Entrepreneurial Zeal and Accelerator Growth in India
In this edition of The Interview, Fair Observer talks to Raghav Kanoria, the founder and partner of Neoleap Business Ventures LLP.
The entrepreneurship bug has spread in India, and a positive drive to encourage entrepreneurs resonates throughout society. The Global Entrepreneurship Monitor reported in 2014 that “58% of Indian adults (18-64 years old) consider entrepreneurship a desirable career choice; around 66% think that entrepreneurs receive a high level of status and respect.” It is worth noting that the National Association of Software and Services Companies (Nasscom) sees India as the third largest base of technology startups.
The startup ecosystem is also receiving help from the government. Prime Minister Narendra Modi announced the “Start up India, Stand up India” initiative to encourage entrepreneurship amongst women as well as disadvantaged communities across the country.
In addition to more loans being provided, the other programs include tax benefits, reducing red tape and setting up research parks. The recently passed bankruptcy code will enable a committee of creditors to decide in 180 days if a venture should be continued or liquidated. This will allow funds to be diverted away from inefficient firms as quickly as possible. Another benefit, indicated in an article by Knowledge@Wharton, is that hardworking entrepreneurs will not be tied down in failing ventures for a long time.
Coupled with increasing entrepreneurship is the rising number of local and foreign accelerators in India. This is evidenced by a Compass study in 2015 that ranked Bangalore as the fastest growing venture capital (VC) and seed funding ecosystem. However, running an accelerator can be difficult because of the high operating expenses and the uncertainty about a startup’s ability to succeed.
While there is improvement in the startup ecosystem, much still has to be done. India still languishes with an Ease of Doing Business ranking of 130 out of 189 economies in 2016—an improvement of four places in the last year. The “starting a business” topic has improved by nine places, but it is still ranked at a low 155. Even with the new bankruptcy code, India has to ensure strict enforcement so the benefits can be accrued to those involved.
In this edition of The Interview, Fair Observer talks to Raghav Kanoria, founder and partner of East India’s first structured private accelerator, Neoleap Business Ventures, about accelerators and entrepreneurship in India.
Daniel Currie: The growing entrepreneurship zeal has spawned a number of accelerators and incubators in India. What drove you, Kumar Patodia and Chandradeep Mitra to form Neoleap Business Ventures?
Raghav Kanoria: We noticed that there are only a few standalone private accelerators as most accelerators are part of large companies such as Microsoft, Intel and Google. The reason for this development is that these corporates have more cash to keep funding their accelerators. In addition, accelerators have a long payback period of two to three years. In Neoleap Business Ventures, we only take a joining fee and a commission on the fundraiser that a company may get on the demo day. The long-term value is dependent on the 3-5% sweat equity of the startup, which means that a lot of money has to be spent in the meantime by accelerators.
The rise in the number of accelerators comes from the success of Y-Combinator and Techstars. These standalone accelerators raised $500 million to $1 billion. Through Y-Combinator’s success with Airbnb and Dropbox, people have figured out that an accelerator only needs one or two big hits to make it financially sustainable. This is evident in India as VentureNursery incubated Oyo Rooms, and it returned around $9 million. GSF, another accelerator in Delhi, was able to sell Little Eye Labs to Facebook for around $10 million.
India is seeing this rising trend, which means there will be a lot of private accelerators coming up in the future.
Currie: Your website mentions that Neoleap Business Ventures is the first private accelerator in East India. Why was there a dearth in accelerators in the first place?
Kanoria: It was a combination of different factors: There was not much funding and government support for startups. Now, the government and the Ministry of Small and Medium Enterprises are proactive.
While there was not much funding at one point, there is a change taking place. I co-founded Calcutta Angels Network, which has funded 14 companies in India. Nasscom has also opened a warehouse in Kolkata, and [it] started incubating startups over the past year. The Indian Institute of Management in Calcutta also has an incubator. All this has come together to build a funding platform in the last two to three years.
Currie: The Neoleap Business Ventures’ website specifies criteria for startups to be accepted to your accelerator program. From that list, is there one characteristic that a startup must have, or is each point just as important as the others for a successful venture? What quality do entrepreneurs need in order to thrive in an accelerator, and how do you find out if they have these attributes?
Kanoria: It is important for startups to have a good idea that is scalable and has a large target market. The startup must also have a good co-founding team that has the vision and drive to run with the idea.
Entrepreneurs should be adaptable and have the willingness to learn. These are key attributes because it means that entrepreneurs learn from mentors [and] investors as well as the classes. If people are willing to get through the application process—and they know the classes and programs provided—then they have understood what they will go through once accepted into this program.
Currie: What do entrepreneurs typically want from accelerators? What are the difficulties that entrepreneurs face at this nascent stage?
Kanoria: They are looking for mentorship, workshops and a place to meet investors. At Neoleap Business Ventures, we provide an all-round holistic system of six workshops that are shared with other startups in the program: Amazon IT architecture, accounting, compliance, legal, financial modeling and social media. These are the tools that we think people need at this stage.
Currie: Neoleap Business Ventures has a four-month accelerator program. What should a startup accomplish by the end of this time period?
Kanoria: A startup needs to have a business plan and a finished financial model with a 24 to 36-month horizon. It should show that the startup’s idea or product has the potential to disrupt the market, which means that it should not be a “me-too” product—a copy of [an] existing or [a] competitor’s product line or business model. Even a small company should look to disrupt a niche market. If it is a social impact idea, then it should have a wide impact at the bottom of the pyramid.
While there is improvement in the startup ecosystem, much still has to be done. India still languishes with an Ease of Doing Business ranking of 130 out of 189 economies in 2016
The startup should also have a strong co-founding team in place by the end of the program. This provides a good sounding board and allows for complimentary skills to be utilized for the betterment of the startup. Entrepreneurs should also incorporate feedback they will get throughout the program from corporate partners. These partners give advice to various startups on their business [or] product, as well as giving insight on how companies decide if they want to acquire or buy a stake in the startup. This business feedback is important for the startup.
Currie: What happens when a startup in your program does not get investment on the demo day?
Kanoria: No one can guarantee anything because it is all on a best effort basis. The whole system that we have created, which brings in mentors, workshops and constant feedback within a four-month period, should help the startup to raise money. If you are unable to raise money, then there is something wrong with the product.
Our intensive application system for the program ensures that the selected companies will have the attributes to do well. From the 50 startups that apply, only four or five are selected.
Currie: How do you see accelerators evolving in the future? Are they going to be more sector-specific?
Kanoria: In the US, the startup ecosystem began around 45 years ago, and the big accelerators became successful in the last seven to eight years. Initially in the US, there were just angel investors, high net-worth individuals, family offices and VC funds. It takes about 20 years for market depth to be created and accelerators to come in.
In India, all this began in 2000. In another two to three years, the market will become mature, and you will start getting sector-specific accelerators.
Currie: What are the differences between startups in eastern India in comparison to the rest of the country? For example, do you see a large number of startups in one or two sectors or does it vary? Are there any opportunities for the future?
Kanoria: In East India, a lot of the startups are associated with education, health care, food, fashion, construction-related, data analytics, tea and real-estate. In the future, a lot will come out in artificial intelligence, fintech and big data. For the time being, startups in these sectors are not prevalent in India.
Currie: What should the government do to help improve the level of entrepreneurship in the country? Also, what should the government do to help accelerators, incubators and venture capitalists achieve this goal?
Kanoria: Firstly, there needs to be good infrastructure such as better roads and power generation. This has been improving over time as a lot of government and private financing institutions have been providing capital to this sector. Execution of such projects has improved as well.
Funding and grants should be provided for qualified accelerators. The founders should be credible people who fulfil specific criteria to get grants from the Indian government. Such criteria could include the track record of the founders, investment in startups, [the] number of successful exits, and if the founders are in touch with the community of startups and lawyers. These criteria can be quantified in some way.
Other important points include research from government institutes such as IIMs [Indian Institute of Management] and the Indian Institute of Technology to help benefit entrepreneurs and accelerators; a platform for seminars and events; and visibility of entrepreneurs and accelerators in publications. Tax benefits to startups in accelerators should also be a priority.
Currie: Will the recently passed Goods and Services Tax (GST) bill and the new bankruptcy code help entrepreneurs?
Kanoria: I think the bankruptcy code will help the startup ecosystem, because if the company does not perform then it does not mean that the individual is liable because everything is on [a] best effort basis.
The GST should not affect the startup ecosystem. There might be some impact on e-commerce, but I do not think it will make a difference for education and technology startups.
Currie: We know that Mumbai, Bangalore and Delhi are places for entrepreneurship. Do you see Kolkata becoming an entrepreneurial hub in the future?
Kanoria: Kolkata has a lot of ingredients to become an entrepreneurial hub, and it has all been developing over the past two to three years. We have an angel investor’s network, a group of engineering and management institutes, a large corporate market [and] a proactive government, along with incubators such as Nasscom. There is no reason why we cannot make Kolkata a hub for entrepreneurship in eastern India.
Currie: What advice would you give for enthusiastic and budding entrepreneurs in India?
Kanoria: The main advice is to keep going. Entrepreneurship is a long and hard journey. It is only for the committed people who can face challenges and adversity, and overcome it all from time to time.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
Photo Credit: Paul Paladin