At Vertex, we have over ten general partners spread across the world and over 30 investment professionals that work in teams that make venture capital decisions every month. Coordinating across this global network is exciting because our partners have unique insights into their local ecosystems. So we sat down with Ben Matthias, managing partner at the Vertex Ventures Southeast Asia & India fund to learn about his insights into the Indian ecosystem. With Ben based in Bangalore, and investing in the Indian ecosystem for over a decade, he has a granular perspective on what works in the world’s most populous sub-continent.
What do you look for in an Indian startup?
I usually put Indian startups into two main buckets, those focusing on India as a market and those focused on the global market.
For Indian market focused startups, I see companies that are either focused on Indian consumers or ones focused on SME’s. In both cases these are businesses being built around consumers and SME’s getting on the mobile internet. In the case of consumer businesses, there are categories such as ecommerce, ticketing, etc. that are quite mature and well financed. However, there are other consumer areas that are still emerging such as:
- Managing Finances, borrowing money or getting insurance
- Content & Entertainment
- Education & Learning
- Managing Health
We see the above four trends as large growth areas for the average Indian. And remember that the Indian consumer is not willing to pay for convenience, because they’re more price sensitive. If it’s more pricey than the traditional way of doing things they would just choose the less convenient but cheaper option. Therefore, if you are playing in this consumer world, you have to be cheaper and more convenient and provide something that is not available elsewhere. It’s a tall order. The key area that we evaluate here are the unit economics. Can you make enough money from your customer to recover your acquisition cost several times over? Unless you provide something that the consumer can’t get elsewhere, you are always competing based on price and it becomes a difficult business to sustain.
When we’re looking at businesses targeting the Indian SME, in addition to unit economics, we have to evaluate other criteria. Does this help the SME run their business more efficiently? Is the SME customer prepared to go through the process change required by the adoption of the new technology? What percentage of the customers discontinue using the technology in the first year? Are there enough indicators that this is a trend in India that will catch on?
How do you evaluate whether a company can go global?
I tend to ask the following questions when I’m evaluating the global potential of a company.
- Is this solving a problem that has not already been solved? For example, with Ace Turtle, the company is solving a problem that is very prevalent across Asia and this was confirmed to us by Capitaland, which is why they co-invested with us.
- Is the technology better than other incumbent solutions. If the technology isn’t better then there is no point of even going to market, no matter how much cheaper it is.
- Do the founders have the capability to sell globally? With Hotelogix, the company acquired more than a thousand customers outside of India without having a single employee outside India. They figured out how to get the customers via the phone and manage them remotely. With Flutura, the founders have the ability to get on a plane to any country in the world and close a deal with a Fortune 500 company. The point is in both cases, the founders have this skillset of working and closing deals internationally.
- Are there business partners that find a compelling enough value proposition to partner with the startup? With Cloudcherry, it has very active partnerships with Microsoft and Cisco with an active go-to-market with both. Flutura has a partnership with Hitachi. The fact that these big name companies are aligning themselves with the startups is a big validation for us as investors that they have a clear value differentiation and an ability to scale through these partners.
What is your read on the current state of Indian entrepreneurs?
India has always had a thriving entrepreneur ecosystem. Most of our entrepreneurs here have had some work experience before starting a company, although we are starting to see many people start companies directly out of college and in some cases, even before they graduate. Today, there is a good entrepreneur support system of mentors & accelerators and founders have realized the value of tapping into this.
The main advice I give to Indian entrepreneurs is to hire people smarter than yourself. That is the best way to build a scalable company.