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New tech, venture capital feed gold-rush among India's IT start-ups
New tech, venture capital feed gold-rush among India's IT start-ups
New tech, venture capital feed gold-rush among India's IT start-ups
New tech, venture capital feed gold-rush among India's IT start-ups
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New tech, venture capital feed gold-rush among India's IT start-ups

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By Nivedita Bhattacharjee and Sumeet ChatterjeeMUMBAI Thu Jun 12, 2014 7:42pm IST1 of 3. Employees o...

By Nivedita Bhattacharjee and Sumeet ChatterjeeMUMBAI Thu Jun 12, 2014 7:42pm IST1 of 3. Employees o...

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  • 1. New tech, venture capital feed gold-rush among India's IT start-ups By Nivedita Bhattacharjee and Sumeet Chatterjee MUMBAI Thu Jun 12, 2014 7:42pm IST 1 of 3. Employees of ISGN work at their stations inside the company headquarters in Bangalore June 11, 2014. Credit: Reuters/Stringer MUMBAI (Reuters) - In India's IT services outsourcing sector, local start-ups, often backed by U.S. venture http://www.kingofarticle.com/article.php?id=121492 capital funds, are nipping at the heels of industry heavyweights such as Tata Consultancy Services Ltd (TCS.NS) and Infosys Ltd (INFY.NS). These nimble start-ups, most of them based in Bangalore, offer niche cutting-edge technology products, solutions and services that traditional outsourcing companies don't offer, or can't offer at competitive rates. To be sure, Tata Consultancy (TCS), Infosys and Wipro Ltd (WIPR.NS) still account for the bulk of the $100 billion-plus core IT industry's sales and employ hundreds of thousands of engineers. But as these focus on routine http://www.kingofarticle.com/article.php?id=127452 services like application development and IT infrastructure management, the start-ups are stealing a march in newer areas such as cloud computing and mobile technology. The value of outsourcing contracts for digital technologies - social, mobility, analytics and cloud (SMAC) - is set to soar to $287 billion by 2016 from $164 billion last year, says Rajat Tandon, a senior director at the National Association for Software and Services Companies, an outsourcing sector lobby group. Start-ups will lead the race in providing solutions based on these SMAC technologies, says the group, which predicts the number of start-ups in India will top 2,000 by 2015, from 450 in 2012. "There's a gold rush. Start-ups are rushing in to serve markets that were never served before," said Sharad Sharma, co-founder of iSPIRT, a think-tank and start-up consultancy. HEAD-TO-HEAD One such relative newcomer is ISGN, a mortgage technology and services company backed by California-headquartered New Enterprise Associates and India's KK Birla group. With a modest workforce of 1,200, the 2007 start-up is already taking business from its bigger, established rivals, winning outsourcing contracts from leading U.S. mortgage companies. ISGN last year won a $75-$100 million renewal order from one of the top five U.S. mortgage companies which had previously placed work with one of the major Indian IT firms, said CEO Amit
  • 2. Kothiyal, a former Infosys veteran. He declined to give details, citing a confidentiality pact. "We have a couple of large deals going on right now, where we're competing head to head with some of the traditional Indian IT majors," he added. India's big outsourcing companies have thrived for years by providing IT and back-office services to global corporations such as Citigroup (C.N) and BT Group Plc (BT.L), tapping a vast cheap local workforce. But they are now coming under pressure from smaller firms with venture capital funding, a technological edge and staffed often by skilled engineers who have quit well paid jobs at the large IT companies to take on the challenge of a new venture. "Today, the deal isn't about labour arbitrage ... to be competitive, companies need to provide technology, and services become an add-on to that," said Ben Mathias, a partner at New Enterprise Associates' India unit. "Without the technology you lose the competitive edge." U.S. retailer Target (TGT.N), for example, is working with five Indian start-ups on areas ranging from automating the generation of rotating 3D images to the personalisation of search and product recommendations, said Navneet Kapoor, its India managing director. Sudin Apte, CEO and founder of advisory firm Offshore Insights said the so-called Global 2000 firms - from the Forbes list of the world's biggest public companies - are expected to spend 15-16 percent of their IT services and outsourcing budgets on SMAC, with India forecast to export $16 billion worth of SMAC software and services in fiscal 2018. BUSINESS MODEL REVOLUTION Reuters spoke to five start-ups, four of which said that more than 60 percent of their revenues came from clients in the United States and Britain, and there's almost always an incumbent IT player they have to compete against. Client demands range from quick project turnaround and customised marketing solutions to a need for a competitive edge in using digitisation, mobile, social media and other platforms. The adoption of digital technology has substantially changed business models across the financial services, healthcare, entertainment and telecoms industries, says Sudin Apte, CEO and founder of advisory firm Offshore Insights. For example, Mumbai-based Emart Solutions, a loyalty management company, won a deal with a global energy company by developing new mobile technology that cut the time needed to process sales data from several weeks to a few seconds, co-founder Srikanth Chunduri told Reuters. In traditional IT services, affordable options like Zoho, which offers customer relationship management solutions to small and mid-sized firms, prompted EcoMark, a Denver, Colorado-based solar energy firm, to migrate from a similar Salesforce.com (CRM.N) platform, the start-up told Reuters. Zoho, based in Chennai, said EcoMark saved more than $1,000 per month for 30 users by switching to its platform. EcoMark and Salesforce.com did not respond to requests for comment. "One can't ignore that for every account we speak to there's always an incumbent you have to contend with," said Puneet Jetli, chief operating officer at Happiest Minds, whose investors include Canaan Partners and Intel Capital. One of the spots that Facebook is seeking to develop is video. Earlier in 2013, the business acquired Liverail, a video promotion system that enables publishers to
  • 3. monetize their movies through live bidding. "Folks believe mobile program install adverts are a majority of our mobile marketing and they're maybe not," claims COO Sheryl Sandberg. She sees cellular advertising for Face Book as much more extensive, consisting of of in- feed advertisements coming from many different publishers and advertisement developers. She also sees it concentrating on what she terms as "storytelling," much like tv advertising has for decades. "I presume for a long period television was for imaginative storytelling and on-line advertisements were for targeted text based results, but were' seeing that change," states Sandberg. Component of the trick going forward may be making the adverts feel like they're component of the user-content, an effortlessly string of narratives -- maybe not merchandise pushing of Facebook. The firm is also toying with autoplay, having when customers stop scrolling in their newsfeed videos automatically begin. Although Face Book is growing, Google is still on top: It required 41.5 % of all internet U.S. mobile ad earnings in 2013.Jetli says at least 60 percent of the Bangalore-based start-up's new projects come from companies which are already working with established IT groups, but want a change. FUNDING INNOVATION Venture capital funding has long been a missing link for budding tech start-ups in India - from the days when the seven co-founders of Infosys pooled $250, mostly borrowed from their spouses, to start the company more than three decades ago. The country is now seeing a boom in early-stage investment with a large number of funds, including U.S.-based Accel Partners, Lightspeed Venture, Charles River and Sequoia Capital, chasing innovative ideas. Venture capital funds invested around $190 million in early-stage tech firms in India last year, up by almost a quarter from 2012, according to Hong Kong-based Centre for Asia Private Equity Research Ltd. A total of $623 million has been invested by venture funds in India since 2011, three-quarters of which was used to buy stakes in software services and e-commerce start-ups, data from the research house shows. "India is undergoing a transformation. The Internet is catching up and is becoming a basic need here. That makes India an incipient market for businesses that leverage that," said Prayank Swaroop, Senior Associate at Accel Partners in India. The attraction for venture funds was underscored by Facebook Inc's (FB.O) acquisition in January of Bangalore-based Little Eye Labs, a start-up that builds performance analysis and monitoring tools for mobile Android (GOOGL.O) apps. VenturEast Tenet Fund, an early-stage investor in Little Eye Labs, made a return of multiple times its initial investment, people in the industry said. Sateesh Andra, managing partner for VenturEast, which has close to $300 million under management, said returns on Little Eye were "attractive", but declined to give details. "There's a lot of innovation to come and that can only happen if capital is made available," said Bejul Somaia, India managing director for Lightspeed, whose investments in India range from $1 million to $25 million. "It's encouraging to see that more capital is being made available to fund innovation at a time when these technology platform shifts are underway and as more young entrepreneurs take the risk of starting companies." The established IT companies are taking note, and are open to partnering with start-ups to reach a wider range of clients, instead of developing all the facilities themselves.
  • 4. "We proactively deliver value using our start-up ecosystem and innovation, which in turn helps us differentiate from our competitors," said K.R. Sanjiv, Chief Technology Officer at Wipro. (Additional reporting by Stephen Aldred in HONG KONG; Editing by Ian Geoghegan) Link this Share this Digg this Email Print Reprints

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