Sramana Mitra: Let’s flip to the consumer side where the mobile penetration has been tremendous. Everybody believes that India is going the the next big e-commerce market. Even Amazon believes that. It has been a slower adoption.
There is friction around buying online. People do cash on delivery. They don’t like to pay by credit card online which has caused the market to evolve much more slowly. It’s a low trust society. What is your forecast about when it is likely to flip?
Anand Daniel: We’ve been fortunate to invest in companies like Flipkart and BookMyShow. It’s more a question of what are you comparing to. If people compare to China, they might say India is not moving as fast. If you look at where India was in 2008, there was almost non-existent e-commerce. We’ve come a long way. As VC investors, we have a pretty long view of the market. From that perspective, e-commerce has come a long way.
A couple of years back, we published an e-commerce report. We predicted the market to grow to a size. India is north of that. From our perspective, market is growing reasonably well. The frictions that you’re talking about in logistics is what makes the Indian market different. It’s what makes the Indian homegrown solutions a little bit more compelling.
For the global competitor to do the same thing, they’ll have to invest in the same elements of friction. That gives an inherent advantage to some of the Indian companies especially as they expand to Tier 2 or Tier 3 markets. Broadly, we believe there’s a bunch of opportunities that have already grown to a reasonable size.
Then there are few up and coming companies like Swiggy which is in food aggregation and delivery. Swiggy has aggregated the delivery layer as well in a more on-demand model. It’s very key in India to solve the entire problem, so it makes it a little bit more difficult. If you solve it well, it’s also your advantage.
Sramana Mitra: The challenge is how much money you put into a company to get what. As VCs, you may have a long perspective but your funds have limited durations. The venture model has gaps in terms of how long you can be in a company meaningfully. These things made the early part of e-commerce investment a little bit tricky. My sense is within the next three to five years, both the B2B and B2C markets should accelerate substantially.
Anand Daniel: The only point I’d add to that is the larger Indian companies are now stepping up and are open to acquiring companies. Flipkart acquired Myntra for about $300 million. Then there’re other companies that have done acquisitions. We’re seeing acquisitions happening. B2C is a lot more capital intensive play – very different from the B2B style.
There’s a reasonable amount of capital coming into India. Capital is flowing but not on the level of US and China. India is a lot behind from that perceptive. Because of that, the new capital flowing in provides even secondary opportunities for venture capital funds, which have come in very early. Overall, acquisition or mergers and secondaries are one way that exits are happening in the ecosystem right now.
Sramana Mitra: Having both options is good.
Anand Daniel: Absolutely.
Sramana Mitra: It’s a market that’s developing. It’s a market that is not completely scaling at scale yet. It will do better with some small funds that do the first five years of a venture’s life cycle. The next five to ten years happen with another style of equity partner. That model will do very well in India. It needs to be understood. What is your most successful investment? Flipkart is is the most visible. I’m curious about where the venture economics really works well.
Anand Daniel: I would point to all these companies. Some of these are realized to some extent. We want to be long on these companies. We are equity holders here. These are companies that have potential to get anywhere from $5 million to $10 million or get exits easily. Some of these have potential to return a substantial portion of funds raised. Our first fund was $70 million. Our second fund was $170 million. Our most recent is $300 million plus. If you have a few of these high potential companies per fund, it makes the venture economics work.
Sramana Mitra: We haven’t talked about your healthcare strategy. I’d like to know what your thoughts are.
Anand Daniel: We have companies like Mitra. Broadly, we invest across taking a problem that India has. Let’s say it could be preventable blindness. There’s a company that has a pre-screening medical device. After selling in India, they’ve become the largest in India. Now they’re selling in 20 countries.
If you take a space like cancer, we have a company called Mitra Biotech. They have a personalized cancer treatment solution. Harvard and MIT Ph.D.s came back to India and developed the technology and made sure the proof of concept worked. They got cancer tissues in India to test that the solution works. They are able to predict what will work for a particular patient. They will probably start selling globally.
Another company is doing robotic biopsy device for cancer out of Chennai. That device is approved by US and China. They’re selling across the globe. These are just three examples. Another example is called Portea which is the largest home healthcare provider.
Sramana Mitra: Great. Thank you for your time.