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Made in India software products

Oct 20, 2014

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Software products Made in India from $2b (2013) to $100b (2025) www.productnation.in February 2014

iSPIRT Product Industry

Monitor Feb 2014

Why Product Industry Monitor Reports

Startup Density

Startup Outcomes

The industry needs to move from anecdotal data to scien5c data

Credible, regular, insighFul guidance on the industry through Product Industry Monitor reports

Feb 2014 2

First Product Industry Monitor report is focused on the following:

Industry Demographics: locaKon, age, market sector, legal status, and number of employees and founders.

Founder Prole: names, educaKonal background, experience, and role in startup.

Talent Management: pressure points in hiring, perceived reasons for diculty in hiring types of talent, and pay scales.

Financing: sources of funding, total capital invested, valuaKon status, and equity share of founders.

First Product Industry Monitor Report

Feb 2014 3

Key Finding #1 - Bootstrapping Over 50% of soYware product companies are completely self-

funded or bootstrapped Reasons could be:

lack of early stage nancing in the ecosystem. conscious choice by entrepreneurs to seek external funding at a later

stage, so as to beZer their prospect of higher valuaKon.

Whether the phenomenon is a result of external constraints or strategic choice of rms, it is important to recognize that bootstrapped rms form a dis5nct and important category within the Indian so?ware product industry, much like it is in Silicon Valley too

Bootstrapped rms, with a dierent pathway to growth/IPO need to be nurtured and evaluated as a disKnct category, rather than as an aberraKon

Feb 2014 4

Key Finding #2 Talent StarvaKon The steady ow of MNC R&D investment into India was

expected to create knowledge spillovers and provide an impetus to Indian soYware product industry.

We indeed nd that a lot of senior talent from MNCs are starKng soYware product companies close to 40% of founders come from a MNC

However, the same cannot be said of junior talent. The typical early startup in India struggles to hire technical talent for lack of brand and inability to match MNC pay scales

Basically, the propensity to take risks increases with age and experience. As a result, Indian so?ware product startups are experiencing talent starva5on at the entry level

Feb 2014 5

Key Finding #3 Birds of the Same Feather Research has shown that funcKonal diversity among the top

management team posiKvely impacts rm performance (Cannella, Park and Lee, 2008)

Therefore, the key to building a successful product company is to have a diverse founding team - a combinaKon of technical and business skills

We nd that 78% of Indian so?ware product startups defy this rule. They have homogeneous founding teams i.e., all founders are technologists or all of them have training in business

Founding teams are coalescing based on familiarity between founders rather than diversity of skills

This might be a manifestaKon of a low-trust society Feb 2014 6

Industry Demographics

How old and how big are the companies?

The average soYware product company is 2.5 years old, however some listed their founding date as recently as last month, some are 25 years old.

Most soYware product companies have only one headquarter (94%); others have secondary headquarters either in Europe or in the United States.

Most soYware product companies have 8 employees (excluding founders); some are as small as one, and some have over 120 employees.

Feb 2014 8

Where are the companies located?

SoYware product companies in the survey come primarily from four ciKes: Bangalore Pune Delhi/NCR Chennai

This may be due to #PNCamp being in Pune; more clarity on this point as response rate increases and a wider cross-secKon is surveyed 0% 10% 20% 30% 40%

Bangalore

Pune

Delhi/NCR

Mumbai

Chennai

Hyderabad

Other-India

Other-USA

Other-Europe

Feb 2014 9

What products do these companies create?

The three most common product sectors that companies work in are:

Enterprise SaaS Consumer

0% 5% 10% 15% 20% 25% 30% 35% 40%

Enterprise

SaaS

Consumer

Mobile

Infrastructure

Security

E-Commerce

Healthcare

Media and Advertising

Big Data

Analytics

Education

Agriculture

Feb 2014 10

The Founding Team

How many employees and founders?

The modal soYware product company has 2 founders (40%); followed by one person and three person founding teams.

Only 22% of the companies have a diverse founding team.

0% 10% 20% 30% 40% 50%

1

2

3

4

More than 4

0% 20% 40% 60% 80% 100%

Homogeneous Team

Diverse team

Founding Team Diversity

Feb 2014 12

What the experience prole of founders? Experience with startups is

nearly balanced equally across: founders with no experience, experience as an employee, and as a founder.

Most, 69%, have some prior startup exposure.

Most have worked before (95%)

Most in mulKnaKonals, large domesKcs, and a signicant number in domesKc and overseas startups.

0% 10% 20% 30% 40%

Multinational

Large domestic

Overseas startup

Domestic startup

No prior work experience

28% 29% 30% 31% 32% 33% 34% 35% 36% 37%

yes, as founder

yes, as employee

No prior experience

Feb 2014 13

How old are the founders?

Not too many dorm room startups.

Founders are older, most in their 30s and 40s (71%).

About 23% are in their 20s.

0% 10% 20% 30% 40% 50%

less than 21 years

21 to 30 years

31 to 40 years

41 to 50 years

more than 50 years

Feb 2014 14

What is the educaKon of founders?

Many founders are engineers with only a BE or BTech (43%).

About 44% have earned an advanced degree, either a masters or an MBA.

A minority have a BA or BSc (12%)

About 22% of founding teams have least one member with a degree from IIT, IIM or NIT. 0% 10% 20% 30% 40% 50%

Doctoral degree

Masters degree

MBA

BE or Btech

BA or BSc

Feb 2014 15

Finding, Hiring, and Retaining Talent

Talent that startups nd dicult to hire On average, soYware product

startups have mixed experience in nding talent.

Some soYware product startups nd it easy to hire; others, dicult.

On average, the easiest talent to hire is operaKons; the most dicult, product management.

The key external reason is the percepKon that the labor market lacks product management specialists.

Overall, companies aZribute diculty primarily two internal factors: the inability to pay compeKKve wages, and the lack of a brand reputaKon.

Mos

t diff

icul

t St

rong

ly A

gree

Reas

ons

for H

iring

Diff

icul

ty

Prod

uct M

anag

emen

t

0 0.5 1 1.5 2 2.5 3 3.5 4

Operations

Marketing

Product Development/Engineering

Sales

Product Mangament

0 1 2 3 4 5

Founders lack people in their networks

Company doesn't have resources for perks

Company lacks brand reputation

Cannot afford to pay market wages

Labor market lacks talent

Feb 2014 17

What do startups pay for talent? The modal pay for each of the talent

areas seems quite consistent across soYware product startups: 66% of startups pay between 25k INR to

75k INR for Engineers. 56% pay between 50k to 1 lakh for

Product Managers. 56% pay between 25k to 75k for Sales. 66% pay between 25k to 75k for

OperaKons. 56% pay between 25k to 75k for

MarkeKng talent.

The widest variaKon in pay norms is in Product management, then Sales.

Most consistent pay norms are in OperaKons.

Pay scale distribution for Engineering talent

Pay scale distribution for Product Management talent

0% 5% 10% 15% 20% 25% 30% 35%

below 25,000 inr

25,001 to 50,000 inr

50,001 to 75,000 inr

75,001 to 1,00,000 inr

1,00,001 to 1,50,000 inr

more than 1,50,000 inr

0% 5% 10% 15% 20% 25% 30%

below 25,000 inr

25,001 to 50,000 inr

50,001 to 75,000 inr

75,001 to 1,00,000 inr

1,00,001 to 1,50,000 inr

more than 1,50,000 inr

Feb 2014 18

Financing

Where do startups get their funding? The primary source of funding

for the majority of soYware product startups is the founders own capital.

73% of the capital for a soYware product startup is self-funding.

The second largest is angel investment at 14.1%.

A small proporKon comes from venture capital (2.5%) and about 3% from debt nancing. 0 10 20 30 40 50 60 70 80

Self-funded

Angel Investment

Venture Capital

Private Equity

Debt Financing

Feb 2014 20

Invested capital and ownership shares A majority (57%) of soYware

product startups compleKng the survey have less than 1 crore invested in the startup.

Approximately 23% have betwee