When losers are gainers

Mirror, mirror on the wall, who is the best of them all? Start-ups that make money now or at least promise to make money in some near future? Or companies that lose money today and assure you, they’ll make tons of money in some unforeseeable future? That sounds like a no-brainer, you may think, but apparently not. Some venture capitalists still fancy betting on the latter which is akin to buying lottery tickets rather than a piece of businesses that offer some semblance of certainty in what they might end up accomplishing.

On their part, the start-ups these days only like to introduce themselves as the next Uber or Airbnb of the service they offer, be it food delivery or home repair or any other thing you can think of. The ones with probably a little more national pride and modesty will compare themselves to being the Flipkart or Ola of the services offered.

But in the midst of this craziness, is also a set of companies that are not playing the valuation game, instead they are building software products quietly and creating global wins. Take the case of Zoho Corp which has managed to take on Microsoft, Salesforce and Google quite successfully and create a niche for itself in online business, network and IT infrastructure management applications.

Zoho is part of the Top 30 product companies in India whose cumulative valuation is around $10.25 billion according to a report by iSPIRT, a software products think tank. The report further explains that they form part of an index formed by iSPIRT and their value has increased by 20% in dollar terms since October 2014. These 30 companies employ around 21,200 people and are going after the $500 billion global enterprise market made up of building applications and technology products and platforms for CRM, business intelligence, analytics, security and advertising.

Some of the companies that form the Top 30 include Zoho, Freshdesk, Capillary Technologies, Druva, inMobi, Knowlarity. Almost 80% of their customers are overseas which means they compete with global companies from day one which leaves them little room for error. The greater adoption of cloud and software as a service (SAAS) allows these companies to offer their products to consumers worldwide sitting out of India since the buying is now done online. 

The best part is that these companies are less dependent on VC funding since the product generates cash flows enabling the start-ups to remain bootstrapped for longer. Interestingly, 43% of the top 30 companies have not reached out for venture capital choosing to fund the business themselves. In fact, Zoho has repeatedly turned down requests by venture funds to fund the company. And in companies like Druva, Freshdesk, Capillary Technologies and inMobi, which has opted for venture funding, much of the money raised has gone either into product development or to enter new markets. It does not go to subsidise consumers, which is what most consumer internet companies are ending up doing with venture capital.

In fact, they don’t need to raise as much money as the consumer business, making them far more capital-efficient. While the consumer business is garnering much of the media frenzy and investor money, the product start-ups are going about building more sustainable global business. Maybe it is best, sometimes, not to be written about. But the mirror, you know, does not lie.