Ace angel investor and Vice-President, Google India & South East Asia, Rajan Anandan talks about the challenges in the start-up environment in India.
Edited excerpts:
Q: Are investments hard to come by?
A: Two things are going on. At very early stage the pace has not changed. Early stage investors like LetsVenture are doing couple of deals a week. My pace of investment has not changed.
But, for Series A, B the velocity has changed. If you have deep negative unit economics it’s impossible to raise money. Eighteen months back it was all about growth at any cost. Now investors are more thoughtful. They look at viable business models. This is first time India is going through such a cycle and it’s normal.
It has become harder to raise Series A, B even as companies re-adjust priorities from growth at any cost to focus on unit economics.
For Series C, D you only had two big investors—Tiger Global and SoftBank— and a few hedge funds. Tiger Global has consolidated its investments, while SoftBank is coming back strongly.
Q: Do hedge funds find India unattractive now?
A: Very few hedge funds take long term view. But in India it takes much longer to build companies—12 to 15 years unlike in US or China where it might take 8 to 10 years. So Series C and D rounds are becoming a problem as no one willing to write a $100 million or higher cheque.
Rationality is here and its good for the ecosystem. Periods like this are better time to invest as quality is better.
Q: Is India going through a boom-bust cycle that’s typical of ecosystems like Silicon Valley etc?
A: Technology industry, like real estate, financial services, steel, oil and gas will go via cycles and that’s not necessarily boom-bust. Such cycles tend to bring change and throw up more interesting companies and ideas.
Overall it’s a maturing of the ecosystem in India where entrepreneurs now realise that simply buying growth in India via deep discounts is not going to work.
Q: Are Indian entrepreneurs too obsessed with B2C ideas?
A: Consumer space offers big opportunities and there are companies targeting the first 1 million, 10 million, 50 million internet users. Startups like Smytten cater to the first one to 5 million internet users — it offers high end product sampling and orders. FreshToHome is among the quickest to grow from 0 to $5 million revenue with very positive gross margins. They are selling fresh sea food (direct from sea to home) to urban consumers.
On the other hand B2B time has come. There’s room to build both domestic focussed and export oriented B2B businesses, like Capillary Technologies and FreshDesk have done. Of course, B2B companies can take longer time to scale compared to B2C.
Q: What are the key takeaways from the Indian startup ecosystem so far?
A: We have created a generation of entrepreneurs who have shown that they can build large companies, like Flipkart, Ola. Lot of awareness about startups is there now and almost $15 billion of investments that have gone into the ecosystem have created a digital highway for current and future investors to ride on. Digital infrastructure has been laid out and logistics, broadband, payments ecosystem has got built in the process. This creates super interesting opportunities in India.
Source: Economic Times
