Saturday, January 14, 2017

The Indian startup ecosystem has matured

A mammal reaches maturity from a biological perspective when the female of the species is capable of reproducing. The startup ecosystem in India has reached maturity as well using this metric, because we're seeing that people who have worked in the first generation of IT startups in India - companies such as Infosys, Justdial and Naukri - are now starting their own startups. Even better, the founders of these companies are new acting as angels and mentors to fund and kick start the next generation of entrepreneurs.
This is a very healthy trend and it's great to see that we are evolving in the right direction, rather than going extinct. This is the way both capitalism and biology work.

An entrepreneur is someone who takes intelligent risks, and because these employees have worked in companies where the founders have taken risks and been successful, they have a mental model of what makes startups tick. They have graduated from the School of Hard Knocks, and have experienced first hand the need to be frugal and resilient when creating new business models . They are now applying these lessons to starting their own company, because they are ambitious and want to create their own success story. They have the courage to step out on their own , so that they can leave their mark in the world.

Lots of observers bemoan the fact that it's hard for entrepreneurs to get funding in India today. They keep on comparing the Indian ecosystem with the one in Silicon Valley, or in Israel. I think this is naive. Silicon Valley has taken decades to get to the stage it has, and we are headed in the right trajectory. It's not fair to compare an adolescent tiger cub to a fully grown adult. I think we will catch up and leap frog quickly because the stars seem to be aligned, but we need to be patient, and cannot expect overnight successes. It's these unrealistic pressure for quick returns which is actually causing founders to burn out because they've burned cash too quickly in their unrealistic pursuit of growth at any cost. It's stupid to try to blindly ape the West - we need to play to our own strengths.

I am very enthused by the fact that the ecosystem is growing in both breadth and depth. The successful founders of these first generation ventures have reinvented themselves as mentors and angel investors for the next generation of founders. Because they've been through the grind themselves , they're a lot more empathetic. They are able to support the entrepreneur in his time of need because they've been there and done that. They also have a great network , and can open up their Rolodex to help new entrepreneurs to succeed. We still don't have a PayPal mafia in India, but I am sure we will see a homegrown version in a few years.

I think this will now become a positive virtuous cycle , just like it has in California , because success breeds success - we just need to give it time. There seems to be a confluence of factors which bodes well for the startup ecosystem, if we have the maturity to take a long-term perspective. Startup investing is becoming an established alternative asset class, which is attracting funds from high net worth individuals, which means there is a lot of domestic financial capital to fuel this growth. This is a great way of passing the baton on to the next generation of founders.

My biggest concern is that in our quest for creating Indian unicorns, we may lose sight of the fact that the unicorn is a fabled beast, as pointed out by James Thurber. Instead of pursuing mirages, we should focus on creating solid, stable businesses, which will grow organically because they are profitable.

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