Economic Times | March 3, 2019
Brand ambassadors can work wonders. Umesh Sachdev, 33, knows well how to make that magic work. The co-founder of Uniphore Software Systems — a littleknown Chennai-based startup that uses technologies like speech recognition to help improve customer experience for enterprises — has managed to get a formidable brand ambassador who also do duties as investor, mentor and salesman, all rolled into one.
In December 2017, Cisco’s ex-chairman John Chambers acquired a 10% stake in Uniphore. Since then, the startup has been on a roll. Virtually in every media briefing in India, the Silicon Valley veteran has spoken fondly of Uniphore’s potential. Last year, nudged by Chambers, Sachdev shifted base to the Silicon Valley. Awards, accolades and big-bulge customers have followed. The startup’s deal sizes have become bigger even as its business cycles have become shorter.
B2B UNICORN CLUB
UDAAN founders:Sujeet Kumar, Amod Malviya & Vaibhav Gupta valuation: $1 bn+ funding: $249 mn
INMOBI founders: Naveen Tiwari, Mohit Saxena, Amit Gupta & Abhay Singhal valuation: $1 bn+ funding: $221 mn
FRESHWORKS founders:Girish Mathrubootham,& Shan Krishnasamy Valuation: $1 bn+ Funding: $250 mn
BIG BET :As the B2C wave led by copycat startups matures, founders and investors have started eyeing the B2B space
With IT services outsourcing losing steam, B2B wave holds big promise for India
SME FOCUS: Digitisation and formalisation of economy have opened up small businesses as an attractive customer segment
INDIA EDGE : Cloud computing, pay-per-use model and desk-selling give Indian startups a global edge
Gaining Pace: There has been a steady YoY increase in the number of B2B startups being set up as a percentage of the total:
PINE LABS Founders: Rajul Garg & Tarun Upaday Valuation: Unicorn status likely in 2019 Funding: $227 mn
GREYORANGE Founders: Samay Kohli & Akash Gupta Valuation: Unicorn status likely in 2019 Funding: $180 mn
RIVIGO Founders: Deepak Garg & Gazal Kalra Valuation: Unicorn status likely in 2019 Funding: $230 mn
LENDINGKART Founders: Harshvardhan Lunia, Mukul Sachan Valuation: Unicorn status likely in 2019 Funding: $155 mn
DELHIVERY Founders: Sahil Baria, Mohit Tandon, Bhavesh Manglani, Suraj Saharan, Kapil Bharti Valuation: Unicorn status likely in 2019 Funding: $258 mn
ECOM EXPRESS Founders: K Satyanarayana, Manju Dhawan, Sanjeev Saxena, T A Krishnan Valuation: Unicorn status likely in 2019 Funding: $179 mn
DRUVA Founders: Jaspreet Singh, Milind Borate Valuation: Unicorn status likely in 2019 Funding: $200 mn
Uniphore, which today has more than 100 enterprise customers globally and serves more than four million end users, last year signed up one of the biggest US-based insurance MNCs as its customer. “We grew 300% last year and are set to maintain pace this year,” says an upbeat Sachdev.
Uniphore is at an inflection point. In three years, Chambers expects Uniphore’s revenues to surge from $9 million in 2018 to $100 million, with more than 500 people on staff. Like Uniphore, startup India, too, is at an inflection point.
The centre of gravity of India’s startup ecosystem is shifting in favour of a new breed — business-to business startups with enterprises as their primary customer.
Eschewing the early scramble to build big consumer-facing enterprises with discounts and attendant cash burn, investor interest and entrepreneurial activity is moving towards a more sober part of the startup spectrum.
Udaan, a B2B marketplace born in 2016, is the company that has reached the $1 billion dollar valuation milestone the fastest. Browserstack, a seven-year-old bootstrapped webtesting platform, is now valued at $500 million, despite raising its series A funding just last year. From GreyOrange to Freshworks, Rivigo to Pine Labs, LendingKart to Druva, India will likely have more than 10 B2B unicorns by 2019.
(Older B2B software-as-a-service companies such as Zoho, Tally and Eka Software have also seen greater traction in recent years).
This isn’t just about the big breakout startups. Data trends signal a broad secular shift. According to the consultancy firm Zinnov, B2B startups were just 26% (900) of the total 3,100 startups in India in 2014. But growing at a faster clip, they now comprise 43% (3,200) of the total 7,400 in 2018.
Similarly, according to Tracxn, overall funding in B2B startups have been rising — from $797 million in 2014 to $3.7 billion in 2018. In comparison, total funding in the B2C segment rose from $4.4 billion in 2014 to $7.6 billion in 2018.
This shift is especially visible in the seed stage where in 2014, the number of B2B deals stood at 33, almost half of B2C at 60. By 2018, the gap had narrowed to 71 B2B deals as against 88 in the businessto-consumer or B2C segment. “B2B startups are the next big thing to watch out for.
Most of them do not require too much money and we will see a different measurability index emerge for them,” says Arun Natarajan, founder, Venture Intelligence.
For multiple reasons, the rise of B2B wave marks an important turning point. Over the last two decades, startups in India have come a full circle. From being on the fringes in the corporate world, they have moved to the mainstream. Stable big corporate jobs, once the mainstay of Indian jobseekers, has become passe as startup jobs have become aspirational. Entrepreneurs are now the new celebrated heores that young college graduates want to emulate.
But the wave so far has largely been dominated by B2C startups. In their DNA and construct, B2C startups are different from the B2B ones. Often copycats of global giants such as Amazon and Uber, firms such as Flipkart, Ola and Swiggy have been low on innovation, even if they have had to do considerable work to customise for local conditions. Targeting India’s upwardly mobile consumers, these businesses were built on discounts and freebies.
Seeking bigger consumer mindshare, they sought publicity and funds proactively. Not surprisingly, valuations and fund raise have been important milestones for these giants as their media-savvy founders hogged the limelight.
Under the radar, away from the headlines, B2B startups are different. “B2B vs B2C are like chalk and cheese. The former build software to solve problems of other enterprises and hence must have deep understanding of the business. The latter solve needs of the consumers well,” says Sachdev of Uniphore.
Not surprisingly, B2B startups occupy a quieter world. Not for them the valuation froth and deal frenzy associated with their glamorous B2C counterparts.
Often bootstrapped, the size and frequency of their funding rounds are also lower. Their founders rarely make headlines and they downplay their unicorn status.
Despite their size, most aren’t household names and perhaps never will be. “Startup ecosystems evolve in phases. Typically, B2C comes before B2B. Since 2017, India is seeing a dramatic shift towards B2B. We will see creation of big technology product startups,” says Atit danak, engagement manager, Zinnov.
The first thing you notice about B2B startups is their global flavour. While headquartered in Chennai, Uniphore’s two founders are both based outside — in Singapore and in the US.
“The B2B market in India is small. Our competitors are mostly US companies who are focused on relatively larger organisations. With their cost structures, it doesn’t make sense for US firms to sell to a small firm in Prague.
We focus on that long tail,” says Girish Mathrubootham, cofounder of the unicorn Freshworks, which is headquartered in the US and has offices in Germany, the UK, Australia and France.
They think global from day one. “You must build a global product,” says Nishith Rastogi, ex-Amazon and ex-eBay, who cofounded Locus.sh, an intelligent logistics automation platform for logistics companies.
Their product was available in several languages from day one. “This comes handy in countries like East Europe. 2018 was our first year of internationalisation. We are looking at the US, Canada and South East Asia,” he says.
Rohit Chennamaneni quit McKinsey in 2015 to co-found Darwinbox, which automates and simplifies HR processes for enterprises. The startup today has more than 100 enterprise customers in India and South East Asia, including names such as Paytm and Swiggy.
Investments in B2B startups are often front-loaded. Rastogi spent two years putting together a team and developing the product. “Once the product rolls out, you see accelerated growth,” he says. The startup has 85 employees and more than 50 customers. Forty are from India.
Agrees IIT alumnus Vinay Kumar Sankarapu, who cofounded AI startup Arya.ai in 2013, a deep learning platform that sits on top of enterprise systems, making them self-learning and intelligent.
“We have very experienced hands with deep domain expertise,” he says. With 21 people, 15 of them engineers and AI experts, it spent three years developing the product before launching it.
They have eight customers (some fortune 500 MNCs) in India and is now looking at markets in the UK and Singapore. “The toughest part for a B2B startup is getting your first customer,” he says.
Also, B2B startups are less fund hungry and start making money much earlier in the growth curve. Rahul Garg, with two decades of experience including with Google, co-founded Moglix, in 2015.
Think of Moglix as a B2Bfocused startup, a master supplier of sorts, trying to solve the problem of poor vendor supply ecosystem in India. With 12 warehouses and Ratan Tata among its investors, it expects to operationally breakeven next year. Unlike B2C, B2B isn’t a winner-take-all market. Also, B2B startups are less fund hungry and start making money much earlier in the growth curve. Rahul Garg, with two decades of experience including with Google, co-founded Moglix, in 2015.
Think of Moglix as a B2Bfocused startup, a master supplier of sorts, trying to solve the problem of poor vendor supply ecosystem in India. With 12 warehouses and Ratan Tata among its investors, it expects to operationally breakeven next year. Unlike B2C, B2B isn’t a winner-take-all market. “You don’t do irrational discounting as enterprises will be wary of such behaviour,” he says.
Money with a Spin
All this means B2B startups have very different expectations from their investors. While money remains a big factor, “B2B startups want investors to open doors and bring domain expertise,” says Sateesh Andra, managing director, Endiya Partners. Adds Rastogi: “We are engineers so we understand product and technology well but not enterprises. Our investors understand it well and that helps.”
Hiring top seasoned talent for a littleknown startup is a challenge. “There is lot of affinity for young engineers to join B2C where brand recognition is high,” says Rohit of Darwinbox. Having investors, especially strategic and pedigreed ones such as John Chambers and Ratan Tata, help. A better understanding of the dynamics inside B2B startups, too, is critical.
“Sales cycles can be as long as 10 months. Many investors don’t fully understand this. Their B2C philosophy ‘take more money, grow faster’ doesn’t work here,” says an entrepreneur who asked not to be quoted. In the US, the maturity of investor ecosystem is very high. With over 35,000 funds, there are many specialist funds with deep domain understanding. It is for some of these reasons that Uniphore’s Sachdev hopes to raise the next round of funding from a US-based fund.
Eyeing the emerging wave, many investors have begun reshaping their strategy. Singapore-based Pravan Malhotra, head (Asia internet and Southeast Asia investments) at IFC, says since 2016, they shifted focus to B2B startups and have invested in startups like Moglix.
Ditto for Manish Singhal of Pi Venture and Alok Goyal, partner, at Stellaris Venture, who are only investing in B2B startups. Entrepreneur and now investor Vivek Mansingh of YourNest says their B2B-focused firm is a co-creator right from the idea stage to marketing.
Shifting Tide There are very good reasons why this shift is happening now. First is simply the cyclical nature of the startup world. “Everything here happens in cycles. B2C space has matured. In areas like fintech and blockchain, all bets are taken. B2B is still at a nascent stage in India,” says Kris Gopalakrishnan, angel investor and a cofounder of Infosys.
But there are deeper reasons shaping the B2B wave in India. Broadly there are three categories of B2B startups. There is the software-focused SaaS startups such as Freshworks, who do software products targeting global customers. There are startups like Darwinbox that start their journey focusing on Indian companies but slowly expand overseas.
Then there are companies like Moglix and Delhivery that are not exactly SaaS companies and remain focused on solving India problems. “The firstbucket has become interesting in the last five years. Thanks to cloud computing and desk-based sales model, India has a completely new class of global Saas startups serving global customers,” says Sharad Sharma, cofounder, iSPIRT Foundation.
The second bucket (SMEs) has become interesting as the SME digitisation wave sweeps the world, especially Asia, where over 90% of all companies fall in this segment, says Malhotra of IFC. Comfort with technology has risen with a generational shift. Online presence — either for tapping customers or filing tax returns — have become a necessity.
In India, for example, GST and formalisation of the economy is changing the status quo. India has 50-odd million small enterprises, the likes of kirana stores, mobile stores and small restaurants. “GST was a trigger. A cheap smart phone with low-cost data was the enabler. Small businesses that never used technology are now potential customers,” says Dev Khare, partner, Lightspeed India.
Between August 2017 and December 2018, number of IT returns filed almost doubled to 7.2 million from 3.76 million. Under GST, about 11.7 million enterprises have registered with 5 million being new registrations. These small businesses have many problems, like access to funds and credit, turnaround of receivables, filing GST, logistics etc. Digitisation is helping boost efficiency, cut costs and automate, while removing intermediaries (CA to file tax returns, for instance).
“This market did not exist three years back. Companies like Udaan and OkCredit are taking a stab at solving their problems. For the first time, tech startups that target India’s small businesses can be scaled efficiently,” says Khare.
These small businesses behave like consumers. Fund constrained, you have to show them the product value for free before they buy. Thanks to SaaS-based pay-peruse business model and cloud computing, the entry threshold has lowered.
Fortunately for India’s B2B startups, because of their DNA and cost structures, the USbased firms find it difficult to address this segment here as well as in their domestic market.
“India missed all the three digital waves in the past of mobile, social and cloud. Think of Whatsapp, Facebook and AWS. We became big users without any homegrown companies capturing the market. India has a rare $1-trillion opportunity to ride the Saas wave,” says Suresh Sambandam, CEO, KiSSFLOW.
“Startup world moves in cycles. All bets are taken in B2C. At an early stage now, B2B is the next big thing” S Gopalakrishnan, cofounder, Infosys
India is the only country where the knowledge of IT services (thanks to IT outsourcing giants like Wipro and TCS), product (thanks to MNC R&D hubs) and startup energy (India is among the world’s top five startup ecosystems) converges with thousands of engineers with deep understanding of global enterprises.
“There is a rekindling of interest among large MNCs like Intel, Cisco and Target to tap into India’s startup innovation and fill in the product gaps in their business portfolio,” says Guhesh Ramanathan, founder, Excubator. For example, an MNC making accesscontrol devices wants to launch products based on facial recognition and is now scouting for startups that can help fill the gap.
“Having a strategic investor and mentor like Cisco’s John Chambers makes a huge difference” Umesh Sachdev, cofounder, Uniphore
“Right now, we are seeing the Indian arms of MNCs giving mandate to Indian startups. In 18 months, I see global HQ mandates coming here. That would be a big inflection point,” says Ramanathan.
That journey will come with its own challenges. Building products and marketing skills aren’t India’s strengths. Investor ecosystem in India is still evolving and not so deep.
“Competing with the best, B2B startups must build global products and have a strong go-to-market plan” Vivek Mansingh, YourNest Venture Capital
“The government doesn’t understand SaaS companies that have IP and very different needs. Setting up specialised SaaS accelerators across states to tap into the opportunities will help,” says Sambandam.
If India manages to make the right moves, we could see a wave of truly global breakout startups. And they could be the true successors to India’s low-cost IT services providers.
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