BLOG

Candid Conversations with World-Leading Startup Ecosystem Leaders - Featuring Deepak Bagla

on August 10, 2020

Deepak Bagla, Managing Director & CEO of Invest India was interviewed by Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome, discussing how India has risen to the occasion to support small and medium enterprises during the COVID-19.  

Listen to the full recording and read the conversation below.  




Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - I'm joined this morning by Deepak Bagla. He is the Managing Director and CEO of Invest India, based in New Delhi. Deepak, it is a great honor to have you with us today and jointly to shine a spotlight on what we perceive as the most vibrant ecosystem in India.

Deepak Bagla, Managing Director & CEO of Invest India - Let me give you a quick perspective on where we are. We are today on day 109 of the most unprecedented lockdown in human history. Nowhere ever before in history did you have a lockdown which involves such a large span of humanity and across the diversity of India, in every which way, in diversity economically, socially, geographically.

One of the biggest challenges of the position today, just to put it in perspective, is that India is divided into 729 administrative districts. 449 of these districts have less than 50 cases, 45 have zero cases. I have only 26 districts in India which are about 1000 cases. And why I'm telling you this is because our government took a very strong approach on going into a very early lockdown. The idea of focus wasn't saving lives as our Prime Minister said, if you have life you will always have something else after that, you will always have the economy coming in. But that was where the prime focus was. And as I see today, though we never know how this virus is playing out, it's interesting to see that we've been able to contain it within geographic areas. And the important thing is that at some point of time, we will obviously be able to get an upper hand on this virus.

We were just discussing the vaccine coming in, whenever that happens six months or 12 months away. And the point then remains is how fast economics comes back into a resurgence? Is it a V, is it a U? Or is it a bathtub U, you whatever that is, but before I come back to the point of how we will all come out of this, a little experience of what has happened during these 109 days, the most unprecedented 109 days. One is if you go onto our website you will have a daily business immunity report and that's where you will see how this pandemic changed course over time. Every day I would get different kinds of queries which are coming and we were helping business primarily during this entire period with all the challenges they were facing, but at the same point of time, anybody else in the social world also, whatever they were coming through, so there were issues about the lockdown, there were issues about getting passes, and movement, etc. So it's very interesting to see what you develop.

Two interesting things I must point out to you. First is on the 30th of March and we went into lockdown in the third week of March, we had zero PPE being manufactured in India, zero. On the 15th of June, we had a run rate of 750,000 PPEs a day. The most amazing learning from this, is how the small and medium businesses of India could pivot its business models, be nimble, and change everything, and come back with world class PPE. Which by the way also includes ventilators, I mean very highly sophisticated instruments like ventilators etc. And that was really something which was extremely laudable. It came across as well and nimble and innovative Indian business could be.

The second part is that even during this entire period, when we look at the pharmaceutical support to the entire world, especially with all the tablets which had to go out, India was the one who would supply those to 123 countries across the globe. India got firmly established that even in the most difficult of times, we were there to supply the world with what they were looking for, the tablets. And more importantly, you know that about 70% of the financial transactions you do yourself across the Atlantic, are processed out of India. And even during this entire challenge one of the things our team did very well was to completely insulate that entire processing part so the world would remain unaffected. Especially on financial transactions, so we continued supporting our commitments wherever we made them in the world.

We were just having a discussion of what COVID has done to all of us. It has typically amplified and catalyzed some of the existing underlying trends, which were there in the world already.I'll give you an example. De-risking has always been a core philosophy of business ever since we all got into it. But over time, I think people tend to forget it to a large extent. And you saw business moving to where it could be made cheaper, or products moving into operations where it could be cheaper, not necessarily smarter. What this has amplified in everyone's face is that that core element of de-risking remains a core element of business. And so what am I seeing now, and I've seen a large number of business interests coming in from across the globe, especially from 17 countries and across sectors. Seeing how they can onshore their business or reshore their business to where the market is. And that's where you would see a reshoring of supply chains to a large extent. You don't want to be in a situation where you're very far away from the way the market is and you're sitting on large heaps of inventory, losing money, without being able to transport.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - We have heard that a lot. Not just not disintegration, but the de-risking of over overstretched global supply chains and the use of modern technologies AMR, Advanced Manufacturing, and Robotics, in order to be able to reshore for even higher cost locations. So that actually may play out as a very good future opportunity for our tech communities if this becomes a more and more sustained trend, indeed.

Deepak Bagla, Managing Director & CEO of Invest India - Absolutely. And you know, the interesting thing is that how you define efficiency in the pre COVID world was only about financial costs being brought down. But I think the post COVID world will see efficiency as a definition in a different manner, where it is smarter. It is not only about making it financially or cost effective a little cheaper, but it is how fast you can get to the marketplace and how close you can be to the marketplace. And the other element which I see out of that is long supply chains becoming shorter.

Now what do I mean by that? I see clusters of businesses adopting themselves. So what happens within that cluster, you will have the supply chain more closely knit, rather than supply chains depending on clusters in different parts of the world are different parts of the geography and being interconnected. So that is another element which might be coming on to this one.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - Do you think we will see the physical supply chains get smarter and also closer knitted? That's our hope at Startup Genome at least, that we still retain this global fabric of knowledge. So, instead of a global supply chain, you got a global chain of ideas and a global chain of intellectual property as opposed to physical goods being produced and these overextended chains.

Deepak Bagla, Managing Director & CEO of Invest India - Absolutely, completely agree with you. The second element on digitization, I think the adoption of digitization especially in countries and societies where it was a bit slow, they’ve realized they have to pace it up. And when I say that do not think that I'm only referring to what were quoted as less developed countries or underdeveloped countries, I think adoption has been much slower even in some of the most developed countries and societies. What helped us immensely in containing this virus and where we are, now, and I must by the way, put in my little asterisk on that one that we have no idea, anyone in the world, at least I believe that we know where we stand. Are we at the beginning of the middle of the end? And I think it was very well put the other day I heard that we are in the same storm, but in different boats. So how each one of us is going to be reacting to it, I really don't know on that one. But yes, what helped us immensely is the very focused digitization effort, which the government and Prime Minister Modi has taken off in the past six years of being in India. Typically we came up with the India stat where we have a billion people connected to a mobile phone, we have a billion people connected to a bank account, and we have a billion people with a unique identity number. Now, this is what helps us to a large extent or is helping us currently to a large extent, in being able to see how we can try and work through challenges like the one which we are facing today.

And within that sphere, what is now estimated by Untied etc, that in the next 12 to 24 months, so last year, we had a global FDI of about $1.3 trillion. In the next 24 months, it's going to be down by more than 50%. That means now we are getting into a world which will have one of the most fiercely fought beauty parades. And these beauty parades will now be completely focused on how each economy and society is going to beautify its own self to make itself attractive, it's not just going to be about a fiscal benefit. Because I think this is the first time in our history again, where we've been hit by a the demand and the supply side at the same time. The shock is coming. So there’s very little monetary and fiscal policy leeway which societies and governments have today. As a result, the new beauty parade will be on how we make ourselves more efficient in bringing business. Basically seeing how can we be smarter and getting them executed in a shorter span of time. Let us see.

And that is where we are seeing, especially what I've seen, at least in our government here in the past 90 days, they've been some unprecedented reforms by the government. All towards announcing to make business much easier in their journey in India. Labor reforms, reforms in the ease of doing business, reforms on getting approvals and a much faster manner, and in a much easier manner. Essentially making the investor the center point and the center focus of the entire effort. So governments which are smart have used this virus to be able to come up with situations and answers and resolutions to old pending problems. And using this as an opportunity to turn it around to make that happen. I think that is a very positive element coming out of this.

I agree that we will now be at some point of time, as I was saying, when we turn out of this as a V, U, or a bathtub, and it's going to be different for each one of us. But yes, in many ways the world is going to be significantly different. Is it that we all become extreme narcissists after we get out and try and see the world as short lived and have just live the best of it? Or we become far more patient in our expectations of life itself and realize that staying at home is also an interesting way and cooking by yourself and not always ordering food in or going out is also another interesting way of getting to your life? Remembering the importance of families being together. How it could also really change the way your living room is because then you might have to see your office space created there.

But one very critical element which I see coming out of this, then I see that in my opinion, I think it will sustain overtime. Working from home essentially means you can work from anywhere. That's the other form of it. And what I'm seeing there is that we had big metropolitan growth centers and maybe you do not require that in the same proportion going forward in the people.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - It's actually interesting Deepak, I'm based in London. We have seen the startup economy thrive over the last 10 years, an incredible success story, a completely digital world. But at the same time, we've also seen an immense property play around one square mile in the City of London, in the financial district of London. Everybody tried to pile in and drove property prices through the roof for startups and work spaces. So in a sense it is counter intuitive in a world that is entirely working digitally, but still has an incredibly strong desire to have a physical community. And that also might or might not change. Let's see how it develops.

Deepak Bagla, Managing Director & CEO of Invest India - So there are two elements to that one, as I see it. One is also democratizing opportunities. That means anybody in a small town or city anywhere in the world has the same access to that opportunity opening up as anybody sitting in a metro. It's not just confined to a few sets of people. That democracy is going to be very, very valuable. That means that there's going to be a huge shift in what at one time was looked at as the bottom half of the pyramid.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - Very, very positive message. I spoke with a large investor in Brazil two weeks ago and she basically stated that to this point, as a startup seeking investment in a series A round, you would have to be physically in São Paulo, that's the place, nothing else would count. Since COVID, we've gone virtual, you can sit on the Amazon River with a brilliant idea, and you stand the same chance of getting the investment. That was a very upbeat message. I'm not sure if you see the same in India, but listening to you it seems very similar. I found that to be an incredibly uplifting and positive message. 

Deepak Bagla, Managing Director & CEO of Invest India - Absolutely. 70% of India’s human resource, which is approximately 10% of the global human resource lives in small towns and villages. Each one of them will now have the same level of access to an opportunity. Let me tell you another one, which is going to help, is the digitization of education, it is no longer going to be confined to the rich and the few. When I can get that course online, universities themselves in any case will be forced to change the business models. You don't always have to pay $100,000 a year to get a degree, somewhere sitting in the West because of the university. I see a focus changing on to some well known professors who are known for their courses and they will be able to reach out to a larger set of audience which could be much cheaper and much more accessible to everyone. And the moment that education comes across and that awareness comes across to each and every person sitting in the world. And that to sitting anywhere in the world, you would have redrawn the entire map of the globe.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - So democratizing access to education and to funding opportunities. Maybe this gives us the big shift here at Startup Genome, where it has always been our mission to democratize access to startup ecosystems and break the concentration of Silicon Valley, New York and London. Make it more accessible to many more cities. We are seeing some positive developments. This really might give an extra uplift, obviously. So that's, again, a very positive and upbeat message.

Deepak, when you think about access to knowledge, digital infrastructure, etc. one part of it which is worrying us a little bit, when we look at investor behavior and we look at startups, we found that every four out of 10 startups today are in what we would call a red zone globally. They have three months or fewer of capital, of runway. VC funding analysis shows us we've dropped by 20% globally in the first three months of 2020, including January, February, and March. We look at China, where the crisis hit first, and it was down by 50%. It’s slowly recovering now, but by no means at the levels of last year. 

We had this double bind. On the one hand small runway, on the other inside investors, but they're either hesitant or have no dry powder for investments left. So if you want to capitalize on these opportunities we need to ensure the funding part for the ecosystem, for the startups, for the SMEs also works. What has been your experience around that when you look at India? The numbers I just quoted are global averages.

Deepak Bagla, Managing Director & CEO of Invest India - So let me just give you a pre-COVID scenario and then take it down. So you know, Prime Minister Modi launched Startup India on 16, January 2016. So we're very young in that field. We are just about four and a half years old. You know Invest India is the execution arm for Startup India. Let me tell you where we were this January on stocks. We were number three in the world in number of unicorns. In fact, I added a unicorn every month last year. We are number two in the world in number of startups. So we have as per industry sources, about 70,000 startups. We are number one in the world with new startups adding every day. I have over seven startups coming in. What is more interesting, two elements of my startups and this was pre-COVID. Remember I told you, we have 729 administrative districts of India, that is these are divisions physically, on which each division has a managing government entity. Of those, 720 have a registered startup, meaning it is registered with the government. And there’s a number of startups which are not yet registered with the government in over 530 of them. That means the engine of growth of India has moved away from the big towns and cities and is now in the smaller towns and cities of India.

The second point, and this is what happened when one of the three largest PE firms, I'm not talking of a VC firm, the founder of one of the top three largest PE firms in the world, was planned to be in my office for 15 minutes. He spent four hours. He wanted to meet a few startups. He walked out after that four hour meeting putting his personal money in three of them. And he told me, “you don't want to lose startups,” and he's not in their base. “What I loved about your startups is that they are giving me solutions to the bottom half of the world's pyramid population. He actually said that these startups are giving solutions to 6 billion of the world's population and not the top 1 billion. And these are very based on frugal innovation. That is the strength of the Indian startups.

Now, what has happened? See the problem in what this little virus has done to startup communities across the globe, has to be the entire momentum builder. For them the problem is not liquidity, the problem is of solvency with a lot of these stocks. It is to see how they can go through this entire runway, which could be another six months or nine months and the ones that survived this runway in some time. Now, the ones which are at a very early stage, and they do not have a very high burnout, they are the ones which will be able to go longer. What had happened is if you look at the pre-COVID world, we are coming to a scenario not in India, but in large parts of the world, where liquidity was coming in much easier to a number of these startups. The moment liquidity becomes easy the burn rate comes out much faster. And liquidity was for my startups anyway. In any case they have the maximum utilization of that capital which they can preserve as much as possible. As you see, for us as startups in India, the race has not been the race to speed up to be number one. The race has been far more gradual for our startups because we have a very big domestic market for them to keep putting the building blocks very strong. So that is where I feel by and large that a large number of Indian startups will come out stronger out of this pandemic. But yes, startups which we're just going into an unrealistic race or the market share capture, even by burning as much fuel as they can, other ones which are going to slow down or rethink their business models, and which are at that phase.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - I understand the point about very early stage startups and very frugal behavior. Absolutely makes sense. Now look at scale up segments, companies that are building up from 10 to 50 people 200 people to 500 people seeking to establish other markets being fully conscious of the size of the domestic economy and, and marketing media. Do you think that there will be a significant slowdown because that's the point where really the typical series A in further rounds are required, in a good sense required not just to burn capital, but to sustain this momentum? We are wondering how much the impact will be and almost fearful of losing a generation of these early scaling companies.

Deepak Bagla, Managing Director & CEO of Invest India - That takes me back to that early statement where we are in the same storm but in different boats. So like a boat in India, you see, what I'm referring to is startups which are completely dependent on cross border activity for a market. So if they don't have a domestic market, which is big enough, and they have to get to where the market is, the challenge becomes larger. Because they're more challenging to them. In the Indian context of the market at home itself is a bit misleading when I told you that I became number three in the world of unicorns and I added a unicorn one every month last year. It's because the size of the domestic market is huge. And the second thing is accessing that market because of the digitization has made it much easier and cheaper. Let me give you an example. In the past 48 months, a brand new telecom company gets 100 million new customers in 180 days at one fifth of the cost of acquisition of a plant of the global average.

Now that has happened, because when you have a market, which is large enough, I guess in the free democratic world, you will not have a market of 1.5 billion people with the same geographic national boundary at least for the next hundred years. And I'm going to be 1.5 billion by 2026 or 2027, which is the highest human capital. Now think about access to that market with digitization has made it so much simpler and easier. So these startups will be able to now take on the next level of their journey, accessing it at their smart because this is where the rule does apply. The Darwinian theory that you will be there only if you're good at getting it right. So I think with them, Indian startups would have a very good run. Yes, it is a challenging period for them. A large number of them are about to relocate their businesses, but that is where the other part comes in which I told you about the PPEs. The ability to be nimble and the ability to pivot your business models. And for the best utilization of the dollar or rupee which is with you. These are the three mantras to take on any new startup. And the thing with India is because of the limited resources, financial resources, which our startups had they were already working within the constraints of these three.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - Yeah, I find that particularly interesting. So the statement that your guest private equity investor made about this frugal innovation is happening in a large domestic market and it provides access to a vast amount of the global population. Thinking about that, and it's a really interesting and positive and upbeat message indeed.

Deepak Bagla, Managing Director & CEO of Invest India - That strength of frugal innovation is what will now drive the next journey for all these startups. Not just in India, but globally.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - We saw that at Startup Genome and we shined a light on that and put our research behind it because we really want to monitor these trends and see how they established themselves post crisis. So once we come out what kind of trends, different supply chains, the rise of AMR in order to concentrate or reshore production, these frugal innovations. These will be very interesting trends to watch other digital solutions like education changing, the role of digital and bringing education home to every point in the world, that's something we're really keen on monitoring, going forward, and seeing if it is sustainable post crisis. Or if people are going to fall back into old patterns. Let's see, but we believe most of these trends are going to stay. 

I wanted to ask you though, Deepak. Did you from a government, from an official perspective, did you do anything in order to support the financial runway for your startups, for your entrepreneurs or for your VCs? We've seen a number of good models in Europe and in Israel, hugely interesting, where government intervention in the end facilitated much easier access to capital, extending the runway for startups in this moment of crisis, with sometimes really intelligent models that don't overly put much taxpayer money on the table. A few examples, not all are perfect, but we've seen some interesting, interesting measures. All those governments when we spoke to them we’re being very clear they've invested for the last decade into their ecosystems in terms of sweat, and resource and taxpayers money and they are obviously scared of losing one or two generations and really falling backwards. Yes. Did you consider any measures have you put in place or any interesting policy measures that we should share with our global community?

Deepak Bagla, Managing Director & CEO of Invest India - Absolutely see SMB and startups have been an absolute focus area of the government. In fact, that is the focus area because startups fall within the MSB category anyway. And that has been the government has been all the policy announcements, which you will see if you look closer in the past 90 days of the lockdown have been focused on this sector primarily, to support them both on the demand side and the supply side. Let me make it easier for you first one is access to the market to get their entire inventories out and to get the supply chain going. Government will remain the biggest buyer now in the economies at least for the next 24 to 36 months. And what we've done is we've given preferential access to our SMBs and startups in all government purchases. It is a very, very significant measure, and in many ways in making the terms easier for them, and getting them the credit faster, and getting special slices carved out only to be bought by them or procured by them.

So that has been a big part, but more important than that has been that entire fiscal and monetary supply side. You know, starting from core capital, to subordinate capital to debt, and delaying the debt payments or creating moratoriums for them, which have to be done. All that has happened in a huge focus. But I'll tell you what is very interesting. I was just going through the sixth of June. Currently, SMB startups are in a state of moratorium, they do not need to pay back their payments to the banks of all those installments. However, you know, what was very interesting SMB collections in June was 65%, even though there was a moratorium. And more interestingly, micro finance collections, you know, all this entire micro finance and FinTech solutions which have been there. This started the month with 60% and the end of the month with 85%. This was a huge eye opener for me. Even though you're in a moratorium and you do not need to, yet here is an entire segment which is saying, guys, I will pay my dues.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - Signifying they are healthy enough to serve their debt and the interest payments.

Deepak Bagla, Managing Director & CEO of Invest India - It’s to show a mindset of resilience. And more interestingly, how fast we moved out my FMCG numbers now of June, are now more or less year on year that the same as that of last year.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - That's very impressive. You may have seen the numbers from Europe and North America that's very different and we're fearful of what that means for recession.

Deepak Bagla, Managing Director & CEO of Invest India - That’s due to market focusing. Because I'm the largest market and the fastest growing market. So some of these numbers have really surprised me too, the ones happening about microfinance and MSMEs on the collections, is surprising. But yes, that gives me a lot of encouragement that the elements which the government is putting in place are working. There's some parts to it. Will it ever be a utopian scenario? It cannot be. But yes, we're trying to get as close to paradise as we can. And I really have a feeling and my belief is that this entire, why this will make us healthier in a way is that it will take away the entire fact which we had created with the easy forms of liquidity, which we will face for the entirety.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - Deepak, thank you, thank you very much. That's an upbeat message, a very positive picture that you're showcasing. An encouraging picture. Maybe, allow me one one last question. There's quite an amount of talent as lots of our startup economies have shrunk quite a bit. There's quite a bit of highly sophisticated global talent looking for new opportunities in the market. What would you say if people are looking at India startup talent, software engineers, growth hackers, to the experts at growing companies. Is India a place to look at, to come to the Indian startup ecosystem? 

Deepak Bagla, Managing Director & CEO of Invest India - It's a no brainer, always with the place. I mean, the human capital which we have here is unmatched anywhere on the planet, both in terms of numbers etc. Let me give you a quick one on that. 2026 I will be of 1.5 billion human capital on the planet. Okay, I'll be the largest. 1 billion of those will be under the age of 35. I'll have a workforce of 900 million. I give you about anywhere between 900,000 engineers a year and doctors, new ones. And with an average of 29, I will be the youngest on the planet all the way up to 2070 to 2080.

Tell me where will you get that human resource and a trained, skilled human resource? You know, it was very interesting. Look at biotechnology, as small as that with 100,000 professionals working in biotechnology with 21,000 graduates every year only in biotech. I'm excited about this. I just saw it yesterday myself in one of the webinars, in something as niche and specific as that.

Stephan Kuester, Partner & Head of Ecosystem Consulting of Startup Genome - Yeah, that's really fantastic to hear. Deepak, I'm conscious of your time and it is a fantastic and illuminating conversation. If I may briefly summarize, I'm hearing from India a very positive message.

You've built a startup ecosystem, facilitated to build a startup ecosystem, prior to the crisis seeing huge success. And what I take away is a very resilient environment during the crisis when it comes to finance when it comes to preserving structures, people operating very frugally. Lots of opportunity because frugal innovation is relevant to great parts of the world or lesser rich parts with an opportunity to expand these ideas into many more markets or even outside of India to enlarge the Indian market. 

And possibly as the most important takeaway, and I'm really encouraged hearing that from many, many markets. A more democratic access to education to business opportunities as we go more digital and it is not the cluster the big city only that allows you as a young entrepreneur to build into business conceive an idea and get financed. But all of a sudden, we're in a situation where we equalize access to these opportunities. And when I understood you correctly, that's very much what you're seeing. I took away 500 out of the 700 communities, or councils in India, already see this kind of activity, which I take away as a really positive message.

So thank you very much for the opportunity to talk to you today in this interview, which we will share with our community globally and wishing you all the best and much success for the development of this great environment ecosystem in India.

Deepak Bagla, Managing Director & CEO of Invest India - Thank you very much and listen, please be safe. My best wishes to you and your family. And hopefully we get out of this so that we have as quick as possible.


Contact Us

Our data shows that collaboration is at the core of the fastest growing startup ecosystems. We work with forward-looking organizations who understand that joining the global startup economy is key to to drive innovation and spur economic growth.