How a new breed of tech startups is powering Chennai as a global hotspot

11 Jul, 2012

Chennai, the conservative capital of Tamil Nadu, is quietly scripting India's second tech wave, with a slew of innovative startups setting up shop there and targeting markets abroad.

Earlier, the metropolis had only a few things to stake claim in business (not that it's anything less) such as being a preferred destination for global automobile manufacturers like Hyundai, BMW, Nissan, Daimler and Ford, companies that set up plants there, or being the film capital of the south, where Tamil and Malayalam film makers have been churning out big-budget movies.

As for information technology, the city lagged behind the neighbouring Bangalore, which has Infosys and Wipro, and hundreds of other IT companies starting up in the garden city. On the other hand, Chennai could just boast of Cognizant and Polaris Software, besides many additional offices of IT companies.

Perhaps, that scenario is witnessing a change.

Chennai now is the headquarters of scores of new age social media and software-as-service (SaaS) startups like OrangeScape, InterviewStreet, Extragram, Freshdesk, Tenmiles Corporation, Unmetric, and XLabz Technologies, which have been attracting global attention in their own space. One emerging theme of most of these startups is that the target market (like many e-com firms based out of Bangalore or Delhi NCR) is not domestic, but global.

According to Mani Doraisamy, co-founder and CTO of tech startup OrangeScape, there is a strong early stage tech ecosystem developing in the city, giving rise to new tech startups. "The city has very passionate techies and the best analytical minds in the country. Earlier, these techies did not get the mentorship on businesses. Now, there is a strong ecosystem brewing, helping them in building businesses," he says.

Set up in 2003, OrangeScape recently hit the headlines for being recognised as one of the hottest startups in platform-as-a-service (PaaS) category by IT research houses like Gartner and Forrester. With clients in the US, Europe, OrangeScape offers a platform for companies to build business applications that can be deployed as Cloud, SaaS or on-premise. OrangeScape recently raised its first round of funding of $1 million from Indian Angel Network.

InterviewStreet, a Chennai startup attracted global headlines for being the first Indian company to be admitted into Y Combinator Program (a Silicon Valley startup investment firm run by well known early-stage investor Paul Graham).  It also raised capital from the likes of Sun Microsystems' founder Vinod Khosla. InterviewStreet, started by alumni of National Institute of Technology, Trichy, helps companies screen and hire programmers via web-based tools.

Freshdesk, founded by ex-Zoho employees Girish Mathrubootham and Shan Krishnasamy, is another notable startup. It has  developed a SaaS platform that aims to change the face of customer care systems in large and small corporations. Being the most sought-after SaaS startup in India, several VC firms are eyeing a slice of Freshdesk. In April, it raised capital from Accel Partners and Tiger Global.

Two ex-Zoho employees, Rajaraman Santhanam and K P Saravanan,  founded subscription billing company ChargeBee. Ventuno Technologies, started by Subbu Murugan, a former employee of TIBCO Software, is Chennai's contribution to the online video solutions market. Its platform helps website publishers with content, infrastructure and monetisation tools. With 200-odd publishers under its wing and powering close to 50 million video impressions a month, Ventuno is on its way to play a leading role in the online video advertising market.

Cut to Pondicherry, two hours away from Chennai. Headquartered in this beautiful beach town is Xlabz, which runs a mobile and rich internet applications company serving clients including Adobe, Nokia, Microsoft, Johnson & Johnson, Nokia R&D, Yodlee Inc., Zentuvo AS and Reliance Communications.

Xlabz founder and CEO Krishna Prathab RV says it makes sense to be in Chennai or in a place like Pondicherry.  "Unlike other cities like Bangalore and Mumbai, cost of living is cheaper here and it's relatively easy to get resources for lower salaries. In our company, we spend close to one year in training our employees and so lower salary helps us save costs."

Although new-age startups are  mushrooming now,  the first such tech company to set up shop in Chennai was Zoho Corporation, often referred to as  India's answer to Google (well, sort of, in some of the businesses like Google apps).

Zoho set up a development centre in Chennai a few years ago and has ever since been churning out a host of web applications for business, productivity improvement and collaboration. The company claims to have a user base of six million. Interestingly, all of its products are developed in Chennai and manned by developers hired from Tamil Nadu's lesser known engineering colleges.

Vijay Anand, founder of The Startup Centre, an incubator, says efforts taken in the community level a few years ago -- such as Chennai Open Coffee Club, The Chennai Geeks -- and various other platforms helped Chennai's cause.

The Startup Centre predicts that media companies will start to gravitate towards Mumbai, while technology players will come to the South, spread over Bangalore and Chennai,while  retail companies will continue their dominance in hubs like New Delhi.

"Since that trend seems to be picking up, we are seeing the birth of organizations like the Chennai Angels, localised capital and support structures that can participate and be part of the growth of IT here in Chennai," Anand says.

According to estimates, in cities like Bangalore, it takes seven years on an average for a professional to turn entrepreneur because of the expensive lifestyle and higher living cost, whereas in cities like Chennai and Pune the time frame is not more than three years.

Prathab of Xlabz, however, feels the city still faces roadblocks when it comes to getting funds from the government or VC investors.  Doraisamy of Orangescape also subscribed to this view. "Most companies in Chennai are bootstrapped. Some companies like ours are funded. But, if the government and VCs can back it up, this city has a lot of potential."

Anand is sceptical. "I doubt if Chennai can be leading the global IT startup arena. But India has seen an ecosystem where multiple hubs flourish -- not just one Silicon Valley, but different clusters, each with its own culture, intricacies and support mechanisms."

"Chennai's long heritage with building a culture and ecosystem of user groups to come together, share and learn from each other, is helping the city attract IT businesses," according to Anand. He said Chennai is throwing a heavy punch and there seems to be a second wave of startups lining up.