Employees sit in ball chairs at the Flipkart office in Bengaluru. (Photographer: Dhiraj Singh/Bloomberg)

The 2019 Agenda For India’s Startups And Venture Capital


First, Happy New Year wishes to all – may 2019 bring us even greater happiness, health, and success!

While sharing a few thoughts reflecting on the past year, with another eye on the new year—first principles come to mind—fundamentals should hold and investment flavors shouldn’t change every quarter or even every year for that matter.

“We are long term investors. We invest in cycles, a decade at a time” [an ad I recall seeing a lot recently, that resonates and rings true].

2018 – What Stood Out

  • Flipkart validated Indian venture (scale returns)

Walmart’s acquisition of Flipkart validated for the Indian ecosystem that funding life cycles work, with every significant stakeholder making money. The outcome was real, and occurred at massive scale.

  • Unicorn cohorts and serial entrepreneurs not yet at critical mass

The past year/s have seen unicorn cohorts and other large tech startups leave to start their next new things. This has resulted in a dramatically improved founder pool in terms of maturity, track record, ability to build big, and hire effectively.

  • The China effect - is here and its real

Especially in the context of the Content + Commerce + Community troika in the consumer internet space, China has come here to stay. Sharing of ‘China Scale’ best practices and infusion of capital is welcome – on the other hand, we should watch out for being ‘muscled out’.

  • Capital moats, taken to the hilt

Amit Ranjan, the co-founder of Slideshare. recently tweeted an interesting statistic:

2018 saw a period of massive capital raises, especially for consumer category leaders, who have extended their ‘time to play and win’. But the key to winning has to be building a sustainable and defensible advantage. Else, one would just run out the clock and be out of time, and money.

Looking Ahead At 2019

1. A Wishlist (Macro)
  • Cycles maturing

Relative to the prior few years, 2018 saw renewed interest into India venture, both from investors (VCs) and fund investors (LPs).

That said, the core issue has always been time. As statistics show, valuation mark-ups between funding rounds or exits have always taken longer for Indian startups relative to our valley and Chinese brethren.

Of course, our ecosystem is still much younger and as yet nascent.

But there’s good news! In 2017-18, the time period—at least for Blume—between successive funding rounds for our own portfolio leaders shortened, and the pace (for <= ~ $50 million) exits also increased.

It would help the entire ecosystem to see portfolio—and thus fund—life cycles move to maturation in 2019 and beyond, as LP distributions usually translate to more LPs backing VCs, and in turn, startups, with deeper conviction.

  • Scale outcomes

Even if the pace of up-rounds/exits increases, scale/size has been the other issue that needs fixing.

Flipkart massively validated the Indian ecosystem life cycle. In contrast to Walmart’s $3 billion acquisition of Jet.com, Walmart-Flipkart was not just India or Asia’s largest, but possibly the world’s largest e-commerce M&A in recent times. But, its just one, we need many more.

Indian founders have never been known to think small. It’s never been a lack of vision, or size of desired outcomes. It’s more about assembling the right teams that can execute.

Again, good news—once mainly the domain of India’s leading B2B stars (like Freshworks, Druva and now Grey Orange and many others)—today we’re seeing consumer stars like Ola and Oyo lead the way for international expansion.

I’ve lost count of the number of corporate venture groups, strategics and even family offices of large corporations reaching out to us with inbound interest in our portfolio stars – all bode well for the Indian founder!

  • Real change on the domestic front – angel tax, funding and M&A interest, while paying for ‘true value

Amidst this wishful thinking list – the growing occurrences of angel tax and other cumbersome rules and regulations being imposed by our (otherwise startup-minded and friendly) government need to be rectified and streamlined immediately.

Senior government officials “get it” and many said so as much on a recent panel at the Indian Venture Capital Association year-end summit in Goa, moderated by Karthik, partner at Blume Ventures.

The IVCA, where many of us VCs are involved, is doing a proactive and stellar job of raising these critical issues, and our hope in 2019 is these voices will be heard out and actions implemented.

Paying for top dollar” – Silicon Valley and other western investors are known for paying for inherent value, and don’t seek to buy on the cheap.

The good news is the likes of leading Indian multinationals—like the Mahindras, Tatas, Godrejs, JSW, and more—have strategic/corporate venture arms.

We’re glad to count a number of them as co-investors into some of Blume’s portfolio companies.

Ratan Tata speaks as Piyush Gupta of  DBS Group listens during a session advising startups. (Photographer: Nicky Loh/Bloomberg)
Ratan Tata speaks as Piyush Gupta of DBS Group listens during a session advising startups. (Photographer: Nicky Loh/Bloomberg)

More good news—on domestic IPOs—our own E2E Networks went public on the NSE SME Emerge platform in 2018, inaugurating this novel channel of listing! On its heels, the NSE itself, Tarun Dua (E2E’s founder and CEO), and my partners Karthik and Ashish were all inundated with inbound interest from high net worth investors, and also similarly profitable startups, keen to explore this avenue.

There’s lots of innovation possible that can abound on the domestic front. All we need is supportive and committed stakeholders including the government to help make that happen!

2. Investment Theses And Sectors For Ongoing (And Untapped) Innovation

* Caveat – here are a few sectors outlined (not meant to be a prescriptive or an exhaustive list by any means).

Ongoing, Work Carried Over From 2018…

  • The future of work

The acquisition of our Mettl by leading global consulting firm Mercer showed continued and strong global interest in this space. ‘Skilling’ has become vital for blue and white collar professionals alike.

Startups that can redefine the ‘future of work’ and how we will all learn, re-learn, re-skill, and constantly enhance our knowledge bases—individually or within teams—will stand out.
Robotic arms weld panels of automobiles on a production line. (Photographer: Akos Stiller/Bloomberg)
Robotic arms weld panels of automobiles on a production line. (Photographer: Akos Stiller/Bloomberg)
  • The core Next Billion User areas – education-tech, healthcare, fintech - financial services

This troika will continue to see innovation. In Fund II, we made several plays in each of these sectors – to name just three of many, Unacademy, Healthifyme, and Smallcase in each. Interestingly, we’re seeing a hybrid or convergence of online/offline models (e.g. Turtlemint in Insure-tech), integrated hardware/software stacks (e.g. Tricog in healthcare), etc. These are the classic large-market / hard problems to crack for India, but founders need to clearly differentiate themselves – as these core areas will continue to see the most competition.

  • Content, commerce, community

This category is well established and also discovered by investors, including and especially the Chinese. Local content, specialised content for communities like women, millennials etc. are seeing interest as a few examples. Monetisation will continue to be a key success factor.

New Untapped ‘Frontier’ Sectors

  • Agri tech

Like healthcare (which interestingly accounted for zero startups in our first fund, and then Fund II saw us making four), this area is ‘ripe’ for disruption. Why? Cheap smartphones in the hands of every farmer, thanks to Jio’s almost-free mobile access, disintermediation of brokers across the food chain, and an interest from founders seeking to impact this core bread and butter sector of India.

A farm worker talks on a mobile phone on a field in Bhusawal, Maharashtra. (Photographer: Dhiraj Singh/Bloomberg)
A farm worker talks on a mobile phone on a field in Bhusawal, Maharashtra. (Photographer: Dhiraj Singh/Bloomberg)
  • ‘Bharat’

The Indian hinterland, beyond the metros and tier-II and tier-III cities—across both consumer and small and medium businesses—will absorb innovation across all sectors including financial services, healthcare, education, retail innovation, customer loyalty, and others. We’ve already seen Silicon Valley giants, large impact funds, and development finance institutions take a serious look here via their own strategic initiatives and investments. Google, the Michael & Susan Dell Foundation, Omidyar Network being just a few.

  • Old economy will be one of the biggest beneficiaries of new-tech

Our own Grey Orange Robotics is a prime example. Our Blume Fund I-backed flagship investment has transformed from a vendor of robotics solutions today to a global full-stack warehousing automation platform, serving core manufacturing, FMCG, large retail and other ‘traditional economy’ giants across the world. Some of the biggest uses of artificial intelligence / machine learning / internet of things are being actively applied to such traditional brick and mortar businesses. Locus, Zenatix (now part of Hero Electronics), Nivaata (and its Routematic platform) are some good examples.

  • B2B evolving beyond enterprise software and SaaS: deep tech / hard tech

We’re seeing, after a long time, emerging ideas in areas such as 3D printing, battery / electric vehicle technology, life sciences/biotech, autonomous / virtual reality / augmented reality etc.

As one of our sister funds within the Draper Venture Network calls it, hard tech will be a key pillar of B2B/tech going forward. Linkages for next rounds of funding, sales and business development, acquisitions with overseas partners will be key here. SaaS and enterprise software, the core of traditional India B2B will continue, but a sharp focus on vertical and horizontal specialisation will be key (e.g. again Tricog and Sigtuple in healthcare-AI).

Bullish For 2019? Yes!

With an active pipeline of unicorns (with a bunch waiting in the wings), a focus on profitability, backlog of upcoming exits, and an increased interest from Chinese and other overseas investors, I’d describe our entry point into 2019 again with cautious optimism.

What pushes this sentiment into ‘bullish’ territory is the rising tide of more mature founders including serial entrepreneurs, that are raising the bar for Indian startups as a whole.

The pipeline has always been strong – it’s now stronger.

To tip the scales in India’s favor, however, we need to ensure our government supports its words with real actions; our exits find scale; we create a continuous stream of exit cycles and startup inflows; for outcomes of real and meaningful scale; from $250-500 million to $1 billion and beyond.

Sanjay Nath is Co-Founder and Managing Partner, Blume Ventures.

The views expressed here are those of the author and do not necessarily represent the views of Bloomberg Quint or its editorial team.