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'India Should Be Proud of UPI But Needs to See More Science Oriented Innovation'

Investments include Byjus, Innovaccer and Oku Tech. He is a Fellow at the Indian Software Product Industry Roundtable (iSPiRT) and a Charter Member of The Indus Entrepreneurs (TIE).

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Dev Khare brings eighteen years of operating, entrepreneurial and investment experience in India and the U.S. to his role as Partner at Lightspeed India Advisors Partners LLP (LSIP). Investments include Byjus, Innovaccer and Sharechat. He is a Fellow at the Indian Software Product Industry Roundtable (iSPiRT) and a Charter Member of The Indus Entrepreneurs (TIE).

Prior to Lightspeed, Dev was an investment professional at venture capital firm Venrock in Silicon Valley where he focused on early-stage investments in Internet, and therefore has in-depth knowledge about mobile and software startups.

BW Businessworld’s Soumya Gupta spoke to Dev Khare, Partner at Lightspeed India Partners Advisors to know how the Indian startup ecosystem should be read & analyzed in FY 2016-17.

Soumya: The number of exits from 2016-2017 have seemingly declined in this Indian startup ecosystem and the number of funding rounds raised by startups have come down. What’re your views on that?

Khare: So this has a backdrop, 2014 and 2015 in India was a high point in terms of funding. Just like in 1999 in the US, there was this huge ‘.com’ bubble. And after that, there was a crash. But if you look at the US, the the vast majority of high impact Internet companies got created after the crash in 2000.

Similarly, we believe that a lot of the high impact Internet companies in India will be built from 2016 onwards.

In this tech sector, it takes 7-10 years to build a valuable company. So we are barely 1 or 2 years into this post bubble phase.

Exits are only possible once you have created large, valuable companies. We recently exited Itzcash successfully when the company had reached a scale of $2 billion of annual transaction processing volume.

My view is that there really haven’t been a lot of exits overall in the past few years, barring a few IPOs and secondary sales. It has just been anemic on the exit front.

However, there are a lot of signs that things are picking up- some IPOs last year and this year, the beginnings of strategic sales, a lot of strategic interest from abroad.

There have been more exits last year and this year than they have ever been before. So there was a couple of micro-finance IPOs and others last year, there were the acquisitions of Ibibo by MakeMyTrip which was a $700 million transaction, Snapdeal / Flipkart may happen this year.

There is a lot of interest on the Chinese companies coming in here, looking to buy, to acquire or at least to make minority investments. So, the signs are all looking positive. India is the next big digital conomy after China and the US. There is really nowhere else to go to for a lot of global investors.

Soumya: What will drive all this growth in India?

Khare: Just last year, we had three big things happening which never happened in India before. We had demonetization, which drove a lot of adoption of digital payments amongst consumers and small businesses. Second, we had the Jio launch which got to 100 million 4G subscribers in 6 months and can get to 300-400 million subs. We had the introduction of UPI and the India Stack which will make payments, KYC, lending etc far more efficient and broadbased.

This year we will have the introduction of GST, which is one tax regime for the whole country which will result in a lot of supply chain efficiencies in all industries and also force 8-9 million small businesses in India to finally use software and automate.

Let's not forget that the last few years has laid the foundation for growth- 4G rollouts across all major operators, massive smartphone adoption- Android is at 250 million monthly actives, digital payments adoption driven by ecommerce, O2O and banking applications. And importantly, consumer behaviour is changing toward using the Internet for commerce, content and community, rather than eying the Internet suspiciously.

Soumya: Who do you think is calling the shots in Indian commerce or Fintech as mostly India has the investors from the US, China or Japan? With the entry of Amazon or Alibaba in India via investment and their expansion, the big players have actually lost the reins of their own companies. So how the Indian entrepreneurs can lead their way?

Khare: So, Amazon has come in, Alibaba is focusing on PayTMmall, Flipkart is charging ahead and you've also got others like Shopclues, Limeroad, Lenskart, Bigbasket, Firstcry that are doing well.

It is a bit of an extreme view to say that investors from abroad are calling the shots. It is a natural interplay between founders and investors.

Kalyan at Flipkart was talking on a panel at India Internet Day recently and somebody asked him this question. It is a very good partnership between him and the founders. I think it is extremely inappropriate to say that the reins have been handed over and somebody else is calling the shots.

Soumya: According to some media reports, Ola is being very reluctant about its terms of contract with Softbank after what it did to Snapdeal. So they are just preventing and being a bit defensive towards the founders. What’s your point of view?

Khare: I cannot comment on that, I don’t know the internals of Ola and whether what the media reported is true or not. At the end of the day, for those companies that need a lot of capital, they need to work with their investors and the investors have to work with their portfolios companies; they need to work constructively with their founders to get good outcomes.

Soumya: What would you like to say about the way Snapdeal died? Any comments on that?

Khare: Again, an extreme view. I don’t think Snapdeal has died. It is still functioning and Flipkart won’t be buying them if it was dead. There would be no reason to do so.

There was a lot of capital that came to India in 2014-15 which was chasing GMV growth without looking at the fundamental of business like margins and whether the business is solving a real pain point. So what we are seeing in 2016-2017 is a much better recognition from the entrepreneurs that they need to build fundamentally sound businesses, much better recognition from investors to fund models that have high margins, high frequency and defensive moats.

Soumya: A lot of Indian unicorn companies are still not profitable, however, they are on a road to become profitable. What do you have to say about that? Is the pace for the Indian companies good enough?

Khare: Globally, most internet companies and startups go through a process where they lose money for a few years and make a lot of money afterwards, so there is a classic ‘J’ curve. What happened in India with e-commerce in 2014-15 phenomenona is that the downward or the negative part of the cash flow got extended. Companies just kept investing money in the company, acquiring customers and thinking they will pay off in the long term. I think that model has gone away. What we are seeing is that for the companies which have started in 2016-2017, we are seeing a very shallow ’J’ curve. They are much more focused on the right models, profitable customers, profitable markets and building it that way.

It is very easy to say that all startups are losing money, which is not true. All startups go through a ‘J’ curve. They lose money and make money after a while. There is barely any, expect for Ebay in the history of the internet, that made money from day one. So I think there is too much generalizing going on and beyond e-commerce there is so much else going on.

Soumya: What other sectors are active beyond ecommerce? Other sectors that have opened up are education, financial services, healthcare, logistics, enterprise software, B2B marketplaces, payments and many more.

Khare: In our portfolio we have a company called Byjus. It is a direct-to-consumer mode for supplemental education for K-12 students. There is a report that just came out in the media today saying that they are nearly profitable. They have reached more than a couple of hundred thousand students that they have mentioned in the article. They have a potential to reach several million students.

We have a company called Indian Energy Exchange, it is a B2B marketplace for electricity in India. It trades nearly 3% of the electricity in India every day. It is very profitable. They are scaling very nicely, a lot of states are allowing open access to electricity.

Soumya: In your opinion, which are the top three companies which are going to be very successful in the next 3-4 years?

Khare: As a parent cannot choose one of his children, we can’t say one is an ugly kid and one is a beautiful kid. So we are optimistic about all the startups. We have in our portfolio scaled companies like Itzcash, Oyo Rooms, Byjus, Indian Energy Exchange and others. Outside our portfolio, Flipkart, Shopclues, Practo, Delhivery, Freshdesk, Zoho, Browserstack, Rategain and many others have reached scale as well.

Soumya: So do you think, innovation is there in the Indian mindset?

Khare: I think it is there but there needs to be more of it. Don’t get me wrong, I think there needs to be more of science oriented innovation, inventing new technologies. I don’t think we have enough of that in India. We have seen a lot of business model innovation in India. We will hopefully see science based innovation in India soon.

Unified payment interface -

UPI - is an example of regulatory innovation. That type of structure doesn’t exist anywhere in the world. There are payments companies from abroad who are coming to India because they don’t see a regulatory and technology framework like this anywhere else. India is an open market, and anybody can come in here. That is the strength of India.

Airtel as an asset-light business model was invented in India. It was a more marketing oriented operator, where they outsource the network assets. They were in India and this has been copied in another emerging markets. BPOs the business model was invented in India.

Our portfolio company Oyo Rooms has an asset like light network of hotels and has a business model which is not available anywhere else in this world. It was invented here.

Our portfolio company Sharechat is innovating to bring regional language content to the majority of Indians who didn't know English. Much like 95% of TV in India is in regional languages, we think a vast majority of content consumption will be in regional languages or heavily mixed between different languages. Sharechat is innovating on message queuing, compression and many other technologies to be able to target rural and semi-urban India. It has grown 10x in the past twelve months.

Soumya: Is WhatsApp also looking at the strength of UPI in India?

Khare: Again I don't know the internal happenings at WhatsApp. But if WhatsApp incorporates UPI, there will be a gigantic transformation in India. I think WhatsApp will be in P2P payments because everybody is connected to everybody and you can pay somebody else and split a restaurant bill or a retailer can pay their wholesaler. There will be very wide acceptance in India.

Soumya: What are your comments on the Startup India and Standup India. What has been the growth plan of the government since 2015?

Khare: Practically speaking, I think it is more on the PR side and promoting India and they have done an effective job on that. There is this 10,000 crore fund in the AIF regulations in India and that is good. I think it is good that domestic capital gets deployed in this sector. I think it is good for the entrepreneurs. However, I think history has shown that if governments don’t interfere but set a good overall policy framework, then growth happens. I think they should put the right framework.

Soumya: After 3 years of Modi government. What are your views about the governance and investments?

Khare: I think it has been positive.


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