Behind the Scenes with Tarun Davda
Salonie:
Hi and welcome to Matrix Moments, this is Salonie and this episode is an audio recording to the recent Clubhouse session, that Tarun Davda, Managing Director at Matrix Partners India, Did with Priya Rajan, MD at Silicon Valley Bank, as well as Anand Chandrasekaran, Who isExecutive VP at Five Nine, Anand was formerly Director, messenger platform at Facebook and prior to that CPO at Snapdeal. In this episode they cover the latest trend emerging in India tech. Matrix’s investment strategy through and post Covid. IPO and MNA trend amongst other topics. Tune-in.
Priya:
Tarun, thank you for one taking time today but also being patient with us as we’re kind of rescheduling and bringing it back up today.
Tarun:
My pleasure and thank you for having me. I’ve been looking forward to doing this as well. So excited about this chat.
Priya:
I agree. I know we’re right at time so maybe we can just get started. For the folks who are new to this room, thank you again for joining us. This is a series that Anand and I host as a part of the India US Venture Ecosystem club called Behind the Scenes. And we’ve featured several of the top tier investors and founders who are active in the India US cross border ecosystem. And we’ve done this for since October November of last year and we started doing this once a month and we received quite a bit of request and interest in doing this more often so we started doing this once in two weeks. With that said we did pause for a few months as I said earlier because of obviously the pandemic and wanted to focus on the right things and now things are getting back we felt this is now time for us to kick back and bring our series back and obviously what best way to kick it off with like a Matrix obviously who is an active investor in the cross border ecosystem. Tarun, thank you again for taking time today for doing this. With that said maybe we’ll just dive right in. Tarun, maybe you can start off with a quick intro about yourself and we can also talk a little bit about Matrix India and we can go from there.
Tarun:
Sure. Thank you again, Priya and Anand. Thank you for having me on this. Just for a quick introduction for those who don’t know me, I run a firm called Matrix Partners India, it’s an early stage VC focused on broadly seek to series B investments in internet and sort of mobile ecosystem in India. I’ve been with Matrix now nine years so seen enough cycles and honestly think we’re at the most exciting time in the India venture ecosystem as we speak with so many IPOs coming. Before that been on the operating side I ran two startups, the first one was a company called BigRock which was actually incubated within Directi and Directi wasn’t well known back then but obviously everyone knows Bhavin at Directi now with all the success they’ve had. That was acquired by a European listed firm called Endurance and then after that I tried to do something a little bit more edgy so set up a dating site in India. This was again way back in 2010 or 2011 and I think Sasha will remember me pitching to him but way ahead of its time, way before real identity on the internet was a thing, way before online payments was the thing. So clearly ahead of its time, didn’t really work out, saw a lot of traction but couldn’t monetize and eventually we had to sort of fold into Match.com. And, yeah, so that’s been a little bit of my background. At Matrix I focus broadly on three or four sectors, the ones that I’m most excited about right now are social and gaming and I’ll talk about some of the investments we’ve made there. I spend a lot of time on commerce and within commerce specifically social commerce and we’ll talk about DealShare and a few other investments we’ve made there. And I look at mobility and obviously Ola is well known but there’s a bunch of other younger companies that I work with in that space as well. So those are the three sort of core verticals that I spend time on.
Priya:
Awesome. You’ve been keeping those exciting things that you’ve been doing as a secret. I didn’t even have that as a question but, Anand, I’m sure we have to ask some questions there as we go through this.
Anand:
Yeah.
Priya:
You know, maybe -- I know you touched a little bit upon Matrix, maybe if I can double click a bit more from a broader Matrix India standpoint. What is your investment strategy and what are -- like in general but also how has it been through and post Covid?
Tarun:
Yeah, so you know, Priya, VC firms are fairly boring creatures and the less they change the better it is. But at the surface nothing has changed but I’ll talk about two or three interesting sort of themes that we’re following now. So we’ve always been founder backers, I don’t think that will change. Our biggest successes have been in backing extraordinary founders very early even if we don’t really understand the market or don’t really understand what they’re building because essentially we’re backing the player, right, and so it’s less about the race for us. I know there’s a lot of investors out there who believe in backing the race and not the horse. For us it’s very clearly we back the horse, we’re looking for founders who truly inspire us, truly teach us new things every time we spend time with them. Obviously all the other sort of intrinsics around it and persistence and all that aside but essentially that’s our bread and butter, we continue to do that every day and that hasn’t changed through Covid. Have there been some sectors we’re just kind of tactically spending more time on post Covid, absolutely. You know, the obvious ones being Ed-tech and gaming and some of those but I think those things are kind of overdone now. The new themes that I’m excited about, there’s a lot happening in the creator economy space and I’m spending a lot of time there personally now. I think there’s a lot of themes which are unique to India. So if you look at a lot of the V1 of internet in India has been basically things that were already done in the US or China. And so if you see Food-tech and ride hailing and e-commerce and lot of horizontals a lot of those themes were basically borrowed from the US and China then in some ways Indianized. I think we’re starting to see more bottoms up Indian innovations and I think that’s the broader theme that we’ve been sort of chasing, within that a bunch of B2B themes especially in sort of B2B marketplaces moving all sorts of boring things like steels and raw materials and seafood and a bunch of other things that we think are just solving unique to India problems. Stuff like just devotion where we recently committed to something in the devotion space and I think those are things that are so unique to India and what’s exciting about that is there’s no predisposed hey, this is the way it should be built. So I think that’s something that I really like spending time on because it kind of keeps all of us intellectually motivated. And then the third thing that I’m trying to spend time on is everybody has brought like -- we keep talking about this California, you know, Indians which are all online all transacting 50, 60, 70 million internet users which is broadly 10-15 million households at best. And the question we’ve been asking ourselves is how do you get the next 50 million households which is the next 200-300 million sort of internet users to transact online. And Anand is also an angel in this company called DealShare and I think that was our thesis to invest behind DealShare two years ago, three years ago when we first invested which is the likes of Bigbasket and Grofers and Amazon Pantry they’re serving the 10-15 million households really well but they haven’t been able to penetrate the next 50 million households in terms of their sort of requirement of ordering staples online and ordering sort of FMCG online. And so I think that’s a broader theme we’re chasing which is next 50 million households and how do we -- because I don’t think it’s about simply extending the customer segment, I think you need to reimagine supplychains from scratch you need to reimagine customer acquisition from scratch, you need to reimagine your entire org structure because unit economics are very different for that segment versus existing segment. So I think that’s the theme that we’ve been -- these are some of the themes I think we’re spending time on. I’ll tell you the big change that has happened for Matrix as a firm. And if you go back and just look at the companies that are IPOing today, Zomato, Deepinder, first time founder, you look at Bhavish of Ola, first time founder, you look at Swiggy, and you look at all the bumpies that are sort of well known names today I think the first generation of internet entrepreneurs were basically the young daring sort of fresh graduate archetypes. And that’s great and I think those guys will continue to create some of the largest outcomes as they have been in US and China as well. But what separates US and China or what separated till today US and China from India was we didn’t have this cohort of repeat entrepreneurs. And so if you see some of the investments we’ve done in our latest fund whether it’s a Jiten who is now running Jupiter, whether it’s Amit Lakotia who is now running Park+ and earlier was part of Makemytrip and Tokopedia and Paytm, Jitendra running Citrus Pay, whether it’s Medda who runs DealShare who was earlier Metro Cash&Carry, whether it’s Sandeep and Anindya from Stanza who were actually helped a student housing business in Europe scale. So I think we’re seeing this archetype of sort of repeat and they may or may not have been entrepreneurs in the true sense before this, some of them were executives in sort of successful companies but I think that archetype is emerging and honestly it’s a very different experience working with them. We’ve doubled down, I would say, you know, maybe 40-50 percent of the bets we’ve made in fund 3 which is our latest fund has been this repeat archetype led and when I talk to my US colleagues and China colleagues a lot of them would share these solid stories with us saying hey, we backed this person in fund 1, in fund 2 his sort of CXO started out, we backed him or her, oh, then the same entrepreneur went and started a second company and we backed them again. And I think that part was just missing from the Indian ecosystem and I think we’re seeing so much of that today where just like the likes of Alibaba, Baidu and Tencents just basically spawned the next generation of entrepreneurs we’re seeing that happen in India very, very rapidly. And I think that’s an ecosystem we’re just sitting on top of.
Anand:
This is so well said, Tarun, and thank you for doing this. You know, I feel like most of our conversations are just as friends and it’s so great that you’re being transparent about what you’re going through as Matrix with all the folks in the room, so really appreciate you doing that. You know, one thing I wanted to talk to you about is can you dig in a little bit more on what companies like DealShare and Oye! Rickshaw which is also I think like built for the next 50-100 million people etcetra are doing. I remember like when we met in Mumbai you told me about this oil brand and the soap brand that DealShare has created because Medda as you mentioned comes from a grocery background, he understands private labels. So what was happening is in Jaipur like people were buying DealShare’s private brand even though for years like very popular brands from Hindustan Lever and ITC and other companies had been in vogue. So two thoughts on that, one, can you talk a little bit about the preferences of the next 50-100 million consumers in India like, you know, if I thought that someone in Delhi or Bangalore would like give up on like a well known brand like a Surf or a Rin or Britannia or whatever and go to the next no name brand like we’d all laugh. But that’s happening in so many cities in India and companies like DealShare are pioneering it. Can you talk a little bit both about that change in entrepreneurs going after the next 50-100 million users and also the boldness of the founders in like doing that so early in their journey as a startup
Tarun:
Absolutely. Great question, Anand. And we’re together in both Oye! Rickshaw and DealShare, so let me maybe just I’ll spend a quick minute or two on each company. I think you’ve picked the theme right, both of these guys in some ways are going after the next 100 million users and like is mentioned that’s the theme they’ve been going after. So I’ll start with DealShare, I think what really struck me about DealShare was one is just the obviously it’s a very, very large market, it’s several hundred billions. But nobody has been able to really crack it, right, and kirana is still king when it comes to 95 percent of how India shops grocery. And a lot of people look at DealShare and say, hey, that’s the Pinduoduo of India. I actually -- me and the founders think of it very differently, we’re looking at this much more as a, hey, if DMart were to be built on mobile today what would that look like or of a Costco were to be built on mobile today what would that look like. I think that’s the thesis and that’s where we stared from and I think some of the elements of that sort of thesis are one is obviously differentiated consumer segment that they’re going after. Second is, you know, the price point like today the people on this call mostly when they order groceries they’re buying a basket of 1500 rupees, 2000 rupees that basket will last them maybe a couple of weeks. And that’s essentially their shopping behavior and that’s the price point at which economics for some of these other companies work. The next hundred million they don’t have that kind of cash flow, right, and so they’re looking for something saying I don’t mind ordering more frequently but I’m looking for something that I can buy for maybe 300-400 rupees and maybe I’ll order once a week, I’ll order twice a week. But I need someone who can deliver to me consistently and sustainably at that price point. The third thing about DealShare that is unique is there is a focus on local brands, so most people don’t know this, right, most of the large brands we consume many of them don’t manufacture themselves, there is a very large contract manufacturing ecosystem in the country and so all the big brands that we consume typically outsource manufacturing to some small local manufacturer. Now the challenge is that these local manufacturers have the knowhow but they don’t have distribution, they don’t have sort of brand building capability. And so I think the value proposition that a DealShare gives them is, hey, you’re selling this product to FMCG company X for 100 rupees they’re marking that up to 200 rupees and selling it to the consumer, what if I were to give you 110 rupees, you’re still making more than what you’re making by manufacturing exclusively for the company. You already have the knowhow, what if you were to manufacture this, put your own private label on it and DealShare will give you sort of local distribution to begin with but over time national distribution. And it’s been amazing, we started with working with like people who are making local brands in oil and atta and ghee and a bunch of other sort of day to day staples and these manufacturers have grown like 10x, 50x, 100x after distributing on the DealShare platform. And essentially like I said they have the knowhow, they’re happy to scale operations, they just didn’t have a way to distribute it. And so I think DealShare solves that and the reason why DealShare is able to do that is because we don’t carry 50-100,000 SKUs, we focus on 800-1000 SKUs which are sort of the fast moving SKUs for a given micromarket and the consumer isn’t loyal to a brand. These are value conscious buyers, so as long as you’re able to deliver value to them at that price point they’re basically putting their trust on DealShare saying DealShare would have done the vetting to make sure that I’m getting an equally good if not better quality product but at a significantly lower price point. So I think that’s basically what we liked about DealShare and a bunch of other things obviously but just at a high level that’s the thesis we backed and because we carry only 800-1000 brands at any point in time or SKUs at any point in time essentially entire supplychain is significantly simplified to basically serving only those 800-1000 SKUs, so that’s the basic. Oye! Rickshaw is very, very unique, if you look at the price point at which some of the earlier version of mobility companies, Uber, Ola, a bunch of others operate at those are generally operating at 15-20 rupees per kilometer. Now if you see the top ten cities in the country there is about 3, 4, 5 hundred million daily commutes that happen in these cities. Okay, if you just take a population of the top ten cities in India Uber and Ola today collectively do about 5-7 million rides, that’s one percent of the market. Now the question we asked ourselves is, hey, okay, so what’s happening with the remaining 99 percent. And obviously a lot of it is private rides on owned two wheelers and stuff like that but there is a large population that travels on shared rickshaws, you know, autorickshaws, buses, metros and obviously metro kilometers being constructed every single day in this country is at an all time high and the question we asked ourselves is that metro rider they’re not going to get off the metro station, they’ve paid like 10-15 rupees for the metro ride, they’re not going to get out, fire up a cab hailing app and then say let me pay 100 rupees now to drive the last mile. They’re looking for a very unique solution which is extremely easy to, frictionless to go travel that first mile and last mile and it has to be extremely cost effective. Right, they’re not going to say they’ll pay maybe 10-15 maybe 20 rupees and more for that last mile commute but we don’t have the density of the metro network like a New York or a Chicago has where every block there’s a metro station and in India it’s not going to be built that way, it’s going to be very different. And so somebody needs to solve for the last mile first mile commute and somebody needs to be able to do it in a predictable manner and highly economical manner even the customer segment. And so I think what we liked about Oye was they’ve kind of reimagined that entire sort of shared e-rickshaw sort of system, brought it online and allowed the user to seamlessly book that and move that into a subscription service.
Anand:
And, Tarun, one thing just to get you to talk about that I think when you first talked to me about Oye and like I met Mohit and team they were not doing this entire battery charging stack, right, so they pretty much invented and built that entire stack in the over Covid.
Tarun:
Yes. So that’s been actually one of the examples of companies actually thinking out of the box and focusing significantly more on the customer during times of Covid and I’ve always maintained all of us had heard the saying crisis brings clarity and I think we’ve seen that in several companies in our portfolio in the last twelve months. So again just for this audience I’ve already spoken about what Oye does but the question we asked ourselves was this, who’s the most important stakeholder in this entire sort of e-rickshaw ecosystem and the answer is very clearly the e-rickshaw driver. Now e-rickshaw drivers earnings were significantly down because of Covid because just fewer people were commuting. And we said, hey, what’s the way in which we can completely do a 360 degree surround of that driver, a, to serve as a long term mode for the company but it also helped increase earnings. And we said, listen, my rickshaws are sitting idle so firstly can I add delivery to it. And because it’s electric and because the form factor is such that it can hold higher loads than a two wheeler but requires significantly lower loads than a tempo that needs a minimum volume for it to be a profitable sort of delivery e-rickshaws id in that sweet spot where it’s got the benefits of an electric code of price point and it’s got a form factor where I can have smaller loads being sent much more frequently. And so we added delivery as a sort of second businessline within Oye! Rickshaw. And then the third question we asked ourselves is hey, today the e-rickshaw driver basically needs to just have like 2-3 hours of downtime which they were using to basically recharge the batteries. And we said what if we were to provide a swapping sort of system where they don’t need to have the downtime anymore and for the ones who are willing to work hard that’s an additional income because the e-rickshaw has a maximum limit into how many kilometers they can travel a day and so if this e-rickshaw driver is doing both rides and delivery they’re going to run out of that charge by 4pm, 5pm in the day but for those who want to work an additional 3 hours and take home an extra 5000 rupees a month we need to provide them this service. Now the beauty is the moment you surround this e-rickshaw driver with a swapping service and a delivery service and a ride service essentially they’re hooked to your platform, right, because they’re dependent on you to get their batteries charged and they’re dependent on you for business. So I think it’s a very intelligent thing they’ve done, it’s still early days and a lot of the stuff needs to play out but that’s the example of going deeper into your customer and figuring out what else can I solve to sort of strengthen my affinity with this customer.
Priya:
There’s so many questions, I mean, they’re fascinating to hear kind of that journey and how obviously there’s so much of maturity in the market that actually shows as well. And folks I know several of you have raised your hands, so we’re going to try to get through as many questions as we can but we’ll try to leave a little bit of room to get some of your questions answered. So, Tarun, I know you mentioned this a bit with Zomato, obviously the IPO coming up, there’s been a lot of -- just taking kind of a step back there’s been a lot of activity around obviously M&A, consolidations and IPO talks. Where does the market sentiment in India for those two and how do you see that impact on the broader India’s ecosystem in the next several years.
Tarun:
It’s a very big deal. You know, I was talking to an LP last night and they’ve been patient for the better part of the last 15 years. And at every point in the last 15 years I think all of us VCs have always said IPOs are 3-5 years away. And that 3-5 years became 15 years but I think it’s finally here and the 3-5 became 2-4 and then 2-3 and finally it’s happening. So it’s a big, big deal while the system has seen some very large exits with Flipkart and with Oyo the reality is LPs still saw those as a one off. And they were like, okay, this is great but is this sustainable and is this repeatable. Can I get to a point like I’ve reached in the US and China markets where every year as I’m committing more capital to these funds there is some liquidity that I’m seeing as well, right, because that’s when the cycle essentially completes. And the most I guess strongest signal of a sustainable ecosystem is when there’s enough companies that get to IPO scale because those companies will eventually go on to become larger companies, they will acquire more companies, more entrepreneurs will come out from these companies over time and so on and so forth. And so I think it’s a very, very big deal, I think a lot of the LPs have been working for this moment, they finally see this as India’s moment has arrived and I think we’ve already seen enough proof points of in the last 12 months what’s happened in the eco system with so much capital coming in where because they’re seeing the numbers. The issue with India is not the lack of IPOs, right, the issue with India is always the lack of depth of market. IPOs was only a symptom of the problem, the problem was the market wasn’t deep enough. We didn’t have companies which were generating 100 million plus in revenue growing 60-80 percent year on year with reasonably strong unit economics and unless you don’t get to that scale public markets are very punishing. I mean, a, you can’t list in certain exchanges but even if you were to list there was really no demand and I think what we’re seeing today is because there are these sort of massive consumer brands that are well known that have reached IPO scale are finally listing I think it’s a very, very big moment and it’s a much bigger deal than people think it is.
Priya:
Yeah. Really exciting to see those trends coming out. Anand, you had a question?
Anand:
Yeah, I was actually, Tarun, if you can talk a little bit about the impact -- I mean Zomato is obviously the one of the most beloved and one of the first out of the starting gate but there is certainly a pipeline of companies that are ready to go public, right, like both very large ones as well as some of the upcoming companies that are just like hitting that 100 million plus revenue run rate. Can you talk a little bit about what this does to M&A for instance and additional IPOs that happen and also like given some of the funding that’s happening all this the flurry of activity that’s going on is there also like, you know, there was this thread around how hard it is to like hire in India right now if you’re hiring like engineers and product managers. I’m sure it’s true across the board, can you talk a little bit about like the downstream impact of that on things like hiring, things like the quality of founders leaving and starting, M&A and stuff like that. Just the impact of this on the broader India ecosystem.
Tarun:
I think great question, Anand. I will say maybe two or three things, right, just the way I think this is a big moment for LPs and obviously VC funds and so on I think it’s a very big moment for employees and specifically early employees at these companies. Not just obviously finally the dream of ESOPs and the promise of ESOPs is coming real,you know, people have seen the journey of 0-1, 1-10 and 10-100. And like I said at the early part of the call I think one of the things that was missing in India is there were very, very few people, I mean, almost nonexistent who had seen a real 1-10 or a 10-100 journey. And so I think what -- just imagine, now people who’ve been part of Zomato for the last 5,7, 8, 10 years whatever, however long the company has been in existence, imagine the people who are going to come out from those ecosystems and say, hey, you know what, I’ve seen this playbook, I know how to hire, I know how to build teams, I know how to sort of build strong customer value propositions. I know what it takes to engage with investors and sort of share my vision and my dreams. So I think and they’ve been through tough times, I mean, and those tough times have obviously hardened them, they know it’s not been easy. I mean every single company that looks like a success today whether it’s a Zomato, whether it’s an Ola or whether it’s PolicyBazaar at different points they all have stared at like low single digit months or runaway. And it seems like all these companies have always been like meant for success that’s never been true. I don’t remember and you guys some of the people on this call who I distinctly remember this thread, you know, 4-5 years ago, maybe four years ago, there was a lot of negativity overall about overvalued companies and how investors are crazy for giving these kind of valuations to these companies and these companies are burning money hand over fist and stuff like that. And there was a poll, I can’t remember who ran it but there was a poll and it said of these unicorns which one is likely to go out of business first. And it’s ironic and that time the only unicorns in the ecosystem were Flipkart, Ola, Zomato and maybe a couple of more and Zomato was the one that got the highest votes. Right, and I think somebody should take that tweet thread and put it back up when we’re seeing that same company listed anywhere between 8-10 billion. And I think and that’s what I’m saying, right, like the confidence that gives you when you’ve been battle hardened and the same people are now going to come back and say, you know, it’s okay, it’s much harder than it looks from the outside to build a company but they’ve been through those sort of tough moments and they will have the grit and the persistence that is required to tide through similar difficult times when they’re running their own companies. So I think that’s -- not as much spoken about sort of phenomenon but very important. I think second is ESOPs, I mean we all have been company and hiring discussions where in India the discussion first starts with hey, here is what I was getting in my last company. I’m expecting a 20 percent raise so my discussion with you should start at that 20 percent raise and over and above that. And, okay, all this done now let’s talk about ESOP, right, whereas in the Valley and China people look at ESOP as a real tool not just for retention but they’re looking to test long term commitment and long term alignment of vision between the founders and early employees. And these are people who are really taking a bet on a startup, they understand that early stage startups can’t pay as much salaries whereas in India it was salary, plus, plus and ESOP. Hopefully what’s going to happen now is a lot of these people will value the ESOP and it’s not just a piece of paper that you’re signing. And I know salaries in India are crazy right now and everyone is cribbing about that and it’s extremely hard to find talent but we’re seeing signs of people who are seeing the value of ESOPs come and say, hey, you know what, it’s okay, I don’t mind taking a 30 percent pay cut from where I am today because I believe in your company, I believe that your stock is going to have incredible value over the years. And so I think some version of that hopefully will play out in India as well just the way we’ve seen in US and China.
Anand:
Yeah. Absolutely.
Tarun:
I don’t know if I answered all the parts of your question, Anand, but just those were the two things that struck me.
Anand:
No, this is great, Tarun. Actually one specific thing I was curious about and I’ll like just ask you to talk about both aspects of this. So a few years ago like during 2016 or so, 2015-2016, there was sort of this mien that some of the used cases for key categories in India will be more like the China growth than like the US growth particularly in Fin-tech, particularly in transportation, use of technology by second tier towns etcetra, etcetra. How do you see that trend now like do you feel like there’s now -- we’re in that stage where companies that grew in China are like happening in India or do you feel like this is the start of like the 3.0 where there’s like India specific like third generation companies that have already started or we’re still in the second generation. And then like the second part of that is we’re also seeing some of the good parts and the bad parts of like tech growing really fast and becoming big, right, like with the ANT IPO and like some of the executive changes in China. And we’re starting to see some of the big tech versus government regulatory back and forths and it’s almost like a boxing round with like 12 rounds like one round the companies win, one round the regulatory folks win. Can you talk about both of those trends like the way China went and the way India is going, Tarun?
Tarun:
So you know it’s been fascinating to watch what’s happening with the China ecosystem. I’m not an expert on China but with that disclaimer I can tell you that I read this quote, ‘what the government giveth the government taketh away’. Right, so that’s some version of that is playing out unfortunately over there. But I think at least when I look at regulation in India my sense is the government has done a fantastic job whether you look at sort of payment systems with UPI and Aadhar and Jan Dhan and a bunch of other things or you just look at the way different sectors government is -- I mean I do think there’s been a deterrent. In fact there’s active conversations happening even on the IPO and the listing side, right, talking about new listings, talking about sort of why startups are different, why tech companies you need to have a different set of sort of rules for allowing these tech companies to make losses for some more time, the kind of value it’s creating for the country making sure that these companies can be domiciled in India and can list in India. And the government is actively participating and listening, right, so in my mind I think the government is doing a fantastic job. Obviously things take longer than what they would otherwise take but I’d rather have that than have this artificial sort of handover me where we don’t know at what time somebody will just come and take away everything that they’ve given us, so I think different context and different sort of things. Just zooming out if I take a look at China, right, and this is a part that I think a lot of us it’s always good to zoom out and look at what’s happening in China and see how that could be sort of instructive for India. So China has created about 3 trillion dollars of market cap on the internet in the last ten years, 3 trillion, okay. Of that obviously a trillion has been between Alibaba and Tencent. If you look at basically what are the factors that contributed towards this, right, it was basically China’s GDP in those last ten years grew from 3-3.5 thousand dollars GDP per capita to 10 thousand dollars GDP per capita. The internet users went from a 100 million to 800 million, the internet usage like 10xed over that same time. Now if I just take a look at what’s happened in India in the last five years thanks to Jio our internet users have gone from 100 million to 700-800 million. Our internet usage has not 10xed it’s 100xed. India as a country consumes the highest amount of gigabytes per month per user. I think there are like some 16 gigabytes per user per month which is just incredible. Like I don’t think there’s any other country in the world that consumes the kind of data that India consumes. And if you look at our GDP per capita it’s growing. Now it’s not growing as fast as China grew but if I put all those together and I say, hey, India is today 2-2.5 thousand dollars GDP per capita, it’s going to get to maybe 4-5 thousand dollars GDP per capita in the next ten years I think I can make a case that India internet will create close to a trillion dollars if not more of internet market over the next ten years, maybe it’s 15 years, I don’t know, but somewhere in that range. Now out of the trillion will some part of it go towards the large global sort of the Amazons and the Ubers and whatever else are there absolutely but is there 6, 7, 8, hundred billion dollars of that market cap that we created by sort of home grown entrepreneurs, absolutely, and we’re just scratching the surface. If you take the total market cap of all the companies and all the sort of tech companies in India today it’s still some 100 billion, right. Add Flipkart that’s 37-38 billion and then everybody else put together is probably another 60, 70, 80 billion. And so there’s still another close to 7-8 hundred billion dollars of market cap that will get created. And so I don’t think there has been a better time to be an investor, to be a founder, to be an early employee at any of these companies.
There is a lot of value that is going to get created and I honestly that’s what keeps us going, right, that’s what it’s not easy building companies, it’s not easy being an investor in early stage startups. Seven times out of ten you’re wrong in sort of the bets you make and your investments lose money but what keeps us going and what keeps us sort of chugging along is hey, you know what, I can be part of building some of these companies in some shape or fashion either as a founder or as an employee or as an investor and I think that is the most exciting part.
Priya:
Yeah. It’s so amazing to hear again the optimism that the numbers are speaking to it. Again it’s coming across the stages and sectors, so one of the things I wanted to kind of deep dive a little bit, I know we’re over time but, Tarun, let us know if there is a hard stop.
Tarun:
No, I think we can keep going for another 10-15 minutes.
Priya:
That’s right. I know there’s like a couple of folks who have been raising their hands and being patient. So one last question before we kind of pull some of the folks up. You’ve been a strong supporter of obviously global SaaS companies, you and like Matrix India as a whole. Obviously some of the companies that maybe Anand and you have done together, Pesto obviously, MoEngage, SuperOps, Rocketlane, all of them are proud to say they’re clients of SVB. You know, SaaS has grown from India significantly evolved in the last few years, it’s a no brainer that we’re seeing it in the transcend interest that global investors are having in India as well. What are some of the matrix and like Tarun when you look at a deal that makes you go like okay, that’s the deal I want to be in. What kind of stands out to you and what matters?
Tarun:
Yeah, so I think a great question and you know, we didn’t talk too much about SaaS but again that’s a sector that I do spend some time on. I think it’s fascinating to see what -- you know, Freshworks will hopefully list sometime later this year or early next year, there’s BrowserStack, there’s a bunch of other large companies that are there in the overall SaaS ecosystem. My sense is if you see version one of sort of software development it was all services and obviously India created incredible value between Infosys and Wipro and TCS and several others. I think version 2 of Indian SaaS at least or Indian software was basically Freshworks of the world and several others in that same kind Zoho and a bunch of others where basically we were looking at global products and saying, hey, can I build these products, can I use sort of the Zoho playbook so to speak and use that to create a equally good product but at cheaper prices. And so sort of mid market and you know, SME customers. And obviously over time many of those companies have gone up market and gone enterprise and done those things but I think what we’re seeing and I think what excites me about some of the younger bets that we’ve made is, a, obviously the same experienced founders phenomenon that I spoke of earlier both Rocketlane and SuperOps are sort of ex Freshworks experienced employees and before that they’ve sold their first companies to Freshworks. So, a, is that repeat founder kind of thing that is playing out which is very exciting. But also they’re building in my mind, they aren’t looking at a global product and saying hey, let build a cheaper knock off of this. They’re taking basically bold bets and saying can I build a world class product and maybe better than an offering which exists in the market today and use that to sort of acquire and serve global customers. They already understand as a country we already have great product management depth, we already understand inside sales and inbound marketing and outbound and all of those good things that we’ve learnt from some of these other companies but these are daring entrepreneurs that are now saying, yeah, let me build something that I’m not just building a V2 of a company that has already done well and I’m serving a different customer segment, I’m actually going after very large big new exciting problems and in many cases we’re seeing sort of almost core development, right, there are competing companies in the US in the V0alley that are building something and there are Indian companies going after the exact same problem at the exact same time. And so its going to be fascinating to see how we’re able to compete on that sort of global stage.
Priya:
That’s right. That’s awesome. Thank you for the insights. Anand, you had a last question and I’ll call up some people up.
Anand:
Yeah. Tarun, I think the other thing that would be good to talk to for this audience is I know Matrix has a content product called Matrix Moments and I think if I’m not mistaken you’re recording this conversation and maybe like truncate it and use it for redistribution. Do you want to talk a little bit about Matrix Moments before we start to take questions?
Tarun:
Yes. Actually the person behind Matrix Moments is on this call, she’s Salonie, she’s our sort of behind the scenes so to speak with the title of this Clubhouse session but she’s really been instrumental in putting us on the broader content map. So I’ll tell you what was the genesis of Matrix Moments, right, I think it was a conversation internally that we were having saying, hey, we need to put ourselves out there. Lot of first time entrepreneurs, lot of repeat entrepreneurs, all of these guys are looking for, hey, if I’m taking money from you as a VC what can I expect to learn from you, what can I expect through the journey, how will you help me. And, you know, one is to say here are the five things I’ll do for you. The second is you’re actually trying to create even more broadbased impact which is whether or not I’m in business with you can I sort of distill learnings from our other portfolio companies and just put it out there. And obviously it selfishly helps us because when founders come to talk to us and when come to meet us they already know what we stand for, right, they already kind of know here is how Tarun thinks about the world, here is the way Avnish thinks about the world, here is the way Vikram thinks about the world, Rajat and so on and so forth and the rest of the team. So, a, obviously it selfishly serves a purpose where people get to know us better and know what we stand for but it also really helps us constantly intellectually challenge ourselves by saying okay, so this company worked, what did they do that worked and can I apply that to my other companies. Or here’s a mistake this company made and can I distil it down to some learning that I can share with the broader ecosystem. I think initially we started writing and then I’d put out a few articles and then Avnish did that and then honestly we were just too lazy to write often. And we said, hey, why don’t we try and do this as a conversation. And somehow that just found PMF within the firm where we’re always ready to get on our recording sessions like the one we’re doing now or the other ones that we’ve done and we’ve broken that up into two or three different kinds of topics we talk about. One is just founder conversations which I think generally end up getting the most traction. Where there’s a founder it’s from the horse’s mouth, they’re talking about their journey, they’re talking about life in the trenches, they’re talking about what’s worked, what’s not worked, stuff like that. The second is us as investors answering very tactical questions or how should co founders decide split of equity, what are the key things I should look for when I’m signing my first termsheet,how do I handle a co founder conflict. And again with the benefit of having seen some of these situations play out in our companies obviously there is some advice we can offer. And it’s unbelievable but obviously a lot of this content exists for the US market but there’s very little that has been actually contextualized for the India market when it comes to these things. And so I think -- or like, hey, I have two VCs that are talking to me how do I decide, should I take money from one VC or should I try and take money from both the VCs. Or I have a seed round coming together but there’s a VC that’s also interested, should I close my seed round with some angels or should I prioritize taking money from the VC, what if the VC doesn’t sort of continue to double down in the next round, is that a negative signal for my company? And obviously founders have a lot of these questions and I think we’ve taken sort of the opportunity to build this platform to actually just say hey, here’s how we think about it, we may be right, we may be wrong but just putting yourself out there and it’s unbelievable how much feedback we get both positive and negative, mostly positive thankfully.
But coming in over e-mail lot of our episodes people playback to us, Avnish has done, probably he’s done the most clearly, but you know, he’s got this recent episode on the hack job which is around gamification and hacking growth. He’s spoken about a bunch of other things and a lot of founders we talk to say hey, you know what, we learned so much in that one hour conversation and so it’s honestly it’s become a big, big source of just us being able to keep our founder NPS high
Priya:
And again thank you Tarun for doing that shout out for Matrix Moments. One of my favorite, I know we were supposed to dive in but we’re way over time is Avnish’s one there’s a section about product versus distribution, I thought that was very fascinating. These are simple like you can just put it on and do your stuff it’s so relevant to the founders whether be it they’re at their early stage, growth stage or late stage so many gems that are from folks who’ve been there, done that. So absolutely amazing. So for the folks in the room please do check it out if you’ve not done so already. Tarun, I’ve pulled like five people out for questions, so the folks who are there please make sure your questions are short, brief and the ones that’s not repetitive to what’s been already talked about. And if you can keep the Twitter style that will be great. So, Abhishek, we’ll start with you.
Abhishek:
Thanks so much. Hi, Tarun, thanks for taking my question. I’ve been an ex co founder myself and I’ve been in the Indian ecosystem, my company got acquired by Treebo Hotels actually in 2017.
Tarun:
Oh, lovely.
Abhishek:
So I’ve had some firsthand experience talking to investors and VCs and I did notice some trends back then and I would just want to hear some quick insights about that. So one thing I’ve noticed is that in the past decade or so beyond a certain stage many Indian startups have to seek funding from external investors especially the large ones like SoftBank. And even some of our more successful companies like Ola or Paytm you know are in that category. So do you think there is or has been a lack of liquidity among Indian VCs or is it mostly because they were risk averse or is there any other reason that I’m missing here and do you see that trend changing going forward now that we have IPOs finally happening in Indian startup ecosystem and more Indian VCs finally taking or sponsoring the late stages of quality startups.
Tarun:
Good question, Abhishek. I don’t see it necessarily as -- so here’s what’s changed, right, if you told me three years ago a company that needed a 100 million dollars was in some ways a dependent on only the likes of a SoftBank I would agree or I would kind of agree. Today I mean if you just look at between Tiger Global, between Steadview, between Cotu, between Kora, between Insight, I can name like 20 investors that one can go to to raise a 100 million. Now admittedly several of them are global investors just because like I said we’re still a fairly young ecosystem, right, but if I take a look closer home like if you just see WestBridge traditionally done later stage private equity and sort of public market investing in the last 12 months they’ve invested in two of our companies, one is DealShare which was announced and there’s another one which will be announced very soon. They’re writing 40-50 million cheques and they’re happy to write 100 million plus cheques in companies that are working. And so I think we will see a lot of local growth capital that will also emerge and going back to my earlier point around IPOs finally creating value you will see large Indian family offices that today had real estate and public markets as an asset class that they would invest in they will start moving a lot of their capital towards early stage ecosystem as well and private ecosystem as well. And so the reason why they weren’t doing that today is many of them just didn’t believe in like that these companies would actually emerge and become IPO scale and that they would get their sort of capital back and with handsome returns. So I think going back to the earlier point of IPO I think it’s important in more ways than one. And if you just look at like today like take the likes of Edelweiss, Motilal Oswal, all of these guys are now setting up pre IPO funds to invest in startups that are 12-18 maybe 24 months away from IPO. All of those funds can put 50-100 million to work now so I think it’s already changing.
Priya:
Thank you, Abhishek, for that question. Divek?
Divek:
Hi. Thanks, Priya. Tarun, hi, my name is Divek and my question was related to mobility which is something that we didn’t touch upon at all. When you look at the whole ecosystem of mobility I mean I’m talking about electric mobility alone, which of the sectors of mobility excites you, what I’m trying to ask you is is it the OEM, is it the battery manufacturer or is it the services. That’s the first question and the follow-up to that is do you think shared mobility in its present form factor is the right way that you foresee shared mobility being executed as days go by. Thanks, Tarun.
Tarun:
Great question, Divek, and thank you so much for that question. I hope I pronounced your name correctly. But I think starting with electric we’re still in forming our point of view because it’s still very early days of -- if I look at mobility we’re basically still at day 0 when it comes to electric in the country. Now we clearly believe in OEM because we’ve backed the hopefully what will be the largest electric OEM in the country which is Ola Electric. They will also build all the battery technology inhouse. So in some ways, you know, we’ve already kind of bet on the OEM and on the battery technology, is there a services play I think there will be a services play. If you look at sort of the likes of a Vogo or a Bounce or several other companies which are in that sort of sharing space I think the economic models of those companies will only make sense when they move to an electric and we’ve seen some version of that play out. And so I think -- we’re investors in Gogo and over time we will move the entire fleet to electric. So short answer is I think there will be value created in all three, I don’t think we have a view that there will be -- you know, there’s only one or the other that one needs to pick and we’ve kind of in some ways have exposure to all. On the form factor for mobility I think like I mentioned earlier I don’t know if you were there for that conversation if you look at the current form factor which is largely basically cars and maybe to some extent autorickshaws collectively these companies are doing about 5 million rides. If you just take top ten cities I think there’s 500 million rides per day that are happening. I think there’s an opportunity for somebody to come in and create another mobility company doing 10, 15, 20 million rides a day. The challenge is it’s not going to be at the price point, it’s not going to be at this 15-20 rupees a kilometer it’s going to be in the 5-10 rupees a kilometer which is the price point at which 90 percent of this country travels. Now if somebody can basically create a product that can have sustainable unit economics at that price point I think that’s where the next 10 million rides per day company is going to come from. Our bet was we made two bets in that space, one is Oye! Rickshaw which I spoke about which is basically shared electric rickshaws serving the masses and they operate at a 5 rupees per kilometer kind of price point broadly because it’s shared and it’s electric. And then there’s Vogo which was more of a personal mobility where it’s bike sharing so to speak, they’re still figuring out the model and still obviously because of the pandemic things have been slow. But those were the two bets we made and so absolutely agreed I think all of these form factors will need to exist and if you see the 5-10, 10-15, 15-20 rupees per kilometer price point different form factors will need to emerge that will solve for different use cases. I don’t think mobility in this country is done, there’s a lot of -- I mean you walk out on the streets and we all know how hard it is to commute in this country even today. And so I think there’s a very long way to go.
Priya:
Thank you, Tarun. Venkat?
Venkat:
Hi, Tarun. So I’m Venkat. So I have one question like how do you see this Ed-tech, Tarun, like Ed-tech has become -- is it going to become a saturation or is it a bubble now because Matrix have been invested in companies like Testbook and Camp K12, right, so all these companies like how do you see all these things, like what is the future focus of Ed-tech. How do you define it because right now like we get personalized learning and all the options like how Byju’s and Unacademy is going that way I just want to know like because we are a couple of -- we work with like games and everything. So we have one virtual event startup as well but we’re just working on couple of products in virtualizing the environment of game development, I mean like gamification and Ed-tech fields actually I just want to know more about how it’s going to be in the future, like what is the forecasting like. Is it becoming saturated or what happens like when a lot of people come into this Ed-tech because everything will be more of like privatization, I mean everyone will be getting to it so I’m just asking one question like what is the future focus of it, what the investors should be looking into Ed-tech domain like.
Tarun:
So, Venkat, as long as I guess people are getting educated there will be a technology led disruption of how they’re getting educated so I think we continue to be optimistic around large and great companies like Byju’s and Unacademy and Vedantu and a bunch of others that have sort of emerged. But again if you just look at a percentage of overall education spend in this country and you say hey, how much of that is technology led, what’s your guess, like what percentage would be technology led today, 1 percent, 2 percent, maybe. There is no reason as you look out ten years that 10, 15, 20, maybe 30 percent of all education is going to be in some ways delivered over a technology platform. And part of it is because all of us are just now used to doing a bunch of things online but part of it is just there is a personalization angle to it, there is multiple different cuts, doubt solving and so many different kind of cuts that people are taking. So if you see education what fascinates me about the tech space in India at least so far, right, is if I take a two by two matrix and I say hey, large tamp and large profit pools. Education, maybe gaming, maybe some parts of Fin-tech these are basically the sectors that come to mind when one says and maybe now devotion again something hasn’t emerged yet but over time something will but these are sort of large very, very, large markets in India which are several hundred billion where there are companies that are generating very healthy profit pools. If you take e-commerce large tamp but arguably even some of the larger company both offline and online are still struggling to deliver large profit pools. And so I think Ed Tech is fascinating because it gives you that potentiality of both scale and profit. Now the worry over there is with so much coming in do those profit pools vanish because there’s just it becomes just so expensive to acquire a customer. And some version of that by the way is playing in China, right, I don’t know if you’re aware but China CAC for Ed-tech has just gone through the roof, it’s almost impossible to build a company profitably there. So I think some version of that will play out in India as well but keep that aside is there going to be multiple cuts within Ed-tech where there will be different kind of platforms that will emerge, absolutely. Just the way even though we have a Flipkart in e-commerce there is a Nyka and there is a Lenskart and there is a Meesho and there is DealShare and all these other companies I think you will find multiple specialized versions of Ed-techs which are vertical Ed-tech platforms.
Priya:
Yeah, and Tarun, since I think Venkat mentioned Camp K12 which is a portfolio company of yours I can say from a personal reference standpoint we -- like my little one has been an avid user, is a customer there. And it’s just fascinating to see the quality of service that you get, right, and now it’s all virtual and I think the pandemic has also helped push those kind of comfort as you said with those experiences.
Tarun:
Absolutely. Sorry to interrupt, and you know, my son he’s generally very skeptical of all our investments but the one that he personally uses is Camp K12 and it’s the one class I can tell you in the entire week because all the kids today are just so fatigued of online education but the one class I see him look forward to every week is Camp K12.
Priya:
One hundred, we do it twice a week and my son wants all five days. So we need to talk about the cost per --
Tarun:
Exactly.
Priya:
But, Bhavish, last question for you. Go ahead.
Bhavish:
Good morning, Tarun.
Tarun:
Hi, Bhavish.
Bhavish:
So my question is around -- in this conversation you said that China initially they supported all the tech companies and now they’re like snatching the support to them, do you think that India it could happen with UPI and like do you think we need more alternatives to UPI in the Fin-tech infrastructure?
Tarun:
I think one of the benefits of a democracy I think is like I said things take time but we’re lightyears ahead, right, I mean the world over the payments ecosystem of India is actually now seen as an example that even the US is trying to emulate. I don’t think any other country has built something like a UPI stack which is completely democratized, no single entity owns it, and so to me it’s unclear, I don’t know if I understood your question correctly but these are not things that like -- these are entities that the government has setup to actually democratize the stuff and to prevent sort of large private companies owning this sort of stack. This stack is available for anyone to use at any time and there are sort of multiple stakeholders that the government keeps to sort of have the checks and balances in place. But in my mind and similar versions of that by the way I don’t know if you’re aware but similar to what the government did in payments there is a e-health stack that is coming out which talks about telemedicine and health records and a bunch of other stuff and that will come out very soon. There’s also an initiative to do this for mobility, right, where is there a UPI like stack for mobility where you can stitch together. If I want to go from point A to point B every single mobility provider can basically tap into that system and acquire customers and can serve customers. So I think it’s beautiful like the fact that we’re putting out these sort of open source architectures out there and allowing various private companies to build on top of it I think that’s the most scalable way to do it.
Anand:
Tarun, thank you so much for this. I know we’re squarely like 30 minutes over our scheduled time. So really appreciate you staying so long and taking all the questions and discussions. This was great, I’m sure we could keep going but thank you so much for your time. Love to have you back again, I’m sure a bunch of the companies that you’re in -- I think the first time we met like you had just barely finished investing in Ola and so can’t wait to see companies like Ola go public in the coming weeks and months as well and love to have you back as some of those things happen to talk about those journeys as well. Thank you so much, Tarun.
Priya:
Thank you so much, Tarun.
Tarun:
Thank you so much for having me. No, my pleasure, Priya and Anand. Thank you so much for doing this and I know it was delayed by a couple of months but great to be finally doing this and yes, and on fingers crossed hopefully we’ll see a lot more Olas and hopefully we all will see Ola list soon as well. So fingers crossed and it’s a really exciting time to be part of this ecosystem.
Priya:
Absolutely. Thank you so much, Tarun, thank you, Anand. Thanks all for joining us today.
Tarun:
Thank you everyone for joining in, hopefully this was a good use of everyone’s time. Thanks.
Priya:
Thank you. Thank you, Tarun.
Salonie:
Thanks for tuning in. For more Matrix Moments episodes, you can head to www.matrixpartners.in/blog. You can also follow us on Twitter, LinkedIn, and YouTube for more updates.
