Kerala Startup Ecosystem Entrepreneurs and Experts Focus on Prospects, Problems

Kochi: On September 7, 2016, Destination Kerala held its third edition of the CEO Roundtable presented by RADO Switzerland and powered by INKEL Limited at the Rajagiri Centre for Business Studies, Kochi with the active participation of their management and engineering students, and faculty members. This time the topic of deliberation was Kerala’s Startup Ecosystem – The Tipping Point. The panellists were Jofin Joseph, Co-founder & COO, Profoundis Labs (now FullContact); Dr. K C Chandrasekharan Nair (KCC), former CFO, Technopark and Founder, Technopark-Technology Business Incubator (T-TBI – now Kerala Startup Mission) and co-author of The Startup Habit; K P Sunny, Additional GM, Strategic Initiatives and Optimisation, Federal Bank; Rajesh Nair, Director and Head – Kerala and Tamil Nadu, E&Y and President, TiE Global Kerala Chapter; Sandith Thandaserry, CEO, NavAlt Solar and Electric Boats and Founder CEO, Navgathi Marine Design and Construction, and Varun Chandran, Founder and CEO, Corporate 360.

The proceedings were moderated by Jose Kunnappally, Chief Editor, Destination Kerala.

What is the significance of the Profoundis deal for Kerala’s startup ecosystem? Is it the Tipping Point?

Jofin: Frankly, I do not believe any startup ecosystem will have one sudden tipping point when everything will change. But then there are smaller events which happen from time to time and enable the ecosystem to grow and mature. You know that recently we got sold to FullContact. Inspiration and confidence are very important and an ecosystem offers these to young entrepreneurs. We hope Profoundis’ success story will be an inspiration to many and a confidence building measure that could benefit the entire ecosystem.

Rajesh: The momentum has been building up for a while. We need few more Profoundis kind of success stories before we reach the inflection point. The larger story is that our startup ecosystem is not a blip – it is here to stay. I feel it is the perfect time in Kerala for startups. 20 years ago when I graduated, starting a company was not even an option. Today it is a clear career option. And a story like Jofin’s or Varun’s is the story of courage and very different from what their parents may have done.

KCC: I remember Jofin and Arjun starting quite small at Startup Village few years ago. I have seen them grow Profoundis from strength to strength. When we commenced startup incubation efforts in Kerala, the hope was to see at least one or two success stories!

Varun: It is not the tipping point but the new beginning. Profoundis has announced the arrival of Kerala startups. I hope their success story will attract greater attention especially from the investor community.

What does it take to become a mature startup ecosystem like Bengaluru?

Rajesh: Demographically Bengaluru has been dominantly migrant which makes it quite vibrant and entrepreneurial. Also, early on, it had marquee companies like Infosys and Wipro which added to the charm. The stupendous success of these two companies gave a strong ray of hope to hundreds of engineers that they could start something new and be as successful. Kerala twenty years ago was not anything like that. If you need validation just watch films of that time – successful entrepreneurs were the villains and heroes came from the salaried class. It is changing today and Kochi is leading from the front.

Varun: Bengaluru created a culture conducive for startups to grow and flourish. Be it multi-cultural environment, industry-academia partnerships, mentor pools and the like. We should build infrastructure across the State rather than focus on city-based ecosystems. This will ensure universal access to education and other opportunities.

But where is the money? Inadequate funding opportunities has always been a major grouse for Kerala startups.

Sunny: Startup funding is not charity. Entrepreneurs need to understand investor perspective and speak their language. Ideas are not money. Ideas backed by sound strategy and execution is money. Banks can only invest up to 10 per cent of paid up capital. Most of the time startups come with paid up capital of Rs. 1 lakh and seek loan for Rs. 1 cr. which is 100x valuation which no bank will accept. With angels there is no such issue and hence, startups, which do not have track record but a vision for the future, should have access to angel funds.

Sandith: My dream was to build a shipyard but I did not have the capital when I started. I found a small investor and started with services. Slowly I generated funds for developing a shipyard. In solar boat projects I did not encounter a problem with finding investors. Our issue is more related to working capital requirements as project funding is milestone-based. If angels were around, I would have established and grown faster.

Jofin: Accessing capital is frankly not easy. Most investors we have come across are first time or second time investors. They are not the mature investor who has been involved with many enterprises. Capital availability is not an issue in Kerala but the problem is finding investors who understand startup investments. It is high risk and a different ball game. In mature ecosystems like Silicon Valley or Tel Aviv or Bengaluru, many successful startup entrepreneurs have turned startup investors. So this has educated the market about how to invest and what to expect. TiE and KSUM (Kerala Startup Mission) can add a lot of value by educating potential investors.

KCC: It is sad banks are not helping startups with funding. Bank managers are extremely risk averse and more worried about safeguarding their pension. Retired bank professionals are acting as mentors and helping startup entrepreneurs build business plans. But these folks while being employed did not sanction any loan to startups! So now they cannot go back and request their junior colleagues who are currently the decision makers to sanction the loan based on the financial plan they have helped create for the startup. As Technopark’s CFO I used to give Rs. 10 million as FD to banks and persuade them to give seed funding of Rs. 25 lakh to startup ventures in our incubator.

Is it because the 60+ Kerala entrepreneur is brick and mortar, and the startup entrepreneur is 20+ and talking hi-tech?

Jofin: It is both I would say. Kerala has not seen youngsters starting companies, coming up with ideas, pushing through and making it big. So there is genuine lack of comprehension. Mindset will change with exposure and time. And, of course, successes.

Or is it that they are reward looking? 

Rajesh: Startups is a new asset class altogether and technologies are new. Giving non-collateralised loan is risky as it is and we are seeing lot of failures all around. So there is genuine worry. But it is changing slowly. What Varun is doing with the social impact model is very mature considering his age and his company’s. Industrialists like V-Guard’s Kochouseph Chittilappilly are doing their bit. Manappuram Finance’s Nandakumar has invested and built a rural ecosystem in Valapad (Thrissur).

Varun: Two young guys invented Whatsapp. Telco companies who invented SMS had the technology and the customers but sat on it for years. Look at Amazon, a book and ecom company which invented AWS (Amazon Web Services), a billion-dollar business. Infosys could have done that but did not. All around there are huge opportunities which we have to explore and discover. And as that happen, money will come to fund those opportunities. We have a large youth population offering us an opportunity to employ them, create new economic activities locally and spur the national economy.

Is the availability of committed long-term mentors another big challenge?

Rajesh: We do not have the mentoring culture in Kerala. TiE does this worldwide. We need professional mentors and successful entrepreneurs who are willing to be mentors, offering their wealth of experience. Another category is the retired professional. For example, in Kerala you have over 30,000 retired banking professionals. They can help you build a business plan, explain business financials. TiE and even the State Planning Board is trying to see how this community of experts can be tapped not only in Kochi or Thiruvananthapuram but across all districts. KSIDC and KFC are also doing mentoring. But domain expertise in digital technologies is lacking in Kerala though it is available in Bengaluru. What we have is ‘how to run a business’ mentoring which is not enough. Youngsters also should have clear expectations when they seek mentoring. One cannot expect a mentor to solve for lack of funds.

KCC: I have mentored more than 200 companies in T-TBI. It’s a full-time commitment. After a few years in business, startups need to scale up for which they need not only capital but strategic mentoring. The startup is now moving out of the incubator into the real world, investing more capital, hiring more people. Mentors should also ensure that the ‘fire in the belly’ of startup entrepreneurs is not put out by offering mentoring at a snail’s pace. Mentors ought to have spring in their step and be closure-driven, solving quick and in a time-bound manner. Under IEDC, faculty members can act as mentors in colleges. We need a training university under Skilling India programme for creating more mentors and also for investors to learn how to fund startups.

What is the level of support non-IT startups receive?

Sandith: I agree there is focus on IT startups and lot of recent successes has been achieved in the area of IT. However, I will define IT differently. Every industry has technology. In the transportation space where I come from, we are trying to do away with fuel for running boats and that is happening through use of technology. Is Tesla a technology company? I would say yes. In that sense we would want to be in the same club. Our policies are focussed on IT startups or sometimes too App-focussed. I am not saying that is good or bad. It is anybody’s guess. But policies need to consider manufacturing and other industries also. I believe once we have successes in the non-IT space, government and policy makers will take notice too.

Should we only focus on product innovation? There is so much talk about service innovation not being sought after by investors.

KCC: It is a false impression that only an IT venture is a startup. Government of India (GoI) has lot of programmes to offer seed funding for companies using innovative technology. GoI calls it a Technology Business Incubator. A transportation company like NavAlt building solar boats is a technology startup.

KFC funds technology startups by giving Rs. 20 lakh but they insist promoters should have a technical degree. But they are not funding companies in other sectors. At KITCO we have an incubator and so many MoUs were signed with Central Government institutions like CIFT and CPCRI, to transfer technology to any startup but the government will not fund companies which buy technology. This should change.

Sunny: A specific problem area should be addressed by a startup. Unfortunately, in the IT space I see many Flipkart copy cats and umpteen payment wallets with no differentiation whatsoever. I notice more innovation and original thinking in the non-IT startup space. Also, banks consider the scalability of the business idea before funding, however innovative it appears.

To the entrepreneurs on the panel: How did you address fear of failure?

Jofin: Our first product was a huge failure. Our second product was a social analytics platform for enterprises. But it took us a while to know that over 350 competitors were in the market offering the solution at every price point. The third failure involved a product which had over 400 free customers but who were unwilling to convert to paid model. Our fourth product Vibe which became successful was born out of the third failure. So we call it the successful failure. Each failure has been really hard. It is about the team staying together, and bouncing back.

Varun: Fail Fast has been the mantra all around and in my mind that is glorifying failure! This failure preaching has to stop. We have to stay focussed on success.

Sandith: When we tend to be goal-focussed, this definition of failure and success crops up. System-based approach is to focus on a problem and the related opportunity. We made it to the Limca Book of Records for building the world’s fastest solar boat. But as a business it was a failure as we focussed on the fishing and tourism sectors. When we re-focussed on the transportation sector, we started seeing business viability. Entrepreneurs should be open to change and willing to tweak.

Let’s move to student entrepreneurship. What is your advice to student entrepreneurs?

Rajesh: I was a regular Indian kid at school – first in class and teachers’ pet. I am of the firm belief that there is merit going through a formal system of education. My personal opinion is that when you are a student, you should focus on academics and entrepreneurship can come slightly later. Student entrepreneurship is to me an oxymoron. There are of course examples like Varun sitting here and globally you have Steve Jobs and Bill Gates who skipped formal education and went on to become entrepreneurial success stories.

KCC: I have a very different view. We started an Innovation Lab at Vidyodaya School. We got 32 students from higher secondary section and took them to Fab Lab for the Maker Workshop and they came up with an innovative door bell. Now with help from KITCO we are exploring commercial exploitation of the idea. Today government has many attractive policies for promoting student entrepreneurship. Students can always return to complete formal education once their entrepreneurial venture has taken off.

Sandith: Education is highly over rated though I did engineering and management education. So please engage in applying learning through live projects while at college. Examinations are a very poor way of assessing knowledge, in any case.

Three things you want the government to do for strengthening our startup ecosystem?

Jofin: Government should continue to be a facilitator, provide infrastructure and also offer startup capital through KSIDC, KFC etc. Startup Village is a great initiative. I think the government is doing well in this regard. Mentorship is not their cup of tea and we should look elsewhere for it. Ideally startup mentors are folks who have started up. Nobody else gets this. Government organisations setting up mentoring labs, I think will not work.

Varun: Accreditation by the government for startup projects like Singapore government does is one recommendation. So their products go through stringent evaluation by government agencies and get certified. This will mean they can by-pass RFI process and any government agency can procure them. We have solar boats being manufactured here. Government can accredit the product and then start buying from them to serve its local transportation needs. Incubators and accelerators should be formed under specific industry boards like tourism, education, healthcare and agriculture with some seed funding to promote ventures in those areas. My third suggestion is personal to me. In classrooms I would recommend a period/hour for innovation, like we have for any other subject.

Three things you expect private industry to do to promote startups in the State?

Rajesh: A lot of private entrepreneurs can spawn smaller entrepreneurs especially in their immediate ecosystem. Also private industry has to champion the need to legislate the possibility of using CSR funds for startups.

Sunny: Financial institutions should be free to fund startups. Their hands should not be tied. We should be able to use CSR funds to directly support startups. An index of all startups in the State so they can offer services to each other, is another recommendation.