More, merrier

Indian entrepreneurship is becoming more inclusive. New business ideas are now being spawned, funded and proven in most segments of the economy

 

Deep inside the Indian entrepreneurial terrain, the faint rumbles of a tectonic shift may just about be beginning. The IT and ITES sector, till recently the poster boy of the Indian entrepreneurial renaissance, is now being edged out by other segments of the economy.

In the last three years, one out of every three investments made by private equity (PE) funds and venture capitalists (VC) have been in the IT and ITES sectors. But the 2007 edition of the Outlook Business-Venture Intelligence poll of India's Hottest Emerging Businesses suggests that this dominance may come to an end soon. Only three on the top 10 emerging businesses identified this year are in IT or related sectors. The other seven come from all segments of the economy—education, the business of private equity, packaged food, retail services, micro-power projects, warehousing and cold chain, to name a few.

Following The Trend

The country's top investors are flowing with this trend. "India's manufacturing sector should get much more credit than what it has been given so far," says Akhil Gupta, Chairman and Managing Director of Blackstone India. "The manufacturing story has not been told as well as the Indian IT story," he adds. In the past few months, Blackstone has invested $835 million in five companies. Only one (the $200-million investment in Intellinet) was in the IT and ITES segment. Even Vinod Khosla, one of Silicon Valley's popular tech entrepreneurs, has read the new script. "Areas like cold chain, education, warehousing offer high opportunity for VCs and PE funds. These can generate high returns of 30-40% over three-four years," he says.

This year's list also signifies another shift in the character of Indian entrepreneurship. The earlier wave, led by the IT and ITES, was focused on the global market. Most companies have been created on the strength of demand from overseas companies—offshoring and outsourcing have been the dominant themes. But this year's list of hottest emerging sectors is very different. Eight of the 10 sectors (seeSpots On The Horizon) have their growth drivers in the domestic market. Be it education or private equity, the acceleration in domestic consumption is making these sectors exciting bets. PE Funds have identified this theme. "We are focused on the domestic growth story—whether it is in retail, financial services or health care," says Renuka Ramnath, Managing Director and CEO of ICICI Venture

The Role Of PE

There are a few delightful surprises at the top of this year's list. Most tend to think of private equity as a catalyst of entrepreneurship. But behind the scenes, PE is also a business like any other. A clutch of entrepreneurs are making a roaring success of it. "The average internal rate of return this industry looks at is not less than 40%," says Ajay Relan, Managing Director of CVCI, Citigroup's venture arm. Not surprisingly, the moneybags are also making a lot of money. Education is the second segment that is not often thought of as a business. In a sense, it still isn't, because there are very few companies running a business in this space. But that is set to change as education has now got the attention of PE funds. "At the macro level, education looks like an exciting opportunity. But when you get to the micro level, you have very few companies ready to take investments," says Ramnath. But she is figuring out a solution. "I am beginning to think that incubation is perhaps the route we have to take to get into this sector," she concludes.

"Once PE players start fuelling growth with a few investments in education, you will see a lot more entrepreneurs in this space," says Anil Chawla, CEO of DE Shaw India, a hedge fund. That is why education has been voted as the best emerging business this year. While big companies with deep pockets are moving into all of these emerging businesses, there is still plenty of room for the small entrepreneurs. Take design services, the third in the rankings this year. This segment is yet to see the emergence of a clear leader. The field is wide open even for fresh entrepreneurs. And even in high-capital intensive businesses like warehousing and cold chain, smaller entrepreneurs have managed to occupy profitable niches. The Indian entrepreneur is determined not to miss any part of the country's economic growth story.

Starting trouble

Indian entrepreneurship forums are today confined to showcases, contests and networking. It’s time they think bigger, and turn entrepreneurship into a way of life

Promoting entrepreneurship is good business these days. Pull together a few like-minded people, formulate a vision statement, throw in a business plan contest or a startup showcase, invite a few venture capitalists and big industry executives, announce an annual or bi-annual conference, and you’re in business. Of course, not to forget, invite young entrepreneurs to participate in the jamboree.

If anything has epitomised the resurgence of entrepreneurship in India in the past two to four years, it is the mushrooming of formal and informal forums that seek to encourage young people to take to entrepreneurship as a career. We’ve picked out just a few that are top of mind at present.

There’s Proto, run by a Chennai-based team, which positions itself as the country’s first startup showcase platform. Giving them competition is the HeadStart Foundation, driven largely out of Bangalore. In Mumbai, the Wadhwani Foundation’s National Entrepreneur Network (NEN) is just closing off its ‘Hottest Startups’ contest, which will attempt to select the country’s five hottest startups via a public voting exercise.

Then, there are a bunch of business plan contests run by premier business schools like the Indian School of Business, Hyderabad, and the Indian Institute of Technology, Bombay. Alongside are business plan contests run by venture capital firms such as Canaan Partners and Draper Fisher Jurvetson. And finally, there are the more informal BarCamps, OpenCoffee Clubs and Mobile Monday meets that have sprung up in almost every Indian city in the past couple of years. These are slightly different from the rest because they are pure networking forums that desist from a formal structure.

Driven By Passion

India has always had a strong tradition of entrepreneurship. Every big business in the country today can trace its origins to an entrepreneur or a group of entrepreneurs who forsake the path of safety  and took on significant risks in order to follow their dreams. They created industrial and service empires by coming up with great ideas, persevering against all odds, and by looking at life a bit differently from the run- of-the-mill manager.

What India lacked till recently was a formal ecosystem to help entrepreneurship flourish. Till about a decade ago, India did not have a thriving venture capital industry or systems to incubate new entrepreneurs or even formal channels to provide mentoring to bright young men and women looking to strike out on their own. In the old days, an informal ecosystem often existed, but they were largely community based and could, therefore, help only a few entrepreneurs. Today, a formal ecosystem is slowly being built, though there is still a long way to go.


An ecosystem is very necessary, but it is by no means the most critical factor for entrepreneurial success.
Entrepreneurs are of a special class, and it is their ability to take enormous risks without worrying about safety nets that sets them apart. Every one of them could have chosen a far safer — and perhaps in the short run, more lucrative — profession but chose not to do so. It is passion that drives them rather than ordinary motivators such as money or social standing.

Venture Capital For Start-Ups

Entrepreneurs would do well to prepare realistic business plans and identify the appropriate venture capitalist or angel investor to fund their start-ups if they are to secure the required funding.

After a rather glum two years, the financial markets are back on the upswing in India.
The improved situation is clearly reflected in the quantity of private equity and venture capital funding that has come through in the country recently. In the first quarter of 2010, India saw about $1.9 billion of PR and VC fund flow, nearly half of the total amount of $4.4 billion seen in 2009, according to figures released by global consultancy Deloitte.

The funding of $1.9 billion came in through 88 transactions and the average deal size of $22.1 million. Larger deal sizes compared to last year, when the $4.4 billion was on account of 299 deals and the average value was just $14.6 million, signifies more risk appetite and confidence on the part of investors.

Venture funding traditionally has strong associations with entrepreneurial ventures. Start-ups, in fact, aspire to venture capital seeing it as a sign of mentorship and confidence when an established venture capitalist supports their start-up by putting in an investment. However, venture funding is also the most expensive form of funding and one in which the entrepreneur is required to share equity. It also means the venture capitalist would be involved in taking business decision to some extent. It's wise, therefore, for start-ups to consider VC funding only if they are looking at building a large business. Venture capital requires businesses to scale up very rapidly so that an exit in a 5-7 year time frame with good returns is possible. Smaller businesses would rather go on for debt funding. In fact, angel funding, which is a softer form of venture capital ore suitable for businesses that need mot just the money, but also the intellectual capital, guidance strategic assistance. It's a fledgling group of angel investors in India right now, but a model more likely to grow given the unorganised

Looking at the issue from the investor point of view, however, the challenge for funding lies largely in the quality of projects. Especially in the information technology sector, where VC funding is more common, VCs have reported that they find it difficult to find bankable projects in India. This is partly because of the lack of exposure of entrepreneurs and the inability to afford/access expertise to build a credible business plan. Lack of primary research like dipstick surveys that can validate a business idea, for instance, can often drive away venture capital and that is something start-ups need to keep in mind.

The VC scenario in India is changing rapidly, however, and analysts are seeing venture capital broadening its reach into other areas besides ICT. In India, entrepreneurs exploring sectors like clean energy, healthcare, infrastructure and education are more likely to interest venture capitalists. Industries like pharmaceuticals, retail, media and telecom are growing rapidly. SMEs are bringing in a lot of innovation into these sectors and changing the face of how business is done. Venture capital is therefore an area to look forward to as SMEs grow in importance and as resources and awareness building platforms for entrepreneurs gain popularity and reach. 

20 good opportunities in India for entrepreneurs

There is certainly no formula to become a successful entrepreneur. Some may succeed and make good profits, others sink along the way. Which are the most lucrative sectors for entrepreneurs? Here's a list of 20 good opportunities entrepreneurs can look at...

1. Tourism

Tourism is a booming industry in India. With the number of domestic and international tourists rising every year, this is one hot sector entrepreneurs must focus on. India with its diverse culture and rich heritage has a lot to offer to foreign tourists. Beaches, hill stations, heritage sites, wildlife and rural life, India has everything tourists are looking for.

But this sector is not well organised. India lacks trained professionals in the tourism and hospitality sectors. Any business in this sector will thrive in the long run as the demand contuse to grow every year. Foreign tourist arrivals during January-March were 15.63 lakh with a growth rate of 12.8 percent, compared to 13.86 lakh during the first three months last year.

2. Automobile

India is now a hot spot for automobiles and auto-components. A cost-effective hub for auto components sourcing for global auto makers, the automotive sector is potential sector for entrepreneurs. The automobile industry recorded a 26 per cent growth in domestic sales in 2009-10.

The strong sales have made India the second fastest growing market after China. India being one of the world's largest manufacturers of small cars with a strong engineering base and expertise, there are many segments that entrepreneurs can focus on in India's automobile and auto components sector.

3. Textiles

India is famous for its textiles. Each state has its unique style in terms of apparels. India can grow as a preferred location for manufacturing textiles taking into account the huge demand for garments. Places like Tirupur and Ludhiana are now export hubs for textiles. A better understanding of the markets and customers' needs can boost growth in this sector.

4. Social ventures

Many entrepreneurs are taking up social entrepreneurship. Helping the less privileged get into employment and make a viable business is quite a challenge. There are many who have succeeded in setting up social ventures. With a growing young population in rural areas who have the drive and enthusiasm to work, entrepreneurs can focus on this segment.

5. Software

India's software and services exports are likely to rise with export revenue growth projected at 13 to 15 percent to hit about $57 billion by March 2011.

With one of the largest pool of software engineers, Indian entrepreneurs can set higher targets in hardware and software development.

The information technology enabled services have contributed substantially to the economy. With more companies outsourcing contracts to India, business to business solutions and services would be required. Entrepreneurs can cash in on the rise in demand for these services with innovative and cost effective solutions.

6. Engineering goods

India continues to be one of the fastest growing exporters of engineering goods, growing at a rate of 30.1 per cent. The government has set a target of $110 billion by 2014 for total engineering exports. Entrepreneurs must capitalise on the booming demand for products from the engineering industry.

7. Franchising

India is well connected with the world. Hence, franchising with leading brands who wants to spread across the country could also offer ample opportunities for young entrepreneurs. With many small towns developing at a fast pace in India, the franchising model is bound to succeed.

8. Education and Training

There is a good demand for education and online tutorial services. With good facilities at competitive rates, India can attract more students from abroad. Unique teaching methods, educational portals and tools can be used effectively to make the sector useful and interesting.

9. Food Processing

India's mainstay is agriculture. Entrepreneurs can explore many options in the food grain cultivation and marketing segments. Inefficient management, lack of infrastructure, proper storage facilities leads to huge losses of food grains and fresh produce in India.

Entrepreneurs can add value with proper management and marketing initiatives. The processed food market opens a great potential for entrepreneurs be it fast food, packaged food or organic food. Fresh fruits and vegetables too have a good demand abroad. A good network of food processing units can help potential exporters build a good business.

10. Corporate demands

There will be a good demand for formal attire with more companies opening their offices in India. People who can meet this demand in a cost effective way can make a good business. With corporate gifting getting very popular, this is also a unique business to explore.

11. Ayurveda and traditional medicine

India is well known for its herbal and ayurvedic products. With increasing awareness about the ill-effects allopathic medicines, there will be a huge demand for cosmetics, natural medicines and remedies.

12. Organic farming

Organic farming has been in India since a long time. The importance of organic farming will grow at a fast pace, especially with many foreigners preferring only organic products. Entrepreneurs can focus on business opportunities in this sector. There are many small-time farmers who have adopted organic farming but the demand is still unmet, offering many opportunities for those who can promote organic farming on a large scale.

13. Media

The media industry has huge opportunities to offer young entrepreneurs. With the huge growth of this segment, any business in this field will help entrepreneurs reap huge benefits. Television, advertising, print and digital media have seen a boom in business.

Digitisation, regionalisation, competition, innovation, process, marketing and distribution will drive the growth of India's media and entertainment sector, according to Ficci.

14. Packaging

With China invading the markets with cheap plastic goods and packaging materials, there is a good opportunity to develop good packaging materials to meet domestic and foreign demand. There is a huge demand various sectors like agriculture, automotive, consumer goods, healthcare infrastructure and packaging sectors for plastics.

15. Floriculture

India's floriculture segment is small and unorganized. There is a lot to be done in this lucrative sector. The global trade in floriculture products is worth $9.4 billion. With a 8 per cent growth, it is expected to grow to $16 billion by 2010. India's share in world trade is just 0.18 per cent.

This is a huge market to be tapped considering the rising demand for fresh flowers. More awareness and better farming and infrastructure can boost exports.

16. Toys

Another evergreen industry is toy manufacturing. India has potential to manufacture cost effective and safe toys for the world. With Chinese toys being pulled up for toxins, the market for safe and good quality toys beckons Indian entrepreneurs.

17. Healthcare sector

India's healthcare sector is dismal. The private sector can play a vital role in developing this sector. With medical tourism also gaining momentum, the sector can attract foreigners who are looking for cost effective treatment in countries like India.

18. Biotechnology

After the software sector, biotechnology opens a huge potential. Entrepreneurs can look at a plethora of options with the application of biotechnology in agriculture, horticulture, sericulture, poultry, dairy and production of fruits and vegetables.

19. Energy solutions

In a power starved nation, the need to develop cost effective and power saving devices is gaining more significance. There is a huge demand for low-cost sustainable energy saving devices as well.

The government has already unveiled the National Solar Mission which has set a target of 20,000 MW of solar generating capacity by the end of the 13th Five Year Plan.

Prime Minister Manmohan Singh had urged the industry to see the huge business opportunity and set up 'Solar Valleys' on the lines of the Silicon Valleys. These solar valleys can become hubs for solar science, solar engineering and solar research, fabrication and manufacturing. So there is a big opportunity for entrepreneurs in this sector as well.

20. Recycling business

E-waste will rise to alarming proportions in the developing world within a decade, with computer waste in India alone to grow by 500 per cent from 2007 levels by 2020, according to a UN study. This sector opens a viable business opportunity for entrepreneurs in terms of e-waste management and disposal.

Trends of Entrepreneurship in India

More Professionals Becoming Entrepreneurs

The National Knowledge Commission (NKC) 2008 study concluded that an entrepreneurial ecosystem is a function of following factors or triggers:

• Individual Motivations for Entrepreneurship
• Socio-cultural Factors
• Access to Early Stage Finance
• Education and Incubation
• Business Environment for Entrepreneurship.

The importance of education for successful entrepreneurship has been well established. However, only 2% of entrepreneurs are doctorates. This is indicative that the business environment is not very supportive of entrepreneurship.

A comparison of educational qualifications over a period of time (pre and post 2000) indicates an progressive trend of more MBAs, post graduates,  professionals and individuals with work experience becoming entrepreneurs.