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Cracking The India Opportunity Will Take Resolve
Given the size of India’s economy and its rapid growth, it’s a good market for VCs/ private equities (PE) over the next 10-15 years
Photo Credit : Bivash Banerjee
Last week, we were scheduled to have lunch at Smoke House Deli in Bangalore with an overseas investor looking to invest in a venture capital (VC) fund in India. They were doing due diligence and wanted our impressions on the VC firm, partners, etc. Strangely, the table adjacent to us had partners of another VC firm that was also in the process of closing their second fund. We shifted tables to give each other privacy.
Think about it, what are the chances you would have two VC firms in the process of raising funds sitting across adjacent tables, in the middle of a week, in a restaurant in Bangalore? Let us put it this way: 10 years ago, the chances were close to nil.
So, what has made India the place for VCs to be in? In one word: scale. And that scale is only about to grow exponentially.
By 2050, India will have the world’s third largest GDP. Currently, it is already one of the largest smartphone and internet markets in the world. Thanks to the “Jio bump”, data consumption is soaring. India’s much fabled middle class is expected to grow and consume more products and services — both online and offline.
Given the size of India’s economy and its rapid growth, it’s a good market for VCs/ private equities (PE) over the next 10-15 years. But India’s scale is just the starting point. The real opportunity, we believe, lies in India’s complexity. The next wave of successful startups will be companies that are able to micro-target India’s variations in geographies, languages and demographics with products and services.
For PEs and VCs, India’s diversity can also serve as a testbed to create businesses that can thrive in diverse environments. Any service or product that meets the approval of Indian consumers — who speak multiple languages and are extremely price conscious — is likely to thrive in several global markets.
For now, India predominantly offers opportunities in services, finance, commerce and content. Our sagging infrastructure needs to be fixed before we can compete in manufacturing in the global market. PEs will have opportunities in the infrastructure sector but historically, it has taken a long time for projects to complete and for PEs to see returns.
Under-penetration of critical goods and services such as insurance, financial products, affordable housing, healthcare, education and consumer durables are also sizable opportunities in the future.
Over the next decade, we also see government as a partner and buyer, increasingly engaging more with startups. As startups continue to disrupt existing businesses, governments — state and central — will increasingly partner with them to solve mega problems in domains such as agritech, e-governance and smart cities.
But cracking the Indian opportunity will require some resolve and persistence. For one, most opportunities take a long time to mature in India which might be beyond the investment horizon of most VCs and PE firms.
Government policies need to be tweaked to support VC/PE inflow. In their current form, policies are restrictive. For instance, the issues questioning valuations at which companies raise money are irritants that can be avoided.
For foreign investors, rupee depreciation is another concern that businesses have to constantly compensate for. And then, there is the manpower conundrum. Despite having a population of 1.3 billion people, most startups are hamstrung by the lack of skilled manpower.
But these are challenges that can be overcome, and startups could help in some of them. Richard Branson once said: “Business opportunities are like buses. There’s always another one coming.”
But if you are a VC or PE eyeing the India opportunity, it’s a bus you don’t want to miss.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.