenue and profit growth for Small and
Medium Enterprises (SMEs). Prior to founding SmartKapital, Srikanth served as a Worldwide Partner and
President of Mercer Consulting’s Asia operations. He has held senior partner-level positions at Accenture and at
Mercer Delta Consulting after strategy consulting stints at Bain & Company and KPMG. Previously, he was also
an Assistant Professor at the Walter A. Haas School of Business, University of California, Berkeley.
Subra Iyer has over 21 years of experience in M&A advisory and transaction services, audit, restructuring and
forensic investigations. He has advised and conducted due diligence services for global PE firms including KKR,
Carlyle, CVC, Standard Chartered Private Equity, Southern Capital and Navis Capital.
SV Krishnamurthy is a successful entrepreneur with extensive experience in serving global customers from India.
He was one of the early entrants in the outsourcing sector, having entered into it as early as 1989, when he was
appointed to the 1st group of Service Providers by Citibank’s credit card operations in India. His previous
ventures include PMC India, a business process outsourcing company in financial services, and Asirvad
Microfinance.
The Chennai chapter investment process
The different global chapters of Keiretsu Forum operate in a fairly autonomous manner. While there are no
restrictions that the Chennai chapter has to source deals only from Chennai, the normal practice of the different
chapters is to actively source deals from the city in which the chapters are based. As indicated by the operating
team of the Chennai chapter, they have about 20 – 30 new conversations with entrepreneurs every month, out
of which 10 get into the deal pipeline, of which, 6 – 7 are taken to the next step of detailed screening. From
those that are taken for screening, 3 – 4 are selected for a personal presentation at the monthly forum meetings.
Since the time of founding, more than 50 entrepreneurs have made their presentations at the monthly forum
meetings till July 2016. Exhibit C3.1 gives the number of companies in different sectors that have presented in
these monthly forum meetings. In most of the monthly meetings, the list of presenters also include a foreign
company that come through some of the other global chapters of Keiretsu. Thus Keiretsu forum provides
entrepreneurs a platform to access the global investors in addition to the investors in their respective cities.
Typically, the monthly meetings are attended by the chapter members. Each entrepreneur is given a time slot
of 10 minutes to make a presentation, followed by Q&A for about 10 minutes. This initial presentation helps to
gauge the level of interest for investment among the chapter members. Those companies that have generated
strong interest, are subsequently provided an opportunity to engage in a “deep-dive” session with those
members who had shown interest. During these “deep-dive” sessions, the prospective angel investors and the
entrepreneurs discuss the investment opportunity in a more detailed fashion.
If the discussions during the “deep-dive” sessions emerge fruitful, then the deal is taken for closure after the
chapter undertakes the due diligence process. On an average, the chapter aims to complete the investment
process in 30 – 45 days from the date of the presentation of the entrepreneur in the monthly forum. As of
115
August 2016, the Chennai chapter has invested in 19 companies. Exhibit C3.2 gives the number of companies in
different sectors that have received investment through the Chennai chapter.
Exhibit C3.1: Number of companies by sectors that have presented in the monthly chapter meetings
16
14
3
12
Number of companies
10
3
6 12 2
2
4 8
6
5 1
2 4
2 2 2 2
0
Technology Consumer Hyperlocal and Health-Tech Edu-Tech Fin-Tech and Internet Others Software and
Products and Logistics Payments marketplace Internet
Services and Services
eCommerce
Domestic Foreign
(Source: Keiretsu Forum, Chennai chapter; IIT analysis)
Exhibit C3.2: Companies that have received funding through the Keiretsu Chennai chapter
6
5
Number of companies invested
5
4
4
3
2 2 2 2
2
1 1
1
0
Technology Health-Tech Consumer Hyperlocal and Others Software and Edu-Tech Fin-Tech and
Products and Logistics Internet Payments
Services Services
The overall average investment has been about ₹4.7 million. Exhibit C3.3 gives the average investment size in
different sectors. As it can be seen, there has been a significant variation between different sectors. Consumer
116
products and services companies have received the highest average investment, and Edu-tech has received the
lowest average investment. There are also differences in the average investment received by domestic and
foreign companies. The average investment in a foreign company was ₹5.45 million, whereas in a domestic
company, it was ₹4.46 million. On an average, about 6 – 7 angel investors participate and invest together in a
deal. As of July 2016, the Chennai chapter had 29 investors, and growing at the rate of 1 – 2 investors per month
since Feb 2016. About 80 percent of the investors were successful entrepreneurs, and a majority of the investors
are in the age group of 55 – 60.
Exhibit C3.3: Average investment in different sectors
The Mind-share
An important value-add for the entrepreneurs who make the presentations at the monthly chapter meetings is
the feedback provided to them by the members. The members provided detailed feedback on the strengths and
concerns based on the presentation made. This feedback is compiled by the Keiretsu team and shared with the
entrepreneurs so that they have an opportunity to strengthen their venture. Exhibit C3.4 provides the frequency
plot of the positive factors and Exhibit C3.5 provides the frequency plot of the concerns.
In order to understand whether there were differences in the pattern of positives and concerns between sectors,
we analyzed the mindshare separately by sectors. The results of the top 5 sectors are given in Exhibit C3.6.
Though there are differences, the results indicate a great degree of commonality across sectors. Exhibit C3.7
gives the pattern in positives and concerns when companies were classified on the basis of their domicile.
Characterising the successful companies
A comparison of the count of positives on various parameters for invested and non-invested companies is given
in Exhibit C3.8. Similarly, a comparison of the count of concerns for invested and non-invested companies is
given in Exhibit C3.9. Exhibit C3.10 and C3.11 gives the aggregate and average count of positives and concerns
for invested and non-invested companies respectively. As expected, the count of positives has been higher for
invested companies, whereas the count of concerns has been higher for non-invested companies.
117
Exhibit C3.4: Count of positive factors in the mindshare provided to entrepreneurs
Exhibit C3.5: Count of negative factors in the mindshare provided to entrepreneurs
118
Exhibit C3.6: Pattern of positives and concerns in different sectors
Positives Concerns
Hyperlocal and Logistics
Hyperlocal and Logistics

Consumer Products and
Consumer products and

Health-Tech
Health-Tech
Technology
Technology
Edu-Tech
Edu-Tech
Services
services
Parameters
Product strengths and uniqueness / IP
Market size
Competency of the entrepreneur

Business model / Barriers /
Competitiveness
Operational efficiencies
Customer traction / Customer
acquisition / Gestation time
Segment leader / First mover /
Competition
Economies of scale and scope / Growth
Entrepreneur commitment (Financial)
Business processes
Communication / Value proposition

Proven market need / Market
readiness for the product or size
Product readiness / Testing completed
Exit possibility
Partnership and alliances
Valuation and Fund requirement
Margins and profitability
Regulatory issues
119
Exhibit C3.7: Count of positives and concerns for domestic and foreign start-ups
Positives Concerns
Domestic
Domestic
start-up
start-up
start-up
start-up
Foreign
Foreign
Product strengths and uniqueness / IP
Operational efficiencies
Business model / Barriers / Competitiveness
Entrepreneur commitment (Financial)
Business processes
Market size
Competency of the entrepreneur
Customer traction / Customer acquisition / Gestation time
Economies of scale and scope / Growth
Exit possibility
Segment leader / First mover / Competition
Proven market need / Market readiness for the product or
size
Partnership and alliances
Product readiness / Testing completed
Margins and profitability
Communication / value proposition
Valuation and Fund requirement
Regulatory issues
Exhibit C3.8: Count of positives for invested and non-invested companies for key parameters
120
Exhibit C3.9: Count of concerns for invested and non-invested companies on key parameters
Exhibit C3.10: Aggregate count of positives and concerns for invested and non-invested companies
Exhibit C3.11: Average count of positives and concerns for invested and non-invested companies
121
122
CASE STUDY 4
Saffron Incubation and Acceleration 1

Ramesh Kuruva
The Saffron Incubation and Acceleration Limited (SIAL) is an incubation and acceleration facility in a Tier I city in
India. Founded within the last six years, the main focus of this facility is to develop an early stage technology
start-up ecosystem in India.
Incubation and Accelerator Programs
SIAL provides two programs, Incubation and Acceleration. Incubation program is for start-ups that are in the
idea stage whereas accelerator program is for those start-ups that have a visible product and are in the process
of identifying a fit in the market. Details of these program are as follows.
Incubation Program
The aim of the Incubation program is to help transform a vision for a prototype and product into a viable product
with Product-Market validation over a 6-month period. The teams go through a cycle of prototype building,
customer development, product-market fit process and to establish the business model cycle. During the
incubation period, entrepreneurs will also get professional guidance from the mentors. SIAL has a panel of
mentors, many of whom are experienced entrepreneurs. Mentors are expected to provide vital inputs in various
functional areas of management such as marketing, finance, strategy, product development, and so on. Peer to
peer learning is one of the important components of the incubation resident program at SIAL, where many
entrepreneurs come together to share their knowledge and experience, and also it gives access to the wider
community to develop a professional network.
Product development is a crucial process for any start-up. Getting the right product usually involves several
iterations. One of the benefits of participating in the incubation program at SIAL is to help the entrepreneurs to
get to the final product stage with fewer iterations. The program also helps to identify potential customers.
Tangible benefits from the program participation include financial benefits from Amazon and Google
respectively. Participants in the incubation resident program also get a wild card entry to the accelerator
program. For the various services provided in the program, SIAL charges a fee when the incubatees graduate
from the centre.
Accelerator Program
The goal of the accelerator programme is to give the required momentum, over a six month period, to those
start-ups that already have a defined product. Start-ups that have gone through the product-market fit process
are considered for this program. The accelerator program will help with business model brainstorming, growth
hacking strategies, setting up the advisory board and market validation, and funding to the tune of ₹1 million.
SIAL incubated companies have priority over other start-ups in the accelerator program selection process.
Applications for the incubation and accelerator programs

SIAL receives applications to participate in the incubator and accelerator program through a variety of channels
– internet and web, emails, and through referrals. This case study provides an analysis of a sample of the
applications that were received through the Internet for the incubation and accelerator programs. Exhibit C4.1
and C4.2 gives the applications received for incubation and accelerator program respectively from different
locations.
1
Name changed at the request of the organization and for confidential reasons.
123
Exhibit C4.1: Proportion of applications received from different locations for participation in the incubation
resident program
(Source: SIAL; IIT Madras analysis)
Exhibit C4.2: Proportion of applications received from different locations for participation in the accelerator
program
124
SIAL received more than 60 percent of the applications from Tier I cities comprising Chennai, Bangalore, Delhi,
Mumbai, Kolkata, and Hyderabad for both incubation and acceleration. Among the Tier I cities, the maximum
number of applications were received from Chennai.
Analysis of incubator and accelerator applications

Exhibit C4.3 gives the number of founders in start-ups applied for incubation and accelerator program. Twenty
six percent of start-ups applied for accelerator program have a single founder whereas 40 percent of the start-
ups applied for incubation have a single founder. Sixty three percent of start-ups applied for the accelerator
program have two to three founders, whereas only 51 percent of the start-ups applied for incubation have two
to three founders.
Exhibit C4.3: Number of founders in start-ups
70
63
60
51
50
40
Percentage
40
30 26
20
12
9
10
0
Single founder Two to Three founder Four or more founders
Applications received for incubation Applications received for acceleration
Exhibit C4.4: Relationship between co-founders in the start-ups

45
39
40
35
30
30
25
Percentage
20 18
14 14
15
10
10 6 5
5
0
Family members Friends and Classmates Professional acquaintance Colleagues
125
Exhibit C4.4 gives the co-founder relation in start-ups applied for incubation and acceleration. It can be seen
that for both incubation and acceleration co-founders are friends and classmates in most cases. Co-founders
among family members had the lowest proportion.
Exhibit C4.5 gives the sector classification of start-ups applied for incubation and acceleration program. There is
a difference in the pattern of applications received for incubation and acceleration. The difference in the
proportion of applications between incubation and acceleration is the highest for consumer products and
services, Fintech and payments, HealthTech, Software and Internet services, and Technology sectors.
Exhibit C4.5: Sector classification of start-ups
30
25
25
20
17
15 13 13 12
Percentage
12 12
10 10 11
10
10 8
7 7
5
5 4 4 4
2 2
0
Consumer Edu-Tech Fin-Tech Health-Tech Hyperlocal Internet Media, Others Software Technology
products and and logistics marketplace advertising, and internet
and services Payments and and gaming services
eCommerce
Exhibit C4.6: Business models of start-ups
70
62
60 57
50
43
Percentage
38
40
30
20
10
0
B2B B2C
126
Exhibit C4.6 gives the business model classification of start-ups applied for incubation and acceleration. B2C
start-ups were higher in the case of incubation applications, whereas in the case of accelerator applications, B2B
applications were higher.
Exhibit C4.7 and C4.8 gives the expectations of start-ups from incubation program and accelerator program
respectively. Mentoring, investment, and marketing constitute the top expectations from the incubation
applicants, whereas investment and marketing are the dominant expectations from the accelerator applicants.
Exhibit C4.7: Expectations from the incubation program
Technology 17
Scaling up 5
Recruitment/ Identifying people 11
Prototype development 34
Networking support to venture investors and othes 26
Mentoring 132
Marketing 34
Investment 49
Concept validation 27
Business model/ Revenue model 27
0 20 40 60 80 100 120 140

Number of applications
Exhibit C4.8: Expectations from the acceleration program
Technology 10
Scalingup 6
Recruitment / Identifying people 11
Prototype development 4
Networking support to venture investors and others 5
Mentoring 14
Marketing 25
Investment 23
Concept validation 1
Business / Revenue model 3
0 5 10 15 20 25 30
Exhibit C4.9 gives the ratio of employees with engineering to business backgrounds in the start-ups applied for
incubation program. Exhibit C4.10 gives the status of the start-ups at the time of applying for incubation. The
largest number of applications have stated that they have a prototype at the time of application. But then there
are 83 applications in the initial stages, i.e., with just an idea or having a landing page. Exhibit C4.11 gives the
profile of incubation applications based on the college graduation year of founders. It was seen that most of the
applications were received from founders who had graduated recently (i.e., during 2012-16) from college.
127
Exhibit C4.9: Ratio of employees with engineering and business backgrounds in incubation applications
75 - 25 68
50 - 50 145
25 - 75 55
0 20 40 60 80 100 120 140 160
Exhibit C4.10: Stage of start-ups at the time of applying for incubation
Just an Idea 47
Have a landing page 36
Prototype built 103
In Private beta 38
Initial traction 32
0 20 40 60 80 100 120
Exhibit C4.11: Number of start-ups classified by the college graduation year of founders
140
123
120 107
100
Number of start-ups
80
60
36 34
40
20
0
Before 2000 2000-2005 2006-2011 2012-2016
Founder graduation year from college
128
Appendix 1
Definitions and Explanations

This section provides an overview of the classifications and definitions used in the report.
Start-up definition
Start-up phase includes the first five years of the company after incorporation. Our analysis included only the
first five years of the company.
Start-up companies list

The list of start-up companies and their funding details were obtained from the following database sources:
Venture Intelligence, Dealcurry, Lets Venture, VCCedge, and Trak.in
Industry classification
The Industry Classification Benchmark (ICB) were used for classifying industries and Sectors. The different
industry and sector categories are as follows:
Industry classification: Oil and Gas; Basic Materials; Industrials; Consumer goods; Healthcare; Consumer
services; Telecommunication; Utilities; Financials; and Technology
Sector classification: Oil and gas; Chemicals; Basic resource; Construction and materials; Industrial goods and
services; Automobile and parts; Food and beverage; Personal and household goods; Healthcare; Retail; Media;
Travel and Leisure; Telecommunication; Utilities; Banks; Insurance; Real estate; Financial services; Software &
Computer Services; Technology Hardware & Equipment
Start-up classification
Since the ICB was not found appropriate to classify the start-ups we used a separate classification for
categorizing the start-ups. These classifications were adapted from several industry reports on start-ups.
Accordingly, start-ups were categorized into ten categories as follows: Consumer Products & Services, Edu-Tech,
Fin-Tech & Payments, Health-Tech, Hyperlocal & Logistics, Internet Marketplace and E-commerce, Media,
advertising and Gaming, Software and Internet Services, Technology, and Others (to account for start-ups that
could not be categorized in any of the other nine categories).
Investment amount
Since the report covered a fairly long duration, 2000-2015 for most instances, all individual investment amounts
were converted to 2015 base year values. The method used to convert nominal investment amounts to 2015
base year values is as follows:
Suppose, the investment made in 2014 was 100 million. The average Consumer Price Index (CPI) was 138.481.
The average CPI was 146.000. The 2015 equivalent of the investment of 100 Million made in in 2014 would be:
= (2015 𝐶𝑃𝐼/2014 𝐶𝑃𝐼) ∗ 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
146
= ( ) ∗ 100
138.481
= 105.43 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
129
City type
Cities were classified into three tiers based on the 6th pay commission recommendations, Government of India.
The cities classified as Tier 1, 2, and 3 are as follows:
Tier I Cities: Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, NCR- Delhi.
Tier II Cities: Vijayawada, Guwahati, Patna, Chandigarh, Durg-Bhilai, Ahmedabad, Faridabad, Srinagar,
Jamshedpur, Belgaum Kozhikode, Gwalior, Amravati, Cuttack, Amritsar, Pondicherry, Bikaner, Salem,
Moradabad, Dehradun, Asansol, Dhanbad, Hubli, Kochi, Indore, Nagpur, Warangal, Raipur, Rajkot, Jammu,
Bhubaneswar, Jalandhar, Jaipur, Tiruppur, Meerut, Vishapatnam, Jamnagar, Ranchi, Mangalore,
Thiruvanathpuram, Bhopal, Aurangabad, Ludhina, Jodhpur, Coimbatore, Ghaziabad, Guntur, Vadodara, Mysore,
Jabalpur, Nashik, Kota, Tiruchirappalli, Aligarh, Surat, Bhiwandi, Madurai, Agra, Bareilly, Lucknow, Kanpur,
Allahabad, Gorakhpur, Varanasi , Pune, Solapur, Kolhapur, Madurai.
Tier III Cities: Cities not listed in Tier I and Tier II
Incubator host institutions

The institutions that hosted incubators were classified into five categories as follows:
Central Universities: These included incubators set up in Central government funded universities such as the
Indian Institute of Technology Madras, Indian Institute of Management Bangalore, and so on.
State Universities: These included incubators set up in State government funded universities and colleges such
as the Anna University, Chennai and so on.
Private Universities: Incubators set up in private universities and colleges would come in this category. Example
would include the incubator facility in the Birla Institute of Technology and Science, Pilani.
Government Non-universities: Incubators in government research laboratories and other non-teaching

institutions was classified in this category. For example, the incubator in NCL, Pune was classified in this category.
Private Non-universities: Incubators set up by individuals and private institutions would come in this category.
Examples include the IAN incubator, The Hatch, and so on.

130
Appendix 2
Useful Websites for Start-ups

Website Description
(A) Government, Publicly funded institutions, and Universities
A great source of information on:
 India start-up action plan.
 Start-up hub India (Clears queries from entrepreneurs)
 State start-up policies.
 Detail information on incubators and accelerators.
http://startupindia.gov.in/  List of central government clearances and state government
clearances.
 Details of support from SIDBI.
 Events and conferences organising by various States and
industry bodies.
 Meeting with entrepreneurs and Venture capitalists.
The Venture Center is a technology business incubator
specializing in technology startups offering products and services
http://www.venturecenter.co.in/
in the areas of materials, chemicals and biological sciences &
engineering.
Department of Electronics and Information Technology (DeitY) is
implementing a scheme titled Technology Incubation and
Development of Entrepreneurs (TIDE). Initially launched in 2008
http://meity.gov.in
the scheme has been revised and extended till March 2017. As
per the scheme provision, 27 centers are being supported at
academic institutions across India.
The National Science & Technology Entrepreneurship
Development Board (NSTEDB), established by Government of
India in 1982 is an institutional mechanism, with a broad
http://www.nstedb.com
objective of promoting gainful self-employment amongst the
Science and Technology (S&T) manpower in the country and to
setup knowledge based and innovation driven enterprises.
SIDBI Innovation & Incubation Centre (SIIC) at IIT Kanpur was set
up in collaboration with Small Industries Development Bank of
http://www.iitk.ac.in
India (SIDBI) to foster innovation, research and entrepreneurial
activities in technology related areas.
The Scheme provides opportunity to the innovators in developing
and nurturing their new innovative ideas for the production of
http://msme.gov.in
new innovative products which can be sent in to the market for
commercialization.
iAccelerator is an initiative by Indian Institute for Management
http://www.iaccelerator.in/ Ahmedabad’s Centre for Innovation Incubation and
Entrepreneurship.
131
Website Description
Set up at IIM Bangalore, the Nadathur S Raghavan Centre for
Entrepreneurial Learning (NSRCEL) facilitates business growth
http://www.nsrcel.org/ through academic research by scholars and practical learning for
entrepreneurs. NSRCEL is an open incubator, it doesn’t
distinguish between IIMB Alumni and non-alumni.
BITS has set up a Center for Entrepreneurial Leadership (CEL) to
give a specific boost and emphasis to entrepreneurship
development. The organization can house, in its office space,
http://www.bits-pilani.ac.in
between 10-12 companies at a time. BITS also provides training
to the startups in business communications and provides short
courses on business management.
(B) Private sector initiatives and industry associations
TSC supports technology entrepreneurs build global startups -
http://www.thestartupcentre.com/
leveraging technology to solve real world problems.
Indian STEP and Business Incubators Association (ISBA) main
objective is to promote business incubation activities in the
country through the exchange of information, sharing of
http://isba.in/ experience, and other networking assistance among Indian
Business Incubators (TBIs), Science and Technology
Entrepreneurs Parks (STEPs) and other related organisations
engaged in the promotion of start-up enterprises.
Start-up village is for ambitious students to learn how to build a
https://www.sv.co/
real startup and experience Silicon Valley while still in college.
Venture Nursery undertakes an intensive and immersive
http://venturenursery.com/ coaching and mentoring role in the chosen startups and helps
each with end-to-end infrastructural and learning support.
It is located within PayPal’s India Development Centre in Chennai.
The initiative seeks to nurture and support the creation of a new
https://chennai.starttank.com/
generation of technology companies by offering them initial
infrastructure and mentorship, direction and encouragement.
“10,000 Start-ups” is a vision, which is committed to incubate,
fund and provide support to impact 10,000 technology start-ups
in India, by 2023. The aim is to nurture the hatchling start-ups into
10000Startups.com full-fledged technology stalwart companies, by giving them
support via access to start-up incubators, accelerators, angel
investors, venture capitalists, start-up support groups, mentors,
and technology corporations.
Indian Start-ups is a start-up ecosystem bringing together
http://www.indianstartups.com/ entrepreneurs, investors, partners and service providers
throughout India and across the globe to help nurture, nourish
and manpower new and growing start-ups.
Startupentrepreneurs.org offer support to start-up
http://www.startupentrepreneurs.org/ entrepreneurs with self-finance, mentorship, network and
workspace.
132
Website Description
(C) Angel Networks and Investment Platforms
AngelPrime is focused on startups in the middle that need seed
http://www.angelprime.com/home/
capital, it invests in not more than 3-4 companies a year.
http://indianangelnetwork.com/ Indian Angel Network is a network of angel investors keen to
invest in early stage businesses which have potential to create
disproportionate value. The members of the Network are leaders
in the Entrepreneurial Eco-System as they have had strong
operational experience as CEOs or a background of creating new
and successful ventures.
https://www.investmentnetwork.in/ It is an online platform connecting startups with a global
network of angel investors.
http://www.hyderabadangels.in/ Hyderabad Angels (HA) is a group of seasoned angel investors
who are keen to invest in promising start-ups and early stage
companies to create tangible as well as intangible value.
http://www.mumbaiangels.com Mumbai Angels is recognized as an innovative business incubator
and holding company. It gives companies with a level of
assistance that surpasses their highest expectations.
http://www.gsfindia.com/ The key objective of GSF is to spur innovation and
entrepreneurship through angel and seed investing. Their
mission is to encourage flow of informed, knowledgeable
mentorship capital to the start-ups in India and beyond.
http://www.thechennaiangels.com The Chennai Angels (TCA), formerly known as Chennai
Entrepreneurship Trust Fund, was established in November 2007
with the objective of fostering Entrepreneurship with prime focus
on nurturing and mentoring new generation entrepreneurs
AngelList is a social network for start-ups. AngelList allows smaller
http://angellist.com/ investors to invest $1,000 or more in a start-up on the same terms
as other large investors.
Platform for technology start-ups connecting start-ups to
http://www.nextbigwhat.com investors, other start-ups and they also cover the latest news and
meaningful analysis of India's digital ecosystem.
AngelList is a social network for start-ups. AngelList allows smaller
https://angel.co/ investors to invest $1,000 or more in a start-up on the same terms
as other large investors.
Letsventure is a crowd funding platform for Indian
https://letsventure.com/ entrepreneurs. Listing start-up can help raise money from groups
of investors across India.
Traxcn is a start-up intelligence website used by angels and
http://tracxn.com/ venture firms. Registering here helps start-ups to get an
expression of interest from investors across India.
133
Website Description
(D) Start-up Ecosystem
Your Story is a media platform for entrepreneurs, dedicated to
https://yourstory.com/ passionately championing and promoting the entrepreneurial
ecosystem in India.
This source provides an aggregate list of lawyers. Entrepreneurs
http://lawrato.com/
can consult for legal advice.
Dutiee provides advice for social start-ups, non-profit success
http://www.dutiee.com/
stories and on ethically manufactured goods.
An active and engaging site for women entrepreneurs that
http://www.ladieswholaunch.com/
provide a resource for starting, building and running a business.
A website where you can find your co-founder or you can become
a co-founder. List with start-up enthusiasts across the world. It
https://cofounderlab.com/
will be quite useful too for people who wish to find their co-
founders with a mandatory skill set.
(E) Incubators and Early Stage Funds
http://yournest.in/ An early stage venture capital fund, investing in businesses built
on vibrant and new ideas enabled by path-breaking use of
technology.
http://seedfund.in/ Seedfund is an early-stage venture capital firm with about $70
million under management.
An early stage venture capital fund and ecosystem focused on the
http://www.infuseventures.in/
sustainability and clean energy sector in India.
It is an early-to-middle-stage accelerator focused on themes such
http://www.microsoftventures.com/ as smart cloud services, mobile applications, urban informatics
and big data, Internet of Things and wearable computing.
TLabs is a startup accelerator-cum-early-stage seed fund for
http://tlabs.in/
Indian Internet and mobile technology startups.
Kyron is a next-generation global accelerator for early-stage
http://kyron.me/home.php
technology startups.
Villgro is one of India’s oldest social enterprise incubators,
supporting innovators and social entrepreneurs during their early
http://www.villgro.org/
stages of growth. Since 2001, Villgro has incubated 103 such
enterprises.
It is a startup incubator started by Vinod Khosla, Co-founder of
http://www.khoslalabs.com/
Sun Micro Systems and Founder of Khosla Ventures.
134
Acknowledgements
We gratefully acknowledge the generous help and support by the following at different points in the preparation
of the report.
Akhila Rajeshwar, TiE Chennai

Annie Luis, IL&FS Investment Managers
Arumugam Aramvalarthanathan
Arun Prabhudesai, Trak.in
Arun Prakash Korati, IL&FS Investment Managers
Balram Nair, The Chennai Angels
Ganapathy Venugopal, Axilor
Gowtham Sarvesh, Keiretsu Forum Chennai
Haran Prasanna, New Horizon Media
Janani Varsha, The Chennai Angels
K.C. Srinivasan, TVS Capital
Keshav Anantha Krishnan, Keiretsu Forum Chennai
Mangala Jois, Inventus Capital
Poorvi Narang, IDG Ventures India
Prachi Sinha, Axilor
Pratik Selarka, Ventureast
Priyanka Deenadayalu, The Chennai Angels
Priyanka Mohanty, IDG Ventures India
R. Narayanan, TiE Chennai
R. Ramachandran, TVS Capital
Raghunatha Rao, IDG Ventures India
Rajan Srikanth, Keiretsu Forum Chennai
S. Rajan, Equitas Small Finance Bank
S. Sriraman, Beehive Ventures
Sangeeta Panchdhari, ICICI Securities
Sasha Mirchandani, Kae Capital
Shanti Mohan, Lets Venture
Shubhankar Bhattacharya, Kae Capital
Vijay Anand, The Start-up Centre
Vijaya Pereira, ICICI Securities

135
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Technical Report · November 2016

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Inspiration and Momentum for the Gladiators

A Study and Analysis of the Start-ups

Department of Management Studies

2009: On top of the world, still miles to go

2010: The contours of smart capital

2011: Fueling growth and economic development

2012: Stimulus for the new and the nascent

2013: Convergence of patience, purpose, and profit

2014: The fuel for wealth creation

2015: The alchemy of judgment and objectivity

Any correspondence can be addressed to:

Figure No. Description Page No.

3.22 City wise funding of start-ups by the year of incorporation 65

P1.1 Technology and delivery of financial services 11

P1.2 Penetration of digital banking in India 13

P1.3 Investment activity in Fintech, 2015 14

P1.4 Ecosystem of Fintech Firms in India 15

P1.5 Sector-wise 2014 vs 2020 Market Opportunity 16

P4.1 Deal flow by the stage of the start-up 100

P4.3 Deal flow from different cities 101

P4.4 Deal flow from different sources 103

C1.1 Number of applicants at different stages of the selection process 106

C1.2 Comparative characteristics of applications 106

C2.1 Number of proposals received by TCA 109

C2.2 Proposals received in different sectors 110

C2.3 Investments classified by sector 110

C2.4 Source of all the proposals received 111

C2.5 Average fund requirement indicated in the proposals 112

C2.6 Average investment made in companies 113

C2.9 Comparison of invested and not-invested proposals 114

C3.4 Count of positive factors in the mindshare provided to entrepreneurs 118

C3.5 Count of negative factors in the mindshare provided to entrepreneurs 118

C3.6 Pattern of positives and concerns in different sectors 119

Exhibit No. Description Page No.

C4.4 Relationship between co-founders in the start-ups 125

C4.5 Sector classification of start-ups 126

C4.6 Business models of start-ups 126

C4.7 Expectations from the incubation program 127

C4.8 Expectations from the acceleration program 127

C4.10 Stage of start-ups at the time of applying for incubation 128

Editorial Team and Authors

IIT Madras Research Team

Sahithi Sampath Yeleswarapu

Upendra Kumar Maurya

Advisory Review Board

Arvind Mathur, Chairman, Private Equity Pro Partners

S. Gopalakrishnan, Chairman, Axilor Ventures and Co-founder, Infosys

R. Ramaraj, Senior Advisor, Elevar equity

Roger Albert, Managing Director, Austin Flower Capital1

Sarath Naru, Managing Partner, VenturEast Funds

Srivatsa Krishna, IAS, Secretary, Government of Karnataka

Sudhir Sethi, Founder & Chairman, IDG Ventures India

Ad Augusta per angusta!

And as they say, acta est fabula plaudit!

Comparison of funded and non-funded start-ups

1. The Start-up Effervescence and Impact

Upendra Kumar Maurya and Thillai Rajan A.

Figure 1.1: Venture investment in start-ups across time periods

© Indian Institute of Technology Madras 5

Acceptance of entrepreneurship as a career choice