The Indian startup ecosystem has touched the proverbial tipping point – high-quality entrepreneurs, good ideas and the very important funding ecosystem in the form of angels, seed capital, growth capital and PEs. Yet, for all the excitement and focus in this space, the true ‘unicorn’ seems elusive. Where is the Indian original big idea - the AirBnB, Uber or Amazon for that matter? What is missing in India, which the West, and especially the Valley seems to have an abundance of? Let’s explore...

The Indian Unicorn

“I don’t think we have as many really disruptive startups in India as we do overseas.” Ratan Tata’s view recently reported across key business dailies set the Indian startup world abuzz. While some talked about the successes of our very own unicorns, others pointed out that most Indian startups were simple geo-clones of successful global companies. Some talked about the scale achieved by the Indian startups, with references to the recently concluded ‘Big Billion Sale’, while others questioned the global appeal of their businesses.

Irrespective of which camp you may belong to, RNT’s observation raises a few pertinent follow-on questions: Are the Indian unicorns truly disruptive?

True Disruption

So, how does one define a startup as truly disruptive? As I see it, it is the combination of the following:

1.       Originality of the idea or the business model

2.       Global scale and appeal

3.       Impact in terms of how it affects the way our species lives

In other words, disruption truly happens when we chase original, audacious ideas and goals.

When companies meet the above criteria, the word disruptive truly seems synonymous with them. Think Uber. Amazon. Airbnb. The three have redefined transportation, commerce and the sharing economy.

When we apply this criterion to the Indian unicorns, it’s easy to see why, perhaps, we don’t speak of them in the same breath. While Flipkart, Ola and Paytm have achieved phenomenal scale and impacted the way we buy, travel or pay, they were definitely not the first in their category nor original in their execution. What they have achieved is market viability in the Indian context. The word often used for them is geo-clone. This is an unfortunate reductionist term, in my opinion, as anyone who has built a business knows the challenges involved, never mind if a playbook for the same already exists.

That is not to say that there are no innovations involved for a me-too. The local tweaks and jugaad, one could argue, are sometimes more innovative than the original business idea! What made Flipkart and Ola the local darlings, was their willingness to do cash on delivery and accept cash payments respectively, a far cry from the 100 percent digital global template. And Paytm is synonymous with cashbacks – a model which it managed to successfully sell to its investors and then executed flawlessly to achieve its dominant position in the market, never mind all those naysayers and doomsday predictions.

So, as we have seen, there seems to be no dearth of smart, capable talent in India, who can execute, as well as innovate. Also, there seems to be an abundance of money chasing startups, at least the ones which have achieved a certain amount of scale. So the question begets itself – where is the Indian Uber, Amazon and Airbnb?

So, where does the search for the disruptive Indian startup begin?

Unfortunately, there are no silver bullets. While we wait for the angel ecosystem to mature and have a larger risk appetite for audacious startups, various models are being attempted to address this need.

Technology incubators are one such attempt. However, while the gold standard for these incubators is the hugely successful Y Combinator, we haven’t seen an Airbnb or Dropbox emerge from the over 175 incubators in India. Yet. One possible drawback for the tech incubator model is the fact that most of the entrepreneurs are first timers and working their way through product ideas, design issues, market pilots and pivots need far more mentoring than what an incubator batch of a few weeks provides.

It’s the angels, stupid…

When an entrepreneur begins his journey, it is usually on the back of an idea and nothing much else. The next phase is that of building a team of co-founders who believe in the vision, starting work on a prototype or a MVP (minimal viable product) and last, but not the least, raising money.

This is when the reality starts to sink in. Initial meetings with the VCs are usually polite and interesting but at this early a stage, they usually end with, “This is interesting. Keep us updated on your progress!” Decoded: This is too premature and early for us to come in right now.

Soon the focus of fund raising moves to angels and increasingly nowadays, to angel forums. While these seem far more receptive to early-stage companies, in reality, they exhibit far less risk appetite. An angel group is usually a motley group of HNIs, professionals, capital market investors and entrepreneurs, all excited about this new asset class of tech startups. Most want to know if the idea has been implemented elsewhere already, preferably in the Valley! Often, the pitch day discussions turn into a number-crunching massacre, with the bewildered entrepreneur having to handle questions about cash flow statements, year 5 projections, insufficient market data, lack of detailed fund deployment plans and so on.

Not that these are not important metrics. However, mostly these are premature to measure, especially when the entrepreneur is still fine-tuning his business model, seeking his product-market fit, validating customer behaviour and so on.

Of course, there are exceptions to the above and as tech founder exits and associated wealth creation increase, the angel ecosystem might have a much larger risk appetite.

By and large, however, the unforgiving natural selection process of early-stage funding leads to safe, P&L companies or geo-clones (or even worse, clones of geo-clones!) getting funded in the Indian startup ecosystem.

Simply put, the early stage money available is largely to address market scale risks rather than the design risk, which a truly disruptive startup needs to solve.

No, it’s the exits, stupid…

So, when will the angel ecosystem mature? Simple. When they have tasted blood. The one thing missing in the Indian startup ecosystem is the large cash exits. There have only been a handful of IPOs – Makemytrip, Justdial, Infibeam come to mind. While there have been acquisitions, by and large, these have been stock swaps, acquisitions via merger or part cash deals. Talk to most angels and most of them seem to have their investment stuck in these non-cash transactions. These are the lucky ones. The others have seen their investments eroded or sunk to zero in the high mortality battleground of startups.