Indian entrepreneurialism is luring interest and investment in the country’s high-tech sector, as Internet use expands and the digital startup scene booms.

Share story

BANGALORE, India — In a crowded convention hall, young entrepreneurs practically shouted their ideas: an online marketplace for yoga instructors, an app to share songs in 30-second snippets, a mobile lunch-delivery service aimed at office workers.

For any veteran of the go-go era in Silicon Valley, the buzz at the recent Surge startup conference in Bangalore, the cradle of India’s high-tech sector, was familiar and alluring. India’s digital startup scene is booming as Internet use expands. By June, the number of Indians who access the Internet on their cellphones — a predicted 371 million — is expected to exceed the entire population of the United States.

That leaves nearly 1 billion Indians not yet connected, and as China’s economy slows, U.S. tech companies and investors have turned increasingly to India. Venture capitalists have poured hundreds of millions of dollars into startups, and Silicon Valley giants such as Apple, Google and Facebook are courting Indians with their own initiatives. That’s not to mention Amazon.com, which has a fast-growing Indian operation, and Microsoft, which long has had a sizable presence there.

“India has become, besides the U.S., the biggest opportunity still out there,” said Sanjit Singh Dang, investment director at Intel Capital, the venture capital arm of the computer chip manufacturer, which has invested in dozens of Indian startups.

Unlimited Digital Access. $1 for 4 weeks.

Apple in February announced that it would open a 150-person office in the southern city of Hyderabad. Last year, while iPhone sales were flat worldwide, sales grew by 76 percent in India, prompting Chief Executive Timothy Cook to call the country an “incredibly exciting” market.

“The population in India is in some ways some of the best in the world,” Cook said during Apple’s shareholder conference Feb. 26. “There’s a huge amount of young people moving up the ranks, and the consumer will rise up there.”

The Cupertino, Calif., company still commands just a 2 percent share of the Indian smartphone market, largely because new iPhones cost hundreds of dollars more than rival handsets. But Apple has wallpapered major cities with iPhone billboards, expanded distribution networks into smaller cities and applied for government permission to open its first retail stores in India.

The third-party retailers that currently sell Apple products have introduced payment plans known as EMIs, or equated monthly installments, to boost sales.

That “has been a game changer,” said Kishor Prabhu, owner of a phone shop in suburban Mumbai. “Indians are a bit cost-conscious. With the introduction of EMI, the middle class and upper middle class have shifted toward the iPhone and it is no longer a phone only for the elites.”

Cook said one of the challenges in India is the “brittleness” of the wireless infrastructure itself, making it difficult — and sometimes impossible — to watch video on a smartphone, a basic function elsewhere.

Attractive numbers

Still, India’s demographics make corporate titans swoon. The median age is 27, nearly a full decade younger than in China. Only 40 percent of the mobile phones shipped in the last quarter of 2015 were smartphones, according to industry analyst Counterpoint Research, indicating the market still has huge growth potential.

To help find jobs for the 1 million Indians who enter the workforce every month, Indian Prime Minister Narendra Modi is trying to increase domestic manufacturing and has introduced incentives for tech companies to set up factories in India. He has met with Silicon Valley leaders including Mark Zuckerberg, of Facebook, which sees India as its best chance to significantly expand its base of 1.55 billion users.

But Facebook faltered here this year when Zuckerberg’s pet project, a no-cost mobile app for emerging economies called “Free Basics” — a sort of Internet for beginners — was blocked by regulators who ruled that it discriminated against other Internet sites.

Google has tried to make its Android smartphones — by far India’s most popular — more suitable to the country’s slow Internet connections. The Mountain View, Calif., search giant now allows Indian users to operate its Maps app offline and plans to introduce free wireless Internet service at hundreds of train stations.

Digital golden age

Even though hundreds of millions of mostly rural Indians still lack Internet access, it is a golden age for the Indian digital consumer. Everything from doctor’s appointments to movie tickets can be booked online, and a growing number of transactions are made using mobile wallets — all using apps designed by Indian companies.

“The consumer is very much alive and kicking and actually consuming here, and that’s up to 1.3 billion people. The opportunity is huge,” said Radhika Aggarwal, co-founder of ShopClues.com, an e-commerce startup that has been valued at more than $1.1 billion and targets middle-class consumers with unbranded clothing and other products.

The company was started by Indians who worked in Silicon Valley and returned as the Internet boom was beginning here.

Another company founded by Amazon.com alums, the e-commerce site Flipkart, has become the biggest Indian startup to date, raising $6 billion in venture capital funding. Much of it came from U.S. investors — including Accel Partners of Palo Alto, Calif., and Tiger Global Management of New York — writing big checks as the site nears a possible initial public offering.

The frenzy in 2015 created India’s first Internet bubble, and new investment has slowed down markedly in the first two months this year. Modi’s government is facing fresh calls to spur foreign investment.

India’s freewheeling digital realm also seems at odds with what critics call a widening clampdown on free speech, after authorities in February arrested a university student on sedition charges after he allegedly organized a campus event where anti-India slogans were chanted.

“Investors have realized they went a little nuts,” said Pankaj Jain, a partner in 500 Startups, a Mountain View-based venture fund that invested in 24 early-stage Indian companies in 2015.

“A lot of companies are shutting down, scaling back, laying off people. … but that’s the normal course of business. It doesn’t change the fact that China is still very uncertain, and the global economy is still not growing very well. India is probably the most stable and fastest-growing economy in the world right now, so that’s still going to attract a lot of people.”

Undaunted dreamers

The volatility has not daunted young Indian entrepreneurs who still dream of startup success. In the convention hall in Bangalore, four twenty-something engineers and designers talked up their venture, eFyDo, a portal linking consumers with doctors and yoga teachers.

Their research showed that online health care was a $280 billion market in India, with some 140 competing startups. But three years after its founding, the site has 2,000 visitors a month. All four had given up full-time jobs — though one was working shifts at KFC — and were looking for an investor.

“We think this is a really important idea,” said co-founder Deepak Rathi. “Our goal is to change health care in India.”

Custom-curated news highlights, delivered weekday mornings.