Can Startups Revive Manufacturing in India?
That India is a fertile land for start-ups is well recognised and acknowledged globally. The start-up behemoth – Sillicon Valley – has primarily catered to consumer internet businesses such as e-commerce, and apps for daily consumption in transport, food, travel, education and media consumption. With the emergence of India as a global services leader, the traditional manufacturing sector's growth has been slowing down. This is proportionately reflected in the start-ups culture here as well.
But will the emphasis on Make in India and digital economy boost start-ups in hardware and manufacturing domain?
The lack of an enabled ecosystem, labs and market testing facilities are deterrents to founders and investors alike. To add to this, manufacturing hardware is capital intensive making it even harder to enter or scale up. Although some crowdfunding campaigns such as Kickstarter help in the cause, these are predominantly skewed towards gizmo geeks rather than as an enabler for creation of hardware business.
At Unicorn India Venures, we are focussing on industrial and B2B businesses - hence start-ups dealing in medical devices, Industrial IOT and industrial automation interest us. The emphasis on the India tag has led some specialised Government agencies to seek funding for ESDM projects, and this has brought about nascent change in the past couple of years. Entrepreneurship cells based out of the IITs are beginning to play an active part, and a couple of hardware start-ups have scaled up to in-house engineering.
Need for competent teams cannot be emphasised enough. Usually, such start-ups tend to be single-founder businesses who have gained experience managing industrial products in family enterprises. In consumer internet businesses, the primary skillset is software development. But for manufacturing start-ups, product design, an understanding of engineering and production, and domain expertise in middleware and software is needed to structure a product. Hence, this often turns out to be another stumbling block in scaling up start-ups. There is now a new market for hardware experts, ranging from accelerators to supply chain experts and consultants, who are acting as facilitators for the manufacturing.
Funding is a huge challenge.
The good news is that mainstream VCs are looking to jump onto the bandwagon. While we are not seeing poster boys yet, a few funding success stories have begun to emerge. Ather Energy is one such example, it developed an electric scooter called the S340 which can charge as quickly as a smartphone. Teewee, which brought us media streaming dongle for televisions, and Grey Orange Robotics are other success stories.
Investors including us, today, have started betting on businesses with hardware and cloud-based data services. We believe that once a hardware has been installed within an industrial system or within a business, the stickiness factor is higher and client relationship has more depth. To this end, we have invested in a media devices business with cloud-based data services, and are actively looking to invest in industrial IOT.
There is domestic demand for manufacturing, especially in critical sectors such as healthcare and education. The uptake in these sectors will encourage a boom in other sectors. The grooming of a skilled workforce and an enabling infrastructure will take at least 3-4 years to turn around the trend, but we are optimistic about the sector in 2018 and the interest of VCs in the hardware start-ups space.