This is the story of innovation, disruption, startups and scaleups. And a lot of credit for that goes to the Indian Institute of Technology Madras (IITM). It led from the front in conceptualising and nurturing a Research Park that would over time become the laboratory for innovation and entrepreneurship. The state owes its new Silicon-Valley type climate to this experiment. Its success opened up a new wave of young men to choose building firms than seeking jobs. Today, it is the investors who are chasing the entrepreneurs and not the other way round. In all this The Indus Entrepreneurs and Chennai Angels have played a big role. In another story, it is time for TCS, Cognizant, Infosys, Wipro and HCL to make way for the new kids: Zoho, Take Solutions, Freshdesk, Uniphore, Orangescape, Ramco Systems and the like. A NASSCOM research shows that companies based in Tamil Nadu are leading the charge as India begins to adopt the Product Wave in Business-to-Business (B2B) enterprise software products. This is the brave new world.
It’s a noiseless story that’s happening in Tamil Nadu, without the hype and hoopla generally associated with such action.
It all began with the foresight of the venerable IIT Madras. One day, the temple of engineering learning decided to develop a Research Park that will bring the academia, students and industry together to put India on the global map of innovators and disruptors. It would also give wings to the research work published by faculty and researchers.
The execution of the vision was not smooth. The then director of IIT Madras, Prof M S Ananth, had to do several things. First, he had to sell the concept to the authorities. Remember, IIT Madras, a government-funded institution was promoting the idea. Secondly, he had to convince them why the Research Park has to be independent of the direct influence of IIT Madras and so be housed outside the campus. That meant it had to find a piece of land on which the infrastructure could be created. Finally, how empowered the Research Park team should be to attract significant new ideas and industry partners and not be restricted by the rules that apply to IITM. The effort took all of four years and more and finally the Park was born in 2004-05.
The reason why the Park is so important beyond being a pioneering initiative is that it became the role-model for every major university and college setting up an incubation centre, with the sole objective of promoting innovation and entrepreneurship. Thus began the story of startups in Tamil Nadu. It saw the first electric scooter from Ather Energy, the first AI and speech recognition company, Uniphore and the first low cost solar powered DC homes… The energetic Prof Ashok Jhunjhunwala was behind them. Director Prof Bhaskar Ramamurthi, IITM Director and evangelist Kris Gopalakrishnan ably demonstrated what it takes to build an ecosystem of innovation. And of course, there was B Santhanam, President of Saint Gobain Asia Region, who has housed their Global Research Centre in the Park.
SOUND ECOSYSTEM FOR STARTUPS
As the news of the success of the startups spread, more young minds were attracted to the idea of creating their firms. While the incubators in colleges provided a cozy environment, insulated from the vagaries of realtors and regulators, it wasn’t sufficient. Startups needed mentorship, connections, investments, talent and above all a place where they can be with other startups. An environment to care and share and effectively nurture each other is an essential ingredient.
KICK-STARTED BY PAYPAL, PROPELLED BY TiE
The first initiative was by Paypal, the global corporation that is committed to democratising financial services and empowering people and businesses. Paypal set up an incubator in its offshore centre in Chennai. By opening up this facility to startups, in any field, not necessarily in the areas of interest of Paypal and providing all the facilities for free in a dedicated floor of about 10,000 square feet, Paypal put the money where the mouth is. It was an outstanding effort that caught the attention of The Indus Entrepreneurs’ (TiE ) Chennai chapter and other investors. A collaboration between TiE and the Paypal Startup Facility blossomed. Mentors visited the Paypal facility frequently from TiE and many of the firms received funding and grew out of the Paypal facility.
TiE Chennai played a pivotal role in promoting entrepreneurship. One of 66 Global chapters of TiE Silicon Valley and adjudged one of the top five chapters consistently, TiE Chennai’s charter members (100 of them out of the Global 6000 charter members, who are successful business people and technologists themselves) mentored these startups, to begin with and encouraged many entrepreneurs to be part of the TiE network globally.
The leadership of TiE Chennai, led by Akhila Rajeshwar, forged partnerships with many ecosystem players. The Chennai Angels, a group of 75 members, passionate about entrepreneurship, opened their purse strings and invested in the startups and encouraged them to grow. TiE Chennai also forged a relationship with the Entrepreneurship Development Institute of the Government of Tamil Nadu to promote, educate and train entrepreneurs. And the last of the effort by TiE was to include entrepreneurship training in colleges, which completed the circle of support for new ideas and the new age economic freedom
fighters. Also, TiE took the concept of entrepreneurship education to schools and here again The Young Entrepreneurs (TYE) of Chennai won laurels in the Global Atlanta event a few years back.
NASSCOM’s initiative soon followed the Paypal idea. The Warehouse in TIDEL Park, Chennai, set up by the NASSCOM 10,000 Startups Mission and supported by ELCOT of Tami Nadu, provided the right place for networking and a low-cost space with the much needed high-speed connectivity for startups to get going. We see investors chasing ideas and entrepreneurs, rather than entrepreneurs pursuing investors for funds, in Chennai.
A vital component of the ecosystem is Venture Intelligence (VI), a firm based in Chennai,
promoted and run by Arun Natarajan, recognized throughout India as the last word in tracking startups. VI is the glue that connects ideas to entrepreneurs, entrepreneurs to
angel investors and angel investors to fund houses. VI is the venture repository and many entrepreneurs and investors alike seek its data and analysis.
And to complete the picture, we must mention Your Story, a platform dedicated to broadcast every entrepreneur’s story both through digital media and print media. What good is a startup if its story is not shared with the right audience?
In addition to the commonly known successful enterprises of Chennai, there are several others, which are expected to disrupt the status quo.
A well-funded startup, SP Robotics, has already succeeded in reaching robotics education and practice to thousands of school children. SP Robotics would not only train high school students in building functional robots but also prepare them to participate in national and international competitions. Mithun Sacheti, a recognized entrepreneur from Chennai, showed the way to “Think Big” when Titan of the Tata Group acquired his startup Caratlane. Pioneering work by Hemalatha Annamalai, in electric personal locomotion, earned Ratan Tata as an investor in her firm Ampere Vehicles. A multi-product all-electric vehicles manufacturer from Coimbatore, Ampere, has shown the tenacity to fall,resurrect, evolve and eventually succeed in a new sector where very few dared to invest.
If there is any question about having enough leading investors in Tamil Nadu, it is answered by the Inc42 publication that recently published a report on the Most Active Angel Investors in India and three of the Top 5 has committed their large angel investments to Tamil Nadu. Not just in new commercial enterprises, but also social ventures, educational institutions and many parts of the ecosystem. Clearly, Tamil Nadu offers one of the best ecosystems for flourishing innovation and entrepreneurship.
New kids off the block
The pace of change in the IT industry in Tamil Nadu has been so dramatic that new icons have emerged becoming the envy of other sectors. Back in 2015, at the Global Investors Meet (GIM), the biggies, namely TCS, Cognizant, Infosys, Wipro and HCL were the type of companies that stole the limelight announcing multi-million dollar investments in the state. They were rightfully hailed the poster boys for growth.
Cut to 2019. A new wave of Enterprise Product Companies is rising and these entities are showing stellar performance. Walk out of any airport in India or that matter in the ‘Californian’ Silicon Valley, and billboards of Zoho will greet you. The Sridhar Vembu led outfit is an enterprise software product company that blossomed at the right time, when software as a service (SaaS) model enabled by the ‘Cloud’ was the new global mantra. Given its unconventional approach to talent building and product sales, these are the companies to watch and track.
Zoho is playing in the big league with a run rate of half a billion dollars in revenue. Not only that; the company has inspired several others to innovatively compete in the business software arena and create a niche for themselves.
Note 2018 was the year of Freshworks, a start-up promoted by ex-Zohoites that blossomed into a Unicorn. Founder Girish Mathrubootham took a different approach to growth, by opening up the firm to external investors and making acquisitions at a frenzied pace. Girish has received more awards in 2018 than any other tech leader!
Polaris, a financial technology master, has transformed itself, after a strategic transaction with Virtusa, into a product company. Led by entrepreneur Arun Jain, Intellect Design, which applies design thinking to everything it does, has under three years been able to clock more than 100 million dollars of annual revenue.
TAMIL NADU LEADS THE CHARGE
Research conducted by NASSCOM reveals that companies based in Tamil Nadu are leading the country in adopting the ‘Product Wave’ when it comes to Business-to-Business (B2B) enterprise software products.
The revenues of the B2B enterprise software product companies in the state are set to cross the milestone of billion dollars (about INR 7000 crore) in FY 2019. Five leading companies in this space have grown their revenues at a three-year average CAGR of 19 per cent. The next 10 are growing faster at 29 per cent. Within these, younger ones like Freshworks are growing at a frenetically higher pace.
Chennai, the saas capital of India
The 15 leading B2B enterprise software companies in Tamil Nadu display a healthy diversity in various parameters viz., revenue, funding, sector and geography.
By Revenue: Five of the 15 have broken through the $50 million revenue barrier and two have crossed the 10M barrier.
By Sector: Led by Zoho, Ramco Systems and Freshworks, Chennai is now acknowledged as the SaaS capital of India. Seven of the 15 are on-premise companies and eight have off-premise operations.
By Funding: Newer generation SaaS start-ups, led by Freshworks, have tapped external funding to fuel growth. In fact, start-ups founded by former Zoho executives are witnessing an ‘unfair advantage’ in attracting venture capitalists! While Zoho has famously chosen not to tap any external equity funding, the state has shining examples in Ramco Systems, Intellect Design Arena and Take Solutions, that have decided to brave the scrutiny of public market investors.
By Geography: The leading B2B enterprise software companies beginning with Ramco Systems, have chosen to target customers in overseas markets. Again in a display of healthy diversity, the top companies have also latched on to domestic opportunities. Nine of them have overseas customers. Lately, Zoho has been focused on leveraging the opportunity offered by the introduction of the Goods and Services Tax (GST) regime, to penetrate the SME market opportunity within India.
Old war-horses too shine
While we have good reason to celebrate the success of enterprise software companies in Tamil Nadu, it is not at the cost of other sectors of the IT industry.
The state’s two top companies based on head count, TCS and Cognizant, continue to invest in people and expand their presence in the state. They are also beneficiaries and contributors to ICT Academy, the Government of Tamil Nadu supported institution, that has earned its stripes through making students of rural colleges competitive with their metro counterparts.
And then there is HCL Technologies which has considerable investments in its infrastructure as well as the educational ecosystem in Tamil Nadu. Since GIM 2015, the company has doubled its presence in the state. Interestingly, global companies have chosen Tamil Nadu, with monotonous frequency, in the last three years. The number of employees in Global In-house Centres (GICs) of multi-national corporations in Tamil Nadu has doubled!
Thanks to the educational ecosystem and the telecommunication infrastructure, the growth of technology industries in Tamil Nadu is assured, the pace being determined only by the speed and quantum of new investments. Mark it, for the technology sector to continue its robust growth, a significant investment in the higher education sector is a critical imperative, where the state government can show India the way.