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Product Startup Landscape in India -2012

Zinnov has broadly classified Indian Product Companies into 6 categories with relevant examples in each category

2

Companies that are into system platforms, desktop application, software products, etc.

Companies that are into Search engines, cloud, e-commerce, travel, portals, social networking, etc.

Companies that are into business management, business solutions, enterprise resource management, account & analytical solutions, cloud etc.

Companies in core infrastructure, security, business management, storage verticals

Business and Productivity Software

Client / Desktop, SystemSoftware and Tools

Digital

Server/Infrastructure software and Storage

Idea device, LeadForce1, 3i InfoTech, Abacus Software, Accord Software, Agile Financial Technologies, Busi

CK Technologies, Enzigma Software, Atlantis Computing, Organyze Systems

Snapdeal,Redbus, Mginger, Shaadii.com, Flipkart, Myntra, Playing11,Fropper

S7 Solutions, Sanat Technologies, i-Explore, Array Networks

Segment Definition Sample Companies

Companies that are into semiconductors (Chip design, ASIC design) and power semiconductor

Semiconductors Avantel, Tejas networks, Rebaca Technologies

Multiple industry solutions, networking, energy, entertainment, open source, etc.

OthersAmagi Technologies, Snap Networks, Vihaan Networks, Medsphere Technologies

3

Server/Infrastructure software and

Storage

Business and Productivity

Software

Others

Digital

Client / Desktop, System Software

and Tools

Semiconductor

Source: Zinnov Analysis

One of the key categories identified is the ‘Digital domain’ which has been further classified into 8 sub categories

Deal websites

Games

Mobiles

Social Networking

Shopping

Travel and Leisure

E- Commerce

Media and EntertainmentMarketplaces

Agenda

4

1 Detailed Trends and Analysis

2 Digital Domain - Details

5Note: Only companies with visibility/beta product , live in the market have been considered in the database.; E - EstimatedSource: Zinnov Analysis

Evolution of the Indian Product Business Landscape from the year 1990 to 2012

Total= 3402

425 E

Since 1990, more than 3402 product companies have started in India; however, the YoY numbers vary dramatically due to various other economic variables

Due the economic downturn, the number of new product startups reduced in 2009.

400 E

Till 1995

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2 2012

7834 49 38

86

171

101 83123

145 162

280

377 395

335

458

357

132

66

Bangalore

Chennai

Mumbai

Hyderabad

Pune

NCR

Kolkata

810

498

227

929

435

121

382

NCR

Mumbai

Pune

Bangalore

Hyderabad

Of the total 3,402 product companies, approximately 51 percent are based in Bangalore and NCR region

Kolkata

Total= 3402

Region Cities

Bangalore Bangalore, Mysore, Belgaum, Gulbarga, Hubli

Hyderabad Hyderabad, Secundrabad,Vishakhapatnum,Vijayawada

Pune Pune

Chennai Chennai, Calicut, Trivandrum, Madurai, Coimbatore, Cochin, Vellore

Mumbai Mumbai, Goa, Ahmedabad, Vadodara, etc.

NCR Delhi, Gurgaon, Noida, Chandigarh, Mohali

Kolkata Kolkata, Patna, Bhubaneswar

Note: The cities marked in bold are emerging Tier-II cities for product startups

Product companies split across regions

Overall 45 Currently, overall 45 percent of the companies are working on Web; however, the trend is undergoing a change as startups are shifting to Cloud

7

47%

33%13%

3%

4%

Web PC Mobile Cloud Others

Startup Companies and platform classification

Overall startup companies = 3402

Source: Company Website, Zinnov Database and Secondary research.

Cloud Computing and its impact on Startups

Cash Needs of Startups

Cloud computing has been a key enabling factor in the latest generation of web startups, allowing them start with small amounts of capital and scale quickly in response to demand.

Products to Services

Cloud computing involves the shift from IT-based products to business-oriented services. Although this trend has been present for some time, cloud computing is dramatically accelerating the shift.

Ease of Implementation

Without the need of implementation of hardware and various other components which can take several hours. Startup setup can be done within no time. This allows small companies to compete more effectively with some of the larger businesses

34%

9%7%

3%

8%7%

7%

6%

3%16%

Online Services Enterprise Software and ProductsMobile VAS IT Services and OthersHealthcare & Lifescience EnergyBFSI EducationFood and Beverages Others

In addition, obtaining funding has also proved to be a challenge; however, this is changing as VC investments in this space are rising

8

USD

mill

ion

VC Investments in India (2005 – 2011)

2005 2006 2007 2008 2009 2010 20110

300

600

900

1200

0

60

120

180

240

268

508

876

950

475

700

1110

44

94

150

170

110

140

210

Deal Value Number of Deals

Source: Venture Intelligence; Zinnov Analysis

VC Investments by Industry Value – 2012

Overall 58 % of the funded companies from 2005 till today are from Bangalore and NCR

9

VC Investments by companies Location (2005-2012)

BangaloreNCR

Mumbai

Hydera

bad

ChennaiPune

Kolkata

149

117

87

4634

216

Location

Funding timeframe for 2005-2012 companies

0 1 2 3 4 5 6 7

74

92

6969

37

46

37 37

No

of C

ompa

nies

• Overall funded companies from (2005-2012) are around 446 (i.e. 19 % of 2407 startups)• Around 66% of the companies obtained funding within 3 years of inception• 69% of the companies which obtained funding during (2005-2012) are from Digital and Software domain

No of Years for funding

No

of C

ompa

nies

3/4th of total 2/3rd of total Interestingly, 1/6th of startups were funded in

the year of inception

Source of Funding: VCCircle, Crunchbase, Company Website, Zinnov Database and Secondary research.

58%

23% 8% 6%5%

VC Funding Angel Funding Seed Funding

Friends & Family Bootstrapped

From 2005 to 2012, VCs have invested about 58% of the overall funding, followed by Angels with 23% - together contributing up to 80%!

10

Funding Scenario in Indian Startup eco-system from 2005 till time

Overall Funded companies from (2005-2012) = 446

Top Investors

VC Funding

Angel Investors

Bootstrapped

Family & Friends

Seed Funding

Angel Funding

Accel Partners, Sequoia, Nexus Venture Tiger Global, Helion, IDG Venture, InodUS etc..

Rajan Anandan, Srini Koppolu, J A Chowdary, Christian Wedell

mGlitz, N-Axis Software, MBAskool.

Dealite.in, Fachak, NextLeap, Games2win, Attribo.

Capillary, Vdopia, Mymo Wireless, Picsquare, Einfinitus

Innovize Technologies, Rupeetalk, Voicetap, Itsmymeal

Illustrative list of startups

Source of Funding: VCCircle, Crunchbase, Company Website, Zinnov Database and Secondary research.

It is noticed that between 2009-12 more than 55% of the startup founders have less than 10 years of experience

11Source of Founder profiles: Linkedin, Company Website, Zinnov Database and Secondary research.

7%

51%

33%

9%

Freshers Service Provider MNC R&D Serial Entrepreneurs

Startup Founder’s by Domain – (2009-2012)

Total = 1282

Product Engineering

178

Pure Services 243

ITES 118

Other 114

Tier 1 40

Overseas 44

Founders 119

Enterprise Software 196Telecom 72BFSI 25Electrical & Electronics

26Semiconductors 30Others 76

0-5 6-10 11-15 16-20 21-25 26-30 31+

304

393345

145 42 33 20

Startup Founder’s by Experience – (2009-2012)

Total = 1282

Years of Experience

4/5th of totalAffinity to Startup is very high among people with <15

years of experience!

About 6% of the startups established in the last three years are having women Co-Founders

12Source of Founder profiles: Linkedin, Company Website, Zinnov Database and Secondary research.

1202

80

Male Female

2009 2010 2011 2012 (2nd Qtr)

2332

20

5

Number of Co-Founders

Bangalore NCR Mumbai Hyderabad Chennai Pune Kolkata

23 20 1712

3 3 2

Number of Co-Founders

Gender Diversity amongst startups founder (2009-12)

About 45% of the women Co-Founders are based in Bangalore and Hyderabad.

Startups established by year (2009-12) and geo split under women entrepreneurship

Total Tech startups (2009-12) is 1282

Key challenges faced by Digital companies in the startup ecosystem

Online Price War

Low Profit Margins

• Everybody is in a cut-throat price war. They want to play the last man standing game.• E-commerce ventures are being very aggressive when it comes to price in order to consolidate their

customer base.

• Businesses cannot survive without margins for too long• Different reasons like Payment Gateway Cost, Packaging Cost, Cash on Delivery, Lost/Damaged Articles

and Competition have adverse effect on margins.

Service and Quality

• Poor Service and Quality of Delivery results in losing customer base. • Lack of feedback mechanism in place to obtain feedback from consumers, which is essential for

growth of startups.

• Unavailability of right kind of investors • Poor timing of capital deployment as a result of poor planning • Failure to understand working capital requirements/capital prioritization of a growing business

Funding

Example of Digital company shutdown are Taggle and Exclusively.in.•The main reasons behind the shutdown of Taggle were Online Price War, Less profit margin, and Improper usage of funds.•Flush with venture capital and private equity money, online retailers have been pursuing a single-minded strategy of acquiring as many customers as soon as they can. However, this has come at the expense of running a sustainable business as in many cases revenue fails to cover even the cost of operations.

Key challenges faced by Software product companies in the startup ecosystem

Lack of technology expertise

Time to Market

• Proper resource for the development of product.• Lack of technology expertise in management and inability to visualize the big picture

• If there is a delay in go to market timing then it may erode the first mover advantage. • Product owner must have proper idea about the timing of the launch of product in the market.

Availability of Funding

• Acquiring sufficient funding is a challenge for any startup.• Lack of vision of product owner in channelizing the funding taking into consideration the greater

strategic plan

• Too much time to build a product will make lose the market.• Resources are unavailable to develop the product on time.• Improper planning of product development cycle.

Development time

• Unreliable product because of inexperienced developers or early release of the product ( without being tested).

• Unreliability of the product grows manifolds if unresolved issues/defects are detected. This causes fatal damage to product reputation.

Unreliable Product

Agenda

15

1 Detailed Trends and Analysis

2 Digital Domain - Details

16

In the last few years, Digital Domain has witnessed a rapid growth. Currently ~ 65% of the product companies in this space are focused on marketplace and mobile domains

Source: Zinnov Analysis

5%1%

21%

2%

4%

6%15%

43%

2% Deal websites

Games

Mobile

Social Networking

Shopping

Media and Entertainment

Other E-Commerce Sites

Marketplaces

Travel and Leisure

Digital product companies split across various domains Total= ~1538

Of 1,278 product companies in the digital domain, approx. 56% are based in Bangalore and NCR regions

17

Bangalore

Chennai

Mumbai

Hyderabad

Pune

NCR

Kolkata

437

313

72

413

140

31

132

NCR

Hyderabad

Kolkata

Bangalore

Pune

Mumbai

170

8024

Deal websites

Games

Mobile

Social Networking

Shopping

Media and Entertainment

Marketplaces

Travel and Leisure

123

5225

150 10

3

34

18

6 4

65

31

4

4228

14

32

154

Total= ~1538Digital Product companies

split across regions

Success stories of companies in the digital domain

18

Company Company Description Product portfolio Funding details HQ Location Employee headcount Awards

7Seas TechnologiesIndependent IP-based games development

company

• Online real games• Mobizill

• NeodelightSelf funding Hyderabad 100

2010 International Stevie Business Award in the 'Best

Website' category

ACL Wireless LimitedACL Wireless Limited is a

Mobile Value Added Services (VAS) provider for telecom operators

• SMS Chat• Frenzo

Inter Asia Venture Management Noida 300

"The Red Herring 100 Asia" award in 2006 and "Deloitte

Technology Fast 50 India" consecutively for 3 years.

Billdesk

The company creates internet based products

targeted at banks and other financial product

providers.

Billdesk is a mobile payment gateway

National venture Fund NCR 800

Deloitte Technology's fast 500 Asia Pacific 2006

Deltecs InfotechDeltecs offers end-to-end mobile learning

solution.

• Drona VCast: mLearning product for

Smartphones.• Drona: Learning

Management Suite.

Qualcomm ventures Mumbai 50

• Tata NEN hottest startups 2008

• Asia Moot Corp 2009• South Asia mBillionth Award

2010• Microsoft Canaan TechSparks

2010

Flipkart Flipkart is an e-commerce website.

Flipkart is an online shopping portal where

you can buy various products.

Tiger Global Bangalore 2500 India Digital Awards 2012

SnapdealSnapdeal is a Deal

website which provides discounts on products

and services.

Snapdeal allows multi-channel direct

marketing solutions for the clients.

Bessemer Venture Partners, Nexus

Venture and IndoUS Venture Partners

New Delhi 1000 Indian Digital Media Awards IDMA 2011

Some of the key challenges that product companies face iincludes finding & retaining the appropriate talent and implementing a robust marketing strategy

Product Marketing and

revenue generation

Managerial and hiring

Incompetence

• Inability to market product or services effectively • Lack of awareness about time to market the product• Limited or no knowledge of competition

• Poor talent management • Difficulty in hiring and retaining top talent due to absence of a brand

Finding the right idea

• Identifying the right strategy roadmap is essential • Gathering comprehensive market insights • Raising the initial capital amount ( bootstrapping , external funding etc.) for Startup period and

development stage

• Inability to set realistic and incremental business goals• Creating and adhering to deadlines

Staying focused

• Unavailability of right kind of investors • Poor timing of capital deployment as a result of poor planning • Failure to understand working capital requirements/capital prioritization of a growing businessFunding

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