Time has an interesting article highlighting that in the US, startups are being built for under $10,000. As several people compare the differences between the previous dotcom bust and this one, I think this is a key element – its much cheaper to do internet startups (of a certain kind), and this could be a great time for those to start businesses.
I have always been intrigued by the cost of starting up in US relative to India. It seems to me that the seed stage investment required in India is higher than in US, even though at a later stage, Indian startups may have better economics due to lower cost of marketing. With reference to this article, at the seedstage, an Indian startup may have the following disadvantages at being capital efficient:
- Lack of Compact Skills – of people who can handle 2-3 distinct aspects of the business (such as building the site, UI, marketing) with high level of expertise.
- Inability to attract top talent for equity in early stages of startup.
- Low limits on credit cards – yes, thats a useful tool when you are starting out!
- Lack of relatively cheap/free infrastructure like garages, attorneys, etc.
I think the key to success on such startups is personal passion (or “immersion”) and ability to pick narrow niches and market to them.
Are you seeing under-5-lakh startups taking roots here in India?
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I think there are two things that are difficult to find – now I understand that for those who got access to them (by their contacts) pretty easily, this may feel underwhelming, however let me state this for a fact that this is a problem for a majority of the people who want to set shop.
1. Leased office space for 2-6 people. Where to find these people – Twitter, emails, etc. dont seem to work in Delhi.
2. Hacker spaces/Hackathons – I really would like the opportunity to work with other people of similar calibre, once a week or so – brainstorming and so on. For one person with an idea, it is difficult to get people to code with.
Hey, my last startup was < 5 lakh. It takes less than 1.5 lakhs to get quality computing. But yes, getting talent for equity is tough, and the multi-faceted individual is hard to find.
I did get attorney help pro-bono actually, and a number of people helped us knowing we were a startup. Infrastructure too – we got at least three offers to host our company alongside another company (though, being too lazy, we decided to continue to work from home)
Interestingly, we got some US help cheaper than we did from Bangalore. I would consider freelance sites for small pockets of well defined work, it’s substantially cheaper than trying to hire in India and retain etc. But certain costs such as travel, hotel – are much higher compared to even the US. Rents may not be too high now, but a 1000 sq. ft. office is a tough find. (oh, but wait, we have a real estate bust, so that will change)
Still, base stuff is cheap. You could get an office cabled and carpeted at < Rs. 25 per sq. foot. Accounting help – once a week – can be gotten for something like Rs. 1000 per month. Debt is slow to come but with a year of good credit history you can scale loans.(The lack of personal or corp bankruptcy law limits debt growth, unfortunately) Starting up < 5 lakh has never been easier, IMHO.
Have seen several such successful startups. Commonfloor.com is one. My own company started with a customer order of Rs. 50,000 and we have successfully bootstrapped it to ~20 people in arnd one year with just credit card debt to help us by.
The problem is that even raising $10k from angle investors is hard in India 🙁
There are other challenges too. Banks are risk averse to giving an overdraft loan to a software company in the beginning. Infrastructure issues (as basic as uninterrupted power) are such a sap on energy. Bandwidth/real estate/telephone costs are killer.
However there are some really good things – emergence of Bangalore, Hyd, Pune, Noida, Gurgaon as IT hubs has created an ecosystem stratups can thrive on. Second, there are so many virtual services one can avail of which do not cost much to start with. For ex: email on Google apps, conf-call facility on sabsebolo.com, easy availability of infrastructure on rent through rentimental.com, thriving market of second hand goods through craigslist.com, zero balance bank a/c from HSBC are definitely making it much easier.
I do wish lawyers & service providers were equally easy to find.
Are you seeing any over 5 lakh startups in India?
Alok:
The main difference between then and now is the following:
Open Source
Cloud Hosting
Social Media
Crowd Sourcing
Anybody – anywhere – can take advantage of them.
I am just fresh out of a start up product development project where we developed web based media applications using the LAMP stack and Open source projects. And we hosted on Amazon EC2.
To give credit where it is due, if we had decided to use Microsoft we could have used its Bizspark licensing program.
Now I have launched http://www.regainparadise.org an online advocacy for cleantech. I have customers who use it to help prepare for cleantech careers and they get to know about it from Facebook and LinkedIn. My content is often provided by student-researchers the world over. My email is hosted on Google. My publishing software is WordPress and I have a great hosting deal. And, before you ask, my customers pay. When they get a job, they send me a sweet Thank you and donate a beer.
BTW, I am based in India. I avoid credit cards and attorneys.
Jokes apart, India has become high cost. High real estate, low social security and poor public amenities like health, transport and education (therefore the inability to attract talent for equity), inadequate infrastructure (incubation centers, libraries, advisory services …).