Decacorn Capital: The Enterprise Startup Boom
By Abhijit Banerjee, Managing Director, Decacorn Capital
Abhijit Banerjee, Managing Director, Decacorn Capital
Enterprise Startups Today
As current data shows, funding initiatives in the recent investment climate seems to be revolving more around enterprise start-ups. Enterprises, shackled by their rigid structures, lacking speed and agility to overcome their innovation barriers are increasingly leaning on the tech “wunderkinds” of the click and swipe era, brilliant young minds, fresh out of their universities, to identify problems and find solutions, while also encouraging innovation from within, by incentivizing their employees to be “intrepreneurs,” as employees are perhaps the closest to identify problems or spot new opportunities for an enterprise. With an abundance of resources at their disposal—money, underutilized real estate, human capital etc, enterprises are racing to create their branded technology accelerator programs, innovation labs, co-working spaces and corporate venture capital arms, all of which are a boon to the startup ecosystem, both for encouraging good quality upstream ideas as well as their downstream market adoption and ultimate exits.
Three Technological trends that can be leveraged to gain a competitive edge:
In this digitally transformed gig economy, driven by the unmet demands of the “on-tap” generation, enterprises have to leverage Big Data to stay relevant to their customers. Anyone who owns data has a clear advantage over anyone who doesn’t. Irrespective of whether they are selling to other businesses or direct to consumers, organizations understand that using data efficiently is the key ingredient to winning. As machine learning (ML) models using Artificial Intelligence (AI) analyses, predicts and impacts consumer behavior, what sets apart the good from the gruesome is their ability to mine huge amounts of data to train the best algorithms. Enterprises are scrambling to capture and own data, tracking every digital footprint we create and perhaps it won’t be too far-fetched to say very soon consumers will start understanding the value of their data and start demanding a fee to share their data, while smart sovereigns around the world may soon start to “tax” collection, storage and usage of data to fill their dwindling coffers reeling under rising healthcare and social costs to support their aging populations, data being undoubtedly the most lucrative asset class of today.
In the same perspective, converging with Big Data and complementing it to create scalable business models is the “Cloud” infrastructure with a dominance war being played out between Amazon, Google, Microsoft and now the entry of the Chinese Internet Giants like Alibaba into the fray. Consumer psyche is now totally driven by flexible subscription fee models which can only be supported by a robust and secure public cloud based service model offerings, including Software as a Service (SaaS), Infrastructure as a Service (IaaS), Platform as a Service (PaaS) etc making on-premise solutions a thing of the past.
There’s never been a better time for young entrepreneurs to build their own ventures as technology led disruptions blows favorable tailwinds of change, encouraging resourceful founders to seize new opportunities, riding on a robust cross border startup ecosystem, giving them easy access to capital, infrastructure and expertise to propel every stage of their journey.
The third and most interesting technology trend, potentially the biggest game changer is Blockchain or distributed ledger, the next big thing after the internet which will touch everyone’s lives in the decades to come. Being a peer-to-peer system, with distributed storage and decentralized applications there is no single point of failure which makes it hard to control, tamper or manipulate. While the world wide web gave us the internet of information, Blockchain is designed to give us the internet of value, securing our investments and ownership from financial transactions and medical records all the way to cover physical and digital assets. The growing popularity of crypto securities and utility tokens has even led to a new type of enterprise startups providing custody solutions to protect digital assets, which is an indicator of the things to come. Wrapping all of these technologies is the critical layer of deep tech innovation around a network and cybersecurity, a domain that requires a lot of investments from deep pockets of large enterprises and government agencies working together to outsmart the menace of the dark web.
Scaling Startups:
Startup founders need to carefully look at the problem they are trying to solve and accordingly plan their scaling strategy. Enterprise startups, mostly business to business (B2B) models ideally need early adoption by corporate majors willing to allow them to do their proof of concept (PoC) trials, particularly in highly regulated environments like fintechs and medtechs which require support to overcome the regulatory hurdles for successful commercialization. On the other hand, consumer startups, typically business to consumers (B2C) models whose success depends on the speed of customer acquisition and retention, needs to constantly innovate to stay ahead of the curve in order to generate traction and stickiness using various models to hook the consumer like offering “freemium” models and gamification. We see such examples in entertainment platforms, e-commerce sites, marketplaces where the next wave of dominance will happen through the emergence of “superapps” like Wechat which offer everything a consumer needs including payments, transport, food, shopping and so on. However B2B and B2C models are not mutually exclusive always and we see the convergence of these two models into B2B2C where enterprise startups are building solutions for institutions but for use by the end consumers. Fusing their plus points may uplift new opportunities for new innovations to solve big problems or create true delight.
Suggestions for Aspiring Entrepreneurs
There are two types of entrepreneurs we usually come across, the young excited first time entrepreneur unbound and unshackled, with a high risk appetite, most of whom are fresh out of their grad schools where the seeds of disruption are born in the innovation hubs and research labs which are now integral parts of all academic institutions, while the other type of entrepreneur is the brushed up experienced ones who is more likely to be the one with a some past entrepreneurial stints or deep domain experience The former types may have brilliant ideas but they require a lot of mentoring and typically incubators and accelerator programs fill this void. If they are lucky, they secure some initial funding from friends, family and may even tap into grants from their academic institutions or government, to help them execute a minimum viable product with a clear path to monetization. The successful founders who pass this stage then go on to tap institutional capital from Venture Capital funds to scale their business. The breed of experienced founders, need to assess their own strengths and plug their weak areas by teaming up with co-founders who can complement their roles. Such founders are more likely to drive enterprise startups due to their domain experiences and knowledge of business processes and would be have the resources to bootstrap their business till they create enough traction to tap institutional funding and strategic support from corporate VCs.
