Rajan Anandan, the Vice President, South East Asia and India, Google, and the President of Tie Delhi-NCR, thinks Indian start-ups have entered a new phase and the ecosystem is “accelerating”.
There are issues in abundance such as the Angel Tax, but the Indian start-up ecosystem appears to be on a stronger balance. Rajan Anandan, the Vice President, South East Asia and India, Google, and the President of Tie Delhi-NCR, thinks Indian start-ups have entered a new phase and the ecosystem is “accelerating”.
By acceleration, Anandan means scale up. The number of unicorns or companies with over a billion dollars in assessment is growing at a fast clip.
“In 2018, we have had eight new unicorns. At the end of 2017, we had eight. We doubled the number of unicorns in just one year. Second, if you look at the capability of companies to go from zero to 10 million users or 20 million users on the consumer Internet side, it is accelerating.”
There are many reasons why start-ups now are able to add this many number of users super quick. People are expenditure more time online; the management teams of many start-ups have knowledgeable professionals or those who have worked with successful consumer Internet companies such as Flip kart before.
“The single biggest thing that has happened on the expression of acceleration is Udaan – the company went from beginning to becoming a unicorn in two years,” says Anandan. “That almost never happens in the United States. This is not a spun-off from an existing company. Udaan started from scratch. If you ask industry veterans, they will say it takes eight-ten years to become a billion dollars company. Now, companies can become billion dollars in two-three-four years. The time to becoming a unicorn is decrease because the markets are getting larger and two, management teams are more experienced. They have seen the movie of how to build a scale company quickly”.
Udaan, a B2B trade platform, was founded by three former Flip kart executives, Vaibhav Gupta, Amod Malviya and Sujeet Kumar.
A second trend in the Indian start-up network is what Anandan calls “broad-basing”. A Nasscom-Zinnov report titled ‘Indian Start-up Ecosystem 2018: Approaching Escape Velocity’ says there are over 7,500 start-ups. About 12 per cent or more could be B2B companies or Software as a Service (SaaS) companies.
“B2B has made a revival. You will see massive amounts of activity in this space. So we are seeing a broad-basing within tech and broad-basing on geographies,” he says.
For the first time in the last 18 months, companies such as Ola, OYO, and Paytm have extended beyond India.
While B2B is making a revival, there would be fewer unicorns in this space. That’s because it is harder for a B2B start-up to scale. “It takes longer. You have to hire sales people to sell. You cannot do digital marketing and discounting. You have to expand either to the US or South East Asia and other places,” Anandan says.
Anandan, an angel investor, doesn’t measure B2B firms with the unicorn metric. He has two other proxies – founding to one million annual revenue run rate (ARR) and one million to 10 million ARR.
“In the US, you can go from zero to one million in 18 to 24 months. Then you can go from one million to 10 million in two-three years. In India, it takes much longer. So if it’s 10 million revenue for a B2B SaaS company in India, it is worth $80 million to $100 million. That’s how B2B is valued or eight-ten times revenue. That means, you have to get to $80-100 million revenues before you can become a unicorn.”
B2B companies now have deep vertical expertise, Anandan says. A few other challenges such as customers not wanting to buy and pay are getting sorted as well.
“There are at least five B2B SaaS start-ups that get $10 million just from India. My view is that the next big wave has started but this wave would take longer to get to the kind of scale we have seen on the consumer Internet side,” Anandan concludes.