John Dougery: We had a thesis around services-based businesses in e-commerce for consumers. Financial technologies are a big segment there. We invested in Policybazaar, which is the leading online insurance marketplace by a factor of 10 over its competition now. It was about a factor of five when we first invested.
It’s getting increasing commissions from the insurance providers for selling. We’re the lead investor in FundsIndia, which is the leading online mutual fund marketplace for consumers in India. Again, it provides price discovery, understanding of these products so you can stay away from the products with a high load or an insurance where you cannot be taken advantage of. There’s a consumer benefit there. There’s a benefit to the insurance agency.
We look for those dynamics. Those dynamics are very much present in the market today. The headlines are going to the horizontal players. Amazon in the United States had to subsidize its business over a decade before it could establish dominance and pricing power. That is where capital is a weapon. It’s very capital intensive. The last person to get the capital is going to win.
Sramana Mitra: It’s a very risky game to play for entrepreneurs because at some point, the capital may dry out.
John Dougery: I think that it’s very interesting. The cycle here is very similar. For the last 10 years, we’ve been doing this. Silicon Valley is up and India was down, or India is up and Silicon Valley is going through a correction. I think it’s very different than what it was. Kanwal and I lived through the dot-com boom.
I would tell you that we don’t think that this is like that. Back then, the fundamental problem was more like the tulip craze. There was no fundamental market of scale to justify what has happened. Here, the market is quite different. The markets are clearly available at scale. Flipkart, Snapdeal are selling billions of dollars of goods and services.
Consumers are spending at scale. The question is how do you value them and build a business model around them that can be sustainable and have attractive profitability. Those are the fundamental issues. I do think that someone is going to win.
Sramana Mitra: Amazon itself is a player. Amazon is not going away.
John Dougery: That’s right. They may be the one to win. All the anecdotes you hear is that they’re nudging ahead currently. There’s always growth pains for any company when they go into new markets. I don’t know who’s going to win but I think someone will. I don’t think it’ll be like the dot-com where nobody won.
Sramana Mitra: There were perhaps less visible companies. First and foremost, Amazon won out of the dot-com. There were companies like BlueNile that built very substantial companies founded in 1999.
John Dougery: Yes. You can count on one hand the big winners from back then, because so many didn’t make it. I don’t think it’ll be as difficult to win this time.
Sramana Mitra: The throughput is going to be much higher this time around. On the B2B side, we worked with a number of investors, especially investors like yourself who are smaller. By the way, we have a portfolio company that Parag funded. I introduced Ajit to Parag some years back. It’s a very tricky segment, but he’s a very good entrepreneur.
Coming back to B2B, the trend that we are seeing is two-fold. The VCs are shying away from B2B SaaS or B2B technology that is facing the India market and moving more towards the global market. If you’re doing a B2B SaaS company for example, you are fundable if you work on the global opportunity. You’re not fundable is you’re working on the India-facing opportunity. What is your fund’s perspective on this?
John Dougery: It’s a very practical issue of market size.
Sramana Mitra: And growth rate.
John Dougery: That’s true. It’s market size and market access. We take a very specific view company by company. It’s not either or. It’s a bit of both. We look at these companies bottoms up. For example we have a company that is building a B2B marketplace for India alone. It’s just on fire. It’s scaling dramatically. We’re talking about hundreds of millions of dollars moving through the system. It’s all businesses buying from businesses. It’s an example where B2B works in India.
Sramana Mitra: What’s the name of the company?
John Dougery: Power2SME. They’re providing a buying club to help small to medium enterprises in India access better pricing for the fundamental raw materials of their businesses. Their pain point is that they get terrible prices per ton at wholesalers or when they try to go direct, they get no respect from manufacturers because they’re so small.
If they gang up together through this digital marketplace and aggregate their orders, magic starts to happen. The existing size of that market in India only is over a hundred billion dollars. That’s a hundred billion dollars of cement, steel, and polymers. Thats’a big enough market for a venture-backed startup. They’re getting good gross margins. They’re not having to subsidize. In fact, the margins are going up because it’s a virtual cycle. Everybody’s enjoying the benefit.