The Next Frontier for Indian Startups — Sequoias and Meadows
India had a total of 38 unicorns at the end of 2020. The ecosystem has already has added 35 new unicorns this year alone. However, if I were to imagine a sustainable startup ecosystem for India for the next couple of decades, I bet we not only need the Sequoia trees (VC-backed unicorns), but we also need to care for and grow a large enough sustainable meadow that can support all sorts of life.
What’s wrong with Sequoia trees?
Nothing in itself. In fact, a fledgling ecosystem needs the aggressive infusion of venture capital to accelerate the moonshot bets, cultivate talent, and deliver returns to attract more types of bets across industries. If your company has deep funding needs before it can break even and if you seek rapid growth to beat your competition, then the traditional means of acquiring venture capital is a great option to look at.
But there’s another side to this.
VCs invest in companies that can be the biggest in their market to be able to return large sums of capital back to their investors. As a founder, that implies bartering control, ownership, and optionality with the folks on the cap table.
What if you are a founder whose calling isn’t about an exit that’s featured on the front page of a newspaper? What if you value building a sustainable and profitable business over growing large as fast as possible?
Besides, in economies like India where disparities are huge, there are significantly diverse sets of critical problems that have capital needs but will forever lie outside the term sheets of traditional VCs. A lot is at stake to ensure entrepreneurs outside the mold survive.
What are the meadows?
This is where we need to invest in growing the meadow, now that we have almost proven that the Sequoia trees can thrive. In fact, so long as the meadows have a chance to sustain and flourish, the Sequoias will thrive too. For without any meadows left for the seeds to flourish, there won’t be any Sequoias left either once you let the clock run long enough.
The rest of the draft is about the two most important ingredients for such meadows: Capital and Creators.
The Capital: Alternative (to VC) start-up finance
Let's talk capital first. A wealth of experiments are happening to invent alternative deal structures outside equity to help startups who prefer to grow at a sustainable pace with greater investor and founder alignment on purpose. Figuring out the “plumbing” (the equivalent of fund -> LP -> GP -> Founder) is likely the biggest challenge for alternative capital but as barriers to starting up are getting lowered, it is only a question of when and not if.
I highly recommend the book Adventure Finance by Aunnie Patton Power as the first pit-stop if you want to explore this topic further. I will let her Tweet do the talking.
Next up, while this article by Rob Tashima and Dr. Astrid Scholz is slightly dated, it still rings loud and clear on “why we need a new language for capital” — Venture Capital is Like Skinny Jeans (Or Why We Need a New Language for Capital)
Besides, Shared Earnings Agreement by Calm Fund, Peer Selected Investment by Village Capital, and the approach for SaaS bootstrapping by Tiny Seed Fund are a must-see.
In addition, take a look at how Intro, a product by Indie VC, is attempting to “unlock the complete view of funding options” through a double opt-in basis between founders and investors.
An equivalent of the above combined with the scale that India brings along has the potential to completely reinvent the ecosystem.
The Creators: Communities that build and own the business
Let's move to the second critical prerequisite for a sustainable meadow — the creators! I use this term loosely to include every craft needed to deliver the building blocks of a digital experience, including but not limited to code, content, and color. It is often unintentional, however, referring to only certain crafts in making digital products as “creatives” is unfair to the rest whose creative skills power the very experience that makes design a reality.
And there is a deep creator crunch in India, no matter how loud the media may be celebrating the recent unicorns.
I am concerned not with just the quality of creation that results from the crunch, but also the baggage it leads to in the future due to the limited footprint of today’s creator community. The biggest barrier to building a large symbiotic startup ecosystem in India today is the lack of diversity in the creator bunch. This further aggravates the diversity in the founder community that rises from this group.
Freada Klein’s quote on diversity from this podcast from 2019 hits like a bolt.
Build a team that reflects your customer base.
A vast majority of India today is left out of the gains from the happenings in the tech industry, let alone participation.
The next baggage we carry as creators is over-reliance on design and technology alone to solve the market needs. So long as policy lags technology, we will be chasing our own tail recovering from letting tech do its own thing. As barriers to starting up lower, we need hybrids who speak sociology, economics, and technology and can meaningfully elevate human experience without collateral damage from a tunnel-visioned focus on tech.
Putting it all together
Lastly, an important ingredient of the meadow will be tech platforms set up as co-operatives — community-first profitable businesses that share gains amongst the builders of the business. The work by Media Enterprise Design Lab on this has been fascinating. The more disproportionate disruptions the unicorns create, I sense the greater is the need for counterbalancing forces in our communities. It feels like exit to community is an idea whose time is here.
If this resonates with you, would love to hear from you. If this contradicts your worldview, I definitely want to hear from you.
