As an investment manager in India, I am frequently asked to share my observations on how the tech VC ecosystem has evolved over the past decade. Having made a comeback to the VC industry with Intel Capital last year, after being out of action for almost six years, it is interesting to see how the ecosystem is maturing progressively. Here are some of my key observations of the changes over the last decade:
Confident entrepreneurs: The confidence and capability of entrepreneurs have definitely improved. A great number of deals now have second-time entrepreneurs, who were not necessarily successful in their first venture but richer from the experience, with a deeper understanding of how to drive their businesses. Today, entrepreneurs are more confident in what they do, perhaps emboldened by the rising stature of the Indian economy and visible wealth creation.
Unlimited potential of the Internet: Today, the number of Internet users in India has increased to 73 million, according to comScore*. Several successful Internet business models have already been established in India, including the Indian Railway Catering and Tourism Corporation (IRCTC), Naukri and MakeMyTrip, to name but a few. We continue to see new business models emerge every day. This stands in contrast to the early years of the past decade when many business plans, founded on the unbounded growth of Indian Internet users, came a cropper because, although the number of users grew, the size of the user base remained relatively modest when compared to the overall population. Today, India’s Internet user base is large enough for Internet businesses to gain traction and I look forward to many more IPOs of Indian Internet businesses in the next two to three years.
Emergence of local business models: With a decade of high economic growth resulting in increased spending power for consumers and businesses with surplus funds, local and near-local business models have become a viable option in India and are finding keen investors. One clear category, of course, is e-commerce. But now, one can also see technology-related opportunities in new and traditional sectors, for example, value-added services, tech support, education, logistics, cloud computing and mobile application development, to name but a few. Many business plans now include an element of model validation in India, followed by expansion into other markets, such as South-east Asia or the Middle East, compared with earlier business models which almost exclusively focused on the US market, without the wherewithal to understand and penetrate that competitive market.
Increasing number of VC and PE funds: The investment landscape has changed a lot over the past decade. Nowadays, we see hundreds of active funds, as compared to 10 years ago when the number was perhaps countable in the tens. Of these, many funds have remained stage agnostic (except for early-stage investors), whereas the choice of sectors in which these funds invest has grown far beyond technology as the domestic economy has grown and developed other viable sectors for investment. Additionally, the early-stage funding environment has become more organised, with angel networks and niche funds focused on this segment. However, I occasionally hear the lament from entrepreneurs and VCs alike that there is not enough early-stage funding. I guess if the sector is hot, VCs will forget the stage when investing. For example, in the B2C e-commerce sector, VCs are investing in numerous start-ups (with limited operating history) with significant capital (high single-digit US$ millions in some cases), thus backing the management team and the prospects of the sector.
All in all, the investment environment is healthier, with seasoned entrepreneurs engaging with skilled VCs in a dynamic economy and exploring greater investment opportunities. I believe the challenging times in the past decade have acted as a catalyst, giving a boost to the entrepreneurial zeal in India and heralding a new wave of entrepreneurship, with the start-up ecosystem evolving rapidly.
*Source: State of The Internet with a Focus on India by comScore
Views expressed are personal.
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