The Hardware Puzzle
A raft of startups is combining India’s celebrated software skills with emerging capabilities in product design, with solutions focused on enterprises rather than consumers
When three Bombay-IITians decided to turn their fun innovations in drones into a hard core business of building and selling them in 2016, it almost didn’t get off the ground. Their Drona Aviation ran into one air pocket after the next. First, there were no clear guidelines on the flying of drones in India at the time, which effectively meant a ban, and then a glut of Chinese products saw local players crash-land.
To regain some altitude, Drona’s founders Prasanna Shevare, Apurva Godbole and Dinesh Sain tried multiple routes — including providing their drones to the local fire brigade and the Coast Guard — before turning the company into a DIY platform where everyone from engineering students to interior designers can build customised solutions with its hardware and software tools. In the past two years, Drona has sold nearly 2,300 drones. It is battling investor indifference and regulator sloth to build a viable hardware business in India. It isn’t easy.
India’s hardware companies have, over the past couple of decades, flattered to deceive. Starting with laptops and, recently, mobile phone handsets, companies have promised much, but delivered little. Stymied by slow regulatory approval and paucity of funds, many firms shut shop. The rapid growth of China as a hardware manufacturing destination hasn’t helped either, as companies have voted with their wallets and focused on making their products there.
Now, a raft of new Indian startups are having a fresh go at hardware. Rather than chase the high-scale, high-cost consumer market, these ventures are striking out in a different direction. They are marrying India’s inherent software skills with emerging capabilities in hardware design, and supplying to enterprises and industries.
“Dumb” hardware boxes can be easily replicated by large-scale manufacturers, leaving Indian firms struggling for differentiation. Adding a layer of proprietary software or analytics helps build a more robust solution. Arvind Lakshmikumar, CEO of Tonbo Imaging, which designs, builds and deploys sensor systems and is backed by WRV Capital and Qualcomm Ventures, agrees this is the right mantra. “Unless your hardware is coupled with a strong software play, few ventures will scale,” he says. His firm’s rise — over much of the past decade — is largely due to this hardware-software combination. “Even though hardware is critical to military deployments, we realised that we needed to add a software layer to our package.” It added a command and control software module and a centralised intelligence platform to its hardware to ensure that its technology stayed unique.
The New Wave
In the $2 trillion global market for hardware and electronics, India is a bit player with barely 2-3% share, according to industry estimates. “While talent and a large local market are available, what has stifled growth is the lack of an ecosystem,” says Sateesh Andra, cofounder of early-stage investor Endiya Partners. “Critical pieces like fast prototyping and large-scale manufacturing are missing. The high cost of capital for a lowmargin industry, combined with prohibitive taxes and levies makes this a challenging market.”
Since 2014, Avinash Kaushik has been running Revvx, one of the few startup accelerators focused on hardware, and pushing six or seven ventures through a programme to hasten them along the development path. At least one startup from each batch has bagged institutional funding, he says, even as they seek to ride this connected hardware-software wave.
“The age of the dumb device is over,” says Kaushik. “Today, it comes with data and connectivity and this smart hardware is providing many more opportunities to entrepreneurs.” While supply-side companies ranging from Robert Bosch to Intel have driven this new hardware movement with funding, testing labs and other support, much more needs to be done to drive demand, he says.
“Hardware, software, robotics, artificial intelligence and machine learning are all coming together in this new wave,” says Mahesh Lingareddy, cofounder of Smartron, a startup that got off the ground with funding from cricketer Sachin Tendulkar. In July, it announced the launch of a smart electric bike, under its Tronx subsidiary, that would allow users to set rides based on fitness goals and monitor them on their phones. “Doing all this is time- and capital-intensive. Five people can’t build this in their apartment.” Smartron wants to focus on a range of devices powered by internet of things and, in the process, stay ahead of the tech curve. The other side of things: it still hasn’t got the VC funding of $25 million that it crowed about two years ago.
However, companies are slowly catching the eye of investors. While the number of hardware firms that got funding may still be tiny compared with VC favourites like online retail (which attracted 522 deals between 2011 and 2018 according to data tracker Tracxn), fashion
(302) and fintech (794), the last couple of years have seen the tide turn ever so slowly. Nineteen hardware ventures were funded in 2017, according to Tracxn, with investment touching $50 million.
“We don’t make investments in startups because they call themselves hardware or software company,” says Manish Singhal, cofounder of early-stage fund pi Ventures. “We back a company based on the problem they solve.”
Entrepreneurs leading new-age hardware ventures say there’s a disconnect between investor expectations and reality. Hardware takes longer to gestate, is costlier to run, thanks to steep spending on R&D, and can be run off the road by unexpected factors, including the arrival of cheaper, mass-made Chinese products.
These are the problems that Rahul Shingrani, cofounder of medical devices venture Ten3t, faced since the firm was founded in 2016.
Ten3t took many months to get right the design of its triangular, wearable health monitoring device. “It took eight proofs of concept before we were confident of putting the ninth one on a patient,” says Shingrani. Along the way, Ten3t dealt with challenges most hardware startups are familiar with — finding designers, components and form factors that balance their thin budgets with customer and regulatory demands. Ten3t is on the move now. The firm wants to lean on its combination of hardware, software, networking and other technology to predict illnesses earlier, faster and more accurately. “Consumers are taking greater control of their lives. They want to be able to predict illnesses and deal with them, rather than battle for a cure after the onset,” says Shingrani. “We want to pick up health deterioration days, if not weeks, ahead. We have the intelligence to do this, now we need more deployment.”
Currently Ten3t is in 10 hospitals and is expected to grow tenfold in the next six months to a year, as the hardware matures. The founders are also considering pushing directly into the consumer market with their products.
Taranjeet Singh Bhamra knows how tough the road is.
“The biggest challenge in India is going from a working proof of concept to productising your hardware,” says Bhamra, who cofounded AgNext, an agri tech hardware firm, in 2015. It can’t use an off-the-shelf solution as its products are complex, like handheld device for soil spectroscopy and to test the curcumin content in turmeric. “We have to custom-build hardware to provide data analytics for this business,” he says. For a particular product, AgNext had to ship its design to a contract manufacturer in Taiwan to speed things up.
Hardware development is a challenge because unlike software, skills required for it are not easily available in India. It is hard to find board designers, experts in chip-level work and people who can piece together the external shape of a product.
Another challenge is that customers in India don’t want to pay for hardware, preferring software and analytics that the solution throws up. In AgNext’s case, a customer was disinclined to pay ₹75,000 up front for a particular hardware per farm, forcing Bhamra and Co to devise a cheaper solution, an IoT hub to collect data from fewer units.
Building a hardware-centric business can be costly. Lingareddy claims to have invested over ₹200 crore in R&D. “India lacks a strong product and brand ecosystem,” he says. “We want to change this by not building standalone products, but an entire platform.” Its investments, such as in smart switches and locks, are all leading to the big thing: “We want to launch a smart home platform by early October.”
Kapil Agrawal and Ankit Karamchandani dislike calling their startup RedSky Tech a hardware company at all. “We are a market research company that uses hardware as an integral part of our technology stack,” says Karamchandani. However, the firm’s hardware that plugs into any point-of-sale terminal at a grocery store (some seven million of them and counting in India), allows the firm to convert dumb terminals into cloudready devices and provide analytics and data as a service to customers. The firm is eyeing an expansion in Southeast Asia and Canada.
The rise of India’s new-age hardware startups may have just begun.