State of the Indian Venture Market 2019
43 mins listen

2nd Jul, 2019

In this episode of Matrix Moments Tarun Davda, (MD, Matrix Partners India) and guest speakers, Miten Sampat, (VP Corporate Development, Times Internet) and Samidha Sharma (Emerging Business Editor at Economic Times) discuss the current state of affairs within the Indian startup and VC ecosystem and the way forward from here.

Salonie: Hi, and welcome to Matrix Moments. This is Salonie, and today we are talking about the state of the Indian Venture Market in 2019 and where do we go from here.

This episode will feature Tarun Davda, Managing Director at Matrix Partners India and guest speakers, Miten Sampat and Samidha Sharma. 

Miten is VP Corporate Development at Times Internet which is the Times Groups digital arm. He leads the investments, acquisitions, and strategic partnerships at Times Internet. And his portfolio includes companies such as Delhivery, BYJU’S, Uber, Airbnb, Myra, and Shuttl to name a few. In addition, Miten is also an angel investor.

This episode will be moderated by Samidha Sharma, emerging business editor at Economic Times. Samidha’s expertise spans across startup, tech, entrepreneurship, and the Indian VC ecosystem. She actively covers and tweets about this space and has been doing so since 2012.

Samidha: Thanks, Salonie. Hello, gentlemen. Finally we have been able to come together. It’s quite a feat. And this should be fun. So, we are going to talk about the India venture opportunity today with Tarun and Miten

Guys, I mean we speak all the time off the record et cetera, but this is slightly a different setting. Let’s jump in. I am going to talk a little about what’s happening the ecosystem right now. So, there is obviously return of Tiger with Scott announcing bunch of deals. There is Sequoia which launched its surge program. Last six to eight months have been a lot of activity in the early stage ecosystem.

Tell me Tarun, if you want to jump in, how is this different from 2015, early parts of ‘16 in terms of deal activity?

Tarun: Firstly, let me start by thanking you, both Samidha and Miten. Thank you for doing this. Really appreciate it.

Samidha: And just a quick disclaimer. Both Miten and I have been approached completely independently. So, there is no Times Group attachment here. Sorry, Tarun, you can go on.

Tarun: Yes. So thank you for doing this. I think it’s a very, very exciting time. Your question was how is 2015 different from what’s happening today. I think it’s different in a few respects. In my mind, firstly, if I look at the market depth, for lot of us who have been doing this now for a few, years, the market depth has never been clearer. That’s a big positive.

I think if I look at the quality of ideas, I do feel a lot of the ideas that we used to see two, three, four years ago tended to be sort of me toos or copycats sort of things that had worked elsewhere. I think it’s not completely changed, but we are seeing definitely a larger proportion of ideas that are more unique towards solving India problems. That’s really exciting as an investor.

Last, for a firm that we focus a lot on backing sort of outstanding founders, I would say founder quality is significantly higher. I have said this in a few places. If I look back at what made the Valley the Valley, if I look back at what made China, China, a lot of it was people who have been part of successful companies. Seen them being built at very close quarters. Have been part of those journeys maybe not as a founder but as a part of a sort key exec team. Same thing happened in China with ex-Alibaba, ex-Tencent, ex-Baidu guys building some of the largest companies. A large part of the founding teams that we see today have some elements of that. And that’s very exciting as an early stage VC.

Samidha: Miten?

Miten: Yes, just to add to that. Thanks for having me Tarun and Samidha. Look, I think it’s - echo most of what Tarun said. I think it’s a very exciting time to be in India. I would rather be in this market than any other market. Let me even say that, right? It’s more exciting…

Tarun: And you have the choice too

Miten: I have the choice to be in different geographies. So I think India is a super exciting market. I think the depth is now finally visible. We are seeing this in lot of our operating businesses and also in our investments. I think the depth of the Indian Consumer market is massive. And it’s always been one of those things which is it’s about to come, it’s about to come, it’s about to come. That’s a story we have all told international people looking inwards. I think all of that is starting happen.

I also the think the quality of teams and the kind of problem statement we are seeing is fundamentally different than what it was maybe two or three years ago. And so, very bullish on the sector overall. Very bullish on a number of new ideas that are coming up. And, I think, of course, there will be a little bit of over enthusiasm. There will be some crash and burn. There will be some excessive investments. But, I think net net out of all of this will come some repeatable infrastructure, some sort of infrastructure that gets built that can be leveraged over time.

So, I don’t worry at all about the excesses because I think ultimately they yield some value.

Samidha: So, I am just going to stay on with Tiger. What happened the last time around when Lee Fixel was at the helm, was a complete turnaround in terms of valuations and in some way a lot of VCs thought that those became too excessive and very boosterish too early. Do you think it’s a good signal to have someone like Tiger come back and obviously the focus is slight different this time around. It’s more B2B and SaaS and cross-border. But, what does it do when an investor like Tiger comes and does I don’t know if I want to call it spray and pray, but it is 200 odd million in a span of six months, what does it do to investors who come in early on? I mean they don’t do this kind of sort of rampant - they are more consistent, right? So and India is always been plagued by that. You have a SoftBank who sort of comes in. You have a Tiger. There was a time when DST came in. How does it distort the market? 

Tarun: Yes. So let me start and I would love Miten to add. I think it’s - you mentioned about Tiger, my sense is it’s a net positive, especially for investors like us that come in significantly early at seed and series A. Generally the companies that we fund tend to be feeders to the ones that they look at. Not always, but most of the times.

I think companies that are in need of capital somebody like a Tiger coming in with a lot of high conviction, Tiger is known to be investment - like a fund that tends to back their companies for the long term. To me, that’s a big positive.

In terms of focus, B2B, B2C, my sense is I think the opportunities are everywhere. We continue to see lot of opportunities in B2C. Tiger obviously has chosen to do more B2B thus far. At least I haven’t read somewhere where they won’t do B2C. Maybe they have just not found stuff that they have liked so far.

In terms of check sizes valuations, honestly, it is very relative in my view. And I’ll tell you what I mean. For a company, for a fund that is as large as a Tiger or SoftBank for them to come in and give slightly higher entry valuation, they understand that that’s not the last check that they are going to be writing. And they have significantly longer horizons when they make some of the investments

And so when they are coming in, they are looking at this as, hey, this is a step in the door for me to get in some ownership. As the company scales, I will get opportunities to put in more capital and basically get to my blended ownership whatever that number may be. I think that’s a good thing and a bad thing. The good thing is initially like you said there is a lot of Euphoria.

Samidha: Yes, let’s focus on the bad things because that’s I don’t think people talk more about it. 

Tarun: Like Miten said earlier, is there more enthusiasm in some cases? Yes, there will always be. There is going to be more euphoria. There will be not every story is going to play out to perfection. And the ones that don’t, I think they risk and it’s a conscious call founders take. There is a risk of over capitalization. I think companies that today should be raising x, sometimes are raising 2x, 3x, 4x. They need to find - obviously as a result, valuations have gone up because a lot of these valuations today aren’t necessarily justifiably bottoms up.

So if things go well, it’s great. Things don’t always go well. Almost always things go sideways for some time. And founders will need to navigate that. It’s the - they need to take the good with the bad. And so if there are cases where - and by the way, we talk about Tiger as being one of the smartest investors. The reality is they have been very measured in taking repeated bets in companies. So for example - there is an example of Flipkart where they went all in. they put in multiple rounds where they put in a lot of capital and had a great exit as a result at the end of it. But they have been very measured in several other bets that they have made where they have not doubled up. And honestly then in their mind the founder had a shot to prove something out, things didn’t work out. That’s it. They move on to the next investment.

And so, I think every founder needs to recognize and then decide for themselves what is the right financing strategy for them because it may not work for everybody.

Samidha: Miten, you want to talk a bit about you are obviously not a Pure play VC. You are more of a corporate VC. So there are lot of companies which are incubated. You also do investment. So you do multiple sorts of investments. I mean how do you see a SoftBank or a Tiger in the chain of things here? 

Miten: Yes. So, look, I’ll answer the first question first and then I will come to the second part as strategic investor how do we look at it. I think Tiger benefits from a global perspective on a daily basis that a lot of us that are just in the market don’t have and don’t have the luxury of either the mandate or the focus. So what happens is I think when they look at it at the global level, they are able to pick macro patterns in different markets at different points in time. So I think the first time when they came around and put a lot of capital. They saw that look the B2C market might now takeoff and go back maybe one or two big ideas. And that’s where they picked very large ideas. If you look at most of the kind of companies they picked, they picked that could become multi-billion dollar revenue opportunities if the market played out.

And I think what they are seeing now is - and obviously it’s my conjecture. But I think what they are seeing now is that India can now be the sort of backdrop for global software companies to be built out of here for a couple of reasons. One is we have the talent pool to build software, unlike China. China has hardware. China has AI. China has other stuff. But India does basic software very well. And it can sort of build an almost as good as sales force company out of India because software engineering there and the innovation there is not sort of very complicated. You are just replicating stuff and just building it well.

Secondly, Indian companies are also trusted. Indian software companies are lot more trusted than Chinese companies. You all know the whole trade war. You all know the big picture about of IPO ownership and things like that. So, again, think about the large outsourcing industry. A lot of the data flowing in from the rest of the world comes to India. India is trusted as a place where these things will happen. So I think there are some trends that Tiger is probably looking at, which we as local market operators don’t have the - sometimes don’t have the perspective to do. And now you can say this is Tiger’s leadership or a lack of creativity from people like us. But I think the fact is that I think that’s what they have identified now at a macro level. This is where the opportunity is.

Also, B2C has become very competitive. You have all the big players in India now. Alibaba is competing. You have got SoftBank with its capital. You have got Amazon. You have got Tencent. You have got Ask. You have got Jio. You have got some much competition in B2C. So the platform that have gotten some scale, they have some inherent advantages that a new startup will not have. And so, I think it’s probably combination of these factors that’s playing on Tiger’s strategy.

I don’t think it changes anything for us frankly because it’s one of various investors who look at the market. And I think on a company-by-company basis when you look at an opportunity, you have to convince any investor who will sort of buy into that vision. And then you sort of go from there. So, Tiger may - is Tiger not going to do B2C deals? I don’t think so. I think it depends on the opportunity. So, I think we are trying to read too much into what they have done in the last six months. I don’t think it’s sort of a long-term trend.

Samidha: But isn’t that happening, Tarun? I mean SoftBank the last time I met Rajeev Misra, he very expressly said that they want to increasingly do in India 100 million of investments in companies which are valued at less than about 500 million.

Tarun: I think it’s a combination of two things. One is there’s only a handful of opportunities which are a billion dollars plus and where there is a clear line of sight that becoming multiple millions of dollars for even somebody entering at that stage assuming some dilution along the way for them to get 3x, 4x return on that kind of check, the reality is you are looking at that company being at least 10 - 12 million dollars. There is not as many opportunities that are clear, number one.

Number two, I do believe that I think with specially now with more of a local team in place, the view is that should we be entering sooner because there is significantly much more value creation that we can be part of. And, there is a lack of even 100 million check writers. The reality is there is not a dozen check writers already at that stage. And so, there is almost a phase where either you are too early for them. and then by the time maybe somebody else goes in and raises capital. So even entrepreneurs prefer to get them in early because it does definitely gives [CROSSTALK] capital.

Samidha: But what happens to the damage which is been done I would say between 2014 and till about a year ago when they actually pumped a bunch of money in companies which have not really grown? And I mean you can list them out, right? Would they become multiple billion dollar outcomes? I don’t think so. And I mean it’s only the SoftBank companies, but I am saying if you look at the larger ecosystem and Tarun and Miten you both can come in, I think when I take a step back, I am looking at those - and these are conversations we have had so many times. You look at the revenue. You look at the amount raised, you look at the losses, those businesses are just not growing enough for anyone to make those kind of returns. I mean what is the big picture then?

Miten: Underlying issue with India is GDP per capita, right? I think there are few things you cannot suddenly wish away.

Samidha: So then does it really require the kind of money that founders are raising? Or, is it just about say, Tarun coming in and he has put a million dollar as part of a seed round and then after that he just has to keep raising money to show some returns on paper?

Miten: No, I don’t think it’s that. Tarun can answer that. I mean coming to answer that. But see, look, I think there are few - there are many layers of your question. So let’s go step by step. One is a lot of capital was invested what can we show for it. That’s part of your question. Now, look, I think it is very market to market startup to startup specific. If you look at some of the large platform plays which are high frequency, ecommerce, taxi, food delivery, payments, all these things I think we have large scale companies. Of course, there is profitability challenges, but that’s a function of competitiveness. 

Indian consumer has adopted internet as a way of life in a big way. And you are seeing who would have thought there will be 70 million food deliveries in India on a monthly basis? No one. If someone woke up in 2015 in the middle of night and said, bro, ye hoga. I would be like, man, giving me what you are smoking.

Samidha: But I don’t know how are sidelining the profitability issue? I mean that is a big issue.

Miten: No, profitability is a function of competition, right? Now what happens is there are two ways competition gets solved. Typically if there two players who are competing like crazy, either both of them realize that, look, there is no end to this and we will keep burning. And they consolidate either directly or they rationalize and investors stop putting more capital. Now there is no way to predict when that stops. And one reason why more capital keeps coming in is that people see that the 70 million food orders, for example, let’s take food delivery. Seventy million is probably going to going to 300, 400, 500. If some people have that line of sight, they will keep investing with that conviction.

Samidha: With 50 million burn per month?

Miten: Yes, something like that.

Samidha: That’s amazing math.

Miten: Look, I think there are cases where this all looks crazy from the outside and it even might be crazy. But, there are people who are running these companies. Some of them are my good friends. And I think obviously they are very worried about the scale of the risk and stuff like that. But, I think there is real depth in the market. Zomato yesterday announced they are 250 cities. Swiggy is in some 175 cities or 200 cities. The addressable market for a lot of these services is actually very large.

I’ll give you another data point closer to home. For Gaana, Gaana has a 100 million streaming users on a month basis. This is not something we had put in our optimistic plan. I think the market surprised us that how fast it’s moved. So I think there is depth. And sometimes what happens is you end up investing a bit ahead of the realization, but that’s the nature of optimism, right? You end up being more optimistic and then it slowly catches up. Hopefully, you have not set up your fixed cost to be so high that you can’t survive through the winter of not having more capital. That’s first part of your question.

Second part of your question, I don’t think any investors have caused any damaged if you ask me. I think that India is just a competitive market. It’s an open market. Anybody can enter. And so what ends up happening is that companies take a longer period of time to get to profitability. Now, that said, current state of the market, I don’t think you can wish that away. So when we look at companies, we are generally conservative. We don’t go into high burn companies because we know that we can’t keep backing that. And we don’t want to take a risk maybe when it’s a very binary outcome of whether you get this one guy or you get him. If you don’t get him, you are dead. And if you get him, you sail through. And so that’s at least our perhaps slightly conservative approach.

Samidha: Tarun, you want to come in? Because you’ve seen a bunch of these consumer internet companies scale, does size and scale really convert into you making money? I mean we saw that with the Uber IPO. There have been just so many questions raised. And there is so much skepticism, scrutiny. I think it was like a flagship for the consumer internet wave. 

Tarun: So let me answer the question more broadly. And I think I wish there was a black and white answer to what you are saying. And the reality is it’s a complex sort of multiple layers that one needs to look at. So one is I think we have to understand at a macro level, I agree completely with what Miten said is that India is a market and people do increasingly view India as the last large remaining open tech market that is potentially going to give venture scale returns.

And so I think there is more enthusiasm than there is reality on the ground right now. And that results in hyper competition. So, number one. And I think that’s something we all have to accept and bake into the way we think about starting companies or way we think about investing in companies, number one.

Number two, within this I think there is the whole GDP per capita point. It’s increasing and it’s something which we all are very bullish about in the next decade. It’s not there yet. And I think the smartest founders and the smartest investors are factoring that into the way they are thinking and advising their portfolio companies in terms of how to scale. Not everybody is doing it. But some of them have access to unlimited amounts of capital for very long period of time or at least they think they have access to unlimited amounts of capital, and so they are playing the game that way. Now it’s hard for like I said a lot of these are very nuanced things when in terms of how much people are willing to play that game.

Samidha: So, is that why someone like Tiger - because we started our conversation with Tiger, I mean they saw that entire cycle and I know for a fact that they did in some way get lucky with Flipkart. It was an outcome which happened. It’s great. But, I don’t know if there is another Flipkart happening to any of the other consumer internet companies any time soon in India. And therefore, they have taken this very educated call on doing more on SaaS and B2B where capital is not your biggest moat. Maybe it will after Tiger has entered the space for all you know, but yes.

Tarun: Unlikely because generally enterprise companies don’t need as much capital.

Samidha: Yes. So why would a Tiger take that call which is like a flag bearer in terms of consumer internet. They spotted it much before anyone else did. Are we seeing the plateauing of the consumer internet space in terms of opportunity also because it just sucks too much capital at the end of the day?

Miten: I don’t think so at all. I think we are putting too much weight on one fund and firms.

Samidha: No, it’s not about a fund, Miten. I mean you can pull out data and you will know. Flipkart, 10 years down the line is…

Miten: No, I am not talking about the value creation. What I am talking about is the last part of your question.

Samidha: We are talking about the venture opportunity, so we have to talk about value creation, right?

Miten: I agree with you. See, what will happen is in - now you got to think about venture opportunity now differently given there is new underlying infrastructure in India today as compared to where underlying infrastructure was five years ago. Five years ago, you couldn’t ship a product easily to 26,000 in India. Now, you can. What does that do to a new age coffee brand? You could build a new age coffee brand which could become the next Luckin coffee, for example, now because there’s infrastructure, there is payment. There is x, y, z. So what happens at every point in time - Let me ask you a question. Is the U.S. consumer market fully tapped out because it’s a $20 trillion market? Not at all.

Innovation cycles happen based on different baseline infrastructure. Today now India looks very different than it did five years ago. So, I think that India consumer story is nowhere close to done. It’s a very exciting stage. In fact, now the kinds of things you can do, you couldn’t do five years ago. Now the question is what will be that massive scale company. It’s tough to predict. Maybe some of us have them in our portfolios and we can share. But, it’s tough to predict in a very general manner where that will be.

Samidha: Even if we look at the U.S. and both of you would have sort of a macro view on what’s happening there. We haven’t really seen after the vintage of Airbnb, Uber, some big consumer internet breakout story. I mean everyone is skeptical about the consumer internet. I mean even in China for that matter look at what’s happening with DiDi and a bunch in India.

Miten: So China, you saw a different things happening. China is a very again, innovative competitive market, but you saw different type of commerce happen. You have seen different types of social media happen. What experience is TiKTok. TikTok is a new kind of social media and nobody expected it. It’s come from the nowhere. It’s global phenomenon now. I think these are gain silver bullets which I don’t think exist.

As an investor at least the way I would look at it is, look, is there a underlying large market opportunity that a team is going after uniquely. And, with current or potential future infrastructure, will this become large. Let me go back to the previous point I was making. I think there are three - four areas in India where you could now have large companies. One I think is gaming. Now you have 200 - 250 million active monthly gamers. It’s a big enough platform. If somebody gets to 20 - 30% or 40% market share, would have a meaningfully large company? I think so.

I think education is another one where you’ll see a lot of change. I think there are again a few underlying changes that are happening in education. Models of education I think Tarun has an interesting company. I mean Matrix has an interesting company that Tarun can talk about in that space where it’s a different financing model for education. How does that change things. Also, India I think overall is massively underpenetrated when it comes to credit. I think that’s again a very large platform opportunity in India to think about the number of people who have smartphones are somewhat linked with Aadhar or some other kind of authentication KYC and now you can build a new product on top. So these are large platform opportunities I think which are all B2C potentially.

Samidha: Tarun, you want to jump in and talk bit about Reliance. It was seen with Jio to facilitate a lot of the adoption in terms of data. How do you look at Jio now as a company which is - or Reliance at large actually getting into this space which was largely dominated by the big internet company? So from being a facilitator to actually being a competitor.

Tarun: I think you have to take the good with the bad. All of us are in many ways we have to thank Jio for what they have done. I think essentially what that is, in my mind, they accelerated what a lot of us would five years, they have brought it down to 18 months. And they executed this at scale. They have crashed data costs  by 95%. They have increased user base by 6x in the last two - three years. They have average consumption - I was just reading a report which was really interesting. Average consumption of a Jio user today is 20 gigabits a month. It’s hard to believe that 18 months ago, the average consumption on some of the rival networks was 500 megabits a month. People are using like 40 times the amount of the data they were using just two years ago. And that’s essentially the power of what they have done. 

Now has it opened massive new business models? I don’t think TiKTok would have been there without that. I mean the whole market context was completely different. And a lot of our companies have seen in VC we keep talking about what is the new normal. So there was a time we used to meet a company and if they were doing 25, 30, 40 lakhs a month, you were like, okay, you they seemed to have cracked something.

Six month ago, that number was if they have hit like a crore - crore and a half, okay, they have hit upon something that’s interesting. Today, companies hit 2 crores a month like this. And so, what they have done is they have changed in my mind what the new normal is. And as VCs we need to keep reinventing ourselves to understand what is the new normal such that because anyone once you start can get to that very quickly as a result of it.

Now coming to what it means as a potential competitor, as a potential both to sort of companies and as an investor, I think the reality they have the built the pipe. They aren’t monetizing the pipe very richly. We all know that. And they are going to find ways to monetize it. And I think there will be some spaces where Reliance as a group will have natural synergies with their sort of downstream businesses or upstream business whether that’s entertainment, whether that’s content, whether that’s commerce, especially B2B given some of the backend structure.

I think you have to bake that in. It’s the same way today if I am starting an ecommerce company, I am asking myself, okay, what can I do which is niche enough that an Amazon or a Flipkart won’t come in sort of eat me for lunch. I am going to start thinking the same way about Jio. And I think that’s the new normal that founders and investors will need to think of because till now investors used to ask this question, well, what if Google gets in your space. We are actually asking this question, well, what if Jio does this?

Samidha: Miten?

Miten: I think Jio is a phenomenal company. I think combination of what they have executed, all the things I think Tarun already said. But I think there are two words that - two attributes which I think of them very highly on. One is their scale of the ambition. I think they are massively ambitious company. I think they have proven this time and time again. As Reliance, they have got big appetite and they are able to invest on their big appetite.

And then secondly they are actually very innovative. For the size and scale of company, they do have an imagination which is quite up to date and quite futuristic. And, yes, they are a formidable competitor. Somebody we look up to as a company we take very seriously.

Tarun: I think the biggest impact in my mind and we are just taking a little bit of a zoomed out view, I think a part of the reason why people are building copycat companies till maybe a year ago was we were building for the 100 million California Indians. I think what Jio has changed and what we will hopefully realize or see in the next three to four years is it’s actually opened up opportunities for the next 500 million real sort of Indian internet users. And a lot of those companies aren’t large enough today. And so, it’s hard for people to see. But, I think if you were to look back three years from now, I think the biggest impact would be that because we have given that mobile data enabled phone to literally everybody across some of the smallest villages and towns in this country and you see their internet behavior and their usage behavior, I mean today some of us are we are investors in a small ecommerce company and the kind of stuff that they are seeing in literally tier 2 tier 3 towns, the kind of [CROSSTALK] back.

Samidha: And are you seeing transactions as well happen on these platforms?

Tarun: We are seeing transaction ramp up happen faster than what the first generation of ecommerce companies did and continue to do in those cities even today.

Samidha: Because there has always been skepticism about whether these consumers will be to…

Tarun: I think it’s a fallacy that these people are going to be the non-transacting users. Yes, the economics of the order you need to fix. The transaction size is not going to be the Rs. 1500 AOV that a Flipkart or Amazon will see. He is going to be Rs. 300 or 400 product. Now the question is can you architect your business model that will make it work in the Rs 300 - 400?

Miten: Sustain at that point and make profit.

Tarun: You if can, I think there - it’s the proverbial sort of whatever at the bottom of the pyramid. So, I think there is definitely a lot that we can do. And like I said, these are transacting users. We can see these people that are literally captured 5 to 6 percentage of households in tier 2, tier 3 towns. I don’t think any commerce company has captured 5 or 6% of households in our city.

Miten: Now tell us what it is.

Samidha: I think I know the name.

Miten: I think baseline reconfiguration has to keep happening. Market is very different, very exciting.

Samidha: Yes, but for all the optimism, I think if I were a VC, I would think how do you kind of - there is always something new in India which comes to threaten you as a startup. I remember four back the conversation was Ola versus Uber, Amazon versus Flipkart. After a couple of years, it’s become Reliance has got its tentacles everywhere. My fear is that they may be the ones to get a foothold in this sort of beyond 100 million user base quicker than a startup. And I mean they have a lot of things going them on the regulatory front.

These big companies, I think, are somewhere not read very well by even venture investors and a lot of founders. So I think very critical that they don’t get a foot in the door. And like you said, they have access to all the data.

Miten: Look, I think all that said, there’s one thing I will say about the Indian customer - consumer is that the Indian consumer always chooses the relatively best product.

Samidha: Hopefully. Not led by discounts and cash backs.

Miten: That does happen, but ultimately that alone doesn’t sustain. Your product has to catch up with it. You have to keep delivering. And so, I think that while there are some inherent advantages. Many of us have.

Samidha: Miten, you can spare some skepticism come on. Come on, do it.

Tarun: You need to some optimism, right?

Miten: So, I will tell you where I am skeptical, okay. What I am skeptical is exits.

Samidha: Where are the exits, yes.

Miten: Where is your outcomes going to come from. And those I am genuinely very worried about because of the fact that again, per capita GDP is not multiplying overnight, right? Like these things are changing very slowly. And so, in number of cases where you have got high burn, you are seeing companies look at adjacent business models. And when I start to see that happen too much, I think I get worried.

Samidha: Tarun? Actually I am going to round it up. I think we are sort of out of time. I just want your quick views on the fact that a lot of the U.S. internet companies went IPO in the last four months. There is a view - there is a contra view that it has also happened because they knew that the public market was a way to go for them because private money would not be able to sustain the kind of burn et cetera, and most of them are loss making companies. How is the next one year or so going to pan out considering you know the competitive landscape in India is also very different now. How do you sort of see it for early stage companies? I mean is there a lot of money still? Would factors like, which we have spoken about, revenue, market share, losses et cetera, start to play up far more as we go along?

Miten: See, the amount of money that will come into the early stage market is a function of how much early stage money there is in the funds who have raised the money. So if you look at the market right now, Matrix has raised a fund of about six month or a year ago. Sequoia has done that. Lightspeed has done that. Excel has done that. There is a bunch of money sitting on the sidelines now. So I think a lot of that will get deployed. I don’t think the U.S. IPO market will affect this at all.

I think if there are interesting companies, people will find them, they will invest. I think the bigger impact that the IPO market will have is the amount of growth money a lot of companies will get. What will happen is they will say, look, we all thought that we can just burn away and ultimately get to profitability. Guess what? That story didn’t play out in so many cases. And the public market is very harsh. I was actually watching the Uber IPO live and I was worried for a moment that this will not list. There was a moment I thought, Oh my God, this may not list.

Samidha: Because I remember in 2014 or ‘13 when Alibaba went IPO, the massive chunk of money came after that, right? And India was the big beneficiary which is not at all is the sentiment right now.

Tarun: I think the sentiment is going to change. And my sense is that largely Uber but also by another companies a lot of companies were built in the grow at all costs, focus only on not to share and without looking at the burn line. I think there is definitely going to be a difference in way in which people will start thinking about it. Like I said depending on cost of capital, people look at growth versus profitability very differently. Uber was built in an era of zero cost of capital where next best alternative was really nothing. And so you had to look at ways in which - my sense of those days are not over but I think people are going to be a lot more pragmatic about building companies in a way where eventually they can get to profitability with a reasonable amount of time.

Also, I think and we tell this to our founders everyday that listen it’s fine to burn as long as you know what are the levers to turn when you eventually need to get to profitability. I don’t think some of these companies have figured out what those levers yet. And that’s very dangerous. So if you are able to - if today I had a choice as an entrepreneur that grow 100% and burn x versus grow 60% but don’t burn money, the challenge is don’t think the second option exist for most of these companies. They actually don’t know which is the part which is worrying. But for some companies, I think that option is available and I think those are the companies that will eventually get significantly much more value over the next few years. And so people will reward that.

Miten: But that’s all growth stage, not early stage.

Tarun: That’s all growth stage.

Samidha: So what are the kind of exits that you are looking at?

Tarun: So, I am little bit more optimistic there. And as we always are. The reality is that, listen, if you look back again we understand the India venture ecosystem is all of 10 years old give or take. And out of the first 10 years, first five years we didn’t have any internet users to so to speak or we had very few internet users. So it’s still a very very nascent ecosystem. My bet and my view is that the next decade is the decade where there will be significant - a lot of these questions will get answered. Let’s take a step back. Eighteen months ago, there was a question of will Flipkart survive. There was a question will Ola survive. There were multiple questions. Will Indian entrepreneurs win? Will global companies come eat and your lunch? Will an Alibaba whatever come and basically destroy you. None of that has happened, right? None of that has happened.

Samidha: My only question is, Tarun, that these outcomes are smaller than what you would have thought or even [CROSSTALK].

Tarun: Honestly again not - well, they are much larger than ones that I thought. Like if you looked at Flipkart 20 billion, how many of us really genuinely thought that it would get…

Samidha: I think that is an exception. There was Wal-Mart which was looking to come in. This was the only thing it could buy.

Tarun: No, but you can’t take away from the success. The data is there.

Samidha: No, I am saying what is valuation of Ola at this time? I mean we are not - what is the actual valuation of that company which… 

Tarun: Well there is smart private investor that has looked at all the data.

Samidha: What is the outcome for a company like Ola?

Tarun: That has done all the diligence and has basically looked and said, well, here’s the value I ascribe. Now listen it’s a point of view. And it’s like I said as long as it’s not public, we can always keep debating it. Even with Flipkart, there was a time where everyday some mutual fund that [CROSSTALK].

Samidha: Okay, let’s take for instance Paytm. You take away the cash backs - that company is valued at whatever 14 billion or 15 whatever. I mean it’s anyone’s guess. What is the value if you take away the cash backs? Look at the revenues, I don’t know if still(44:34) there is a model which will get them to a place where they can make money. It’s still work in progress.

Tarun: I think they have solved a very basic use case which is made frictionless payments in this country this possible. With UPI, obviously some of that advantage has gone away. My sense is they are trying multiple things. Now I think all of us agree that there is a business model search that needs to conclude at some point. I think the day they do that, the valuation will be justified. If not, it’s going be hard.

Samidha: So exit for a company of that sort which has got a valuation which is say 15 billion is what in India?

Miten: Either some massive trade sale happens or they have to go public. I would actually plan for the later and then - because the first one you can’t plan for, let’s hope.

Samidha: So, are IPOs in the pipeline?

Tarun: So will tell you my point of view  there. And like I said I am little bit more optimistic at least given some of the companies that we are seeing. And again let’s go back, it’s a nascent market. If I take a look at Indian tech companies till two or three years ago, you could not even count a handful of companies that had 80 to 100 million dollars in revenue. If I take typical NASDAQ listing, 80 to 100 million in revenue, growing 50 to 70 at least on year on year. That’s typically the scale that is required for IPO, right?

How many Indian companies could be named three ago that had 80 to 100 million dollars in revenue? Literally a handful. Today, I think I can count maybe a dozen, maybe two dozen companies that are either on track to get there this year or are already there and have exceeded that this year. Some of them are burning more money than should be, but there are others that are not burning like I gave some of the names then when we spoke. And if I take last year while Flipkart was the biggest news of the year, the reality is that there were another half a dozen to 10, maybe 8 - 10 companies that actually there were significant liquidity generated for venture investor mostly through strategic or like [CROSSTALK] secondary exits that happened.

My sense is that this is the first time where VCs actually have the option to decide whether they want to hold or not. Weve had that in some companies. Miten has had that in some of his companies. A lot of investors have that. Now, I think to me that is where the maturation of the ecosystems are showing up where you actually have a call that you are exercise and saying should I sell x stake in this company or should I hold for more compounding? Earlier the exit used to be it almost was like never a choice. When you get an Apple it happens, you just take it because you don’t know when the next Window will come.

Today, I think there is a lot of people actually have choice in some of the quality companies. And so my view is it only gets better from here in the next - the next decade should be better. But, I echo your word of caution that there is too much capital happening. In some of the sectors, there has been over capitalization. And unfortunately even at very large scales, companies haven’t really figured out a sustainable business model. And I think that’s something that it needs to be solved if we are to have to any of these sort of over enthusiasm sort of blow ups.

Samidha: Cool. All right, thank you so much gentlemen. It was a great chat. Hopefully, we can do more of such no holds bar where Miten is slightly more skeptical. Thanks a lot.

Miten: Thank you.

Tarun: Thank you so much guys. Really appreciate your coming over.

Miten: Thank you.

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