Viewpoint / Company Building

Our Answer to the “Why India Now?” Question

I started investing in the technology and tech-enabled sector in India in 2000. I’m a generalist who follows entrepreneurs, rather than sectors or markets. As a result, my investments span across early and growth-stage companies focused on the consumer, enterprise, and infrastructure sectors in India. Some of my notable investments include IL&FS Investsmart, MakeMyTrip, Persistent Systems and Suzlon Energy. Current companies I am involved with in India include, India’s largest matrimony e-commerce site; India Property, an emerging property listing service; and Tejas Networks, an optical networking provider.

Over the last 14 years, I have seen boom and slowdown cycles in India. Clearly, as we enter 2015, India is rising on the world stage (again), with President Obama’s recent visit and predictions (like the recent IMF projection of GDP growth to 6.5%* in 2015), that show it surpassing China to become the most desirable emerging economy.

Current key economic indicators reflect this optimism:

  • Year-to-date, the Wisdom Tree India exchange traded fund is up more than 10%, beating the MSCI World Index. Since May, the India ETF is up more than 13%, beating the S&P 500 and the MSCI World;
  • Gross foreign direct investment crossed the $200 billion mark (~$225 billion) in 2014 and in recent times, the government has opened up more sectors for FDI investment;
  • India is now the world’s third largest economy in terms of purchasing price parity as described by IMF;
  • Recent policy actions have resulted in a favorable interest rate of 7.75%.

The Indian investment opportunity continues to be unparalleled:

  • Conservative estimates put it at a country with a population of 100 million English speakers, the second largest after the U.S., with more than 500 million people under 25;
  • Currently, there are 243 million internet, 919 million mobile, and 163 million smartphone users (a number which I expect will see exponential growth in the coming years);
  • India has a rapidly rising middle class (estimated at ~160 million) with increasing diposable income.

Technology investors have taken notice of the boom:

  • In 2014, $918 million of venture capital was invested in 252 early and growth-stage companies;
  • Every day brings another headline of large amounts of capital being invested in late-stage tech companies – colloquially, it’s being called the “Softbank” moment; private equity investments in 2014 (in addition to venture stage investments above) amounted to $9.8 billion across 192 companies with an average investment of $52 million;
  • India has created its own group of consumer and enterprise breakout companies (with 3 “unicorns” in Flipkart, Snapdeal and Olacabs) and 7 other companies that have raised a total of ~$4 billion of capital.

I believe that it’s only a matter of time before a local Indian company grows into a global technology household name. However, the question I would like to explore, especially given where Mayfield’s investment strategy is focused these days, is Why India Now for the early-stage tech investor?

Here are 10 reasons that span the macro- to micro-level of the opportunity:

  1. The Indian government has not interfered much in tech and has not calcified the space with rules;
  2. Internet penetration is broad and deep, mobile is a way of life with a penetration level of ~73% in 2014;
  3. Consumer behavior has tipped. Users are young, tech-savvy, and want it now;
  4. Capital efficiency is possible. Mayfield company is a good example which has raised less than $24 million over its life, and has grown into India’s largest matrimony e-commerce site;
  5. Entrepreneurial networks exist and the mindset is healthy. There are frequent debuts of new angel funds/accelerators and employees are increasingly taking the leap of faith by leaving behind secure jobs at big companies to become entrepreneurs;
  6. Consumer plays in India have always been highly valued (companies are valued at 30-50x earnings and can show an annual growth rate of 20-30%);
  7. Investing in India as a labor arbitrage play has evolved into one of building valuable product companies, creating opportunities for more innovation;
  8. The marketplace model is thriving (as evidenced by the growth of leaders such as Snapdeal and Olacabs);
  9. In areas such as Travel 3.0, the sharing economy, services marketplaces and food delivery, companies with proven business models are being built concurrently with the U.S.;
  10. India has skipped the entire internet build-out phase and has moved straight to apps, levelling the playing field. As a result, many of the new companies (such as chat app Hike and restaurant reviews app Zomato) have native-app front ends, with my belief that the next big global company to emerge from India is likely to be one with mobile DNA.

Entrepreneurs take note: Now is the best time to create new businesses in India and to raise capital to catalyze and accelerate growth. Factors such as the country’s growing technology infrastructure, a supportive entrepreneurial ecosystem, improving consumer economic prosperity, signs of enabling policy changes from the government, and increased foreign interest make this (another) “India Shining” moment.

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