Monthly Archives: April 2017

Inadequate liquidity for Indian Startups

Recently was having a conversation with a Private Equity friend and was trying to explain the challenge that has captured my imagination and full attention, ie exits for software product startups in India. He felt that the data about the exit structural deficit that I was trying to point out felt too bearish to be true. My counter argument was that my intent is not to sound bearish but instead be a realist, after all acknowledgement of a problem is first step to solving one.  Post that conversation I thought should put this data out publicly so that through crowdsourcing can at the very least improve my understanding if it is off by wide margins.

India VC vs Exits 

India Software Products VC  (in $m)

2012 2013 2014 2015 2016*
$801.00 $1,021.00 $4,883.00 $6,526.00 $2,419.00 $15,650.00
147 123 173 330 223 996

India Software Product M&A  (in $m)

2012 2013 2014 2015 2016*
$205.00 $308.00 $799.00 $1,350.00 $1,339.00 $4,001.00
43 39 59 137 113 391

Source iSPIRT M&A Report

Israel Software Product VC  (in $m)

2012 2013 2014 2015 2016*
$1,878.00 $2,404.00 $3,422.00 $4,307.00 $4,775.00 $16,786.00
567 667 684 706 659 3283

Israel Software Product M&A (in $m)

2012 2013 2014 2015 2016*
$8,149.00 $3,704.00 $4,493.00 $6,462.00 $6,782.00 $29,590.00
74 81 109 98 86 448

Source IVC Report,

Above data indicates that Israel was able to generate 1.8X of the money that went in while in India in the same period only 0.2X. The right comparison is exits from 2012-2016 with VC investments from 2005-2009, iSPIRT report does that comparison but results are even less encouraging.

Exits follow a power law, however in India it seems like a power law’s power law.

Not only is the volume of exit is challenge but also the structure, any ecosystem exits follow a typical power law. For every $1 bn exit, there are ten $100m deal, for every $100m there are hundred $10m deals.

Top 7 deals in India account for ~$2.5b of the $4b in exit. About 250 of 391 deals total a deal volume of $97m which means the size of an acqui hire i.e in long tail is about 0.5m, which is inadequate even for an angel investor. Lack of many $10-100m deal means there is a missing middle of the long tail.

Source iSPIRT M&A Report



CBInsights like market map for India

If CBInsights were to do a market map of software product startups in India it will look something like below.  For Indian startups that map should be done based on broad markets available to an Indian founder and not slicing of sectors that CBInsights normally does due to nascent nature of these markets.

Startups targeting different markets

and their market cap 

Data not exhaustive, it is from a very informal analysis of roughly 700 product startups that iSPIRT has interacted with in last few years through various initiatives. 

Strategic insights they yield

Consumer startups have had high volatility in their valuation, a variance of over 50% which is reflection of the fact that value expectation has gone out of sync of reality of market growth.  Further growth can come only when firms go beyond the 36m “India 1” city dwellers that they currently have but key question is do they have the right unit cost structure to address for next 100m “India 2” users. So one implication is to think idea ground up for 100m “India 2” users that have Rs 2-5 lakh/pa income.

Because of Cloud and Saas the paradigm of software purchase has shifted from “selling” to “assisted buying”. This opens opportunities for startups outside valley to compete in the global Saas market, the comparative advantage for India is that its cost structure of both engineering and sales help startups from here reach profitability sooner,  it also helps enable to create low end disruptor markets that a SV startup cannot even begin to play at.

When presenting, Trailer, Movie and then the making of it

I asked my manager on what are things that I could do to be a better a product person. Her tip which took 2 minutes to implement when I started putting in practice had profound impact on me. Since then I have shared it with scores of entrepreneurs and some reported a had 100X return for them too.

We engage in conversation with folks that have scarce attention span, the more senior in a decision making capacity somebody is the more scarce their attention is. In meetings when asked to explain something i.e a new product feature, a business plan, a startup idea we are in so much in love with what we do that we start with telling the birth story of how we started and from there describe a journey line of how it reached till current stage.

Her tip was to invert the messaging architecture, i.e when there is limited attention span first describe the conclusion and then go down a pyramid of how it layered up. In other words first narrate your message as trailer and not as the making of the movie. It is only when folks get excited in a trailer will they decide to watch the movie and a very select few even care about the making of the movie.

Most folks, especially engineers instead start with explaining the making of the movie.