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1Mby1M Virtual Accelerator Investor Forum: With Rehan Yar Khan of Orios Venture Partners (Part 2)

Posted on Thursday, Mar 15th 2018

Sramana Mitra: How do you analyze Flipkart in that context? Has Flipkart gone on to build this whole distribution and logistics infrastructure, which is not asset-light at all?

Rehan Yar Khan: Flipkart is not as asset-heavy as building channel stores. It’s not as asset-light as Snapdeal. It does have some backend, but the entire frontend is absent.

Sramana Mitra: The asset-light versus asset-heavy, in your definition, is whether you need physical infrastructure or not in terms of building stores of having store front?

Rehan Yar Khan: Frontend and production. There are two things that would come into asset-heavy. One would be store fronts. Second would be manufacturing. If you are not doing those two things, I think you’re asset-light. You have Meru, Ola, and Uber. There are currently 30 million in India that take a cab ride every day. Because of extreme scarcity of public infrastructure, there is a massive market out there.

Meru’s approach is to buy a thousand cabs. Ola and Uber’s approach has been that there are already a million taxi cabs in India. Why don’t we aggregate those? I wouldn’t say tech is the difference for asset-light. I can call Meru via a smartphone. Meru also runs good analytics on the backend. The difference is the asset-light model. I can take a little bit of money and produce a bigger result.

Sramana Mitra: What you are saying is that in India, there are a lot of assets that are already in deployment, but in unorganized sectors. One of your investment thesis is to bring those together under one brand, put marketing around it, and put the operational infrastructure around it to streamline. Then, you have interesting consumer businesses that can scale nicely.

Rehan Yar Khan: Right.

Sramana Mitra: Please summarize the Indian version of the unicorn mania we are seeing all over the world right now. How do you read that? How is that playing out from your point of view in India?

Rehan Yar Khan: I’ll tell you what happened. Post Alibaba’s IPO in September 2014, there was a tremendous frenzy of capital that got into India. Possibly looking for the next Alibaba. The first two quarters fo 2015 were extremely heavy in terms of capital flowing into India from non-regular, non-resident funds in India. These are hedge funds from the US or other such places.

These are what we call suitcase VCs who would fly in, come and make a few deals, and then go off. That created premature unicorns. I don’t know if they are not real unicorns, but they got it prematurely. Some of those died out. Some of them are dealing with raising money at this valuation. That’s fine. In India considering, how young we were in the venture industry, you need this momentum from time to time to get this going. I think you need this euphoria.

Sramana Mitra: It has created tremendous publicity for entrepreneurship, which was a good thing.

Rehan Yar Khan: Absolutely. There’re a lot of angel investors who jumped in. Regular VC funds ran around. A lot of entrepreneurs got in.

Sramana Mitra: After all the dust settled around this unicorn mania and rationality returning to the market, when you look at consumer tech-enabled services, what are some of the best companies in India that have rational valuations and that can sustain over a long time and deliver really strong companies with proper exits?

Rehan Yar Khan: BookMyShow. BookMyShow is the leader in the space. They have money from three revenue streams. They have monetized the booking fee of movie tickets. They charge the movie house for software and charge a convenience fee to the consumers. It’s a super asset-light business. You just have to create this company in the cloud. It’s easy to monetize. I think Zomato is another.

Sramana Mitra: I don’t believe in Zomato at all from a valuation and business model point of view. I think this company has gotten far ahead of itself.

Rehan Yar Khan: We can agree to disagree on that. I believe Zomato has mind share. It’s my go-to place for food. It’s not a question of how effectively they’ve gone on various monetization levers. As far as food goes, they’re clearly the number one brand in the space.

Sramana Mitra: Yes, but business model is the problem. If you look at the equivalent business models like Yelp, these are not good business models.

Rehan Yar Khan: I don’t know much about Yelp, but I don’t know if it’s a leading brand.

Sramana Mitra: It’s the leading brand in America as far as restaurant is concerned.

Rehan Yar Khan: For reviews, right?

Sramana Mitra: Right.

Rehan Yar Khan: Not the be-all and end-all of foods. It’s not like the number one authority on food.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Rehan Yar Khan of Orios Venture Partners
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