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MBAs Drive Silicon Valley-Led Revival Of India's Tech Start-Up Scene

MBA students are helping to fuel India's tech start-up scene – boosted by a flood of venture funding and the growth potential of its mobile and e-commerce markets.

Tue Oct 14 2014

When Mahek Shah returned to India from Europe with an MBA degree in his pocket, it was much easier to approach venture capitalists with a pitch for his business, Active Analytic, which is trying to capitalize on India’s e-commerce boom.

“We are still trying to scale-up, but it’s a positive moment,” Mahek says of his quest to secure investment. An MBA at MIP Politecnico di Milano in Italy allowed him to sample Europe’s investment climate.

“The diversity in my class really helped – the perception of how to approach a client [and] the different ways to communicate,” he says.

He is hoping that his start-up, which sells packages to SMEs which include a range of online services to boost visibility, can ride the technology wave to new heights in Hyderabad, Southern India.

“There have been some amazing technology businesses here, and web and mobile products are viewed positively,” says Mahek. “The market is so huge and it’s just begun,” he says.

The entrepreneur’s excitement is reminiscent of the enthusiasm that is developing for India’s start-up scene after a period of market expansion and high-profile investments.

India’s thousands of business schools are renowned for graduating MBAs into home-grown tech groups such as Infosys and Wipro – but a flood of venture capital, and a turf war between online retailers, is spurring many of them to ditch the corporate track.

“Undoubtedly there’s been optimism about the future over the last two years. You can see it in the air,” says Dean Ajit Rangnekar of the Indian School of Business, the country’s highest-ranking business school.

“In 2009 when this financial meltdown happened globally, we saw a huge spurt in entrepreneurship,” he says.

Dean Ajit says that students are moving away from mainstream companies and are now seeking careers in high-tech firms, and the school is beginning to see a large number of students launch their own companies.

“We wanted to be a big entrepreneurial school,” he says of times past. So, ISB set a target of 100 of its students launching or entering start-ups. In the first year it saw 30 students launch or join small businesses; this year it had about 65.

“We are hoping next year we will cross the magic number,” says Dean Ajit. “The risk-taking willingness of the Indian student has gone up in the last few years.”

A cluster of Indian start-ups have announced substantial rounds of funding this year, including Quickr, the online classified group which raised $60 million last month in a deal led by Tiger Global, the New York-based investment firm.

Student entrepreneurs like Mahek may be inspired by the activity in India’s e-commerce industry, which is poised to grow rapidly.

Western firms are muscling in. Amazon is fighting local Indian heroes Snapdeal and Flipkart, which became the largest Indian e-commerce company in July when it raised $1 billion in funding. Many online retailers have also stepped up their hiring of MBA students to prepare for expansion.

“There has been a big shift to electronic commerce using mobile platforms... I think there are endless possibilities using tech. That’s a big area for our students,” says Dean Ajit.

Silicon Valley venture groups sense the potential, and are unlocking funds for the next generation of India’s entrepreneurs.

Funds such as Sequoia Capital and Accel Partners, both Bay Area stalwarts, have helped to increase venture investment into internet companies to $2.1 billion in 2014, up fivefold on 2013, according to Thomas Reuters data. Total early-stage VC investment has topped $1 billion for the first time in seven years, according to consultancy EY.

In a further sign of the country’s growing investment scene, India's government pledged $1.6 billion for smaller tech firms earlier this year, while both Infosys and Wipro have launched venture capital funds.

“Six or seven years ago when we first started these entrepreneurial gatherings, there were hardly any VCs – and they were extremely picky,” says Dean Ajit. “Now, that part of the funding is very easy.”

Technology firms show the greatest signs of growth, but for-profit social enterprises are also on the rise in India, says Dean Ajit.

Manish Ranjan is the CEO and co-founder of NanoHealth, a healthcare technology start-up launched out of ISB. The company has created a network of health workers equipped with a diagnostic tool – a “Dox-in-Box” – which can risk-profile patients in India’s urban slums for diabetes and hypertension.
By incorporating doctors and pharmacies into its network, NanoHealth hopes to become a one-stop-shop for all health services related to chronic disease.

“Most of the time these people are short of funds because they go to doctors when [already] in extreme conditions,” says Manish, who earned his MBA at ISB.

By diagnosing early, the start-up hopes to stem the flow of non-communicable disease. For counselling and monitoring services, the company charges about $1.5 every month, Manish says.

The business struck a partnership with GVK BIO, Asia’s leading R&D organization, to use its proprietary platform, a cloud-based healthcare analytics framework that will assist medical support.

Entrepreneurs like Manish are helping to plug holes in India's healthcare industry, which is struggling to meet the needs of the country's 1.2 billion people.

“People are ready to pay for a good service, but it’s not reaching them,” he says.

Last month NanoHealth received $1 million in funding after winning the Hult Prize, an annual business school competition that seeks to solve some of the world’s greatest healthcare challenges.

“Our immediate focus is to expand,” says Manish, adding that the company is hiring more health workers to add to its group of “Saathis” – a network of health professionals who are equipped with NanoHealth’s diagnostic tool.

Aside from social enterprises, India’s start-up scene is buoyed by the scale of its tech market. With about 240 million Indians with internet access, the country is projected to overtake the US as the second-biggest number of internet users in the world this year.

Mobile penetration is set to rise rapidly. Smartphone sales are forecast to hit 200 million in 2017, according to IDC, the research group. Flipkart and Snapdeal say the proportion of customers accessing their sites via mobiles has increased from less than 10% last year to more than 50% in 2014.

Indian’s e-retail market is forecast to enjoy sales of $32 billion by 2020, which would rival China, the biggest e-commerce player by sales growth this year. But unlike China, whose online retailer Alibaba became the largest ever stock market listing last month, India is lacking a significant IPO.

There are also concerns about infrastructure – and the venture capital industry, while growing, is still a relative minnow compared to Silicon Valley.

“There is still a lot to be done in terms of the ecosystem,” admits Dean Ajit. But he adds that ISB selects a small group of students with start-up ideas each year, who are invited to be incubated on the school’s campus for two years, and ISB also pays off their student loans.

Even with inherent difficulties, he thinks that many MBAs are now willing to take the risk and launch their own ventures. He senses a change in the air. “If someone jumps up and says: ‘I want to leave a job’, instead of ten years ago when somebody would call a mental hospital, they say: ‘OK, what’s your idea?’.”