India’s World-Class Tech Startups at Rock Bottom Valuations

September 30, 2014
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If India’s technology sector is not on your radar, it should be. India offers a combination of two economic advantages the rest of the world is unable to. First, its people are extremely innovative and provide unique solutions to current technological and economic challenges. Second, their intellectual capital and technology come at relatively affordable valuations in comparison to, for example, Silicon Valley, London and Berlin (leading tech hubs).

The latest example of this is the tech startup Bookpad. Bookpad is a simple idea that gained the necessary traction without a lot of initial funding, which caught Yahoo’s eye. And just last week, Bookpad was purchased by the fledgling American search and news aggregator for roughly $15 million.

 

Why Does this Acquisition Matter?

The story is this: There is a treasure trove of startups coming out of India and the smart money is taking notice at their ridiculously cheap valuations. Look at Bookpad. It was founded by a group of early-twenty-something guys, just out of college. They created an app that is designed to pull documents off the web and edit them. That includes PDFs, Word and other documents that float across the cloud these days. Ingenious idea given how content has become king on the net. And for $15 million what does Yahoo really have to lose by making the acquisition? It was barely a blip on the balance sheet.

 

Bookpad and its Industry

As an industry, document dissemination and manipulation is a large business. It is expected that there will be over 200 billion documents (not web pages, but things like PDFs and PowerPoints) on the web in the next two years. All these documents represent data and consumable information – which, aside from commerce, is the cornerstone of the Internet.

The ability to pull almost any document and annotate or edit it on the fly, without the need for expensive proprietary applications, is ingenious. And for a company like Yahoo, who publishes thousands of articles everyday, Bookpad is a perfect fit.

 

India: A Land of Tech Startups

Silicon Valley investors are flocking to Bangalore, the capital of the southern Indian state of Karnataka. Bangalore is India’s response to America’s Silicon Valley. The local government there has been highly supportive of the tech industry and geared the infrastructure towards this. Even at the federal level, India has provided the necessary backing.

Companies like Bookpad are the result of two critical components within India: A supportive government that provided the physical and regulatory infrastructure – enabling industry giants like Microsoft and others that set up incubators; and a highly educated and motivated population that provided the engine of growth. These two components have been amalgamating for a while now and it has resulted in a number of world-class tech startups. Moreover, the valuations on these tech startups, from a funder’s perspective, are insanely attractive.

Just in January of this year, Facebook and Google were also shopping around in India, picking up startups Little Eye and Impermium. Little Eye was purchased for a song: approximately $15 million. Google did not disclose the value of its purchase, but you can bet it was a hell of a lot cheaper than a comparable to Impermium in Silicon Valley.

Little Eye was just about a year old when they were purchased by Facebook, who then moved the entire group out to Menlo Park. Not long after that we heard about Google picking up Impermium, a tech security company. And now there’s Bookpad being picked up by Yahoo. See the trend?

 

What’s in India

For the first time in a long time, the large purse required to acquire great tech startups may be less of a factor… if you are willing to look abroad for acquisitions – and India is the best place to start. India’s nation of innovators allows the smaller funders to get in at early stages. In other markets, Silicon Valley for example, the valuations are so lofty that, unless you’re Google, you can’t afford a seat at the negotiation table.

 

India Tech Startup Valuations

Yuri Milner, the Russian tech tycoon, has more than 50 investments in Silicon Valley to his name via his company, DST Global. In India, he has negotiated his way into Flipkart as a major shareholder. Some of his other investments include Coursera, Twist Bioscience and Xapo. If you’re not sure who Yuri is, he is the founder of Russian tech group, Mail.ru.

More recently, Milner made a sizable investment into Olacabs in India. Olacabs is a startup taxi company that is about to take India by storm with a price advantage strategy precipitated by technology that allows for more cost effective operations.

For Milner, the entry valuations in some of India’s tech startups were quite profitable, likely a whole lot better than he would have made at similar ventures in California.

Side note: Another brilliant startup that came out of India was Housing.com, based out of Mumbai.

 

India’s Tech Talent Pool

Many world-class tech startup founders, including Bookpad’s founders, were all graduates of the Indian Institute of Technology. IIT, for short, is a prestigious, although unknown to most in the West, institution that has produced some of the finest minds in India. Men like Vinod Khosla of Khosla Ventures and co-founder of Sun Microsystems; Nandan Nilekani, co-founder of Infosys; and Ramanathan Guha, the inventor of RSS, just to name a select few, are graduates of IIT.

There is an array of tech startups in the Indian pipeline; Bookpad is just one of many that have, or will, be purchased at ridiculously cheap valuations in comparison to their Western World counterparts. The tech acquisitions out of India may not make for sensationalized headlines with billion dollar valuations, but therein lies the opportunity. That’s the India advantage for any small funders looking to take stakes in world-class technology.

There is a steady flow of highly utilitarian tech startups in India that will dictate the landscape of the technology industry for years to come. Consider this your heads up to start looking beyond your borders for acquisitions and investments.

Stay hungry,
Aaron Hoddinott signature

 

 

Aaron

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Like all of you entrepreneurs and investors out there, Aaron has been in the trenches. He is the founder of an influential online media and PR company. From oil wildcatters to mining prospectors, tech gurus to medical doctors, and even celebrities, Aaron has helped market and expand brand awareness for a diverse range of publicly traded companies ran by entrepreneurs from all walks of life.

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