Business Today

Starting up in a downturn

Indian entrepreneurs have evolved over the past decade, and the recent economic slowdown has only made them nimbler, braver, more open-minded, more diverse-and more successful.

Shamni Pande        Print Edition: June 27, 2010

October 2008: Barely a month after the US investment bank Lehman Brothers filed for bankruptcy protection, Hitendra Chaturvedi, 40, managed to secure his first seed fund-a sum of Rs 10 lakh- on a flight to Bangalore from Delhi. Over the next few days, even as the global financial crisis brought down more hallowed names in the West and as liquidity dried up, Chaturvedi succeeded in pulling in another Rs 75-odd-lakh from 13 angel investors for his two-month-old start-up, Reverse Logistics, a company that allows for quick and efficient return of merchandise from customers to distributors or manufacturers (hence the name reverse logistics). "This year, I secured funding from Reliance Venture, Sherpalo and Kleiner Perkins Caufield & Byers," grins Chaturvedi, the Founder and CEO of Reverse Logistics, who had just quit as head of a $400-million unit of Microsoft India.

Around the same time, a 30-year-old Kranthi Vistakula was looking to make good on his brainwave of making "functional apparel" at the National Institute of Design, Ahmedabad. Vistakula's obsession with clothes designed to protect the wearer from inclement weather led to the birth of an idea, a business plan and, eventually, the starting up of Dhama Innovations in Hyderabad, in January 2008. The unsparing business climate of the global recession didn't prove a wet blanket for Vistakula. "The slowdown was the biggest blessing in disguise. I ended up finding good people looking for jobs- something which has gotten tougher now," points out the Founder and CEO of Dhama Innovations.


  • Technology still rules, but start-ups today are more diverse; and there are more women entrepreneurs.
  • Opportunities that are unique to India are being tapped. Examples: Education, microfinance and alternative energy.
  • Cutting-edge technology doesn't guarantee success. Project execution by seasoned teams of professionals does.
  • Investors are getting more involved in execution and want to see results - faster.
Chaturvedi and Vistakula are just two entrepreneurs who shrugged off the economic slowdown to flag off businesses-not just any common-or-garden business, but well-differentiated models that are an investor's delight. The two represent a growing breed of start-up artists who are eschewing me-too ideas to create a prized platform of intellectual property (IP) on which resides their business objectives.

Vistakula hatched his plan while studying at the Massachussetts Institute of Technology, quite by happenstance. Finding Boston's biting cold winters an ordeal, he desperately longed for clothing that could keep him warm. Soon, he found himself working on a prototype jacket fitted with a control panel equipped to take the temperature from 18-degree cool to 40-degree hot (depending on what the user wants), which managed to win him the MIT Entrepreneurship competition in 2006. With his confidence boosted and the prize money in place, he moved back to India and incubated his venture with some grant aid; by end-2008 he had funding from Reliance Venture and was on his way to making climate-control apparel.

The Indian Army is one obvious big client that Vistakula would like to have-but typically, government contracts take time. Before that, he is test marketing two of his products-ClimaWare Scarf and ClimaWare Wrap-aimed at the golf market. The products promise to keep players cool even when it is a sizzling 45 degree Celsius on the greens. Vistakula, who has patented technology for his clothing range, says he is "not averse to tying up with sports apparel multinationals".

Like Vistakula, Chaturvedi, too, is putting in place a cracking proprietary information system as well as a complex logistics process that is the backbone of his business. Reverse Logistics comes into play when a product has to move back from the consumer to the manufacturer for re-use or disposal. This is a complicated process, as it includes co-ordination, repairing the faulty product and then selling it again.

"Most companies in India have little clue about the percentage of product returns they face from customers, what this entire process costs them and what is the recovery rate from a returned product," says Chaturvedi, who has also launched a website ( that sells certified pre-owned products at a discount-which comes with the added assurance of aftersales-service and warranty to boot.

Entrepreneurship is alive and kicking, downturns and liquidity crunches notwithstanding. To be sure, entrepreneurship is as old as the hills in India, with millions of self-employed individuals and families running selfsustaining businesses that cater to neighbourhood needs. Yet, the entrepreneur as an innovator, as one who launches a revolutionary product or service, or who opens up a new market or identifies a new opportunity is a relatively new phenomenon- a post-liberalisation phenomenon.

Suddenly, as new opportunities opened up-and even today keep opening up-ideas emerged in plenty. What was needed was the funds to bankroll these ideas. Enter the angel investor and the venture capitalists (VCs). By the turn of the century both local and global VCs- like Actis (earlier the Commonwealth Development Corporation), ICICI Venture and Warburg Pincus-were ready to fund entrepreneurs in their growth phase.

2010 YTD
IT & ITES683808447081475452431386
Health care & Life Sciences133114631254114349
Media & Entertainment542629114642600
Engg. & Construction130032121000
Food & Beverages417644231300
Other Services724317725634213
Note: The list of sectors includes only the most active ones. Amount in $ millions. Source: Venture Intelligence

Some famous examples: Warburg Pincus invested close to $300 million in Bharti Airtel between 1999 and 2001; Actis, which held Glenmark Pharmaceuticals' hand through its growth phase, and ICICI Venture, which did the same with Pantaloon Retail. Doutbless, though, most of the initial funding went to tech start-ups and dotcoms, until the tech-wreck of 2000-01 took many of the VCs and most of the dotcoms down.

The funding and start-up scenario today is more evolved and saner. Sketchy and me-too business plans fly out of VC windows, and business models are more mature and welldifferentiated. Innovation is less of a mere buzzword and more visible in the market, visions of entrepreneurs are more concrete and enduring, and slowly but surely the true essence of entrepreneurship is coming to the fore. And, yes, execution today matters more than an impressive but largely academic business plan.

"There are fewer people today with romantic notions of entrepreneurship. Most know that it is tough and that they need to execute quickly to get customers on board," says Aditya Mishra of Headstart, a volunteer-run, not-for-profit network that hosts meets and events to promote an innovation ecosystem. The network includes entrepreneurs, startups, researchers in academia and industry, adopters of new technologies/products and investors, who hold Startup Saturday meets every month.

Such initiatives help. VCs aver that they're inundated with at least 1,000 new business plans a year-compared to less than 500 five years ago. Sensing the change, VCs are repositioning themselves as well: "Earlier we tended to invest exclusively in tech and power ventures. We have now added consumer services as a lot of India is underpenetrated. There are many opportunities in specialty retail, financial services and education," says Sanjeev Aggarwal, MD, Helion Advisors.

Aggarwal recently invested in a venture called YLG, or, You Look Good, a chain of beauty saloons. And yes, there is money-lots of it-to be had for the deserving few. "There is plenty of capital available for deployment in India in pure venture capital as well as later-stage private equity. There is no dearth of capital," says Mohanjit Jolly, Executive Director, Draper Fisher Jurvetson (DFJ) India. To be sure, in the January-March quarter, VC investments (including growth) swelled up to $128 million, up from $73 million in the first quarter of 2009.

Like Helion, DFJ too is shifting its focus away from technology. With good reason. "We realised that at this stage of India's own venture and entrepreneurial lifecycle, it's more about execution with top-notch teams than about earth-shattering technology," says Jolly. He feels there's great potential in areas such as education, health care, logistics and rural enterprises, among others.

That more investors are entering is even more encouraging. As recently as 2008, The Morpheus, for instance, co-founded by Sameer Guglani (who sold off his Madhouse Media to Seventymm) took seed funding to start a venture to fund and mentor start-ups in India. There are others: "When we forayed into early-stage venture capital in late 2008, the future seemed uncertain then, but the last few months have witnessed a rebound in economic indicators. There is more visibility into the future potential of early-stage companies," says Gaurav Saraf, Director, Epiphany Ventures.

Business Today's package on 16 GenNext start-ups-which begins when this feature ends-brings out the evolution in entrepreneurship through the nature of the ideas of the start-ups, the sharper focus on execution, the increased involvement of the investor community, and the increased relevance of these ideas in the marketplace. (All but two are less than three years old.) "What has changed is that people are taking more pains to align their ideas with a real need rather than being carried away by a buzzword," says Mishra.

"Earlier start-ups were (and perhaps still are) concentrated in the technology space; now they're spreading into areas that touch the lives of consumers. We see a lot of business plans from tier-II cities; the earlier phase saw very metro-centric players," adds Helion's Aggarwal. One example: Husk Power Systems seeks to generate electricity from alternative sources such as rice husk in villages in Bihar. It has been funded by the Switzerland-based Oasis Fund and the Hyderabad-based Acumen Fund. Investors specialising in such social ventures, like Aavishkaar Fund and VenturEast, to name just two, are also rapidly mushrooming.

So, who are these extraordinary gentlemen with a nose for the novel and an eye for detail-at least true for most-and where do they come from? "We notice three kinds of entrepreneurs are coming up on a consistent basis: The serial entrepreneurs, the former senior executives who leave their cushy jobs and, finally, those who have lived abroad and have a great track record of starting ventures," says Harshal Shah, CEO, Reliance Venture Asset Management.

Consider, for instance, Rajnish Dhall, who has co-founded Micro Housing Finance Corporation, a housing finance firm for low-income households. Dhall quit American Express to work for an NGO before setting up the housing finance venture. Interestingly, there are also a select few who prefer to start up without doing long years of the corporate grind: Adhil Shetty has founded Bankbazaar, an online loan marketplace, because he's convinced that the market is crying for a service like his.

A remarkable shift is that many of the start-up artists are not just catching on to what's popular globally (yawn, social networking, anybody?) but are also seeing opportunity at their doorstep. "There many ventures that seek to tap into opportunities that are unique to India, education and microfinance being just two of them," says Mohit Bhatnagar, Managing Director, Sequoia. The VC firm, which spans a spectrum of funding from early to late-stage, has been in the Indian market for over a decade now; recently, Sequoia exited from Manappuram Finance, which, among other things, seeks to offer consumers loans against gold.

The equation appears promising: More investors plus more startups should equal more contribution to the Indian economy from entrepreneurs. But, then, entrepreneurship by nature is about risk, and there will be flameouts. "There are many entrepreneurs whose plans lack refinement and thoroughness in terms of a go-to-market strategy and use of funds," says Alok Mittal, MD, Canaan Partners. DFJ's Jolly admits that there has been a trend of earlystage VC firms either bleeding in laterstage investments or just totally moving out of the growth stage.

But as long as more opportunities emerge, and more money chases these budding ideas, the chances of today's fledglings emerging as tomorrow's Infosys or Bharti Airtel or Biocon can only get brighter.

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