Bharat Times

India’s new guard of start-ups

July 12, 2011, Financial Times : James Fontanella-Khan

When Sachin Bansal and his room mate Binny Bansal decided to quit Amazon India in 2007 to start their own “humble online bookstore”, many thought they had lost their wits.
          “A lot of people tried to talk us out of what we were doing,” says Binny. “They used to say: why give up a proper job?”
          Sachin also recollects friends warning him about the risks of setting up his own business. “We had a job, a good one, but we also had a dream and many people couldn’t get this feeling, this ambition,” he says.
           Few believed that the two university friends – who happen to share the same surname – could turn a $10,000 investment into a business generating multimillion-dollar revenues in less than five years. Today, some analysts value their company, Flipkart.com, at about $400m.
           The story of Sachin and Binny might be a fairly common one in Silicon Valley, where dropping out of university to set up a company has become the norm. But in India things are different. One reason people were so sceptical was that the two were first-generation entrepreneurs who did not come from a business family background – Sachin’s father was a farmer and Binny’s was a government employee.

           “Junior analysts at investment funds found our business interesting but when they pitched our company to their senior partners they would turn us down as they thought that two guys like us couldn’t scale up the business,” says Binny. Historically, leading entrepreneurs and business executives are children from “business families”. Meanwhile, somebody born in a family of professionals or government employees would end up following their parents’ footsteps as a salaried worker – a throwback to the days when a person’s occupation was tied to caste.
           Apart from a few rare rags-to-riches stories – such as that of the late Dhirubhai Ambani who built Reliance Industries, India’s largest listed company, despite being the son of a low-paid teacher in rural India – not many individuals have broken the mould.
           Now, a new group of first-generation entrepreneurs such as the Bansals are overcoming social obstacles and taking advantage of the opportunities in the “new India”.
           “Initially, we were running the company with just two computers from our room,” says Sachin. “The first order came 10 days after we launched the site. A guy in Andhra Pradesh bought Leaving Microsoft to Change the World by John Wood, who quit his job to set up the charity Room to Read. To us, it all seemed quite ironic as we had quit Amazon to change our lives,” he says, as the two burst into laughter.
          “It took us two days to find it,” recalls Binny. “We sold it at a loss to make up for the delay in delivery.”
          Setting up the operation from scratch was the hardest task. “At the beginning, it took some time to get [book] distributors and vendors to believe that what we were doing was serious and had potential,” says Sachin.
           Flipkart broke even after only six months, allowing the two emerging entrepreneurs to start reinvesting profits into a new office space and employees. “We didn’t take a salary for 18 months and lived off our savings and a little pocket money from our parents, who were very supportive,” says Sachin. During the first year, the company grew at a phenomenal pace. Sales doubled on a quarterly basis as Flipkart’s innovative cash-on-delivery payment system and growing titles catalogue became the favourite destination for the country’s literati in search of their preferred book.
           However, in spite of the stellar early performance, few serious investors approached the Bansals to back their project. “We knew it would have been hard to attract [venture capitalists],” says Binny. “We were just two years out of college with a short working experience. We had to build a customer base to prove that we had something real to offer to potential investors.”
           By mid-2009, investors started coming after them and they soon received their first $1m from a VC fund. This was shortly followed by another $10m investment from another US fund.
           “From then onwards, the operation skyrocketed,” says Sachin. “We opened multiple offices, hired new engineers and boosted our catalogue.”

          This new class of entrepreneurs has emerged over the past decade on the back of India’s unbridled economic ascent, as old barriers and constraining traditions have been overcome by a more risk-prone and self-confident generation. They have a distinct profile: they have a middle-class background; their parents were wage earners; they went to India’s top universities; some also have an MBA or PhD from the US; and they worked for a big company for a few years, before going on to set up their own venture.
           Like the Bansals, Samir Patil, a former partner at McKinsey, and Susmita Mohanty, who worked at Nasa and Boeing, are two entrepreneurs who fit this profile. Inspired by Walt Disney and Sesame Workshop, the non-profit organisation behind Sesame Street, Mr Patil launched India’s first child-focused media group in 2007 after he returned from New York, where he lived for several years. Meanwhile, Ms Mohanty returned to India in 2008 to launch Earth2Orbit, the country’s first private sector space company, which consults the government’s space agency and private sector groups to develop space-related business opportunities.

          The rise of these new entrepreneurs became possible only after 1991, when on the brink of default India was forced to open its economy, says Ajit Rangnekar, dean of the Indian School of Business. “If you look back pre-1990s ... there were so many hurdles, you needed loads of licences, you had to be close to the government, capital was not easily available ... There were very few non family-run businesses,” says Mr Rangnekar.
           The success of India’s IT outsourcing sector also played a big role in instilling a new entrepreneurial culture, says Padmaja Ruparel, president of Indian Angel Network, a community of early-stage seed investors. “Companies such as Infosys [India’s second-largest company], which was set up in the late 1980s by a group of middle-class IT whiz-kids, proved that it was possible for anyone to turn a dream into reality.”
           Parminder Gill, a 42-year-old entrepreneur and co-founder of EduSports, which provides physical education programmes to nearly 200 private schools in India, says that the entrepreneurial ecosystem has hugely improved since he set up his first business more than 15 years ago. “The government isn’t in your way all the time, there are more sectors we can invest in, people have money to buy our services thanks to the economic growth we have experienced ... it is a whole different story.”
          However, seed funding continues to remain a pressing problem, according to Vinarma Shastri, a partner at the consultancy Grant Thornton. He says that most funds prefer investing in companies with at least a year or two in the business, which means that many start-ups depend on personal or family savings to get things going.
           The rise of India’s new generation of entrepreneurs is still under way but what most observers seem to agree on is that the country’s next generation of billionaires will be the likes of Sachin and Binny.

                                                  (The views expressed above are the personal views of the author)

Flower farms a budding investment in India

By Jo Winterbottom and Rajendra Jadhav, SATARA, India | Sat May 21, 2011 9:46am IST

(Reuters Life!) - A decade ago, Rahul Pawar made an unusual and risky choice -- to grow flowers in the centre of India's biggest sugar-producing state Maharashtra. Now he's reaping the rewards of his 1.1 million rupee investment as increasingly affluent Indians want his bright blooms for their weddings and festivals.

          "Every year we are seeing a rise in demand. People are using more and more flowers at functions like weddings," Pawar said.

          "They are ready to pay for flowers like gerbera and gladioli, which are new to them," he added, holding a fluorescent bird of paradise bloom in his weather-beaten hands.

          Pawar grows orange and red gerberas under polythene in climate-controlled conditions to shield them from Maharashtra's scorching summer, when temperatures can top 48 C.

          The hardier birds of paradise plants flourish in the field and take three years to reach production of 30 flowers each. They will flash their orange and purple crests for 20 years.

          The central belt of Maharashtra is prime sugar cane country, producing over nine million tonnes of the sweetener -- or about 40 percent of India's total output.

          The government guarantees minimum prices for farmers, currently at 139.12 rupees per 100 kilogrammes, for sugar cane. Sugar is an important source of food energy for a country where over 42 percent of the 1.2 billion population are below the poverty line.

          But farmers like Pawar are experimenting with crops such as flowers, a luxury item where more money can often be made.

          "Flowers are giving much higher returns than other traditional crops. But the initial investment is very high. You have to wait for four to five years for breakeven," Pawar said.

          Flower production has boomed in India, as its eight percent annual growth boosts incomes in the middle class. Wedding halls are often crammed with blossoms and frequent festivals are seen as an occasion for garlanding with hot-hued blooms.

          "Previously, people had been using flowers only for big functions. But now, even for a small function they are buying," said Kiran Nanavare, a 31-year-old flower trader based in Pune in Maharashtra.

          "Every year we are seeing a rise in demand."

          Flower stalls dot every market and many street corners in India's big cities, selling loose stems or elaborate bouquets and set-piece presentation arrangements.

          The amount of land dedicated to flower production in India jumped 55 percent to 183,000 hectares in the five years to 2009/10, according to the National Horticulture Board.

          Cut flower production rose to 6,667 million stems in 2009/10, from 2,071 million in 2004/05.

          Prices for out-to-please gerbera can rise to seven rupees in the peak wedding season, Nanavare said, but can fall to four rupees in mid-June during the monsoon months when heavy rains and sultry temperatures keep partying subdued.

          "Interior decorators buy during the wedding season in large amounts, but throughout the year demand remains there from small vendors" who organise buffet functions and other ornamental occasions, Nanavare said.

          Some farmers in the country's rugged rural expanses are now trying to explore the global market as well, mostly with Dutch roses, but their share in the world market is still tiny.

          "We don't have cold storage facilities for exports. Once we get that we will test how demand is for Indian flowers in other countries, where prices are much higher," Pawar said. ($1 = 45.065 Indian Rupees)

(Editing by Elaine Lies)

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Flower farms a budding investment in India