Innovation leads to disruption and brings forth transformation to our world. We look at startups as a crucial source of innovation that can address real-life challenges that have not yet been attended to. However, product-driven technology startups in India are often obstructed by numerous challenges in the ecosystem. What will it take for them to rise beyond these obstacles and create valuable IP?
Paromik Chakraborty of EFY Group speaks with Somshubhro (Som) Pal Choudhury, partner at Bharat Innovation Fund, an early stage venture fund for DeepTech and IP Led technology startups, to get that answer and to understand how the fund plans to handhold the Indian startup ecosystem in its progress.
Q) How does the Indian startup ecosystem look today?
A solid ecosystem has evolved in the recent past with global and local venture capitalists, angel/seed fund availability and 200+ accelerators/incubators along with the presence of 1000+ MNCs that have made India their R&D hub. Majority of the new generation of startup founders we see today are more experienced, have gained significant experience in these MNCs, have travelled and worked globally, and are more focused on creating globally competent products and platforms for today.
A plethora of challenges still remain such as – Indian businesses continue to be lukewarm in adopting new technologies, cheap labour in comparison to other developed regions delaying any automation ROI. Also, there is a lack of confidence in homegrown startups and a pervasive mindset of squeezing the best possible price out from them. But most new-age startups in this new wave are now following the Israeli model of establishing a global connect and customer base for scale-up after product development, post piloting and achieving product-market fit in India while taking into consideration the global customer requirements.
Q) What is the main motive of the Bharat Innovation Fund (BIF) programme?
Bharat Innovation Fund is a $100M early-stage venture fund with a mission to invest in deep tech, IP and innovation-led startups in India, beyond the current wave of consumer-focused e-commerce, hyper-delivery and marketplace models.
The roots and affiliation of Bharat Innovation Fund goes back to Center of Innovation Incubation and Entrepreneurship (CIIE), IIM Ahmedabad, that led several initiatives aimed at delivering disproportionate impact to entrepreneurship in India by backing purpose-driven entrepreneurs to solve some of the toughest problems for more than a decade.
We believe we have now entered the 3rd wave of startup evolution in India – focused on more B2B, IP and innovation-led startups, a different trajectory from the previous two waves which were IT/BPO/Services wave (in the 1990s) and Indian consumer story with B2C e-commerce/marketplace models (in the last decade). While the consumer segment seems hyper-invested for now with winners getting picked even though opportunities in niches remain, the startup ecosystem is shifting to more enterprise, B2B, deep tech and IP focused.
Q) What kind of businesses and which industrial segments will BIF mainly cover?
Bharat Innovation Fund supports deep-tech innovations in various industrial segments including healthcare, agriculture, energy, fintech, digital and other emerging sectors. The Fund invests at the pre-Series-A and Series-A stages and is backed by marquee Indian and global investors.
Deep tech for us involves the focus on core technology as a fort or moat for the business. We look for not just any technology-enabled solutions, but innovative ones that have the potential to create a defendable IP and hence prove difficult for competitors to replicate.
Q) What criteria would BIF look for, in the startups which get selected for funding?
At Bharat Innovation Fund, we look for all the usual criteria that make a startup successful – large and emerging market, great co-founding team, innovative solution and traction in the market. We also look at the transformations that are happening in the market and try to crystal gaze what to expect in the next few years drawing analogies and comparisons on similar models and ecosystems. We search for differentiated technology and innovative solutions that would be the fort and moat to compete not just in India but globally.
Q) Tell us about the application procedure that startups may have to follow to acquire the BIF aids.
It’s no different than approaching other venture capital funds. We encourage startup founders to reach us directly or through references. They could look for us on LinkedIn and Twitter, and reach out directly to the BIF team members on their personal LinkedIn and Twitter accounts. We could also cross paths in the startup award juries, conferences and other startup events we usually participate in.
Following the initial introduction, the founders should send a presentation of their company to us articulating the problem they are trying to solve, the solution, market size, the background of the founding team, IP and tech innovation of the solution, competitive analysis, traction in the market and so on. As we are swamped with several startups approaching us, our reverts might not be quick. Don’t be shy to ping again if you don’t hear back from us within a few weeks!
The stakes are pretty high because we might be seeing close to 500-1000 startups in a given year, but we would fund only 20-25 startups from this fund.
Q) Apart from the fund, will there be any other form of support from your foundation?
Yes, we do go beyond funding. In addition to the capital, we also bring together global networks, distribution channels, research infrastructure, strategic insights, customer and partner connects, and the deep sectoral understanding of our investors and team. The BIF team brings together diverse experiences – from incubation and venture investing to building massively-scalable tech products, and decades of operational experience leading businesses in corporates and startups.
Q) Which major organisations has so far become members/investors in the initiative? Who are the ones in talks for coming on board?
The investors in the fund are corporates, banks, insurers and fund of funds – including SIDBI through its Fund of Funds for Startups (FFS) program, ICICI Lombard, Philips, Bajaj Electricals Ltd., RBL Bank, among others.
Ray Stata, Founder and Chairman of Analog Devices and who is an icon of Innovation for the last several decades, has also joined us as an Advisor and Investor in our Fund.
Q) What milestones has the venture reached so far and what is your immediate next step ahead?
We have publicly announced investments in three startups so far. Bharat Innovation Fund did its first formal close in July 2018 and immediately started investing. We have publicly announced three investments – Entropik, Detect Technologies and CreditVidya.
We are in final stages of due diligence for a few more startups which will be announced shortly. We feel encouraged by the sheer quality of deal flow and the type of IP led innovation we have come across in healthcare, fintech, industrial and overall digital transformation.
Q) How deeply BIF collaborates with India’s academia?
BIF is built on a decade long startup engagement experience of CIIE and IIM Ahmedabad, which has seeded over 200 startups across its various programmes such as iAccelerator, Power of Ideas, Powerstart, India Innovation Growth Program and Startup Oasis, to name a few.
We work closely with many academic startup incubators at several IITs, IISC and other institutions. We also are in touch with top academicians from universities and research institutions. We collaborate with them to build our investment thesis and routinely reach out to technical experts to understand new technologies and IPs of startups that approach us for funding needs.
Q) What do you think are the biggest challenges product-based technology startups face today?
The biggest challenges faced by product-based hardware driven startups in India are the lack of prototyping, design for manufacturability and relative dearth of overall electronics manufacturing ecosystem. Iterations take time and access to quality vendors in India is still a challenge.
Although the government initiatives of value addition are improving the ecosystem, we still have a long way to go. Many have ventured out to China to access these ecosystems but relatively smaller quantities and a lack of physical presence has hindered their efforts. The challenge is also lack of funding for these startups in the subsequent rounds and access to early homegrown customers who are willing to adopt.
Q) What can be some possible resolutions to these challenges?Indian Electronics and Semiconductor Association (IESA) and IoTForum, an IoT ecosystem building Thinktank, are focused on potential resolutions of these challenges. For example, IESA has now started a Fabless initiative with the Government of Karnataka to help incubate the Fabless semiconductor startups by giving them access to EDA tools and funding test chips. There are also several hardware only incubators/accelerators like Forge, Nasscom IoT and Revvx that are focused on bridging this gap. Large MNCs including Intel and Airbus now have their own incubators to help these startups.
Q) Has the Indian Government played any significant role in supporting/promoting BIF or your initiatives?
The startup initiatives by the Indian Government are promising. We are a beneficiary of the Startup India Fund of Funds by SIDBI. A similar initiative by the Electronics Development Fund (EDF) is worth noting. Startup India initiatives by the government are oriented in the right direction. A number of incubators and accelerators including government, academic and MNCs are already helping the startups and hand-holding them through the initial stages. Similarly, the different State governments are supporting the startups in their own way. The initiative of giving grants to qualified startup by the Government of Karnataka as part of the ‘Idea2Poc’ and ‘Elevate’ initiatives are helping the overall startup ecosystem.
Encouraging the Indian Financial Institutions and Family offices to invest in venture funds and private equity funds would actually increase the pool of Risk Capital significantly for later stage funding, which is still extremely low in India especially for the type of startups we are focusing on.
Q) What more can be done?
One big challenge of the Indian startup ecosystem, especially in the B2B space is the lack of early adopter among Indian customers. An initiative that earmarks a small portion of the technology and solutions budget assigned to the different states and central Government, for qualified startups, could be a welcome initiative.
Efforts are underway for preferential access of Indian companies for critical infrastructure, defense and security needs. Similarly, creating an incentive structure for the bigger companies to acquire a small portion of their purchases from Indian startups would create a vibrant customer base for the ecosystem. We live today in a volatile, uncertain, complex and ambiguous (VUCA) world and existing businesses and business models are being transformed in ways unheard of. To remain competitive, the large technology and solutions buyers could benefit immensely by engaging with the startup ecosystem. To a limited degree, we are starting to see this happen in India, but we need to do a lot more.
Q) What would you advise the entrepreneurs in India who plan to start their own technology business?
Entrepreneurship is tough and not for the faint-hearted. Forming a balanced team with both business and technology acumen, understanding and scoping out the problem statement, devising a technology solution that isn’t right just for today but also defensible in the long run, getting traction with early lead customers, are some of the general yet crucial recommendations.
Every startup is unique. Startups transform industries and business models and hence by nature they should be disruptive and should not follow a unique proven formula other than the basics. Based on what I have seen in the startup ecosystem so far, I would tell entrepreneurs – conduct better market research and competitive landscape analysis and look for opportunities to partner rather than build the entire solution on your own.
