iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s...
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iSPIRT Product Industry Monitor Feb 2014 Why Product Industry Monitor Reports Startup Outcomes Startup Density Feb 2014 The industry needs to move from anecdotal data to scien5c data Credible, regular, insighFul guidance on the industry through Product Industry Monitor reports 2 First Product Industry Monitor Report 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. 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 Feb 2014 Other-Europe Other-USA Other-India Hyderabad Chennai Mumbai Delhi/NCR Pune Bangalore 0% 10% 20% 30% 40% 9 What products do these companies create? The three most common product sectors that companies work in are: Agriculture Education Analytics Big Data Enterprise SaaS Consumer Media and Advertising Healthcare E-Commerce Security Infrastructure Mobile Consumer SaaS Enterprise 0% Feb 2014 5% 10% 15% 20% 25% 30% 35% 40% 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. More than 4 4 3 2 1 Only 22% of the companies have a diverse founding team. 0% 10% 20% 30% 40% 50% Founding Team Diversity Diverse team Homogeneous Team Feb 2014 0% 20% 40% 60% 80% 100% 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. Feb 2014 No prior experience yes, as employee yes, as founder 28% 29% 30% 31% 32% 33% 34% 35% 36% 37% No prior work experience Domestic startup Overseas startup Large domestic Multinational 0% 10% 20% 30% 40% 13 How old are the founders? Not too many dorm room startups. Founders are older, most in their 30s and 40s (71%). more than 50 years 41 to 50 years 31 to 40 years About 23% are in their 20s. 21 to 30 years less than 21 years 0% Feb 2014 10% 20% 30% 40% 50% 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. Feb 2014 BA or BSc BE or Btech MBA Masters degree Doctoral degree 0% 10% 20% 30% 40% 50% 15 Finding, Hiring, and Retaining Talent Talent that startups nd dicult to hire Feb 2014 Most difficult Product Mangament Sales Product Development/ Engineering Marketing Operations 0 0.5 1 1.5 2 2.5 3 3.5 4 4 5 Labor market lacks talent Strongly Agree Reasons for Hiring Difficulty Product Management 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. Cannot afford to pay market wages Company lacks brand reputation Company doesn't have resources for perks Founders lack people in their networks 0 1 2 3 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. Feb 2014 Pay scale distribution for Engineering talent more than 1,50,000 inr 1,00,001 to 1,50,000 inr 75,001 to 1,00,000 inr 50,001 to 75,000 inr 25,001 to 50,000 inr below 25,000 inr 0% 5% 10% 15% 20% 25% 30% 35% Pay scale distribution for Product Management talent more than 1,50,000 inr 1,00,001 to 1,50,000 inr 75,001 to 1,00,000 inr 50,001 to 75,000 inr 25,001 to 50,000 inr below 25,000 inr 0% 5% 10% 15% 20% 25% 30% 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. Feb 2014 Debt Financing Private Equity Venture Capital Angel Investment Self-funded 0 10 20 30 40 50 60 70 80 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 between 1 and 5 crores; about 17% have more than 5 crores. Only 27% of the companies have been valued. 50% of these companies have a valuaKon is between 1 and 10 million USD 34% of these have a valuaKon less than 1 million USD. In 50% of startups founders have equal