Wednesday, March 10, 2010

India: The gap is narrowing

India's entrepreneurial journey is a few years behind China's own path, but the gap is narrowing. I was surprised to see this in a recent three-week stint of interviews there.
Like China, India has a growing number of startups with innovations designed to disrupt standards and help solve big problems in sectors including biomedical, clean technology, digital communications and e-commerce. Yet China still has unique advantages over India, which I'll get to later.
A Chennai-based entrepreneurial team led by S. Nandakumar has a robotics system to precisely guide a needle to a tumor for a biopsy. A geek named Bikash Barai showed me a demo of a simulated cybersecurity attack, and the software his startup, iViz, has developed to prevent hackers from stealing confidential data.
In Bangalore, Robhatah founder Janesh Janardhanan, demonstrated how this soon-to-be-launched robot-powered vacuum cleaner works. At a retail price of less than $150, it seems like a bargain. I'm curious to see if Wal-Mart stocks it. Two Stanford and Indian Institute of Science Ph.D.s have a 3-D interactive application that makes online games, avatars and greeting cards come alive on mobile screens. Their startup, 3D Solid Compression, will soon debut software on Nokia and Sony handsets.
I also met with an impressive group of entrepreneurs in India working on the next generation of electric cars (Reva), recycling facilities for transforming electronics waste into precious metals (Attero), energy monitoring systems (Connect M), plus solar-powered LED lanterns (DLight) and water purification pumps, lights and energy (Kotak Solar). (See my Forbes Velocity blog: "Cleantech Startups Heat Up in India")
The Silicon Valley culture of tech entrepreneurship and venture capital has been slower to take hold in India than in China. Venture investment in both markets accelerated during the dot-com boom and quickly deflated with the Internet bust.
It took India until 2006 for a second wave of investors to arrive, joining veteran shop Sequoia Capital India. In China, funds from Sand Hill Road poured in earlier and by 2008, $9.3 billion was invested in Chinese startups. The comparable figure for India was $8.5 billion in 2008. Combined, these two countries make up 80% of Asia's venture investment.
Mirroring China, India is undergoing its own surge in mobile communications, and much of the startup action is centered in this market. Already, India counts more than 500 million mobile phone subscribers, second only to China's approximate 700 million users.
The popularity of mobile has led to a swarm of startups relying on the cellphone as a business platform, from gaming companies Nazara, Games2Win, and Kreeda, to search firm Just Dial, to ring tones and advertising, inMobi.
But Internet usage in India lags far behind China. Only about 81 million users surf the Net in India, with a mere 5 million using broadband connections. That compares to 384 million Internet users in China, 83 million of them on high-speed.
This gap in Internet usage is one reason why China has turned out so many publicly listed online winners while India has struggled to break through.
For instance, in China, search site Baidu, e-commerce marketplace Alibaba, travel site Ctrip, online classroom New Oriental Education and Technology, and gaming and social networking sites Shanda and Tencent all have gone public--many with lofty valuations.
The comparables aren't there yet in India because the Internet is still in the early stages of development. India has numerous online travel sites--TravelGuru, Cleartrip and Yatra. Not one has scored yet. TravelGuru was acquired by Travelocity last year for $12 million in a money-losing deal for the venture investors.
While India has its share of outsourcing, portal and mobile startups that have gone public, the success stories among dot-com players nearly starts and ends with job site Naukri, the of India, which founder Sanjeev Bikhchandani took nine years to take public.
India's startups must go public first on in-country stock exchanges while Chinese startups can detour to Nasdaq or the NYSE without listing at home. This helps explain why China gets more credit for financial homeruns.
As India's Internet population grows, more home-grown startups in e-commerce, gaming and social networking could take off. Some up and comers I met with include online book seller Flipkart, customized merchandise seller Myntra, Twitter-like GupShup and a Facebook wanna-be named Minglebox.
Many of these Indian brands compete with big American Internet brands, partly because of the shared English language. That's a key difference compared to Chinese startups that have used their local language advantage to beat Google, Amazon and eBay.
One advantage for India's startups over China's: Entrepreneurs there have a faster runway to selling abroad. Some of their young businesses are really just a new twist on outsourcing, building upon the early successes of Infosys and Wipro in the early 1990s and later public listings of smaller firms such as Mindtree.
I stopped by TutorVista, the brainchild of serial entrepreneur K. Ganesh. His service offers unlimited sessions with Indian tutors to U.S. residents for $99 a month. I also met with Uday Challu, the entrepreneur at iYogi, which markets a remote PC service hotline staffed with workers in India who provide unlimited tech support for $149 annually.
The most visible difference between these two rapidly evolving consumer and technology markets is infrastructure. Beijing and Shanghai are a marvel of upgraded highways, subways lines and architectural achievements such as the new airports, mag-lev trains and up-to-date software parks. India's faulty infrastructure is improving, though hardly on the scale of China. In Bangalore, Delhi and Mumbai and other major cities, metros, bridges and multi-lane highways are being constructed, if slowly. Power supply is still sketchy.
Modern commercial zones are popping up, ranging from Whitefield on the outskirts of Bangalore to Gurgaon in Delhi and lots of recently erected skyscrapers in Mumbai's Lower Parel district--easier to get to now thanks to the Sea Link bridge.
Signs of India's growing middle-class population and consumerism are appearing as well. Café Coffee Day's founder VG Siddhartha has made his chain nearly as prominent as Starbucks in the U.S. Another positive indicator is an ample supply of five-star hotels from India such as Oberoi, Taj and Leela that are bustling with business--that in spite of the recent terrorist attacks in Mumbai and the extra security that is still very much in place.
It's easy to be seduced by China and its fast forward economic and technologic achievements. But even after years of reporting extensively on China, I find India to be refreshing. I left India encouraged by the groundswell of innovation and entrepreneurship and the spark of creativity that democracy encourages. The open access to the Internet in India helps too.
(from my Silicon Dragon column in Forbes)