Ventureast came into being a couple of years after BusinessLine was launched, when the Andhra Pradesh Industrial Development Corporation’s (APIDC) venture capital business was privatised. From then to now, the VC/PE landscape has changed dramatically, which is no surprise. But the qualitative changes and their magnitude, due to the impact of globalisation, and the phenomenal Indian entrepreneurial surge is unexpected.
Twenty years ago, VC investing used to be niche and restricted to seed or early stages. Ventures found it difficult to get money at the Series A level, which is when the first institutional investor comes in. The total capital under management for the industry may have been around $50 million then. In 2008, it grew to $14 billion, and at the end of March 2018, had jumped to $33 billion.
We started investing in 1997 and in the past 20 years, have seen that seed and angel investing have grown manifold, but Series A still continues to be a bottleneck for start-up founders. Once you go beyond Series A, there is a huge amount of capital available, investors are willing to put in money at the Series B, C and D stages, each one investing in multiples of $100 million. Almost every quarter, a few unicorns are cropping up.
Overseas capital continues to dominate this space. They are dreaming about backing the Amazon and Alibaba kind of successes here. The market is huge. India is seen as a wide open space that is still available. The number of Indian VCs has grown over the years, with increasing support from India investors. There is SIDBI and other government fund-of-funds, but when you look at the overall investment, this continues to be small.
A change in mindset
In the first decade of investing, say from 1998 to 2008, it was all about capital-efficient models and building a visible path to profitability. Now, it is more about rapid growth and hope of becoming a leader in a winner-takes-all space. You spend more money, with no worry that one might 'burn' to death, and grab the largest market share. This is a big change and it requires the entrepreneur to think differently. It is driven by the opportunity that overseas investors see and the size of the market, and the wisdom of the failures and successes of the US and China is what is driving them here. I guess in one sense we are still following the tried and tested models from other markets.
Twenty years ago, in the 1990s, ventures were all about making money from dismantling of government regulations, markets being opened up and liberalised. That changed in the 2000s as the proliferation of low-cost computing/computers and internet/mobile became prominent. Now, it is the availability of Big Data, ability to analyse that data, applying artificial intelligence. The psyche of the entrepreneurs is different now from 20 years ago. They should be able to understand technology and how it interacts with consumers or small businesses much better. Investors are looking at entrepreneurs differently now. Because of this rush for land grab to build competitive positions, investors are willing to pump in more money earlier than when the ventures need them. Therefore, the credentials of the entrepreneur are important. It has become clear that it takes longer to build businesses in India, and investors are looking for entrepreneurs who can run the marathon. VC funds are also looking for fund structures that will enable them to hold investments for 10-15 years.
Looking into the future, I think the B2C space will continue to attract both entrepreneurs and investors. But what should dramatically grow is addressing the needs of the small businesses online. It is an ongoing theme and will play out over the next 10 years. The ability to use data and acquire proprietary data faster, better and be able to use the analytics on your consumers to offer more customised solutions will continue to gain traction. The next revolution will come from blockchain and token economics, which will start creating new business models, just like the internet did 20+ years ago. There are still gaps in technology in this space which are required to build out over the next 10 years.
The author is Managing Partner, Ventureast,an early-stage venture capital firm