Bangalore may call itself Silicon Valley of the East. Here's why it doesn't mirror the original

Technology evangelist and director, Microsoft Ventures, Mukund Mohan, engages Shonali Advani in
a tte–tte about India’s slowly maturing startup ecosystem, whether it can produce a Google and
why entrepreneurs must learn to part with more of their equity. Edited excerpts:

Q: Microsoft brought all its startup initiatives under one umbrella - Microsoft Ventures. What was the rationale behind this?
A: We found we were running multiple initiatives. And there was no consistency between them. They were working in silos and startups would get confused. So we decided to bring it all together.

The brands remain but they all report into a common entity. We created the BizSpark program in 2008 and helped more than 50,000 companies build their business.

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Then there is the Microsoft Accelerator program, which provides promising startups with a three-six month program to launch their company.

Our accelerators include access to business mentors, technical and design experts, development tools, office space and key resources to help entrepreneurs grow quickly from idea to early business success. Along with our accelerators in Bengaluru, Beijing, Paris, Seattle, and Tel-Aviv, we are expanding to Berlin, Moscow and Rio de Janeiro. These companies are funded from our balance sheets. Typically, we invest between $50,000 to $250,000.

Q: A number of accelerators and incubators have come up in India recently. Do we really need so many?
A: There are 40-45 accelerators in India and around 1,200 startups crop up every year. Going by those metrics, accelerators are at the right number right now. We need more regardless of the ecosystem. Are all of them qualified? Many are and others will learn as they go along. Those that are not, will get weeded out because entrepreneurs won’tgo there. They won’t get quality applications.

I believe an accelerator needs to give startups guidance to build a robust business foundation, access to mentors, early customers, potential investors and a comfortable and convenient workspace for the period. I would love to see many more help our ecosystem grow.

Q: I want to talk about a post of yours on your blog, where you say that entrepreneurs in India keep less than 10 percent as employee stock options (ESOPS) while it should be 15-20****percent. What prompted that?
A: In the US, particularly the Valley, most companies keep aside 15 percent for stock options. In India, that is closer to 10 percent.

The overall goal is to ensure that we attract top talent to the startups and, to do so, we have to pay them the best. If we don’t pay early startup employees with outsized rewards for taking a risk in the startup, then it does not encourage the best people to join. So it’s important for investors and founders to realize this.

Q: What are the reactions you’re getting to this?
A: Most entrepreneurs we talk to agree that they would like to pay their talent effectively. There are two portions of feedback. First, entrepreneurs find that not many employees are willing to take that risk on their salary with stock options because they have not seen too many exits yet. When we talk to investors, they are not willing to dilutetheir stake towards ESOPs and that’s a problem for the entrepreneurs.

We are trying to educate both sides. Entrepreneurs have been more open but we need to work on it a bit more with the investors. Our efforts started in October 2013 when we saw the redBus deal. A lot of employees did not make too much money because of acquisition. For this to happen, we know we have to walk the talk. When we make an investment and are ready to announce it, then, as part of the investment we will ensure entrepreneurs do this.

Q: I also want to talk to you about the larger ecosystem. It seems that all the activity is still confined to pockets. But others parts are not keeping pace.
A: Bengaluru, Pune and Delhi are usually considered most mature. We’re seeing a prominent startup culture emerging in places like Kochi, Hyderabad, Chennai and Mumbai as well. This is why we’ve set up pan-India coffee meet-ups every six months, where we engage with startup entrepreneurs on a more personal level with three objectives: What the accelerator is for, what we can and cannot give and how they can benefit from it. Also, we evangelize best practices we have seen in other places and discuss how entrepreneurs can adopt them.

Q: Is our culture aping Silicon Valley? Also, is it aping the right things?
A: The startup culture in India is still maturing but at a fast rate. There has been a revolution of sorts particularly in the technology industry with Indian technology professionals choosing to create startups from their home country.

Bengaluru has seen itself grow as a center for entrepreneurship and is placed in the top 20 influential startup ecosystems in the world, rubbing shoulders with Silicon Valley and Tel Aviv, evidenced by successful startups like Flipkart and Myntra. Though Bengaluru has called itself the Silicon Valley of the East, it’s not mirroring the original in the sensethat India has its own unique problems and demands that startups need to address - these shape the path and progress of new businesses. Low percentage of internet penetration and credit card users - these are things that Silicon Valley companies don’t really have tothink about. Compared to other startup ecosystems, we still have some way to go. There is also a hesitancy in relation to funding but we are slowly getting there.

Q: But a lot of money is still going into technology companies. It is the non-technologyentrepreneur who is feeling the pinch in terms of funding a lot more.
A: At the end of the day it’s all about growth. With the same amount of money, I can get four-five times the growth in revenue, profits and employees with a technology company thanwith a brick and mortar business. The current revenue that Flipkart is going at is bigger than the revenue of top seven retail companies, which have been around for over 10 years. Growth is tremendous. Brick and mortar companies have a big advantage - they have physical, hard assets. They can always work with banks and other sources of funding like private equity firms. The number of investors in the technology side is much smaller than total investors in India on the brick and mortar side.

Most venture capital funds invest in technology and non-technology businesses too. So it’s not that they are not funding, it’s just that technology businesses are showing dramatic growth. At the very early stage, there is mostly money from friends and family for non-technology entrepreneurs. Yes, there are still not too many angels willing to fund them yet.

Q: So, is it easier to start a technology company today?
A: Five years ago, it would take about $100,000-$200,000 to start a company, get customer validation for an idea and some early traction. Today, thanks to cloud computing services and the pay-as-you-go model, startups can start for as little as $300. Between 2006 and 2007, about 300 to 400 product technology startups were formed every year. Now this figure is between 1,200 to 1,300.

Q: But how many of them are being able to make the cut?
A: Across the world, about 80 percent of startups fail. This number has not changed much over the years. Startup failures will always exist and that is a sign that there are risks being taken.

There is still some taboo around failure in India. As an ecosystem, we are beginning to understand that failure is not because of an individual’s fault but circumstances. A lot more people are openly talking about failure. Failed entrepreneurs are getting opportunities to start again. These are good signs. However, there’s still a long way to go.

Q: Skeptics still feel India is a long way from producing a Facebook or Google. Can we? What is your take on this?
A: Why not? India has the talent, the resources and unlimited potential. That is the beauty of startups - the emphasis on innovation and disruptive ideas means that among the millions of ideas being processed, the chances of finding something great are fairly high. We will just have to wait and see what India produces but it is definitely a space to be watched.

Q: Mukund, I must ask you this because of the times we are in. Should one startup in a slow economy?
A: Absolutely. It is wise to startup in a slow economy. It has its benefits - thereare far fewer companies starting because the fence-sitters develop cold feet. Withfewer companies starting, the fight for both talent and funding is less too.

Customer acquisition is easier as well. I hired the best folks in 2001 (the dotcombust) and again in 2008 (the global financial crisis). All service providers… lawyers, accountants, landlords and telecom providers are willing to cut you a good deal!

This article first appeared in Entrepreneur India magazine