Miles to go for Indian start-ups to catch up with US, Israel

Experts say difficulty in doing business, attracting investments holding India back

India has the world’s third-largest software start-up ecosystem, but experts feel it is unlikely to catch up with the leaders, the US and Israel, soon.

The US is ahead in value. Israel is hard to beat in quality, though India has more start-ups.

According to Nasscom estimates, India produces at least 800 technology start-ups a year. The software sector body says India has 3,100 start-ups, which will grow to 11,500 by 2020.

Apart from the difficulty of doing business, receiving investments and retaining talent, observers cite several reasons why India lags behind the US and Israel, and will continue to do so for a while.

Sector think-tank iSpirt said India saw 467 venture capital and private-equity investments till mid-2014, against 9,070 in the US and 381 in Israel. India had mergers and acquisitions (M&As)’ deals worth $1.25 billion, behind Israel’s $8.76 billion. The average M&A deal size in India was $11.1 million, behind Israel’s $99.6 million and the US’s $147.3 million.

Experts said the unease of doing business in India was a reason the country was losing out. According to several estimates, over 70 per cent of Indian start-ups have been forced to register abroad to avoid complex regulations in the country.

“The ease of doing business is very low in India,” said Sharad Sharma, founding member of iSpirt. “Many start-ups are moving to countries such as Singapore. The flexibility of setting up in Singapore allows entrepreneurs to venture out, but we are losing these companies,” he added.

India’s huge consumer base has helped several business-to-consumer startups to flourish, but enterprise software start-ups find acceptance low among small and medium businesses. “In deep technology and enterprise, India is on Day One, whereas Israel is probably on Day Three,” said Sanat Rao, a former senior executive with Intel Capital. He now heads the M&A connect programme at iSpirt.

John McIntyre, the managing director of the US-based Citrix Startup Accelerator, said while the “cost of risk” in India was lower, it could not be the country’s only strength to play on. “The establishment cost for a start-up in India is lower, but the nurture system in the US is great,” he said.

US-born entrepreneur Sameer Parwani, who returned to India a few years ago and runs a portal Coupon Dunia, highlighted the difficulty in retaining talent. “Since more start-ups are coming up in India, it is becoming tougher to retain people. It has become an employees' market,” he said.
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467 The number of venture capital and private equity investments in India till mid-2014, by data compiled by iSpirt

9,070  in the US

381 in Israel

Experts cite unease of doing business in India as one of reasons for the country losing to others when it comes to tech startups