Software products Made in India from $2b (2013) to $100b (2025) www.productnation.in February 2014

1. iSPIRT
Product
Industry
Monitor
Feb
2014

2. Why
Product
Industry
Monitor
Reports
Startup
Outcomes
Startup
Density
Feb
2014
• The
industry
needs
to
move
from
anecdotal
data
to
scien5fic
data
• Credible,
regular,
insighFul
guidance
on
the
industry
through
‘Product
Industry
Monitor’
reports
2

3. First
Product
Industry
Monitor
Report
First
Product
Industry
Monitor
report
is
focused
on
the
following:
• Industry
Demographics:
locaKon,
age,
market
sector,
legal
status,
and
number
of
employees
and
founders.
• Founder
Profile:
names,
educaKonal
background,
experience,
and
role
in
startup.
• Talent
Management:
pressure
points
in
hiring,
perceived
reasons
for
difficulty
in
hiring
types
of
talent,
and
pay
scales.
• Financing:
sources
of
funding,
total
capital
invested,
valuaKon
status,
and
equity
share
of
founders.
Feb
2014
3

4. Key
Finding
#1
-­‐
Bootstrapping
• Over
50%
of
soYware
product
companies
are
completely
self-­‐
funded
or
‘bootstrapped’
• Reasons
could
be:
– lack
of
early
stage
financing
in
the
ecosystem.
– conscious
choice
by
entrepreneurs
to
seek
external
funding
at
a
later
stage,
so
as
to
beZer
their
prospect
of
higher
valuaKon.
• Whether
the
phenomenon
is
a
result
of
external
constraints
or
strategic
choice
of
firms,
it
is
important
to
recognize
that
bootstrapped
firms
form
a
dis5nct
and
important
category
within
the
Indian
so?ware
product
industry,
much
like
it
is
in
Silicon
Valley
too
• Bootstrapped
firms,
with
a
different
pathway
to
growth/IPO
need
to
be
nurtured
and
evaluated
as
a
disKnct
category,
rather
than
as
an
aberraKon
Feb
2014
4

5. Key
Finding
#2
–
Talent
StarvaKon
• The
steady
flow
of
MNC
R&D
investment
into
India
was
expected
to
create
knowledge
spillovers
and
provide
an
impetus
to
Indian
soYware
product
industry.
• We
indeed
find
that
a
lot
of
senior
talent
from
MNCs
are
starKng
soYware
product
companies
–
close
to
40%
of
founders
come
from
a
MNC
• However,
the
same
cannot
be
said
of
junior
talent.
The
typical
early
startup
in
India
struggles
to
hire
technical
talent
for
lack
of
brand
and
inability
to
match
MNC
pay
scales
• Basically,
the
propensity
to
take
risks
increases
with
age
and
experience.
As
a
result,
Indian
so?ware
product
startups
are
experiencing
‘talent
starva5on’
at
the
entry
level
Feb
2014
5

6. Key
Finding
#3
–
Birds
of
the
Same
Feather
• Research
has
shown
that
funcKonal
diversity
among
the
top
management
team
posiKvely
impacts
firm
performance
(Cannella,
Park
and
Lee,
2008)
• Therefore,
the
key
to
building
a
successful
product
company
is
to
have
a
diverse
founding
team
-­‐
a
combinaKon
of
technical
and
business
skills
• We
find
that
78%
of
Indian
so?ware
product
startups
defy
this
rule.
They
have
homogeneous
founding
teams
i.e.,
all
founders
are
technologists
or
all
of
them
have
training
in
business
• Founding
teams
are
coalescing
based
on
familiarity
between
founders
rather
than
diversity
of
skills
• This
might
be
a
manifestaKon
of
a
low-­‐trust
society
Feb
2014
6

7. Industry
Demographics

8. How
old
and
how
big
are
the
companies?
• The
average
soYware
product
company
is
2.5
years
old,
however
some
listed
their
founding
date
as
recently
as
last
month,
some
are
25
years
old.
• Most
soYware
product
companies
have
only
one
headquarter
(94%);
others
have
secondary
headquarters
either
in
Europe
or
in
the
United
States.
• Most
soYware
product
companies
have
8
employees
(excluding
founders);
some
are
as
small
as
one,
and
some
have
over
120
employees.
Feb
2014
8

9. Where
are
the
companies
located?
• SoYware
product
companies
in
the
survey
come
primarily
from
four
ciKes:
–
–
–
–
Bangalore
Pune
Delhi/NCR
Chennai
• This
may
be
due
to
#PNCamp
being
in
Pune;
more
clarity
on
this
point
as
response
rate
increases
and
a
wider
cross-­‐
secKon
is
surveyed
Feb
2014
Other-Europe
Other-USA
Other-India
Hyderabad
Chennai
Mumbai
Delhi/NCR
Pune
Bangalore
0%
10%
20%
30%
40%
9

10. What
products
do
these
companies
create?
• The
three
most
common
product
sectors
that
companies
work
in
are:
Agriculture
Education
Analytics
Big Data
– Enterprise
– SaaS
– Consumer
Media and Advertising
Healthcare
E-Commerce
Security
Infrastructure
Mobile
Consumer
SaaS
Enterprise
0%
Feb
2014
5% 10% 15% 20% 25% 30% 35% 40%
10

11. The
Founding
Team

12. How
many
employees
and
founders?
• The
modal
soYware
product
company
has
2
founders
(40%);
followed
by
one
person
and
three
person
founding
teams.
More than 4
4
3
2
1
• Only
22%
of
the
companies
have
a
diverse
founding
team.
0%
10%
20%
30%
40%
50%
Founding
Team
Diversity
Diverse
team
Homogeneous
Team
Feb
2014
0%
20%
40%
60%
80%
100%
12

13. What
the
experience
profile
of
founders?
• Experience
with
startups
is
nearly
balanced
equally
across:
founders
with
no
experience,
experience
as
an
employee,
and
as
a
founder.
• Most,
69%,
have
some
prior
startup
exposure.
• Most
have
worked
before
(95%)
• Most
in
mulKnaKonals,
large
domesKcs,
and
a
significant
number
in
domesKc
and
overseas
startups.
Feb
2014
No
prior
experience
yes,
as
employee
yes,
as
founder
28%
29%
30%
31%
32%
33%
34%
35%
36%
37%
No prior work
experience
Domestic startup
Overseas startup
Large domestic
Multinational
0%
10%
20%
30%
40%
13

14. How
old
are
the
founders?
• Not
too
many
dorm
room
startups.
• Founders
are
older,
most
in
their
30’s
and
40’s
(71%).
more than 50 years
41 to 50 years
31 to 40 years
• About
23%
are
in
their
20’s.
21 to 30 years
less than 21 years
0%
Feb
2014
10%
20%
30%
40%
50%
14

15. What
is
the
educaKon
of
founders?
• Many
founders
are
engineers
with
only
a
BE
or
BTech
(43%).
• About
44%
have
earned
an
advanced
degree,
either
a
masters
or
an
MBA.
• A
minority
have
a
BA
or
BSc
(12%)
• About
22%
of
founding
teams
have
least
one
member
with
a
degree
from
IIT,
IIM
or
NIT.
Feb
2014
BA or BSc
BE or Btech
MBA
Masters degree
Doctoral degree
0%
10%
20%
30%
40%
50%
15

16. Finding,
Hiring,
and
Retaining
Talent

17. Talent
that
startups
find
difficult
to
hire
Feb
2014
Most difficult
Product Mangament
Sales
Product Development/
Engineering
Marketing
Operations
0
0.5
1
1.5
2
2.5
3
3.5
4
4
5
Labor market lacks talent
Strongly Agree
Reasons for Hiring Difficulty
Product Management
• On
average,
soYware
product
startups
have
mixed
experience
in
finding
talent.
• Some
soYware
product
startups
find
it
easy
to
hire;
others,
difficult.
• On
average,
the
easiest
talent
to
hire
is
operaKons;
the
most
difficult,
product
management.
• The
key
external
reason
is
the
percepKon
that
the
labor
market
lacks
product
management
specialists.
• Overall,
companies
aZribute
difficulty
primarily
two
internal
factors:
the
inability
to
pay
compeKKve
wages,
and
the
lack
of
a
brand
reputaKon.
Cannot afford to pay market
wages
Company lacks brand
reputation
Company doesn't have
resources for perks
Founders lack people in their
networks
0
1
2
3
17

18. What
do
startups
pay
for
talent?
• The
modal
pay
for
each
of
the
talent
areas
seems
quite
consistent
across
soYware
product
startups:
– 66%
of
startups
pay
between
25k
INR
to
75k
INR
for
Engineers.
– 56%
pay
between
50k
to
1
lakh
for
Product
Managers.
– 56%
pay
between
25k
to
75k
for
Sales.
– 66%
pay
between
25k
to
75k
for
OperaKons.
– 56%
pay
between
25k
to
75k
for
MarkeKng
talent.
• The
widest
variaKon
in
pay
norms
is
in
Product
management,
then
Sales.
• Most
consistent
pay
norms
are
in
OperaKons.
Feb
2014
Pay scale distribution for
Engineering talent
more than 1,50,000 inr
1,00,001 to 1,50,000 inr
75,001 to 1,00,000 inr
50,001 to 75,000 inr
25,001 to 50,000 inr
below 25,000 inr
0%
5% 10% 15% 20% 25% 30% 35%
Pay scale distribution for
Product Management talent
more than 1,50,000 inr
1,00,001 to 1,50,000 inr
75,001 to 1,00,000 inr
50,001 to 75,000 inr
25,001 to 50,000 inr
below 25,000 inr
0%
5% 10% 15% 20% 25% 30%
18

19. Financing

20. Where
do
startups
get
their
funding?
• The
primary
source
of
funding
for
the
majority
of
soYware
product
startups
is
the
founder’s
own
capital.
• 73%
of
the
capital
for
a
soYware
product
startup
is
self-­‐funding.
• The
second
largest
is
angel
investment
at
14.1%.
• A
small
proporKon
comes
from
venture
capital
(2.5%)
and
about
3%
from
debt
financing.
Feb
2014
Debt Financing
Private Equity
Venture Capital
Angel Investment
Self-funded
0
10
20
30
40
50
60
70
80
20

21. Invested
capital
and
ownership
shares
• A
majority
(57%)
of
soYware
product
startups
compleKng
the
survey
have
less
than
1
crore
invested
in
the
startup.
• Approximately
23%
have
between
1
and
5
crores;
about
17%
have
more
than
5
crores.
• Only
27%
of
the
companies
have
been
valued.
– 50%
of
these
companies
have
a
valuaKon
is
between
1
and
10
million
USD
– 34%
of
these
have
a
valuaKon
less
than
1
million
USD.
• In
50%
of
startups
founders
have
equal
share
of
ownership.
Feb
2014
more than 12 crore
between 5 and 12 crore
between 1 and 5 crore
less than 1 crore
0%
10% 20% 30% 40% 50% 60% 70%
21

22. About
the
Authors
•
•
•
Sharique
Hasan
is
Assistant
Professor
at
Stanford's
Graduate
School
of
Business.
He
specializes
in
the
study
of
social
networks,
human
capital,
and
entrepreneurship.
He
earned
his
doctorate
in
organizaKon
theory
and
management
from
Carnegie
Mellon
University
and
his
bachelors
degree
in
Computer
Science
from
Rutgers
College.
His
research
has
been
published
in
leading
management,
sociology
and
computer
science
journals.
Srivardhini
K.
Jha
is
a
Research
ScienKst
with
McGill
Centre
for
Convergence
of
Health
and
Economics
and
Fellow
at
iSPIRT.
Her
area
of
experKse
is
in
strategic
management
of
innovaKon.
In
parKcular,
she
is
interested
in
exploring
the
structures,
processes
and
organizaKonal
arrangements
that
facilitate
systemaKc
innovaKon
within
firms
as
well
as
within
systems
of
innovaKon,
with
parKcular
emphasis
on
the
emerging
country
context.
She
has
a
Ph.D.
from
IIM,
Bangalore,
M.S.
from
Stanford
University
and
a
Bachelors
degree
in
Engineering
from
Bangalore
University.
She
also
has
over
a
decade
of
industry
experience
in
hi-­‐tech
companies,
both
in
Silicon
Valley
and
in
India.
Rembrand
Koning
is
a
doctoral
candidate
at
Stanford's
Graduate
School
of
Business.
He
specializes
in
the
study
of
social
networks,
innovaKon,
and
entrepreneurship.
He
earned
is
bachelors
degree
in
StaKsKcs
and
MathemaKcs
from
the
University
of
Chicago
where
he
was
a
University
Scholar.
Fine
print:
This
is
based
on
a
carefully
designed
survey
of
Indian
so9ware
product
companies.
The
survey
was
administered
from
Dec
4th
2013
to
Jan
14th
2014
in
two
phases.
In
Phase
2
the
number
of
responses
increased
by
nearly
50%.
The
results
were
strikingly
consistent
across
Phase
1
and
2.
The
shi9s
are
so
minor
that
the
basic
conclusions
from
the
Phase
1
of
the
analysis
remained
the
same
giving
confidence
in
the
overall
integrity
of
this
analysis.
There
were
nearly
100
responses
on
most
quesJons.
Feb
2014
22

23. Future
PIM
Reports
and
Impact
• Product
Industry
Monitor
Reports
inform
– BeZer
policy
making
– BeZer
funding
allocaKons
– BeZer
mentoring/accelerator/incubaKon
programs
• Future
reports
will
explore
– M&A
landscape
for
soYware
products
– Products,
Business
models,
Strategy
and
InnovaKon
in
the
soYware
product
industry
– Track
year-­‐on-­‐year
trends
on
various
dimensions
of
the
soYware
product
industry
Feb
2014
23