The Comeback of Stealth Mode Startups in India

Business experts are divided about the stealth mode's usefulness primarily because it's difficult to maintain any genuine cloak of secrecy

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Over the last few years, many Indian stealth mode startups have been in the news. This has brought back attention to the phenomenon of “budding companies, operating in secrecy to develop their product or service” till they’re ready for market launch. Business experts are divided about the stealth mode's usefulness primarily because it’s difficult to maintain any genuine cloak of secrecy.

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How Does Stealth Mode Work?

Stealth mode startups operate fully in secrecy. Some do an in-company version where they keep a new offering or subsidiary under wraps. They carry out the research, market studies, technology development and fundraising in silence. Some startups even have non-disclosure agreements signed with anyone who hears about the work.

If you take a look at job portals, you see quite a few stealth startups looking for highly competent employees. They may also headhunt especially if the fundraising went well.

Indian Stealth Startups: Concept Making a Comeback

Globally, stealth startup funding rose significantly in 2020, by nearly 140 per cent year-on-year. Closer home, many stealth startups have declared themselves funded.

Technogram Solutions, a B2B startup aiming to improve the way travel companies grow business and engage customers, raised INR 5 crore within two months. Neobanking startup, Jupiter raised $24 million in 2019 from VCs like Sequoia, Matrix Partners, and others. BuyerAssist.io, a B2B buyer engagement startup raised $2 million in seed funding.

Bootstrapped startups also take the stealth route like Quackquack, a dating site, which is launching a live one-to-one stranger video chat. Growth School is an edtech startup getting top industry experts to teach in-demand skills live within a community setting.

Why now? The Indian economy is at a ripe stage for startups after nearly a decade of positive growth. VCs and even the government have many programs to facilitate startup culture while government jobs drop. The employment needs of the population and the success stories of Indian startups have increased interest in them.

Why Do Startups Choose Stealth Mode?

Young startups are secretive about many aspects of their work but stealth mode startups take it to the max for many reasons.

Keeping Competition Away from Intellectual Property: Although strictly speaking, legal protection exists, companies do copy and tweak all the time. Truly revolutionary startups, typically in pharma, healthcare, education, etc. need to safeguard their IP. The stealth startup, CognitiveCare is developing an AI platform to detect health indicators of expectant mothers. They claim that they don’t have much competition yet, but that could change once the data is out.

Launch at Their Own Pace: Having media and public attention on the company can pressure the development process. Stealth mode startups also prefer being able to control PR and not game the market even before they begin. Zerodha now has Rainmatter Foundation to fund other fintech startups, some in stealth, due to their leading status.

Avoid Distractions: Some startups prefer not to get distracted by purely marketing concerns in the early stage. They may also use underestimation as a marketing strategy. Though not a stealth startup, Finshots was an underdog that grew rapidly with no distracting clamor.

Concerns for Stealth Startups

Stealth startups have their naysayers and for good reason. Any aspiring stealth mode startup founder should be wary of some drawbacks.

It’s Hard to Hide: While pharma companies manage to get away with it, tech innovations are harder to hide due to open source, cloud computation, and other advances. Mobile wallets like PayZapp, PayTM, MobiKwik, etc. are examples. Therefore, stealth startups should be careful to maintain silence and shouldn’t stay dark for too long.

Missing out on Market Feedback: The stealth startup has to ensure that there is enough market input, or it may miss out on crucial target customers’ opinions. Startups can get carried away with the energy and decisions may be made that affect the product-market fit. It's important to get enough guidance and stakeholder input.

Hard Fall: Stealthy entrepreneurship attracts attention and makes people more critical of the product/service. If the hype doesn’t live up to the expectations, it’s not just customers who complain, but also investors. Bad press can take a life of its own. We don’t remember failed startups, do we?

Hard to Hire and Raise Funds: Most people hesitate to invest in new entrants. Venture capitalists and other funding organizations may scrutinize stealth startups harder when evaluating fund-worthiness. Experienced job seekers may avoid stealth startup jobs.

However, if the entrepreneurs have a good network, these drawbacks can be lessened. They should also try to reduce overhead costs by choosing incubators, co-working spaces, and engaging freelancers.

Ultimately, every startup has to focus on building a viable product that meets needs in a transformative way. If being stealthy helps accelerate economic growth and national development, this mode of operation will become more popular.