Silicon Valley Case Study

 

Silicon Valley History:

The term ‘Silicon Valley’ does not need any introduction; we are well aware of the term, its potential and uniqueness is nothing new to us. Robert Metcalfe perfectly describes Silicon Valley as, “Silicon Valley is the only place on Earth not trying to figure out how to become Silicon Valley”. However, it goes beyond the technology we see and hold in our hands and includes all the industries the Valley has helped flourish, providing growth for technology that shapes our lives in ways many of us not only don’t understand, but don’t even know. The minds and innovation that live and thrive here hold the keys to future technology innovation.

The term Silicon Valley was used occasionally by easterners who would mention making a trip to Silicon Valley, until 1971 when it was popularized in a series of articles, “Silicon Valley USA,” written by Don Hoefler for Electronic News.

In 1971, in a series of articles that Hoefler wrote for ELECTRONIC NEWS, a weekly tabloid, he first used the phrase “Silicon Valley” to describe the congeries of electronics firms mushrooming in Santa Clara country. “He pioneered the coverage of Silicon Valley as a distinct community,” – said Michael S. Malone, author of a book chronicling the industry called THE BIG SCORE.

 

 

 

 

 

What does the term ‘Silicon Valley’ imply geographically?

Silicon Valley is an area that “located on the San Francisco, California, peninsula, radiates outward from Stanford University. It is contained by the San Francisco Bay on the east, the Santa Cruz Mountains on the west, and the Coast Range to the southeast. According to the “Silicon Valley Joint Venture Index 2000 the Silicon Valley’s cities were located around the South side of San Francisco Bay (shown in the figure below)

10 years later the above viewpoint of Silicon Valley Joint Venture was changed:

The geographical boundaries of Silicon Valley vary. The region’s core has been defined as Santa Clara County plus adjacent parts of San Mateo, Alameda and Santa Cruz Counties. In order to reflect the geographic expansion of the region’s driving industries and employment, the 2011 Index includes all of San Mateo County. Silicon Valley is defined as the following cities: Santa Clara County (all) Campbell, Cupertino, Gilroy, Los Altos, Los Altos Hills, Los Gatos, Milpitas, Monte Sereno, Morgan Hill, Mountain View, Palo Alto, San Jose, Santa Clara, Saratoga, Sunnyvale Alameda County Fremont, Newark, Union City San Mateo County (all) Atherton, Belmont, Brisbane, Broadmoor, Burlingame, Colma, Daly City, East Palo Alto, Foster City, Half Moon Bay, Hillsborough, Menlo Park, Millbrae, Pacifica, Portola Valley, Redwood City, San Bruno, San Carlos, San Mateo, South San Francisco, Woodside Santa Cruz County Scotts Valley Santa Clara San Jose Newark Fremont Union City.

 

Milestones in the history of Silicon Valley:

• 1891—Stanford University was founded by Governor Leland and Jane Stanford.
• 1903—Valdemar Poulsen demonstrates the first arc radio transmitter for high-quality voice transmission in his Palo Alto laboratory. He later invents the first practical device for magnetic sound recording and reproduction.
• 1912—Lee de Forest invents the vacuum tube amplifier in Palo Alto. His “audion” became the foundation for radio, radar, television, computers, and the electronics age. Stanford faculty and officials helped finance the work, the first of many cooperative partnerships between higher education and Silicon Valley.
• 1930’s —Professor Frederick Terman is recruited by Stanford University and starts a lifelong promotion of the benefits of the Valley. Later, Terman becomes known as the father of Silicon Valley.
• 1937—Encouraged by Terman, William Hewlett and David Packard start a company to produce their audio-oscillator. Walt Disney becomes their first customer, purchasing the product for use on the film Fantasia.
• 1937—Stanford professor William Hansen teams with brothers Sigurd and Russell Varian to develop the klystron tube. Their work continues through WWII and leads to the development of radar and the 1948 founding of Varian Associates.
• 1946—The Stanford Research Institute is founded to support nonprofit research.
• 1951—Stanford Industrial Park is established as a “center of high technology close to a cooperative university.” Varian Associates, General Electric, and Eastman Kodak sign the first leases.
• 1952—IBM locates a key research facility to the valley.
• 1956—Dr. William Shockley founds Shockley Transistor Corporation to produce semiconductor-based transistors to replace unreliable vacuum tubes. Early employees read like a who’s who of the high-technology future.
• 1958—Robert Noyce, Gordon Moore, and six other engineers from Shockley Transistor found Fairchild Semiconductor, the first company to mass produce integrated circuits.
• 1958—NASA moves a research facility to the valley.
• 1968—Douglas Engelbart and team at the Stanford Research Institute (now SRI International) give first public demonstration of the computer mouse, windows, and networking.
• 1968—Robert Noyce (pictured left) and Gordon Moore (Moore’s Law) create Intel.
• 1970—Intel introduces first 1k DRAM chip.
• 1971—Alan Shugart invents the floppy disk for data storage.
• 1973—Intel introduces 8008 CPU and ushers in the new era of the microprocessor.
• 1973—Stanley N. Cohen of Stanford University and Herbert W. Boyer of UC San Francisco invent a technique for splicing genes, leading to the formation of the biotech industry.
• 1974—Development of the Graphical User Interface (GUI) at the Xerox Palo Alto Research Center (PARC) led to the intuitive design of Apple’s Macintosh computer and Microsoft Windows.
• 1975—The Homebrew Computer Club is founded to experiment with home computers.
• 1976—Homebrew founder Steve Wozniak teams with Steve Jobs to form Apple Computer and build the first microcomputer in Jobs’ garage in Cupertino.
• 1970’s—Relational database technology invented at IBM’s Almaden Research Centre.
• 1982—The Stanford University Network is the catalyst behind the founding of Sun Microsystems. Silicon Graphics uses the same network chips to create its first graphic workstations.
• 1984—Cisco Systems is founded by Leonard Bosack and Sandra Lerner (top left)
• 1989—Don Eigler (bottom right) a researcher at IBM’s Almaden Research Centre, uses nanotechnology to spell “IBM” with 35 xenon atoms.
• 1993—Stanford Professor Jim Clark hires web browser pioneer Mark Andreesen to found Mosaic Communications, predecessor to Netscape Communications Corporation and the browser that made the Internet an everyday tool
• 1994—Jerry Yang and David Filo start a directory of websites that explodes into Yahoo!
• 1995—Netscape IPO at $28 per share went to $75 at close valuing it at $3bn
• 1999—Kleiner Perkins and Sequoia agree to co-invest in Google at $12.5m each
• 2003—Google purchases Pyra Labs to support blogs, today’s online community forums
• 2006—Google buys 15 month old YouTube for $1.6bn
• 2007—29th June Apple launch iPhone

 

 

Top Companies in the Silicon Valley:

 

 

 

 

Renaissance Atmosphere at the Silicon Valley:

Presented below is an extract that describes the dynamic ethos at the Silicon Valley that has made it as we know it today.

 

 

 

 

 

 

 

 

 

 

 

Factors  responsible  for the growth of startups in the Silicon Valley:

If you want to learn how to be the best at something, learn from the experts. And when it comes to building successful businesses, the experts are in the technology industry. Entrepreneurship has fanned out around the globe, but its center of excellence undoubtedly lies in Silicon Valley. This is where the “innovation – venture capital – startup” engine that created tech-giants like Apple, Cisco, Facebook, Google, and Intel began. Every day, groundbreaking companies such as PayPal, Netflix, Uber, Tesla, and Airbnb are challenging the status quo, transforming age-old industries, and changing our lives in profound ways.

 

Silicon Valley, California played a major role in the expansion of ICTs in the 1990s. The large concentration of hi-tech industries in the corridor between San Francisco and San Jose is well known, and much emphasis was placed on the role of entrepreneurs and startups, especially in hi-tech industries and regions such as Silicon Valley in contributing to economic growth in the 1990s. The media dubbed it the “dot com” boom. There was the impression that most people were interested in becoming an entrepreneur or involved in some type of startup.

 

Silicon Valley has a highly-educated population and large concentration of immigrants, which are both associated with higher rates of entrepreneurship.

 

The economic boom of the 1990s provided strong consumer and firm demand for products and services provided by startups, thus increasing entrepreneurial earnings. Although economic growth may have increased the returns to entrepreneurship nationally, Silicon Valley entrepreneurs may have gained even more because of the especially strong local economic conditions during this period.

 

The increased use of the personal computer and Internet in the late 1990s may have also altered the production function, and the rapidly falling price of technology may have decreased the price of physical capital. Previous research indicates that high levels of investment in personal computers by small businesses during the late 1990s. Estimates from the 1998 Survey of Small Business Finances indicate that more than 75 percent of small businesses used computers and estimates from the 2000 Computer and Internet Usage Supplement (CIUS) to the Current Population Survey (CPS) indicate high rates of computer ownership among self-employed 5 business owners (U.S. Small Business Administration 2003). Small- and medium-sized businesses are also found to make relatively large investments in computers and communication equipment and 25 to 45 percent of total capital expenditures are for computers among relatively young employer firms .There is also direct evidence that access to personal computers increases entrepreneurship. Personal computers may make it easier for a potential entrepreneur to create an experimental business plan, obtain information about tax codes and legal regulations, conduct research on production techniques and competition, and may be useful to new business owners for accounting, inventory, communications, and advertising.

 

The booming stock market also increased personal wealth. In the presence of liquidity constraints, higher levels of wealth may have made it easier for entrepreneurs to find the required startup capital to launch new ventures.

 

One common argument is that the entire environment or “habitat” in the region appears to be favorable for innovation and entrepreneurship. Various studies have emphasized the role of a highly educated and mobile workforce, a risk taking and failure tolerant culture, an open business environment that encourages creative thinking, leading research universities and institutes, extensive complementary services in law and venture capital, quality of life, and other factors that contribute to an unusually entrepreneurial environment in Silicon Valley.

 

Tech Bubble:

Definition of ‘Tech Bubble’:

A pronounced and unsustainable market rise attributed to increased speculation in technology stocks. A tech bubble is highlighted by rapid share price growth and high valuations based on standard metrics like price/earnings ratio or price/sales.

The technology stocks involved in a bubble may be confined to a particular industry (such as internet software or fuel cells), or cover the entire technology sector as a whole, depending on the strength and depth of investor demand. At the peak of a bubble, many fledging tech companies will seek to go public through initial public offerings (IPOs) in an attempt to capitalize on heightened investor demand.

Preceeding the Tech Bubble was the DotCom crisis that occurred in 2000..Presented below is a summary of the same.

 

Dot–com  Crisis: 

Introduction:

The dot-com crisis, also known as dot-com bubble refers to a four year period (1997-2001) during which the stock prices soared high in the Internet and technology sectors of the Western nations. The companies followed a business model called “Network effect” by which the companies gained more market share but without actually making any profit or revenue at all. Because of the large market share of the companies, the stake holders were given a false image that the companies were making huge profits. The rating agencies also gave false speculations on the individual stocks. So the were highly overvalued creating the bubble. The dot-com crisis had an effect not only on the economy of USA but also the rest of the world. This report aims to analyse the causes and effects of this economic crisis.

Causes of the Dot-Com Crisis

The main reasons for the dot-com bubble are as follows:
1) The Network Effect
2) Investment Banks
3) Y2K Problem
4)Microsoft Case
5)Free Trade and Globalization
 1) The Network Effect:
The motto of the dot-com companies was “get big fast”. Every company wanted to monopolize the market. To achieve this they used the business model name “Network effect” at the expense of the net income. A network effect is the effect one customer or user of a particular good or service has on the other users of the same or related good or service. For example, if more people purchase a telephone, it becomes valuable to the owner and in turn influences other people to also buy the telephone creating a positive loop. Some applications of the network effects model are as follows:

(a.) Stock Exchanges
            In stock exchanges there is a difference between the price at which a stock or a security can be sold and the price at which it is sold. This is by the liquidity, that is the convertibility of an asset and the transaction costs. As more number of buyers and sellers enter the market, the transaction costs decrease, the liquidity increases and the difference gets reduced resulting in better trading prices.

(b.)Software Industry
            The IT industry operates very strongly on network effects. For example, during the time of the bubble growth, hardware compatibility was a serious issue. Microsoft Windows was marketed as being the operating system which supports the widest range of hardware. So many customers bought Windows for its compatibility. This increased the market share of Windows significantly. To capitalize on this huge market share of Windows, many hardware manufacturers made their hardware compatible to Windows which again added to the circle creating a positive loop for Windows resulting in Microsoft monopolizing the operating systems segment with Windows. Similar is the case of Microsoft Office Suite.

(c.)Websites
Consider the example of eBay. The auctions in the site wouldn’ t have been competitive if the number of users was less. Since the number of buyers and sellers was increasing the price of the auctions became very competitive. Similar is the case of Amazon and GOOGLE.

 

(d.)Open and Closed Standards
In the Information Technology industry, open or common standards and interfaces were often developed by a group of companies for the mutual benefit of these companies by network effects. However, if a company maintains closed standards, positive network effects can make the company which maintains the standard a monopoly. eg. Microsoft.

(e.) Mergers and Acquisitions Based on Network Effects
Many small companies which were monopolizing a segment of the market were acquired by bigger companies with the aim of acquiring more share of the market. For example, Hotmail was bought by Microsoft, Mirabilis, a company which was monopolizing Instant Messaging (IM) was bought by America Online, Youtube and Blogger were bought by GOOGLE etc. Some of these boosted the company’s market share while others were a loss to the purchasing company.

Positive Effects of Network Effects
            The positive effect of network effects is pretty obvious, the value which a user gets from a product is greater than or equal to the value of the product.

Negative Effects of Network Effects
Suppose there are two companies and one is monopolizing the market. Now if suddenly the second company introduces a better product than the first company then if the transition cost is also less or none which is true in the case of dot-com companies, then the customers from the first company shift to the second resulting in an accelerated decrease in the market share of the first company. This is how GOOGLE won market share over Yahoo as a search engine. Yahoo’s share price came all the way down from $138 to $4 in a very short time. There is one more case in which there are less or no competition to a company monopolizing the market. In such cases, the company can restrict the resources available for its users or increase the price etc. This is what Microsoft did in the operating systems segment.

Usage of Network Effects by the Dot-Com Companies:
An Internet company or a dot-com company’s survival is based mainly on its customer base. So the companies used network effects to gain market share even if they produced huge annual losses. For example Amazon was expanding its customer base and was spending more on publicity and marketing while GOOGLE was spending more on creating powerful servers for its search engine. Both of these companies were not making profits during their initial years. Since Internet based business was the booming sector many companies were investing more on buying high-speed internet like broadband. This benefitted companies which provided high-speen internet service and infrastructure such as Cisco and raised their market share. Many companies even went into high debts in the process of buying this infrastructure.

2)Investment Banks:
The investment banks in Wall Street made approximately 500 companies public during the end of 1999 and the beginning of 2000 and raised a capital of $77 billion through IPOs. For each company they charged a fee of 6 percent for making them public. This was a sort of brokerage charge. They made millions of money this way. The investment banks then demanded to invest in the companies before the IPO when the shares value was just a fraction of what it would be after the IPO. The investment banks then charged a multimillion fee for the public offering and also made more money as their investment multiplied within months. This greed of the Investment banks was one of the most crucial reasons for the dot-com crisis. Since a large amount of revenue was generated, the Wall Street and Investors failed to see the fact that these Investment banks had failed to follow the guidelines which were to be followed for making a company public. These guidelines were in place after the Great Depression. According the the guidelines, a company should be in business for a minimum of five years and should generate profit three consecutive years and should have a certain level of revenue and profitability. Since this was not followed, many companies which lacked a viable business model were made public mostly for the profit of the Investment banks and also because of the philosophy “get big fast”. After the bubble burst, these companies were declared bankrupt and the investors suffered a loss of over $1 trillion.

3) The Y2K Problem
By the end of 1999, the famous Y2K problem was created according to which a major computer shutdown was expected during the starting of 2000. So the Federal Reserve started to pump more money in the capital market by selling repos to deal with any financial problems that may occur due to the Y2K crisis. The companies also spent a lot of money on tackling this problem. But the Y2K crisis never happened. The business spending declined rapidly. Many companies spent their way to bankruptcy trying to fix their Y2K problem.
4) Microsoft Case
Although Microsoft was declared a monopoly by the fedral court on April 3, the result was widely expected weeks before. So the major high tech technology sector companies such as Cisco, IBM, Dell etc foresaw this and made a multi-billion dollar sell order on the March 10 weekend. The stock exchange opened on Monday, March 13 with a four percent low. This was the greatest premarket sell-off of the entire year. This major sell-off  by the major high tech companies caused a ripple effect as the investors, funds and investors began liquidating their positions by selling off their shares. In just six days from March 10 to March 15, the NASDAQ (National Association of Securities Dealers Automated Quotations – the American stock exchange) had lost nearly nine percent from 5050 points to 4580 points. This later led to the stock market crashing down which is famously termed as the dot-com crisis.

5) Free Trade and Globalization
            By Free Trade and Globalization the companies were allowed to act according to their wish without the interference of the government on a global scale. So the workers in USA were put on a global level competition against one another for the lowest wages. This resulted in the factories becoming portable and were shifted towards places with cheap labour like India. This resulted in a massive hidden deflation of the value of labour. Since a large amount of money was pumped in by the Federal Reserve, the companies’ stock prices were soaring while the workers were getting fired creating a bubble. The companies also failed to call it deflation. They chose to call it increase in productivity. The value of workers and labour was a real tangible asset while the bubble was just paper money which was intangible. This bubble ignored the labour value as the stock prices were soaring.

 

 

Tech Bubble:

Mark Cuban is an American businessman, investor, film producer, author, television personality and philanthropist. He is the owner of the NBA‘s Dallas Mavericks, Landmark Theatres, and Magnolia Pictures, and the chairman of the HDTV cable network AXS TV. He is also a “shark” investor on the television series Shark Tank.

 

Following is the famous blog by Mark Cuban which sheds more light on the concept of ‘Tech Bubble’

 

“Ah the good old days.  Stocks up $25, $50, $100 more in a single day.  Day trading was all the rage.  Anyone and everyone you talked to had a story about how they had made a ton of money on such and such a stock. In an hour.  Stock trading millionaires were being minted by the week, if not sooner.

You couldn’t go anywhere without people talking about the stock market.  Everyone was in or new someone who was in. There were hundreds of companies that were coming public and could easily be bought and sold.  You just pick a stock and buy it. Then you pray it goes up. Which most days it did.

Then it ended. Slowly by surely the air came out of the bubble and the stock markets declined and declined till the air was completely gone.  The good news was that some people were able to see it coming and get out. The bad is that others were able to get out, but at significant losses.

If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then, it’s worse today.

In a bubble there is always someone with a “great” idea pitching an investor the dream of a billion dollar payout with a comparison to an existing success story.  In the tech bubble it was Broadcast.com, AOL, Netscape, etc.  Today its, Uber, Twitter, Facebook, etc.

To the investor, its the hope of a huge payout.  But there is one critical difference.  Back then the companies  the general public was investing in were public companies. They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks.

The bubble today comes from private investors who are investing in apps and small tech companies.

Just like back then there were always people telling you their idea for a new website or about the public website they invested in, today people always have what essentially boils down to an app that they want you to invest in.  But unlike back then when the dream of riches was from a public company, now its from a private company.  And there in lies the rub.

People we used to call individual or small investors, are now called Angels.  Angels. Why do they call them Angels? Maybe because they grant wishes?

According to some data I found, there are 225k Angels in the US. Like the crazy days of the internet boom,  I wonder how many realize what they have gotten into ?

But they are not alone.

For those who can’t figure out how to be Angels. You can sign up to be part of the new excitement called Equity Crowd Funding. Equity Crowd Funding allows you to join the masses to chase investments with as little as 5k dollars.  Oh the possibilities!!

I have absolutely no doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments. Absolutely none. I say most. The percentage could be higher

Why ?

Because there is ZERO liquidity for any of those investments. None. Zero. Zip.  

All those Angel investments in all those apps and startups.  All that crowdfunded equity. All in search of their unicorn because the only real salvation right now is an exit or cash pay out from operations.  The SEC made sure that there is no market for any of these companies to go public and create liquidity for their Angels.  The market for sub 25mm dollar raises is effectively dead. DOA . Gone. Thanks SEC. And with the new Equity CrowdFunding rules yet to be finalized, there is no reason to believe that the SEC will be smart enough to create some form of liquidity for all those widows and orphans who will put their $5k into the dream only to realize they can’t get any cash back when they need money to fix their car

So why is this bubble far worse than the tech bubble of 2000 ?

Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity.

If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it ?”

 

Impact of Tech Bubble on Indian and US Economies:

 

The debate over whether Silicon Valley is sitting on another tech bubble rages on. It is being fueled by many celebrated “unicorns” that have attracted billions of investor dollars at sky-high valuations without demonstrating the returns.

Investors are betting solely on distant futuristic expectations and happily throwing old-school models of valuations rooted in fundamentals of visible earnings out the window. Several of these startups like Uber are disrupting industries by focusing on market share rather than earnings.

The breakneck speed at which valuations have travelled among subsequent rounds has surpassed the stretch of imagination of even die-hard optimists. For instance, Uber moved from $17 billion to $40 billion between the two funding rounds within six months.

A bubble, it is. But will it erode the real capital of investors overnight, particularly the retail ones? Perhaps, not.

Interestingly, there is reasonable sanity prevailing in the public markets as the tech bubble, at large, is being driven by the surge in late stage VC financings. It is taking much longer for tech companies today to go public, unlike 2000 when several rushed to go public before any revenues. And as the number of IPOs has reduced significantly, more IPO companies are profitable than ever before.

This bubble is bound to burst. While there is a current mega trend of mega private financings and almost preposterous valuations, this time private markets shall take the hit. Unlike the 2000s, VCs will not be in the line of fire. Employees and founders would take the fall. And quite a bad one, perhaps.

To understand this, let’s analyze some of the top billion-dollar tech valuations closely:

Source: VC Experts

 

While the implied valuation for all the above companies is north of $1 billion, it’s clear that the actual money invested is merely a fraction of that. When the liquidation preferences kick in, VC investors always have a great chance to recover their money. And then some.

As a valuation and advisory firm offering opinions to hundreds of VC-backed companies, including some of such unicorns, we have observed that funding rounds are increasingly seeing term sheets with creative rights. To protect themselves, VC investors have been seeking participation rights over and above liquidation preferences, in the hope to make a desired return on their investments, when things go south. This goes on to prove the old maxim of “You pick the valuation and I’ll pick the terms.”

Unfortunately, common shareholders and option holders do not have the benefit of such preferential rights. Employees calculate notional gains based on high post-money valuations, but usually end up with options that are worthless. Even founders owning common stock eventually realize that the billions of dollars’ worth of wealth, they had purportedly created, was only on paper.

Take Uber and Airbnb for example. Both co-founders and one of the executives of Uber, and Airbnb’s three co-founders made it to the Forbes’ Billionaires List released this year. Needless to say, their wealth was calculated on the basis of notional post-money valuations, figures far in excess of what these companies could actually be sold at in the market right now.

If, in future, Uber and Airbnb were to not meet their distant growth expectations and make an exit at say 0.1x of their post-money valuations, investors would recover their investment and perhaps walk away with a positive return. But, what will be wiped off for sure would be the billions their employees and founders have “made.”

Hard Fall

In a nutshell, FOMO is driving many investors in a hustle to be a part of the next Facebook or Twitter and put in huge investments for a fraction of stake. And, they don’t see much risk in it as long as they get the downside protection. Earlier VCs would do some math to come up with a number on a company, and the liquidation preferences and other such rights were somewhat ceremonial. Now, these have suddenly become a bigger fallback.

It’s a race where people don’t mind running for an unlikely but big win, as long as failing to win wouldn’t cost much. Would they buy the entire company at these high valuations? The simple answer is no.

The situation created by betting on more powerful stakeholders in the ecosystem may leave employees, and perhaps founders staring down at the wrong end of barrel.  The 12.5 million (and growing) Americans employed in VC-backed companies see stock options as the key motivation to invest significant part of their lives working in a start-up. This is in anticipation of the big payday at exit, based mostly on the long-term futuristic growth prospects of these companies.

India also experienced an impact of the dot-com bubble as majority of its technology and internet sector companies’ stock prices fell. However the Indian IT companies were not wholly based on the US market and also these companies had sound business principles and a viable business model. So the Indian economy faced little trouble from the dot-com bubble comparatively and was able to recover easily.

During the first half of the 2000s, both monetary and fiscal policies remained expansionary. Despite concerns about fiscal unsustainability, macroeconomic conditions remained conducive without necessitating any reversals of accommodative policy stance until the inception of the crisis in August 2007.

Reasons for Startup Boom in India:

 

Ah, the ‘boom’ 🙂 The word denotes excitement and pilers-on and we’re happy to bandy it about, but be careful not to say ‘bubble’. Investors and entrepreneurs alike may believe India’s seeing bubbles in various sectors, but won’t admit to it, as though just uttering it will cause it to burst.

The startup ecosystem in India is flourishing like it hasn’t before. Back during the dotcom boom there were tech companies mushrooming everywhere (especially Bangalore), but without guardrails. Money was being thrown at every .com domain that sprouted up. Now, a decade and a half later, we’ve got some more systems in place – for most industries, there is more diligence in the valuation exercise (except for e-commerce, online groceries and taxi apps). There are incubators and accelerators aplenty in every Tier 1 city (barring Calcutta, that only has IIM-C’s effort), and a few Tier II cities as well, like Pune.

There are also tons of co-working spaces in these cities to facilitate entrepreneurship, and homeowners have realized that all they need to do is set up an internet connection to start selling seats in their homes for Rs 3000-6000 a month (elbow room only).

There are also multiple home-grown resources coming up for entrepreneurs, like NEN, yourstory, among several others. All of this points to a boom. The boom of IT has increased in India over the years by 20 percent on an average, in terms of the number of startups. The investment in IT has increased over the years. India is a developing economy in terms of IT infrastructures and investments. With over more than 3,000 tech startups, India has won all battles by reaching the fourth largest base for young businesses in the world. This figure is expected to be double in the near future around 2020.

The top five reasons of this boost in tech startup are as follows:

1. Different Segments of Technology:

With the advancement in the field of technology and sciences, “Domain + Tech” solutions are trending these days. The technology has spread its wings in a vast number of segments. There are several niche technology solutions primarily focused on the Edu-tech, Ad-tech, Health-tech, Agro-tech and many other verticals.

 

2. IT jobs and mass hiring:

Many blue-chip companies are hiring ample number of candidates for IT jobs, but the demand for IT managers, IT analyst, IT heads are all needed for a great tech startups that are booming the Indian IT industry to great heights of success.

3. Investment Regions and Scope Factors:

Bangalore and NCR are the top regions in India currently for the maximum number of young tech-startups. The findings also highlight that many trending categories have matured in the entire ecosystem of Funding IT startups.

The demand has increased to over $3 billion in terms of different categorical segments of tech startups and infrastructure. These findings clearly demonstrate the beginning of the golden era of mass hiring and mass production in the field of tech startups. The business opportunities are much larger in such aspects because of the introduction of cutting edge technologies that are entirely based on intellect and smart work.

The tech startups are even following the delivery based approach for showing their projects at glance following three basic potential things:

• Digitization in everything and everything in Digits
• Optimization in everything and everything in optimum level
• Innovation in Everything and everything in Innovation

These are few highlights that are difficult to understand but are of a deeper meaning that signifies the strength and growth of IT startups by 2020.

4. Foreign Investments:

With the increase in tech-startups, the foreign investors are also finding great opportunities in providing funds for these startups to grow and work well in the environment of business.

The startups are getting funds from foreign investors and are getting working capital for their operations even at a global level to build client relations and prospects for future business.

5. E-commerce:

The 200% boost in E-commerce sector has made a great mark in the field of IT infrastructure and investments. E-commerce are totally reliable as they themselves rely on IT tech startups. The boost in the E-commerce sector has enhanced the productivity in the tech startups and has a promised growth in the near future.

 

These are few reasons so as to why the Tech startups are going to have a rapid boost by 2020.

 

Conclusion :

The Indian experience has established that, when the right environment is created by the policy makers, the entrepreneurial spirit of the people finds expression and the economic activity booms. The government and  the citizens alike have realized the potential of private initiatives ever since the Indian economy was liberalized in the 1990s. The trend of private enterprise is picking up pace in India and is likely to be supported by all executive and legislative functions of the country irrespective of political ideologies. Despite many challenges, the entrepreneurial opportunities in India are substantial. A new-found entrepreneurial culture is creating a favorable ecosystem of service and resource providers. Besides government programs and agencies, a number of private funds, mentors, and service providers are entering the arena to further accelerate the trend. There is a long way to go to reach a mature entrepreneurial landscape in India, but the opportunities are sufficiently large and numerous that the future of India will likely be shaped by its entrepreneurs.