Industry Analysis: Best fit for new ventures

Start ups in India are rising at a very fast rate. Last 10 years have been a decade witnessing an exponential growth in the number of start ups.  Indian ecosystem has been very favourable for the new ventures and 2013 has been really exciting as $1.6 Billion were invested in Indian start ups in around 300 deals.

Start ups have emerged in various sectors but IT/ITes sector has proved itself to be very attractive for the start ups. Firms in India established between 2000-2006 took 10 years to cross the INR 5 crores revenue mark but now firms established post 2006 are taking only 3-4 years to cross the INR 5 crores revenue. This has improved the share of firms in India with revenues over INR 5 crores up from 33 %  in FY 11 to 37% in FY13.

Major reasons propelling such impressive growth of start ups in IT industry is the cost leadership of  Indian market,  favourable government policies and last but not the least, increase in the number of VC/PE funding. Because of the low cost of living and low wage rate, most of the IT services gets outsourced to India and foreign companies are able to save around 40% of their total cost. Government have also taken up various favourable policies of tax exemptions, liberalized FDI policies, emergence of STPs, etc. which has motivated start ups to emerge in the Indian subcontinent. But most important of all the reasons, is the increased number of VC/PE funding. For any start up, getting funds is a very important criteria for the survival and growth of its business. Increased confidence of PE/VC funds in Indian start ups have helped this barrier to weed away. According to NASSCOM, 65% of total VC investments are happening in Software, internet and mobile industries.

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A recent study by IDG Ventures estimates that India will witness $70-75 Bn of private equity and VC investment between 2010 and 2015 of which nearly $10 Bn of it is expected to come from VC players, largely in the IT space.

Emerging technology trends of IT industry  where we see a lot of start ups booming are in the field of Social media, Mobile Applications and user interface, Analytics and Cloud computing, abbreviated as SMAC. It is clocking an impressive annual growth of 25%  and according to Gartner, it is predicted to have an economic impact of USD 14 to 33 Trillions by the year 2025. IDC has also been very optimistic for SMAC and has predicted it to contribute about 90% to IT industry by 2020. The big boys of IT industry viz. TCS, Infosys, etc. have also stepped forward to launch their services and products in SMAC. Wipro has led 2 strategic investments of $5mn in cloud services company Axeda and $30 mn in Big data firm Opera Solutions. TCS has set up a business unit in Silicon Valley, pulling all SMAC services under one roof. Cognizant is a bit ahead and has already earned $500mn of revenues in 2013 from its SMAC products.

SMAC has a very high growth potential. IDC is predicting that the cloud software market will surpass $75B by 2017 attaining a five year compound annual growth rate of 22% in the forecast period. Analytics market is also booming high and according to IT software body NASSCOM, the size of the Indian analytics market is $375 million and more than 500 companies are operating in this segment in India. This market is expected to be $1.15 billion by 2015.

A large number of Start ups have already bloomed in the field of SMAC , but the most famous has been E Commerce. With the increase in internet penetration, currently at 16% and year on year growth of 28% , there are around 243 million internet users in India, which is around ten times the population of Australia. The E-commerce market is predicted to touch  US$ 24 billion by the year 2015. Major contributor to the revenue of E commerce has been Online Travel industry which contributes currently around 87% of E commerce market. Many start ups like Myntra, Flipkart, Jabong, Red Bus, Make my trip, etc. have benefitted from this emerging trend and have already built multi million business.

The future of web start ups is pretty shiny. While few years ago, starting a start up was very expensive and one had to sweat to get the permission of investors to do it. Now the only threshold is the courage. Even this barrier is getting lower, as people watch others take the dive and survive. Developments in IT industry and emergence of various new technologies has made this industry deliver a perfect ecosystem for starting new ventures. With the growing  Indian economy and emergence of a stable government, start ups can look for more  opportunistic future. Recently in the Finance budget 2014, finance minister Mr Arun Jaitley has announced Rs 10,000 crore funds to be established for entrepreneurs and start ups and resolution of many taxation issues like inverted duty structure in the IT . These steps will  make India right behind silicon valley and ahead of china in terms of early stage capital, thus propelling an exponential growth for the start ups in IT industry.

 

References:

1)      Tech Trends (2014). Inspiring Disruptions. Deloitte Technology Trend Report: Joel Vanovershelde

2)      Performance of the Indian IT Sector (2014). Security and Sustainable Development . IDC Report. : Radha Gopalan

3)      The National Association of Software and Services Companies .(2014, July 26). IT industry. Retrieved From the NASSCOM website: http://www.nasscom.in

4)      The Statistics of India. (2014, July 28). Stats of India. Retrieved From the Website: http://statisticsofindia.com/

5)      Indian Brand Equity Foundation. (2014, July 28). IBEF Retrieved From the Website: http://www.ibef.org

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