Chennai is quickly turning into the new hotbed for deep-tech startup
- IIT-Madras and its research park have played a key role in nurturing deep-tech startups
- Zoho has emerged as a founder factory; at least 22 startups are headed by ex-Zoho employees
- Strong bonding among founders has led to a network effect and sharing of playbook
- Chennai’s introverted culture acts as a good breeding ground for frugal, patient SaaS startups
- Often bootstrapped, SaaS startups make money faster than B2C firms, and that works well in Chennai’s conservative culture
It is not so much the things, he says, as he waves his cup of filter coffee that his wife has freshly brewed. He lets out a faint smile: “It is the city, the air, its people and much more.” Mathrubootham and his love for Chennai can be explained in an interesting backstory.
Many Chennai entrepreneurs shift base to Bengaluru once their startups gain a certain size — for example, Ather Energy that was incubated at IIT-Madras or IITM in 2013 but shifted to Bengaluru in 2015. In 2011, Mathrubootham also seriously contemplated shifting his base from Chennai to Bengaluru. “The suggestion came from an investor,” he recalls. He went to Bengaluru, zeroed in on an office space for his year-old startup and explored residence options. Besides everything else, being in a city where he could rub shoulders with India’s startup pioneers, like the Bansals of Flipkart, was a big draw. Then hurdles emerged. Some of his early employees didn’t want to move. Besides, finding a suitable school for his children proved to be a challenge.
“It was as if the universe was conspiring to keep me in Chennai,” he says. One evening, as he waited at the Bengaluru airport for his flight back home, at the spur of the moment Mathrubootham decided “forget Bangalore. Let’s just stay in Chennai and build Freshworks.” “I am glad I stayed,” he adds after a pause.
Almost a decade later, Freshworks is a unicorn, valued recently at $1.5 billion. Mathrubootham, though, has shifted base from Chennai to Silicon Valley even as his company gears up for the Nasdaq IPO. And Chennai has become a hotbed of software-as-a-service (SaaS) startups.
There are an estimated 600-plus of them buzzing around in the city with Mathrubootham playing its biggest cheerleader. Besides the current unicorns Zoho and Freshworks, Zinnov forecasts that Chennai could see the emergence of seven more unicorns in the next five years, including Uniphore, Mad Street Den, ChargeBee and Crayon Data. With 15,000 employees, SaaS revenue from Chennai has touched $1 billion with $500 million of funding. “SaaS offers a $1 trillion opportunity for India. We will lead that wave,” says Suresh Sambandam, cofounder, OrangeScape, who along with Mathrubootham has been working passionately to nurture Chennai’s startup ecosystem.
In tandem, IITM too has shifted gears over the last decade to give Chennai’s startup ecosystem some much-needed ballast. Its four incubators, eight centres of excellence and a new world-class Research Park spread over 1.2 million sqft are nurturing a flurry of deep-tech startups — 190 and counting. “We work with IITs in Delhi, Mumbai and Chennai and also the Indian Institute of Science in Bengaluru,” says R Raghuttama Rao, CEO, Gopalakrishnan-Deshpande Centre (GDC) for Innovation & Entrepreneurship, which was set up at the IITM in 2017. “We are trying to catalyse a technology’s lab-to-market journey. IITM, with a vibrant ecosystem, seems to be ahead of others.”
Bengaluru has the buzz and is India’s startup capital, helped by its early lead in tech, cosmopolitan culture and pleasant weather.
Mumbai is the financial capital with Bollywood adding some glamour. Up north, the political nerve centre of NCR has a bit of everything, including some deft packaging and aggression to make it among India’s top startup hubs. But Chennai, considered conservative in its approach and introverted in its world view, has not drawn much attention. Located deep down south, the city is steeped in its rich culture and has a society that prides in its centuries-old traditions. Amid this, forget the fast paced world of startups, even the old-economy businesses here don’t get much attention.
Not that Chennai doesn’t have any. It has been the manufacturing hub, once called the Detroit of India. Almost all IT giants — from TCS to HCL and Cognizant to Infosys — maintain large campuses in and around the city. In fact, some like TCS began their IT services outsourcing journey from here. Some of the biggest MNCs from Ericsson to Verizon have critical engineering centres here. Yet, in terms of signalling its existence and positioning, brand Chennai Inc barely registers on the India map. “Unlike Bengaluru, Chennai has always been so isolated,”says Sambandam of OrangeScape. “It isn’t seen as a sexy city. Culturally, we are hype-averse. We want to stand out, create our own space.”
Over the last decade, however, a change has been afoot. Chennai is slowly finding its groove. Led by IITM and passionate entrepreneurs like Mathrubootham, the city is positioning itself as the capital of SaaS and deep-tech startups.
According to data from Venture Intelligence, Chennai has become India’s fourth most active startup ecosystem, ahead of Hyderabad and Pune. “When I came here in 2007, I wanted to run away,” says Umesh Sachdev, cofounder of Uniphore, who shifted base to the US last year. “Language was a huge barrier. But a lot has changed. Chennai grows on you.”
Rajan Srikanth, co-president, Keiretsu Forum, who spent years in the US before shifting back to Chennai in 2009, says: “The biggest change I see is that IITM has become a hotbed for startups. We have got a fabulous start.”
Relatively, Chennai is considered a more liveable city. It is not costly like Mumbai and doesn’t have the aggressive culture generally attributed to the north. It is relatively safer, has shorter commutes, better traffic conditions, relatively lower cost of living and lower air pollution.
Ashwini Asokan, cofounder of Mad Street Den, offers a good view of what Chennai feels like today. “Forever, it was about Chennai talent migrating out. With SaaS and deep-tech startups here, we are seeing people staying back and many actually returning,” says Asokan, who returned to the city in 2014 from the US to set up her startup.
With 150-odd staff, Mad Street Den does bleeding edge work around AI and computer vision and has a truly global clientele and team. “From a talent perspective, this place is insane. And I am not just talking about IITM graduates,” she says. Her strategy is to hire fresh graduates from campuses and groom them in AI, talent for which is anyway scarce and expensive globally. Abundant talent, low attrition and great work ethics have helped Chennai’s image. “For a bootstrapped startup like ours, we needed time, talent and resources to experiment. What I managed to do in Chennai I couldn’t have done anywhere else in the world,” she says.
“There’s something about Chennai’s air that works for SaaS startups,” says Sachdev of Uniphore. “Unlike the north, Chennai’s culture is introverted,” says Sridhar Vembu, founder of bootstrapped unicorn Zoho, a pioneer of Chennai’s SaaS wave. “Building a product requires a degree of introversion and a lot of patience.” In Bengaluru, B2C founders are the biggest poster boys.
They often operate in a winner-take-all market that requires speed, aggression and a lot of money to win fickle customers and build strong brands. SaaS startups must work differently.
Often bootstrapped, building a robust differentiated product is critical. Catering to enterprises, the sales pitch and customer servicing require a degree of maturity and sophistication. SaaS startups also hit the profitability curve a lot earlier in their trajectory.
"Chennai’s frugal, conservative and grounded approach is suitable to build a business well,” says Chennai-based Arun Natarajan, founder, Venture Intelligence. Krish Subramanian, founder of Charge-Bee, agrees: “We in Chennai don’t come from the B2C world. B2B comes very naturally to us.”
Chennai has also been fortunate in having entrepreneurs who have helped build the ecosystem. The biggest credit must go to Zoho. Former employees of the company — started in 1996 as AdventNet — have spawned 22-plus SaaS startups in Chennai. Multiple entrepreneurs say the Zoho factory, with its culture of high operational freedom and empowerment, offered a rich training ground for future entrepreneurs to hone their SaaS skills around building products and selling to global customers.
Founders like Mathrubootham, with strong Chennai roots, have worked hard to nurture the local ecosystem. Avinash Raghava, now community platform evangelist at Accel, saw this happen during his earlier stint at iSpirt, where he was working towards making India a product nation. “I am an ecosystem builder. We tried with Pune.” But with its high floating population, it did not get much traction. But in Chennai “bringing the Valley culture of paying forward was easier. Girish, Suresh, Krish, all of them came together to passionately build the SaaS ecosystem.”
In 2014, inspired by SaaStr in the US, Raghava floated the idea of SaaSX (now called SaaSBoomi) — a founders-only event — in India. Chennai-based entrepreneurs played passionate host and it has been a big success. Mathrubootham set the tone. Despite being busy, he mentored young entrepreneurs and openly shared the playbook. “It was less of sharing gyaan and more of sharing real experiences.
Too focused on their own business, entrepreneurs like him rarely invest so much time and energy to build an ecosystem,” says Raghava. In fact, after the first year, there was a suggestion to shift the conference to Bengaluru. “Girish said if in Bengaluru, I am not coming. And that settled the matter,” says Sambandam.
Chennai founders, a relatively smaller, homogeneous lot, are also a tight-knit group. From Open Coffee Club to Filter Koffee Mafia, they connect over WhatsApp groups and Sunday breakfasts, exchanging notes and seeking help on operational and strategic issues as varied as customer acquisition to setting sales target, hiring to setting metrics. “You can be openly vulnerable and nobody will judge you. People find time to help,” says Subramanian.
Also, the Zoho “mafia” supports each other, which is crucial in early days of a startup. For PipeCandy, both Freshworks and ChargeBee were its early customers. Freshworks uses ChargeBee for subscription management. “When you are starting, your product is not mature. You need friendly customers who can give feedback and make you better,” says Murali Vivekanandan, cofounder, PipeCandy.
Equally, if not more, IITM is giving Chennai’s startup world a big leg-up by building a vibrant ecosystem of industry mentors, faculty and young students. Take for example Satyanarayanan Chakravarthy, a professor who set up a $23 million combustion research centre in 2011 with grants. He now has 40-plus projects and his 15 team members, all IITM faculty, have earned Rs 69 crore cumulatively between 2012 and 2018. “Each project we do involves large firms. And we have great startups like Agnikul and Aerostrovilos coming out of here,” he adds.
Professor Krishnan Balasubramanian recalls IITM’s startup bet kicking off around 2009-10 with an incubation policy that enabled students and faculty to work on startups. Multiple initiatives followed — from setting up a fun lab where students could tinker around with the latest technologies to Nirmaan (a one-year pre-incubator programme for students) to boot camps on cutting-edge technologies like drones and Android app development. A recent initiative has been I-Incubate by the GDC. For each idea, they put together a team with a lead researcher (faculty member), twothree entrepreneurs and industry mentors. “The biggest change is that students are turning down jobs to do startups. We see a huge difference in the way faculty and students think about research,” says Krishnan. Startups like Ather Energy and Uniphore are some of the promising IITM alumni.
But the biggest credit at IITM must go to professor Ashok Jhunjhunwala who has passionately and patiently worked “to build a very unique innovation ecosystem.” The biggest proof is the Rs 500 crore Research Park that houses R&D facilities of 90 companies. As part of the lease contract, companies at the park must earn credits for academia partnerships as well as students and faculty engagements. Not governed by IITM and not dependent on government money, the centre already makes Rs 30 crore as cash profit and has 65% occupancy. It should be making Rs 50 crore or more when fully occupied, says Jhunjhunwala. He says some 10 IITM faculty earn Rs 1 crore-plus through the centre. “There are huge benefits if you bring three sets of people together — academia, industry and students,” he adds.
Despite the progress, Chennai must overcome many hurdles. While the founders find time to exchange notes and support each other, would they be able to sustain this as their startups scale up? Mathrubootham, who played a big mentor role, has just relocated to the US. Lack of availability of risk capital is another challenge, says Srikanth. Arun Jain, founder of Polaris, says: “Bengaluru is first generation professional wealth and Chennai is second generation promoter wealth. Custodians, the latter, often take fewer risks.”
Mathrubootham adds, “People in Chennai are very conscious about spending. They must learn to balance it with big thinking. This applies to India at large, not just Chennai.”
As they grow, SaaS entrepreneurs will also have to take on the biggies from Silicon Valley. Targeting small and midsized customers through desk-selling has its constraints. “You have to work harder to understand product-market fit. Just having a cheaper version of a bigger product brand has its limitations. When you relocate to the US, you realise you almost live in a well in Chennai,” says Sachdev of Uniphore.
The city moves slowly in the fast-paced startup world. For the young crowd, there are cultural challenges like the lack of vibrant nightlife. Language remains a barrier in the region where Tamil pride is sometimes worn on the sleeves. “At Open Coffee Club, sometimes the conversations are in Tamil, making non-Tamilians feel like an outsider,” says an entrepreneur. Chennai has made a good start. It must now work harder to build on its niche positioning.
Deep-tech startups from IIT-Madras
Detect Tech: Its IoT-based intelligent hardware caters to the inspection needs of the energy sector, like checking oil pipelines
Cygni Energy: Solar DC solutions and DC Micro-grid provide green energy and DC power at a very low cost
Agnikul Cosmos: Provides a dedicated launch vehicle for smaller satellites at a lower cost
MGH Labs: Patented product attracts, catches and kills mosquitoes in a non-toxic way
FibSol Life: Uses nano-biotechnology and computational biology to solve problems in agriculture, health and environment
InnoDI Water: New generation of treatment systems treat ground and surface water to produce clean drinking water
Fabheads Automation: Its carbon fibre 3D printer caters to sectors such as space tech (micro and nano satellites), aviation and biomedical
Aerostrovilos Energy: It is building India’s first indigenous gas turbines for power generation
ePlane: Firm is designing hybrid electric planes for short-range intracity travel
Planys: Provides underwater robotic inspection and survey solutions