Experts say that while still small and variable, it certainly is a trend
Indian tech startups have been attracting buyers from the Silicon Valley, a view encouraged by the recent buyouts of Minjar by Nasdaq-listed Nutanix and of Recruiterbox by Turn/River Capital.
Some experts claim that with more such purchases in the pipeline this could be an enduring trend.
Take the case of San Jose-based Nutanix, a firm into enterprise cloud computing, and founded by Dheeraj Pandey and Minjar, the maker of Botmetric, a service that provides customers with unified cost control and enhanced visibility into their workloads running in public clouds.
The Bengaluru based Minjar, founded by Anand Anand, Prashant Gyan and Vijay Rayapati, was funded by Ankur Jain of Emergent Ventures (Silicon Valley) and Blume Ventures (Mumbai).
Jain, the first investors in Minjar, helped it find its footing in Silicon Valley and then helped orchestrate its exit.
“Our strength is in investing in Indian American entrepreneurs in the US and startups from India targeting the US market,” he told indica.
Minjar fit well into the latter category.
Jain said that while the money involved could not be disclosed, “we got [five times] on our first investment two years ago, and [three times the] return on our second investment six months ago.”
According to Jain, “There will be more such companies from India [being bought over] in the future. [We are] following the footsteps of Israel [in the case of] enterprise software.”
India now has 150-plus Software-as-a-Service startups, each with over $1million in revenue, with their primary markets outside India.
“Over the last two years there have been several [buyouts],” said Thiyagarajan M (Rajan), co-founder of the Silicon Valley-based StartupBridge India, established to increase technology partnership deals between India and the US by 10 times over the next three years.
He told indica that the first meeting between Nutanix and Minjar officials occurred at a StartupBridge conference at Stanford University in December 2016.
According to him, it made sense that Nutanix bought Minjar, which had a world-class product and a talented but inexpensive team based in India.
Nutanix has done this before, having acquired Calm.IO two years ago, which boasted similar quality in product and talent.
Rajan also spoke of the other big acquisition in recent times – the purchase of the Bengaluru-based Recruiterbox by San Francisco based Turn/River Capital, a private equity firm.
Recruiterbox is a SaaS company with an applicant tracking software that helps HR departments manage their hiring. It was founded by Girish Redekar, Raghuveer Kancherla and Raj Sheth in 2011.
Like Minjar, Recruiterbox too had a team – and clients – in the US, which may have made the deal easier.
According to the data released by E&Y 2017, Transactions Quarterly Report, the US continued to be the most active cross-border mergers and acquisitions (M&A, in the jargon) partner for Indian companies during the July-September quarter that year, with a total of 27 deals (20 inbound and 7 outbound deals) for a total disclosed value of $113 million.
India based Inc42’s recently released Annual Indian Tech Startup Funding Report 2017 shows that 133 M&As were reported involving Indian tech startups.
Compared with 2016, where there were 155 M&As, there was actually a drop of 14 percent in M&As in 2017.
A breakdown of the M&As reported last year reveals that just 3 percent were mergers, 32 percent were acqui-hires (bought over only for the talent, not the product) and the remaining 65 percent were acquisitions.
In 2017, 14 US-based companies acquired 15 Indian startups, a 67 percent growth in number from 2016. A senior research analyst at Inc42 Media told indica that since 2015 30 US-based companies have acquired 33 Indian startups. Of these, most of the US-based purchasers were based in California, and the majority of acquired startups in Bengaluru.
The report says, that Google was the first US-based firm last year to buy Hailli Labs, a four-month-old Bengaluru-based firm focused on artificial intelligence and machine learning. It was founded by Pradhuman Jhala, who left Twitter as tech lead, and data scientist Pankaj Gupta.
Venkatesh Shukla, former global president at TiE (The Indus Entrepreneurs), which recently StartupBridge, told indica there are two reasons Silicon Valley is eying India – the stock market has been higher on average in the US ensuring people have more money to work with, but fewer places to put it since the bar on startups going public have gone up.
“I think this combination will lead of a lot of M&As, and you will see all over,” he said, adding that Indian firms make up a very small portion of mergers and acquisitions worldwide.
“India is 150 times bigger than Israel, but in terms of M&A activity, it’s one-twentieth [of the Israeli market],” he said.
However, he agreed that it is indeed a trend and that conferences like StartupBridge oil the process.
Asked which was more important to push a deal through – the product or the low cost of acquisition, Shukla was certain.
“I think it’s the product – and also the combination of two,” he said.
This report has been updated to include comments from Inc42 Media