TNNThe sight of them usually makes one shudder, but in the startup world, cockroaches are being seen as hardy , resilient creatures that live through any disaster, unlike the more flighty, mythical unicorn.
Last year, investors threw money at unicorns - companies valued at $1 billion or more - but this year, it seems to be the turn of the cockroach, startups that scale slowly with sound fundamentals and strong business models. In other words, startups that can survive anything.
India's largest unicorns, Flipkart and Snapdeal, have struggled in recent times to raise funding at their high valuations. "It is not about lack of money but whether these companies are ready for lower valuation. Otherwise, you should grow your revenues to match your valuation," says Mohan Kumar, director, Norwest Venture Partners.
Most investors say sectors like education and healthcare will provide sustainable models and create lasting companies even if these industries do not spawn unicorns. Serial entrepreneur K Ganesh, an early investor in Bigbasket and Portea, says: "Unicorn is a status valuation but education and healthcare are evergreen sectors, apart from being recession proof."
The consensus in the startup ecosystem is that many software as a service (SaaS) companies will survive downturns. "If they raise funds, they will grow faster, but even if they don't, they will continue to create value," says angel investor Sunil Kalra, adding that companies building strong intellectual property will turn valuable when people figure out how to monetize them.
Sharad Sharma, an angel investor and co-founder of software product think tank iSpirt, says that companies focusing on serving rural semi-urban, poor and lower middle class groups will be sustainable businesses.
Kumar Shiralagi, managing director at Kalaari Capital, says it is wise for all companies to hunker down until money becomes available. His question: "In the end, can a cockroach turn into a unicorn?"
FRESHDESK
Cloud-based customer support platform for 70,000 customers worldwide
FOUNDERS
Girish Mathrubootham & Shan Krishnasamy (2010)
FUNDING
$94 million from Accel Partners, Tiger Global and Google Capital
WHAT MAKES IT A COCKROACH
When Accel Partners represented by Shekhar Kirani first visited the Freshdesk office in Chennai, the startup was in a non-descript suburb in a small office with mixed furniture but all employees had Macs. At that moment, Shekhar knew Freshdesk had its priorities right and would spend on the right things.
TURNING POINT
The $5 million round in January 2012 from Lee Fixel (Tiger Global) just a few months after it closed a $1M round.Suddenly Freshdesk's biggest constraint was not at all a constraint. Most of the money was spent on hiring and building the product. In 2012 when they could not afford to pay a lot and did not have the brand value they enjoy now, Freshdesk did not compete with other startups rushing to IITs and IIMs.Instead, they hired talented freshers from other colleges and Girish proudly says it has all worked out great.
DAILYHUNT
Aggregates content from 100 news sources
FOUNDER
Virendra Gupta (2007)
FUNDING
$58 million from Falcon Edge, Omdiyar, Matrix Partners and Sequoia Capital
WHAT MAKES IT A COCKROACH
Activating business in an area which is difficult while being capital efficient. Dailyhunt has healthy revenue and is growing 100% year-on-year. With a good audience engagement, experts think Dailyhunt can ride the wave smoothly without any falls.
TURNING POINT
It focused on small towns. More than 95% of Dailyhunt's news is in 12 local languages. At a time when the top 10 daily papers have 24 million readers, it has 26 million readers, and readership is increasing by 2 million every month
MSWIPE
Mobile point of sale solution provider used for card payments, works with smartphones, tablets
FOUNDER
Manish Patel (2012)
FUNDING
In June 2015, it raised $25 million, the biggest round so far, from US hedge fund Falcon Edge Capital, investment company Meru Capital and ride hailing app Ola
WHAT MAKES IT A COCKROACH
Ability to survive without any capital infusion. Mswipe places importance on unit economics and has made sure that services are profitable at every level. According to investors, it has taken pains to build the foundation for a long-term business with a clear model, equal focus on investment, capex and revenues.
TURNING POINT
Patel says Mswipe stayed away from the over-inflated wages that were being paid in the startup world. It took them longer to find like-minded people but it helped the company grow in the long run.Mswipe looks to break even this financial year.
E2E NETWORKS
Infrastructure as a service
FOUNDERS
Tarun Dua and Mohamed Imran (2009)
FUNDING
$500,000 in equity from Blume Ventures, family, friends, $1 million debt from SIDBI, Intellegrow, Bajaj Finance
WHAT MAKES IT A COCKROACH
"For the first four years, we worked with less than $100,000 by being super-frugal and ploughing every penny earned back into revenue growth," says Dua. He stresses on a non-negotiable focus on unit economics and strong customer orientation."E2E has proven it can build a $4 million biz simply by bootstrapping with $250,000 of equity and leveraging it with debt, which is the right way to scale," said Karthik Reddy of Blume Ventures.
TURNING POINT
"When our largest data centre partner (Tulip) died due to its financial woes, we migrated our servers to our current partner (Netmagic) with our customer base entirely intact," Dua says.
CAPILLARY TECHNOLOGIES
Helps retailers with solutions to increase same store sales
FOUNDERS
Aneesh Reddy and Krishna Mehra (2008)
FUNDING
$79 million from investors, including Sequoia Capital and Norwest Venture Partners
WHAT MAKES IT A COCKROACH
Capillary was founded in the middle of the 2008 slowdown and so Reddy and Mehra focused on sustainability from Day 1.Reddy says that the best part about the company is that it got more clients during the slowdown. "The product is a painkiller and not a vitamin.Being an enterprise software product, the margins are high and we are growing at 80% year on year," he says
TURNING POINT
When Capillary found that western markets were very competitive, it shut operations in those countries and focused on Asian markets instead. It plans to go for an IPO in three years when revenues are expected to touch $100 million. "They never had to discount or burn cash. Their unit economics were always positive," says Mohan Kumar, director at Norwest Venture Partners
KWENCH
Provides employee engagement solutions, including an online library
FOUNDERS
Sunder Nookala, Krishnan Madhabhushi, Mitesh Damania and Prashant John (2008)
FUNDING
Rs 5 crore from angel investors
WHAT MAKES IT A COCKROACH
"The solid founding team has survived the worst and built a robust business without wasting any money or time and are growing quarter on quarter.They serve a large market and have never lost a customer," says Sunil Kalra, one of the investors. Kwench's clients include Nestle, Citibank, HCL, Godrej and Hindustan Unilever.
TURNING POINT
Nookala met VC investors in 2011, and returned empty-handed.Undeterred, he went to Sidbi, a government bank that lends to small and medium businesses, and got a loan. The company has enough money now to buyback the shares of angel investors who want to stay put. "We plan to explore the overseas market if we take VC money," says Nookala, who aims to touch turnover of Rs 100 crore next fiscal.
THREADSOL
Owns IntelloCut, material planning and optimisation software for garment industry
FOUNDERS
Manasij Ganguli, Mausmi Ambastha, Abhishek Srivastava & Bratish Goswami (2012)
FUNDING
$200,000 from Blume Ventures and angel investors in 2014
WHAT MAKES IT A COCKROACH
"Threadsol ensured this with multiple products for our customers in 12 countries. We were profitable from the first quarter," says Ambastha. Karthik Reddy of Blume Ventures adds: "We've been witness to the power of a great productmarket fit and a passionate founding team that can build with little."
TURNING POINT
They focused on mature garment markets such as Sri Lanka, Bangladesh and Turkey."Penetrating the Indian market was difficult and global markets were receptive," says Ambastha. "We have shown that building a crossborder enterprise SaaS business with barely any capital is possible."
EXPERTS WHO HELPED PICK THE SAMPLE: K Ganesh, Sunil Kalra, Karan Mohla, Mohandas Pai, Shailendra Singh, Vikram Vaidyanathan, Mohan Kumar, Sharad Sharma, Rajesh Sawhney, Karthik Reddy
Last year, investors threw money at unicorns - companies valued at $1 billion or more - but this year, it seems to be the turn of the cockroach, startups that scale slowly with sound fundamentals and strong business models. In other words, startups that can survive anything.
India's largest unicorns, Flipkart and Snapdeal, have struggled in recent times to raise funding at their high valuations. "It is not about lack of money but whether these companies are ready for lower valuation. Otherwise, you should grow your revenues to match your valuation," says Mohan Kumar, director, Norwest Venture Partners.
Most investors say sectors like education and healthcare will provide sustainable models and create lasting companies even if these industries do not spawn unicorns. Serial entrepreneur K Ganesh, an early investor in Bigbasket and Portea, says: "Unicorn is a status valuation but education and healthcare are evergreen sectors, apart from being recession proof."
The consensus in the startup ecosystem is that many software as a service (SaaS) companies will survive downturns. "If they raise funds, they will grow faster, but even if they don't, they will continue to create value," says angel investor Sunil Kalra, adding that companies building strong intellectual property will turn valuable when people figure out how to monetize them.
Sharad Sharma, an angel investor and co-founder of software product think tank iSpirt, says that companies focusing on serving rural semi-urban, poor and lower middle class groups will be sustainable businesses.
Kumar Shiralagi, managing director at Kalaari Capital, says it is wise for all companies to hunker down until money becomes available. His question: "In the end, can a cockroach turn into a unicorn?"
FRESHDESK
Cloud-based customer support platform for 70,000 customers worldwide
FOUNDERS
Girish Mathrubootham & Shan Krishnasamy (2010)
FUNDING
$94 million from Accel Partners, Tiger Global and Google Capital
WHAT MAKES IT A COCKROACH
When Accel Partners represented by Shekhar Kirani first visited the Freshdesk office in Chennai, the startup was in a non-descript suburb in a small office with mixed furniture but all employees had Macs. At that moment, Shekhar knew Freshdesk had its priorities right and would spend on the right things.
TURNING POINT
The $5 million round in January 2012 from Lee Fixel (Tiger Global) just a few months after it closed a $1M round.Suddenly Freshdesk's biggest constraint was not at all a constraint. Most of the money was spent on hiring and building the product. In 2012 when they could not afford to pay a lot and did not have the brand value they enjoy now, Freshdesk did not compete with other startups rushing to IITs and IIMs.Instead, they hired talented freshers from other colleges and Girish proudly says it has all worked out great.
DAILYHUNT
Aggregates content from 100 news sources
FOUNDER
Virendra Gupta (2007)
FUNDING
$58 million from Falcon Edge, Omdiyar, Matrix Partners and Sequoia Capital
WHAT MAKES IT A COCKROACH
Activating business in an area which is difficult while being capital efficient. Dailyhunt has healthy revenue and is growing 100% year-on-year. With a good audience engagement, experts think Dailyhunt can ride the wave smoothly without any falls.
TURNING POINT
It focused on small towns. More than 95% of Dailyhunt's news is in 12 local languages. At a time when the top 10 daily papers have 24 million readers, it has 26 million readers, and readership is increasing by 2 million every month
MSWIPE
Mobile point of sale solution provider used for card payments, works with smartphones, tablets
FOUNDER
Manish Patel (2012)
FUNDING
In June 2015, it raised $25 million, the biggest round so far, from US hedge fund Falcon Edge Capital, investment company Meru Capital and ride hailing app Ola
WHAT MAKES IT A COCKROACH
Ability to survive without any capital infusion. Mswipe places importance on unit economics and has made sure that services are profitable at every level. According to investors, it has taken pains to build the foundation for a long-term business with a clear model, equal focus on investment, capex and revenues.
TURNING POINT
Patel says Mswipe stayed away from the over-inflated wages that were being paid in the startup world. It took them longer to find like-minded people but it helped the company grow in the long run.Mswipe looks to break even this financial year.
E2E NETWORKS
Infrastructure as a service
FOUNDERS
Tarun Dua and Mohamed Imran (2009)
FUNDING
$500,000 in equity from Blume Ventures, family, friends, $1 million debt from SIDBI, Intellegrow, Bajaj Finance
WHAT MAKES IT A COCKROACH
"For the first four years, we worked with less than $100,000 by being super-frugal and ploughing every penny earned back into revenue growth," says Dua. He stresses on a non-negotiable focus on unit economics and strong customer orientation."E2E has proven it can build a $4 million biz simply by bootstrapping with $250,000 of equity and leveraging it with debt, which is the right way to scale," said Karthik Reddy of Blume Ventures.
TURNING POINT
"When our largest data centre partner (Tulip) died due to its financial woes, we migrated our servers to our current partner (Netmagic) with our customer base entirely intact," Dua says.
CAPILLARY TECHNOLOGIES
Helps retailers with solutions to increase same store sales
FOUNDERS
Aneesh Reddy and Krishna Mehra (2008)
FUNDING
$79 million from investors, including Sequoia Capital and Norwest Venture Partners
WHAT MAKES IT A COCKROACH
Capillary was founded in the middle of the 2008 slowdown and so Reddy and Mehra focused on sustainability from Day 1.Reddy says that the best part about the company is that it got more clients during the slowdown. "The product is a painkiller and not a vitamin.Being an enterprise software product, the margins are high and we are growing at 80% year on year," he says
TURNING POINT
When Capillary found that western markets were very competitive, it shut operations in those countries and focused on Asian markets instead. It plans to go for an IPO in three years when revenues are expected to touch $100 million. "They never had to discount or burn cash. Their unit economics were always positive," says Mohan Kumar, director at Norwest Venture Partners
KWENCH
Provides employee engagement solutions, including an online library
FOUNDERS
Sunder Nookala, Krishnan Madhabhushi, Mitesh Damania and Prashant John (2008)
FUNDING
Rs 5 crore from angel investors
WHAT MAKES IT A COCKROACH
"The solid founding team has survived the worst and built a robust business without wasting any money or time and are growing quarter on quarter.They serve a large market and have never lost a customer," says Sunil Kalra, one of the investors. Kwench's clients include Nestle, Citibank, HCL, Godrej and Hindustan Unilever.
TURNING POINT
Nookala met VC investors in 2011, and returned empty-handed.Undeterred, he went to Sidbi, a government bank that lends to small and medium businesses, and got a loan. The company has enough money now to buyback the shares of angel investors who want to stay put. "We plan to explore the overseas market if we take VC money," says Nookala, who aims to touch turnover of Rs 100 crore next fiscal.
THREADSOL
Owns IntelloCut, material planning and optimisation software for garment industry
FOUNDERS
Manasij Ganguli, Mausmi Ambastha, Abhishek Srivastava & Bratish Goswami (2012)
FUNDING
$200,000 from Blume Ventures and angel investors in 2014
WHAT MAKES IT A COCKROACH
"Threadsol ensured this with multiple products for our customers in 12 countries. We were profitable from the first quarter," says Ambastha. Karthik Reddy of Blume Ventures adds: "We've been witness to the power of a great productmarket fit and a passionate founding team that can build with little."
TURNING POINT
They focused on mature garment markets such as Sri Lanka, Bangladesh and Turkey."Penetrating the Indian market was difficult and global markets were receptive," says Ambastha. "We have shown that building a crossborder enterprise SaaS business with barely any capital is possible."
EXPERTS WHO HELPED PICK THE SAMPLE: K Ganesh, Sunil Kalra, Karan Mohla, Mohandas Pai, Shailendra Singh, Vikram Vaidyanathan, Mohan Kumar, Sharad Sharma, Rajesh Sawhney, Karthik Reddy
