startups


Anurag Gupta recently made an interesting post about some issues he sees with Web 2.0 companies in India. In general, I think Anurag has good things to say, but I have to say that I have a pretty different point of view from him about the ability of startups in India to compete against the biggies.

Anurag says “The biggies can score very easily over small Indian start-ups. I am not sure if an Indian start-up can match tech prowess / capabilities of a Google or a Facebook who may have millions of dollars just to invest in technology & product engineering. I personally feel that Indian companies do not have the capabilities, might or mind-set to compete in offerings that are purely tech led.”

Come on, people, let’s have some confidence!! If I remember correctly, 10 years ago Google was two guys in a garage building some search ranking algorithms. 15 years ago Yahoo! was 2 guys in a trailer, putting sites into a directory. A lot of has changed in the last 10-15 years, but I still think that 2 guys in a trailer/garage is 2 guys in a trailer/garage. In fact, all the things needed to help an entrepreneur in India have only gotten better – Internet connectivity is better (still not great, but better), number of people interested in working at startups has grown (still not good enough, but it’s better), more angel investors, more VCs, more mentors who have been had successful startups or executive roles.

Skype is a global phenomenon, and a huge part of the team was based in Estonia, not the United States, not even the UK. Estonia. Estonia is a country of 1.5 milllion people. Are you telling me that India — a country of 1.1B people, lots of great technical talent , and a pride for its ancient roots in innovating around mathematical conepts — cannot produce some great products?

Of course, it’s tough to build a better search engine than Google, or build a better portal than Yahoo!. But innovation is about whole new markets. Whether it’s in information organization, collaboration, enterprise software, mobile, search, entertainment there is no reason that India cannot produce a global biggie. I certainly hope we do.

Most importantly: it starts with raw ambition that it can be done. We need entrepreneurs who dream of building huge companies and changing the markets they are in, or creating whole new markets. You probably aren’t going to run a marathon (26.4 miles) if you just aim to run 2 miles.  I agree that with Anurag that it’s about capabilities and mindset.  I don’t agree it’s about might.  Indian entrepreneurs have the capability, and some have the mindset, but we need more that have the mindset.  What is great about mindset is that that doesn’t require anything but YOU to change YOUR own mind-set.  You don’t need the government to do anything, you don’t need your family to do anything, you don’t need the world to do anything – you just need to change your mindset.

I like to think that the company I founded is innovating to compete against the world biggies.  We have already been fortunate (and lucky) enough to be named a top 40 startup in the world by TechCrunch.  We’re not a global biggie yet, but we’re doing our best to become one.  I refuse to believe that we can’t do it; I also have no evidence that tells me we can’t do it.  I would happily put our team (myself excluded, I’m the dunce of the group) against any startup in the world, or any startup team that created a big company.  Don’t sell yourself short and think you can’t do it either. 

P.S. All respect to Anurag, I just have a different point of view. 

Today, I’m really proud to announce our team has launched PubMatic into Alpha!

Check it out, and let us know what you think.

I’ll be writing a lot more about the publishing opportunity on the web over the coming months.  We really think that many web publishers and ad networks are leaving a lot of value on the table and can work together more efficiently and productively to improve their revenues and online advertising results.

Please drop me a line with your thoughts.

Om Malik of GigaOm writes that “The truth about Indian start-up scene is that there is more money than actual start-ups. We have talked about it before, and we will say it again. Venture Capitalists – both local and US-based are showering money on start-ups, some of them quite marginal.”

I’m not sure this is the correct conclusion.

The VCs that I talk to in India all seem to be investing at a pretty rapid pace, putting their $100-150M funds to work in 18-36 months. Yet, the deals that are getting done seem to me to be pretty decent. If you look at the portfolios of folks like Helion, Nexus, Sherpalo, and Matrix Capital India it doesn’t seem like they are doing stupid stuff, quite the contrary.

According to Ernst & Young, through the first 9 months of 2006 there was $178M of VC investment in India (about $240M on an annualized basis). For a country of 1.1 billion people and an economy growing 8-10% depending on the year, $178M hardly seems out of control. Even if it triples in 2007 to $720M it just doesn’t seem like that much (but that’s subjective).  Another way to look at this is that in 2006 the $13 trillion US economy had about $28B in VC investment (for every $ of GDP you had about two tenths of one cent of venture investment).  In India in 2006 you had a $804 billion economy with about $240M in VC investment (for every $ of GDP you had about three hundredths of one cent of venture investment).  Basically, the amount of venture capital being put to work in the US, adjusted for the size of the economy, is 7x that of India.  For India to have the “same” (economy adjusted) amount of VC dollars as the US there should have been $1.68B in venture investment (not $240M) in 2006.  Of course the US is a far more venture-ready environment than India, but a 7x differential seems pretty healthy.

On a slightly different note, I actually think the bar for Indian companies to be funded is higher than many in the US as most of the VC firms mentioned above are first time funds and are quite concerned about having too many failures in their portfolio. I’ve had several tell me that.

My conclusion is that it doesn’t appear that there is too much money. The other point is that if you look at the US the environment is pretty overheated there, with venture investment at record levels. There are 4 or 5 or 10 companies getting funded in every space.

Anyways, these are macro stats.  At the end of the day, if you focus on building a good business with a good team the fact that there is too much or too little money will be of little relevance.

Information Architects has released their 2nd Web Trends Map. Pretty cool map of the most important sites on the Web, and especially Web 2.0, ordered by category, proximity, success, popularity and perspective.

ia_webtrends_2007_2_sm.gif

It’s always fun to see information presented in new and different ways. Sure, as hell beats an Excel sheet or a PowerPoint. :)

Based on all the comments I got about my previous post, I thought some of you might appreciate a guest posting I made at StartupAvenues about recruiting in India recently:

“Are you marrying me or the company?” One of the engineers on our team at Komli told me that the other day. This is probably one of the best lines I have heard in a while. He was talking to one of his friends (located in Pune) about joining a startup and his friend was concerned that if he joined that startup his parents and his fiancé’s parents would be very concerned about the stability of his job; they might even break off the engagement. The engineer on our team didn’t understand why everyone was so focused on his friend’s job.

When I got engaged I was actually unemployed. I had just left the startup I had previously founded when I graduated from college (Chipshot.com, an online e-commerce company focused on golf), and was figuring out what to do next. Nobody called off the engagement or threatened or even hinted at it.

This stark contrast helped me realize a huge disconnect in India’s ability to really innovate and build companies like Google, Yahoo!, Microsoft, and Oracle (interestingly enough, all four of those companies – four of the best technology companies ever started – were all started by people who dropped out of school and NEVER had a full-time job before they started their companies). Generally speaking, youngsters in India are still too concerned about the stability of their jobs and getting married.

There are both logical and emotional arguments to why this might be the case. I am going to present some thoughts on why this concern with job stability just doesn’t make sense if you are really good at what you do and are confident in that.

Reason #1: The spoils go to those that take risks — the ones who work at startups, very early on.
Microsoft is the most successful technology company of all time (though Google is hot on its heels). The first guy at Microsoft made about $50 billion (Bill Gates). The second guy (Paul Allen) made about $25 billion. Steve Ballmer who was one of the early few and joined in a leadership role made about $15 billion. If you were in the first 50 people and got 1/10th of 1% (common for a startup today) you made about $200M. So the first guy made $50B, the 50th guy made $200M. Guess how much the 1,000th employee made, probably about $20M. And the 10,000th employee maybe made $2M. This is in the most successful technology company of all time.

If you want to make some serious money and you join a really good company (where the numbers will be 1% of Microsoft’s) as the 10,000th employee or even the 1,000th employee you are not making the right decision – the math just doesn’t work in your favor. If you want to make some serious money you have to take some risk and join something early, at least among the first 50 employees. I’m not saying that every job you take should be at a startup, but if you never do it, it’s going to be hard to make serious money in the tech industry, unless you work for 20 years and climb to the top of a big company.

Reason #2: The right startups are not that risky.
What is the worst case in any startup if you are not the founder? The startup goes out of business. Your downside is that you have to find a new job. Going back to my original caveat, if you are good at what you do and confident about your ability, then in India it will be relatively easy to find a job. India’s overall economy is growing so fast (2nd fastest growing economy in the world in 2006), and the hi-tech industry is growing even faster, that most people seem to get a 25% pay increase when they jump from job to job anyways. If you add in to that a startup that has a good working environment, good management, good investors, good customers, and you feel that the products are useful then the risk is dramatically reduced. You’ve gone from a 5% chance that something good happens to a 35% chance that something good happens (I made those numbers up, but you get the point).

I know a number of people in Silicon Valley who have made a career of working at startups, and are fully aware that some will be winners, and most won’t. They figure if they work at 5 startups over 10 years maybe one or two will be successful and that’s more financially rewarding than working at an already successful company as the 2000th employee. Crucially, for all 10 years they were excited about the work they were doing. Here is what Paul Graham, a well known entrepreneur and writer, has to say about this: “Economically, you can think of a startup as a way to compress your whole working life into a few years. Instead of working at a low intensity for forty years, you work as hard as you possibly can for four. This pays especially well in technology, where you earn a premium for working fast.”

Reason #3: Often that stable job isn’t so stable.
I have seen a lot of people go to the stable company and then leave after 1 or 2 years because they just don’t like the work or the company. What is the difference between joining a startup that you like and the worst case happens in 2 years versus you join a “stable” company and in 2 years you leave because you don’t like the work?

Reason #4: Do you want to make your parents happy by a) always working at a stable job or b) potentially being Narayana Murthy (who took a lot of risk to start Infosys and almost went out of business early on)?
I’m serious. Wayne Greztky, probably the greatest ice hockey player ever, once said “You miss 100% of the shots you never take.” I’m lucky to have a wife who tells me “The only thing worse than failing is not even trying.” I’m sure you are saying “Amar, you don’t understand, you don’t know my parents or my in-laws, or it just seems too risky to work at one of these little startups.” You are right, I don’t understand. You get more ownership of the work you get to do, you can make the same salary as a big company, you get a meaningful percentage of equity – what’s not to like?

Reason #5: It is probably the best time in the last 25 years, if not ever, in India to start a company.
If you are smart, have a good idea, and can assemble a good team, then statistically, you have a lesser chance of failing today and in the next 10 years than at any time in India’s past.

India has entered a period of fast and sustained economic growth, as long as the government keeps on its current path of increased economic liberalization. With a demographic bulge in the 10-25 year age bracket, the country is virtually guaranteed a consumption boom for the next couple of decades. There are so many industries in India that are already growing at 20-30% per year. More opportunities will also open up as the government makes hitherto closed sectors open to private sector participation and competition. With a fast growing economy, solid worldwide economic growth, and a large talent pool at your disposal, it has never been a better time in India to start or join a startup as an early-stage employee.

What does this all mean for India?
In the US there are tens of thousands of people employed at startups, working hard to innovate and build products and services. The US has tens of thousands of hi-tech startup companies. India has a few thousand. It’s unlikely that India’s thousands of tech startups are going to create more winners than the US’ tens of thousands of hi-tech companies — the US just has too many more chances at success since it has so many more startups. If you think the US example is too far-fetched in that the US already has it good with great infrastructure and a society that is historically not as risk-averse then just look across the border to China. China’s economic growth and pace of innovation over the last two decades has been stunning; in large part this is due to the entrepreneurial culture that has taken hold among the young. What is really interesting about this is that China was traditionally as hierarchical and custom-bound a society as India.

Until India’s culture begins to shift to embracing risk takers rather than eschewing them it will be difficult for India to become the global technology leader. Surely society plays an important role here, but the easiest way to begin the transformation is for each individual to look within and really understand and push her own risk appetite.

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