Exit strategy and revenue model for Indian startups
Startups and the startup ecosystem in India are making impressive strides. Just going by the number and quality of startups that launched in 2007 as compared to 2006, I can vouch for the fact that both are getting progressively much better.
But there’s one thing that I’m trying hard to find an answer to - how these startups intend to sustain / are sustaining themselves. Most of the the Indian startups follow either a transactional model for revenue generation or rely on the advertising model (pimped by the Web 2.0 world) or have no business model at the time of launching. While revenue generation isnt an issue in the former, its the latter two that baffle me somewhat.
Startups need a means to sustain themselves till they find an exit strategy. A successful exit strategy would normally translate into either an IPO or getting acquired by a bigger player. But till that happens, the startup needs money - to keep the servers running, pay bills etc. Most of the current breed of Indian startups seem to be bootstrapped. A few lucky ones might have secured angel - VC funding. But for the others, how long would the bootstrapping work ? Would an advertising supported business model work for them ?
The trend for ad supported business models has originated from Silicon Valley, but the dynamics in the Valley have been quite different. Buoyed by the number of successful M&A/IPO exits, VC’s have been pumping money into Internet startups. Others have found success through the advertising model and can independently sustain themselves.
Unfortunately, in the Indian market, Internet ad spends are still quite less. Majority of the chunk goes to big Internet portals. Yes, there are the numerous Indian ad networks - Komli, Tyroo, PayPod, DGM, Ozone Media, Google Adsense, AdWinks - but is their payoff really enough for the startup to cover operational costs ? I honestly doubt it.
The one thing that works in favor of the entrepreneurs is that the cost to launch a startup has drastically gone down. None the less, there are expenses and these expenses are coming straight out of the founder’s pockets. The M&A activity hasnt quite blossomed yet in the Indian Internet market. There were the two success stories (excluding Naukri), but that was it. So, in the absence of a rosy M&A environment, who knows for how long the startup may have to sustain itself. Assuming that the startup fails to secure external funding, would the founder be able to bootstrap for 1-3 years (assuming the founder gives his startup a maximum of 3 years to determine if it was a success - failure) ?
Note that I’m not drawing any conclusions here - these are some open-ended questions that we need to seek out the answers to. It’d be great to hear from current Indian Internet entrepreneurs about their thoughts on this. Have they faced this dilemma ? If so, how did they address it. Everyone else, feel free to chime in as well.
April 24th, 2008 at 5:31 pm
Hi Pranav!
Thanks for pouring out my dilemma on your blog. I have been toying with the idea of starting an Internet Entertainment Channel, but the prospects of being able to sustain myself are taking over me. The most important problem i face is generating income. How will the ads shown on my channel help me procure my high investment that goes in a video content?
And whether India is ready to have this kind of channel given the internet infrastructure we have? Or will we have to wait for a few more years?
Also with the current television boom, is the Indian audience ready to take Internet as one of the mediums of entertainment and not just as a sub-medium?
Or do we have to wait for the IPTV and other such stuff to become common? Why are these things taking time to enter the Indian market?
These thoughts are killing me. So i can definitely imagine the horrors of having your own start-up. Let alone getting your investments back or being noticed by a biggie.
Cheers.
April 25th, 2008 at 4:05 am
Hey Pranav,
Thats a good point you brought forward. I don’t have any tech background. I was wondering if you could advise me on any one-stop shop comsultants who could take me through the process of launching a website? I know of softwares online which help you with the same but I need an expert due to my lack of techonology experience
April 27th, 2008 at 4:46 am
Mohammed Ali - there is a big game behind not launching new technology and services in India. who says india has no spectum to launch 3G ??? it’s there since ages. you can validate this statement if you have any friends working with indian I & B minstry. we dont know all this because we are entrepreneurs not businessman.
April 28th, 2008 at 10:11 pm
@mohammed - thanks for sharing your experiences here. I guess at one point, if you’re really passionate about your idea, you have to just go for it..
@kunal - you can look a companies like Digital Telepathy. They are a one stop shop for launching your Internet startup.
April 30th, 2008 at 7:37 am
Thanks…
April 30th, 2008 at 7:45 am
Thanks Pranav, but Digital Telepathy seems to be a company based in NYC. I needed to get in touch wit some one closer to home in Mumbai, say Pune or Bangalore? COuld you guide me on that front?
April 30th, 2008 at 8:41 am
hi kunal plz your details to smoothrocker@rediffmail.com, he will assist you for the same
May 1st, 2008 at 12:37 am
Hey..I visited their site (prototype investment)
They are based in denmark,it will be risky job to get their help for indian start ups..Plz any one interested in Cool idea its not wierd web 2.0 or some thing stuff its pure idea mail me we can discuss it
If any from India cheers it will be easy to contact
May 1st, 2008 at 12:41 am
my id is azeez541@gmail.com
May 4th, 2008 at 7:04 am
Wiborg -> Somethings definitely fishy about the arrival of technology late in our country… Im not sayin we are lagging behind, but updates keep coming at a very slow pace.. like 3G, it should have been here long time back! But i hear somewhere they want to go for 2G first and then jump onto 3G after a while… And the world is all ready for 4G… Sad but funny!
Pranav -> I think your right. I guess I’m gonna do that in sometime… thanks for your words
May 5th, 2008 at 1:51 am
Wiborg- I did shoot an email to the address you provided but have still not heard anything back on that front.
May 5th, 2008 at 11:44 am
@kunal,
sorry buddy - i’m not sure about similar companies in blore / pune. probably you can attend entpreneur networking events / barcamps and seek out this info from attendees at these events.