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The Opportunity for Indian Startups

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I was at a conference the other day, speaking on a panel with VCs and angels, when we were asked a question: With the softening of valuations and the famous Flipkart markdown, is there still a large internet opportunity in India?

My friend and co-panelist from a large VC fund jumped up and trotted out the now-standard schtick: that the combined market cap of Chinese internet firms is half a trillion dollars and as of now the combined market cap of all Indian internet firms is just around $30 billion — so yes, there is loads of room to grow. Maybe 10x or 15x or more.

But I believe there’s something terribly wrong with this logic, and the sooner we realise this, the better off we all will be.

Because you really can’t compare the internet opportunity in China and in India.

The Chinese market is a walled garden of sorts, open mostly only to Chinese businesses — after all, Google, Facebook and Twitter haven’t been allowed to freely operate in China. So Baidu ended up being the Google of China, RenRen is the Facebook of China and Weibo is the Twitter of China. And even Amazon has faced a huge uphill task there.

The Chinese have built their businesses without much global competition — that half-trillion dollar market cap came much easier, after much government protection. Sure Alibaba beat eBay — but that is one exception. There are significant regulatory, political and language barriers for non-Chinese internet firms to win in China.

It’s the same in Russia. Yandex is the Google of Russia and vKontakte is the Facebook of Russia.

While, in India, the regulatory barriers are almost non-existent, our internet is still mostly in English and our politicians aren’t able to control digital media companies like the Chinese and Russians can do in their countries.

The result of our openness? The Facebook of India is Facebook, the Google of India is Google, and the Twitter of India is Twitter.

And it’s just as likely that that Amazon — not Flipkart, will be the Amazon of India; that Uber — not Ola, will be the Uber of India; and that Tinder — not TrulyMadly will be the Tinder of India. And so on.

This has a few implications. First — if you want to see the size of the Indian internet economy, you MUST include chunks of Google, Facebook, Twitter and others in it — because these are India’s leading internet companies.

There are several ways to do it- one is to look at global revenues and market caps of these companies and attribute the Indian market cap to the share of Indian revenue in the global pie. I tried that, but came up across a big issue- not knowing the Indian revenues of many of these firms, because it’s not separately called out.

I tried it a second way — to attribute the India-linked market cap to the Indian share of the firm’s global users — and that data was a little more accessible. I took all data from public sources like press releases, or estimates from SimilarWeb and the like. Wherever available, I took user or customer numbers (in regular font below) and where not available, I’ve taken traffic numbers (in italics below). And instead of private company valuations which would count Uber and such — I’ve taken more conservative public company valuations. Oh, and further, all mistakes are mine alone.

Here’s what I came up with.

The top 10 global internet companies have a combined market cap of over $1.3 trillion. But one can attribute up to $150 billion to Indian users.

Yes, of course, there is a large caveat here. First that, as said before, the Indian share of global revenues will give a more accurate picture. And our share of revenues will certainly be less than our share of traffic or users. So you can discount this number by 25%, 50% or even 75% to adjust for that — but the final number is still significant. Though I do think market caps are not just a function of revenues — user base is also a prime consideration — after all that’s where the growth will come from.

Now if you add the $30 billion or so of market cap of our local unicorns to this $150 billion, we’ll end up with around $180 billion of market cap for our current Internet economy.

Then, adjust for the fact that China has 720 million internet users and India has exactly half, 360 million users. $520 billion of Chinese market cap per head across 720 million users is $722 per user. Our number turns out to $180 billion of market cap across 360 million users — or $500 per user.

So the real difference between the Chinese internet potential and Indian internet potential is not 10x or 15x — but perhaps closer to 40% or 1.4x. Or you can be pessimistic and call it 2x if you like. But 10x it isn’t.

What are the takeaways here?

First that there just isn’t as much headroom for growth in the broad internet economy for startups in India as you’ve been told there is. The $180 billion may grow over a few years to $300 billion — but $200 billion to $250 billion of that will accrue to non-Indian firms. Leaving $50 to $100 billion for Indian startups. Please adjust your expectations accordingly.

So a more apt way of looking at the Indian potential is to see us like the 51st state of the US. Or like a United Kingdom. Large market for global companies — not necessarily a large market for local firms.

So I’d say much of the growth assumed for our current unicorns is probably vastly over-estimated. Especially if the Indian unicorn has global competition in its way.

Second, the nature of Internet businesses is largely a winner-take-all in any niche. If you see the market share that Google ended up with in search, Gmail in email, Facebook in social networking, Twitter in microblogging, YouTube in video etc — they’re all well above 80%. So if you take on a niche — you either end up the leader with 80% of it, or a distant number 2 with 8% of it or a non-player with 0.8% of it. This is where the chips largely tend to fall — though there are a few exceptions.

So your likely playbook if you take on a global internet company are (a) to be bought by the global player or (b) to end up eventually as the 8% play.

So what’s going to happen to Flipkart now that Amazon and Alibaba have declined to buy it? Or to Ola now that Uber has declined to buy it? It may not be the nicest of news, I believe.

Which leads to the third take-away. If you want to build a large Internet business in India — then do it out of the way of the globals. Build something where the globals aren’t. From my own portfolio, I’d suggest that RedBus, CarWale, MyDentist, Chumbak and others have picked the right areas. Other firms like InMobi, Naukri and PayTM are on paths outside the globals’ footprints too. This is a good place to be, over the long term — unless you’re sure you can sell out to a global like Baazee did to eBay. I personally believe this is extremely risky — as the global firm may just turn around and say “nope, I’ll build it myself” as many are increasingly doing so.

In other words — try not to be the X of India. Try to be the yourself of the world. This is easier said than done, both because we have a long entrepreneurial history in India of building copy-paste businesses, from independence till now. And second, because most investors in Indian internet firms work for US or other firms who wrongly believe they can simply fund and build the “X of India” — and have some comfort in funding copy-pastes rather than backing originals. Even the copy-paste specialist Rocket Internet from Germany has failed in virtually every venture in India. Copy-paste just does not work in internet businesses in India. But I do see signs of this groupthink slowly giving way to backing original companies.

And the fourth takeaway — is for these firms to go global too. Naukri has expanded to West Asia. Chumbak is in Japan. InMobi is all over. And we’ll do better to expand to 2nd and 3rd world countries than taking on the first world. Because the nature of our markets and products is typically more suited to those economies than to winning in the US.

This is how you get long-term traction — do to local firms in those countries what the globals are doing to us.

Is this bad news for Indian internet startups? Only if you’re focusing on copy-paste and reading TechCrunch to see what you can quickly duplicate in India. Sure, we might not get the market caps the US firms get right away. But it will come to us, eventually.

Is this piece a downer on the start-up excitement in India? I hope not. Our unicorns can and must happen — but should happen in original areas. Alibaba didn’t copy anybody — it started in China and rules the world, Skype didn’t copy anybody — it started in Estonia and rules the world. And that should be our inspiration. Can we build great, global internet companies out of India? Yes, for sure we can. But perhaps not in the way we’re doing so currently.

Anyway, thought I’d pen this piece and see if it might trigger a few thoughts of your own — I’d love to hear those too!

Do comment here and share at will. And happy new financial year!

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About the Author

This article was written by Mahesh Murthy is a venture capitalist, marketer and entrepreneur. He tweets @maheshmurthy.

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Entrepreneurship

Science is the Next Big Thing in Startups

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From pharmaceuticals to petrochemical processes: Newcomer companies and investors and investors alike are setting their sights on science. How the start-up scene moves beyond the mobile apps bubble…

For the last two years Silicon Valley analysts and venture capitalists are anticipating the burst of yet another bubble. This time, under the risk are the mobile start-ups which constitute the biggest share of the market. Out of 50 companies listed in Forbes’ “the hottest startup of 2015” (by valuation) only six companies are based on innovations in other-than-mobile area, one company provide cleaning services, while the rest are diverse mobile apps.

Meanwhile many products listed can be barely called innovative. A significant proportion of the listed start-ups are texting apps, apps for people search (starting from business partners to life partners) or delivery services. While those services can definitely facilitate one’s life, in general they differ from their predecessors by only a narrower audience.

Many venture investors expect stagnation if not decrease on the markets, which is why they start to transfer their capitals from start-ups offering customers software to start-ups offering specific solutions for existing businesses. Such companies are expected to demonstrate more stability in the near future.

The Market for Mobile Apps Might be Saturated

Back in 2012 a talented entrepreneur could walk into a venture capitalist’s office, say his startup was a mobile-first solution for pretty much any problem (payments! photos! blogging!), and walk out with a good-size seed investment. “That pitch was enough to get going,” says Roelof Botha, a partner with VC firm Sequoia Capital. “It’s not enough anymore.”

“I think investors are bored with investing in another messaging app. And our idea is crazy enough that it might just work. ”, has declared in 2014 Nadir Bagaveyev a founder of a start-up using 3-D printers to make rocket engines. By 2016 the company attracted investors funding sufficient to launch its first rocket.

Pharma and Biotech Start-Ups in High Demand

Currently the most successful science-based start-ups are the companies offering innovative solutions in the field of pharmaceuticals and biotechnologies. It’s noteworthy that despite the previous revelations and even judicial proceedings the list of the most expensive start-ups still includes Theranos, blood analyzing laboratory, whose story did not descend from the main pages of the global leading media from 2014.

It first amazed the audience with its fantastic take-off and then with its collapse. One of the crucial parts of the success story of this start-up is its fundamental difference from the majority of the services produced in the Silicon Valley. Unlike the others, it was not a story of yet another beautiful gadget for communication or mobile app, but the story of the scientific idea which intended to conquer the world.

The great success stories in other scientific areas are now happening on occasional basis. However certain facts allow to predict that the situation is to change soon. One of such factors is growing interest among the big corporations to attract innovative solutions from outside to develop their businesses.

Given the accelerating pace of scientific and technological development of the world, the activities of internal R & D departments are often turn to be insufficient to ensure stable development of innovative business. Outsourcing of the R&D may become the efficient mechanism to stimulate the growth of the company. And high-tech start-up can certainly benefit from it.

Start-Up Technology for the Petro-Business

In December, 2016 world leading companies in the field of gas processing, petrochemicals and chemicals announced their intentions to enforce their R&D capacities by attracting start-ups. 3M, AkzoNobel, BASF, The Dow Chemical Company, DuPont, Henkel, Honeywell UOP, LG Chem, Linde, Sibur, Solvay and Technip together created a global stage for startups and investors.

“The petrochemicals industry can and must rely on the potential of open innovations to facilitate further inventions and implementation of new solutions in all major application areas, from construction and medicine to packaging and 3D printing. Thanks to the participation of international partners, IQ-CHem is now the largest global project within the industry which attracts innovative solutions and provides for their implementation into practice,” said Vasily Nomokonov, Executive Director of Sibur, a company which coordinates the project.

Positive Experience in Chemicals and Beyond

Some of the listed companies have already gained positive experience in working with start-ups which may have driven them to elaborate a systemic approach to attract innovative companies.

At the beginning of 2016, SIBUR and RRT Global start-up reached an agreement to build a pilot plant for isomerization based on RRT Global technologies in Sibur’s Industrial Park SIBUR “Tolyattisintez”. According to Oleg Giyazov, co-founder and CEO of RRT Global cooperation with a large corporation bring significant advantages to his company.

“By cooperation with Sibur we get a huge industrial experience that enables us to develop technologies and solutions better fitted to the market demand. This advantage is often not given due attention, but we, on the contrary, see significant opportunities in it. Currently, RRT Global cooperates with several companies around the world” he said.

Another petrochemical leader BASF enjoys successful cooperation with Genomatica start-up. In 2013 BASF started the production of 1,4-butanediol based on renewable feedstock (renewable BDO) using Genomatica’s patented process and in 2015 the license was expanded to the Asian market.

Unlike traditional forms of cooperation between a start-up and a venture capitalist, a cooperation between start-up and a relevant corporation allows to minimize the risks associated with investing in a potentially promising idea where the key word is “potential” (but not “guaranteed”). While delivering services in the same field as the start-up the corporation gets an opportunity to more effectively and accurately estimate the market value of an innovative idea and to support its implementation.

Structural Changes Ahead: Outlines of A Coming Market

In the short term prospective, possibly in 2017, the global start-up market will face structural changes – both in terms of start-ups professional orientation and of funding mechanism. In the future science-based start-ups will dominate the market and will change our lives at a deeper level than the way of sending a text message or searching the restaurant for an evening meal. To be more concise this is already happening in the pharmaceutical industry, and the other scientific areas are to follow.

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About the Author

This article was written by Dominik Stephan of Process Worldwide. See more.

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Callum Connects

Norman Tien, Founder of Neuromath and Early Math Matters

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From a young age, Norman Tien, found his passion helping students as a math tutor and went on to translate that into a successful business.

What’s your story?
From the age of 14, I knew I would be in business for myself and started designing my company logo.

Growing up in a poor family, I worked part time while I was in school. That’s when I started tutoring and realised I had a gift to help students “see” mathematics. I delivered good results, and my students started to love math as well.

A turning point was when I was down with dengue fever and I realised I had to grow my business to the next level. I started a learning centre and that was the beginning of Neuromath. The initial years were tough as costs went up while my personal income took a dive. I almost gave up, but I pushed through.

Today, we have 3 specialty math enrichment centres managed and delivered by my dedicated team of teachers.

What excites you most about your industry?
“How to win” has always influenced how I position myself in the industry. I researched the psychology of learning, why some students are so naturally good at math, while others struggled. I managed to find the connection, and have always sought out niches to position myself so I can win.

In the beginning, I fused academic delivery with psychology to differentiate my services. Now I have a good team of teachers fully equipped with a psychological skillset.

In the next evolution of our business, we will incorporate technology into education in order to customise each student’s learning experience based on his or her needs.

What’s your connection to Asia?
I was born and educated in Singapore. One key driver why I started a business was, as a youth, I witnessed how my dad struggled daily as a taxi driver trying to make ends meet.

That said, I am very blessed to be in Singapore and to be given the right education. I see this as a very important factor to my success today.

Favourite city in Asia for business and why?
Singapore – well, for one, most of my businesses are here. Singapore is convenient for business and is very well governed. There are rules and systems that make the entire entrepreneurial journey more secure here. One big plus is the location: Singapore is a hub that allows us to connect to the world.

What’s the best piece of advice you ever received?
船到桥头自然直 –
There is a Chinese saying that when a boat goes near the pier, it will automatically align itself (with the current). It means we don’t have to worry too much, that things will take care of themselves.

A mentor once challenged me: “But who can guarantee you can even reach the pier?”

It is such a highly competitive world we are in, who can guarantee success? This is the ONE question that has been etched in my mind for decades. The Chinese saying always comes to mind when I am positioning, designing and strategizing for my business.

Who inspires you?
Mr. Lee Kuan Yew – The fact that he started ruling the country just like a startup. With limited resources, he was able to find a strong positioning to differentiate his country from the rest of the of Asia. With hardwork and proper planning, he transformed Singapore from a fishing village to a prominent financial hub in Asia.

Because Mr. Lee Kuan Yew positioned Singapore so well, government owned companies, such as Singapore Airlines, have emerged as the best in the world.

His story inspires me, spurs me to understand that success is not by chance but by design – every little step, all the strategies are all planned out. Not at all by chance.

What have you just learnt recently that blew you away?
My business coach, Marshall Thurber, shared with me the power of the “Trim Tab” – a small part of the rudder system in a ship. This Trim Tab, despite its small size, is able to influence the entire ship’s direction by turning it.

This metaphor helped me see that a man can influence the entire world if the right effort is applied. We are now living in an entirely new world, the way we commute with an app on the phone – that’s the power of the Trim Tab at work.

If you had your time again, what would you do differently?
I would embark on the same journey but I would seek a mentor at a very early age.

I have been through many hard knocks along the way, and I definitely could have shortened the learning curve if I had a mentor to advise me on the many aspects of entrepreneurship.

How do you unwind?
Driving down long highways helps me unwind, that’s when I let my mind relax and wander.

I love long distance driving and riding. My wife gave me a Harley Davidson Tourer for my 50th birthday and we intend to embark on riding holidays together in Asia.

Favourite Asian destination for relaxation? Why?
Hong Kong – I love the fast pace and the vibrance of the city. I love the cars there and it’s a very unique and exciting experience for me. And of course, I love the food there too!

Everyone in business should read this book:
One Minute Millionaire – this book highlights the mindset of an individual that is the key determinant for success in whatever we embark on. As long as we know we have a very strong reason why we need to do it, we can do it!

Shameless plug for your business:
I am the CEO and Founder of 2 Math enrichment brands:
Neuromath is a Specialist Math Learning Centre that helps students from Primary 1 to Junior College, empowering them with strategies, skills and a strong desire to learn and problem solve. We use technology to train students to avoid careless mistakes reclaiming 30 marks or more in Math exams and achieve their full potential in math.
www.neuromath.com.sg

Early Math Matters is a premier Mathematics and Cognitive Development enrichment centre for preschool children aged 3-6 years old. Through purposeful play and our renowned EMM approach, we help learners build a strong foundation for problem solving at an early age, and instil in them a passion & love for math that will stay with them for life.
www.earlymathmatters.com

We are actively seeking passionate teachers, entrepreneurs and investors who are keen to grow the education business with us.

How can people connect with you?
I speak regularly at workshops for schools, parents and platforms demonstrating the use of technology for peak performance in education.

Do contact me at
www.NormanTien.com

Alternatively, you can connect with me:
www.NormanTien.com/facebook
www.NormanTien.com/linkedin

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started,
built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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