The discovery of India 2 and its impact on venture capital

Whispered amongst Indian VC partners was a secret, one that if out, could soften the massive interest in India from global investors. This interest made India, with $13.5B, the world’s 3rd largest recipient of Venture Capital last year, behind the US and China.

Contrasted with the UK, an economy of a similar size to India, which in 2017 received $4B in VC Capital, this was exciting. However unlike the UK, where almost the entire population was addressable by startups, in India, what was known to VCs, was that only around 50M people, 4% of the population was addressable.

The food delivery services, e-commerce companies, e-learning startups, taxi aggregators and travel portals among others, have been bound by this relatively small market.

To keep growing, they have tried to break the ceiling, by diversifying their business into things like payments, logistics, creating in-house brands; or acquiring rivals, and some going overseas.

Just as things looked bleak for the India startup story, there was a change for the better. Critical enabling infrastructure, like Aadhaar (Identification), Jan Dhan (financial services), Gram Jyoti (rural electrification), BharatNet (fibre optic backbone), recently allowed another 300M users to come into the ambit of the traditional venture capital funded addressable market.

This was exciting, because, just like the 50M before them, they too buy products, watch movies, eat meals, communicate, travel, study, et al. It was akin to a new continent of willing consumers being discovered.

Existing startups have begun launching features and products to onboard these new customers. Local language versions of their apps and websites were the first step.

Next was accepting a broader set of payments, with activation of gateways for RuPay, mobile bill linked payments, and other measures. Then there were additional measures like tying up with new logistics providers, curating a range of relevant products and redesigning apps and websites for more new to Internet users.

What is now equally exciting, are the startups that have emerged specifically for this next 300 customer set. Built from the ground up to cater to these customers, they are different in tone and tenor from those made for the India 1 urban, English schooled market.

With a highly “Bharat” feel, their User Interfaces, verbiage, product ensemble, distribution methods all are specifically created for this market.

One such startup is offering “assisted” commerce to rural consumers, it has developed a set of agents, whom consumers approach, place orders with and then a few days later, have then home delivered by the agent. What is key here is the additional delivery area coverage the agent brings, going where courier companies have not yet reached.

Another startup, is looking to create a social network where people can post and follow each other. Offered only in Hindi and other Indian languages, it aims to make its soul Indian, thus appealing to users far beyond that of a local language veneer. It has achieved 5M+ downloads in just over a year of its launch.

Digital media, e-commerce, logistics, education and financial services are some of the areas where the earliest startups have started emerging for this new massive segment.

2018 and 2019 should see a flurry of activity as funding takes place, users get habituated to them and they start growing rapidly. It appears now, the original India promise of being amongst the world’s most exciting venture capital investment markets is coming true.

(The author is Managing Partner, Orios Venture Partners. Views expressed above are his own)