Singapore: The Indian start-up ecosystem is quite fragmented, and has a lot of players in the business-to-consumer space (B2C) space, but it requires a lot more focus on business-to-business (B2B), said Nipun Mehrotra, vice-president, growth initiatives, IBM India & south Asia. “There have been some big exits in the consumer segment with the likes of Myntra, Jabong and Freecharge etc and with more and more international brands venturing in to the Indian market the consumer start-up industry will witness further churn and consolidation. We definitely see huge opportunity for B2B start-ups to grow and be a larger value addition to corporates," he said in an interview.

Edited excerpts:

This year is shaping up to be perhaps the roughest ever for India’s technology companies. How do you think Indian start-up ecosystem should prepare themselves going forward?

The startp-up ecosystem in India is evolving and as per the latest report by Nasscom- ZINNOV, India will be home to 10,500 start-ups by 2020. However, there is still a long way to go for the start-ups. On one hand, the start-ups need to come up with very deeply differentiated business models which will add value to their customers, and at the same time make their processes efficient and frugal - for example, leverage existing API (application programming interface) s as much as possible to build products rather than developing products from scratch. They need to make their investments work twice as hard to build their business in 2017 and beyond. Another example of things that can help is to be very user focused when they build their business vs being product feature-focused. Alignment to the end user is critical at an early stage and start-ups must embed design thinking aspect as they build their product.

When it comes to global ecosystems, London is the first thing on one’s mind when you talk fintech. What do you think of the fintech opportunity in India?

The fintech industry has gained momentum in India since the beginning of 2015. The industry witnessed the emergence of numerous fintech start-ups, incubators, and investments from public and private investors. The key enablers in the industry like government policies, regulatory framework coupled with various banks like ICICI and AXIS coming up with their accelerators to work along with entrepreneurs has helped to drive the momentum in India. The fintech start-ups are further leveraging various government initiatives like Jan Dhan Yojna, Aadhaar, and Digital India and we will see a lot of innovation happening in this space in the coming years. While there is a lot of growth opportunity for this sector, the companies also need to look at greater collaboration between various players and amalgamate learnings and entrepreneurial experiences for further growth of this sector. There should also be a cohesive fintech environment built for complete infrastructure penetration. We are witnessing some innovation in the P2P (peer-to-peer) lending, robo advisory, bank-in-a-box, security and biometrics areas which are treading fast towards mass market implementation, with technology like blockchain just marking its entry with a promising future for the fintech companies.

What is your take on Indian government’s approach to the start-up ecosystem in India?

The government has launched many progressive programs to address the requirements of the start-up ecosystem in India. (With) Start Up India, along with programmes like Make in India, the government is giving a further boost to the start-up community. Government is also focusing on making start-ups leverage new age technologies and has set up National Initiative for Development and Harnessing Innovations (NIDHI), an umbrella programme which aims to nurture ideas and innovations in the start-up ecosystem. ...friendly policies like waiving income tax on their profit for the first three years, a simple exit policy, fast tracking of the patent applications, 80% exemption in patent fee, self-certification based compliance system etc are bold move to get more young minds in the start-up space. There can be more work done to support the growth of start-ups in India by driving structured collaboration between government and corporates. We believe that with emergence of new technologies like cognitive, cloud, IoT (Internet of Things), design thinking etc. and government’s push for R&D (research and development) the startup ecosystem can transform the innovation culture and place India on a high growth trajectory.

Exits are still an issue in India, when do you see them happening?

We believe the Indian start-up ecosystem is quite fragmented and while we have a lot of B2C start-ups, we do require more focus on B2B and on start-ups that are differentiated by IP or deep tech. Start-ups also need to focus on building a scalable business, with an international outlook and catering to standards that make them attractive to large global tech companies or global clients. There is a need for uniqueness and use of deep technology to distinguish from B2C models. We believe for exits to ramp up, there needs to be a concerted approach by all players in the ecosystem and to possibly replicate the success that Israel—as one example—has seen. We do see the government being aligned towards helping start-ups not just grow but also help in their exit process. The Insolvency and Bankruptcy Bill 2015, tabled in the Lok Sabha last December, has provisions for fast track and/or voluntary closure of businesses. With the shelf life of Internet-born companies among consumers being low for various reasons like competitive market, too many options, cashback and lucrative benefits, we think it’s about time that we will witness more exits happening soon. There have been some big exits in the consumer segment with the likes of Myntra, Jabong and Freecharge etc and with more and more international brands venturing into the Indian market the consumer start-up industry will witness further churn and consolidation. We definitely see a huge opportunity for B2B start-ups to grow and be a larger value addition to corporates.

Globally, IBM has put capital into venture capital funds—you’ve invested in over 50 funds—but, we’ve not seen IBM do that in India and south-east Asia. Why is that so?

Every start-up has two major requirements—resources and capital. There is no dearth of capital for the right idea and the right team, and there are many investors who are providing this. Where we can differentially add, tremendous value is from giving the much-needed strategic and technology mentorship which further helps the start-up to leverage their money in the right direction. IBM provides access to clients, access to deep technology engagement with our labs and access to mentoring and all of this without the startups giving up any equity for it.

In India, you have partnered with Kalaari and Indian Angel Network to work with the start-ups—but this is for mentoring, training and educating and getting them to cloud and cognitive technologies at an early stage. How much leverage do VCs even have in influencing such decisions for their portfolio companies?

We are partnering with a select few investors who are actively engaged in supporting and mentoring start-ups in incubating their ideas. At IBM, we believe that we can add value from our deep enterprise technology, our huge spend on research and probably the world’s best access to enterprise clients to help these start-ups and also VCs. We are looking beyond selling our products and solutions to becoming ‘essential’ to the ecosystem through a whole range of collaborative activities—including helping their portfolio companies get access to IBM’s senior leadership team, by jointly working with clients, through activities like design thinking etc with Kalaari and Indian Angel Network.

In areas like cloud, start-ups have several competitive options—what makes IBM different?

IBM has been committed to the overall development of the start-up community and provides startups with free cloud credits on IBM Cloud Solutions worth $24,000 for one year helping emerging companies. We further help them to harness the power of IBM cloud, as well as connect them to IBM’s vast global network of clients, consultants, innovation centers, and developers. Several start-ups across India are tapping into IBM cloud to run critical applications and grow their businesses. Both IBM Bluemix, a hybrid cloud development platform and Softlayer, a cloud infrastructure platform, have received a good response in terms of adoption from Indian startups.

For start-ups, IBM does not enjoy the mind recall when it comes to looking for potential partners/ How are you working to change that, and given the pace at which IBM operates, can you ever adapt to the requirements, demands, flexibilities that the start-ups require?

Indian start-ups have the quality and value to help IBM itself remain agile...so part of this focus is also to help IBM’s employees—technical, sales, business and even functional staff like HR and finance—learn and remain abreast with trends. We believe our employees need to stay close to the market and where it is headed and helping in their personal and official capacity to mentor start-ups and help them to innovate. We believe in co-creating and co-innovating with the start-ups and we have an IBM Garage in Bangalore wherein we will have workshops and get start-up get access to a lot of our enterprise customers to build products together.

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