Technology product startups struggling to raise money

BANGALORE: Several technology product startups fear a funding drought as money and investor
attention goes the way of India's fast-growing consumer internet companies.
These ventures which develop a variety of products from wearable devices to enterprise
communication software and social media applications are struggling to raise money at a time when
venture capital inflow into the country is plentiful.
In the last nine months, Mohammed Hussain Naseem, founder of wearable fitness technology
startup GetActive has met around 16 investors, none of whom agreed to back his five-year-old
venture that has signed on corporate customers like Wipro, SAP and ICICI Bank. "They (investors)
say foreign players like Fitbit will come and overtake this market," said Naseem whose product is
used by over 10,000 consumers.
"The mentality of venture capitalists here is to look at the safest
haven to park their money and follow a trend," said the 49-yearold entrepreneur who finally turned
to angel investor Mohandas Pai who backed the firm with seed capital in May.
This year, technology product startups have received just $18 million (Rs 108 crore) of venture
capital out of a total of $420 million (Rs 2,500 crore) according to research firm Venture
Intelligence.
What makes Indian entrepreneurs more disheartened is the money and valuation that their
competitors in developed markets are receiving. For example, GetActive's global competitor US-
based Fitbit raised $43 million last August from investors such as Qualcomm Ventures, SAP
Ventures and SoftBank Capital. "It's a serious cash crunch, especially for second and third round
funding for tech product startups," said Rajesh Sawhney, founder of GSF SuperAngels, an
investment network that incubated mobile app tester Little Eye Labs which was bought by Facebook
in January for $10 million.
Sarang Lakare, founder of Volare Technologies that sells phone contact management product
IntouchApp, said that he has met 40 venture capitalists in one year but all in vain. "They don't even
say no. For a firsttime entrepreneur, it is difficult to interpret," said Lakare, whose app has got over
one million downloads.
Experts are of the view that there are multiple factors holding back VC funds from backing untested
ideas. "It's a vicious circle.
Investors here are not confident whether Indian entrepreneurs can churn out a global product just
because there is no precedence," said Sharad Sharma, cofounder of software product think-tank
iSpirt.
To overcome this perception, several technology product startups are tweaking business models.
"I don't mince words in saying that most VCs don't value product startups that have a large vision,"
said Amarpreet Kalkat, who started a social media platform Frrole in 2011. After a futile wait of two
years for venture capital, Kalkat, 34, shifted from a free-for-consumer model to one where he was
selling to enterprises for a fee, in order to raise seed funding.
Investors said they prefer to back technology product startups run by teams with experience in that
domain and a product which is unique in the market. "We invest only in tech product startups that
have a run rate of Rs 5-10 crore in annual revenue, until then we suggest they take an angel
investment," said Mohan Kumar, Executive Director at Norwest Venture Partners, which has backed
retail software startup Capillary Technologies and medical devices maker Perfint.
Kalkat's Frrole, finally raised Rs 1.5 crore from angel investors including iSpirt's Sharad Sharma
earlier this year.
The lack of a robust exit market is also proving to be a deterrent. So far apart from a handful of exits
like the buyout of Little Eye and payments technology maker Prizm by Japan's Hitachi last
December, there has been little to show by way of mergers and acquisitions.