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1Mby1M Virtual Accelerator Investor Forum: With Anirudh Suri of India Internet Fund (Part 3)

Posted on Wednesday, Jan 31st 2018

Sramana Mitra: I have a question that I want to double-click on. One of the big differences in the Indian market that doesn’t exist in the US market is this abundant supply of cheap labor. Are you seeing business models and business ideas that creatively take advantage of that phenomenon to offer value to customers? Do you have any examples?

Anirudh Suri: If you look at even the companies that have become unicorns or are larger companies in the Indian context, many of them have taken advantage of the cheap labor that India offers. When you look at Amazon or Flipkart today, they have cash on delivery.

Sramana Mitra: Those are still concept arbitrage points. If the delivery infrastructure in India has been lacking for a long time and that is just getting developed, there is a labor advantage there. Beyond just pure delivery, do you see other nuances to this?

Anirudh Suri: It’s a good question. I’ll put one caveat to that first and then I’ll try and give you some examples of that. Where India lags today is the skill level of this abundant labor. The abundant labor in a way becomes a perceived advantage but not an actual advantage.

Sramana Mitra: That is part of the opportunity – to train that unskilled labor in a particular skillset and really taking advantage of that.

Anirudh Suri: That’s right. That’s where you’re finding EdTech as one of the more exciting fields in India. It’s in ed tech where you’re able to train a lot more people than you would in a traditional classroom.

Sramana Mitra: Have you invested in EdTech?

Anirudh Suri: We haven’t but we’re looking. You see companies like Khan Academy that are trying to scale. Most of the current models wouldn’t scale beyond a certain point. It’s more the infrastructure that is lacking than the idea. The Internet infrastructure has improved significantly over the last two to there years. As it does, we find that EdTech should become a big opportunity for India and Indian entrepreneur.

Sramana Mitra: What about private-labeled products? My thesis is that with the Flipkard and Amazon battle, they’ve all focused on logistics and not so much on product-based differentiation. I happen to think that there is a sizable opportunity for building unique brands that are built out of India but are really interesting unique brands. Are you seeing that in any of the deal flow?

Anirudh Suri: I completely agree with your thesis that there should be and can be more brands that are unique to India and uniquely addressing the millennial consumer in India plus expanding abroad. I agree with you. I think that it’s early days in a way for brand-building in India, but it’s very exciting times. In each sector like fashion, luxury, or food, you’re finding a bunch of brands cropping up that are targeting not just the Indian market but the global market as well.

There are brands from the diamond industry in India with one store in Delhi to now several outlets across the world. Similarly on the food side, a number of interesting brands are coming up to bring Indian tea and coffee to the world. They’re one of the biggest producers of tea globally, but most of the brands in the tea market are not out of India. Tata has expanded globally by acquiring many of the brands outside of India.

Beyond Tata, there aren’t many of the Indian brands. I’ll tell you what challenges these brands are facing. The venture capital industry in India suffered from the fact that exits are very hard to come by. Everything in India takes longer to build. India is a market that requires patience. With brands, it’s even harder and involves a much longer term process.

In the US, you find a bunch of these beverage companies or even your Dollar Shaving Clubs that have managed to grow and scale very quickly. In the Indian market consumer, many of these brands are finding it very hard to scale because the premium market that they’re trying to target tends to be very small.

Sramana Mitra: The point that you’re raising is a broader point about the Indian market. In general, companies scale slower especially if you’re doing an Indian-facing market. What we’ve seen as a result is the early stage investors take the companies up to a certain point and exit into the later-stage investors.

It could take you five to seven years of early stage activity before the company gets to a point where a Series B or a Series C can be raised. At that point, the original investors have stayed too long already and they need to exit out. Do you agree that this is a real trend in the Indian industry?

Anirudh Suri: It is, for sure.

Sramana Mitra: I think that is the way to mitigate the Series A gap. In India, this is a strategy that is understood and is being practiced quite extensively.

Anirudh Suri: Yes.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Anirudh Suri of India Internet Fund
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