As a part of our #Outlook15 series, we asked venture capital firms – Nexus Venture Partners, Blume Ventures, Helion Venture Partners, GrowthStory, LightSpeed Venture Partners and Inventus Capital Partners about their focus areas for 2015, and the challenges that the digital ecosystem needs to address. Answers have been shortened for brevity.
Which according to you were the top developments in the digital (Internet/Mobile) industry in 2014? Why?
Suvir Sujan, Nexus Venture Partners
– E- commerce has matured in 2014, Internet users has reached critical mass.
Karthik Reddy, Blume Ventures
– $50 million to $1 billion rounds by the dozen(s) – unprecedented confidence (by no investor who is living in India btw) in the seeming promise of the Internet inflection point being achieved soon. – Global trends being mirrored here in terms of investing into a path to IPO – which suggests that IPOs and large M&A’s maybe round the corner.
Ashish Gupta, Helion Venture Partners
– The significant adoption of smart phones by large number of people. It is a game changer because it has now produced critical mass of users in India to be able to support many different businesses.
K Ganesh, Portea Medical (GrowthStory)
– Rapid ‘mainstreaming’ of digital. Smart marketers have realized that offline media is a one-way street, a ‘spend-and-pray’ way to try and achieve your goals. However, digital marketing opens up the box with the ability to gather data on a minute-to-minute basis, translate this into insights and knowledge enables deep understanding of customers and markets.
Anshoo Sharma, LightSpeed Venture Partners
– Growth of smartphone base – new smartphone sale are inflecting.
Rutvik Doshi, Inventus Capital Partners
– Coming of age of mobile Internet and consumer facing companies achieving scale. The mobile Internet adoption grew manifold and for the first time several Indians have a device which can be truly called a “personal device.”
– Scale achieved by consumer facing Internet companies. A few achieved the $1B+ valuation mark, which was unheard of. Some of the e-commerce companies are doing far more in revenues and transactions than several offline retailers put together.
How has the investor sentiment regarding Indian digital businesses changed from 2013 to 2014? Why?
Suvir Sujan, Nexus Venture Partners
– Given the Internet and mobile penetration has hit critical mass in 2014, investors are now bullish.
Karthik Reddy, Blume Ventures
– Dramatic positive shift – large bets in the direction of 300-400 million Internet users (mobile-heavy) expected to come online and spend/discover/consume over the next 2-3 years. – Deep bets are being made early on the “frontrunners”.
Ashish Gupta, Helion Venture Partners
– The adoption of technology went through an inflection point and caused the investor sentiment to become a lot more positive.
K Ganesh, Portea Medical (GrowthStory)
– Investor sentiment has been positive towards businesses that are leveraging technology to solve major pain points for Indian consumers. This can be businesses that ensure all manner of goods, services and conveniences are made available at a location and in the format of the consumer’s choice.
Anshoo Sharma, LightSpeed Venture Partners
– Changed in a significantly positive way. As number of people coming online through their smartphones grows, it will disrupt existing business models and create new ones. Access to distribution gets democratized and high quality products and services delivered digitally can grow rapidly.
Rutvik Doshi, Inventus Capital Partners
– Prior to 2014, investors were cautious of putting large sums of money into Indian companies because there was always a doubt on the time taken to scale. However, the $1B+ valuation companies in 2014 have proven that it is possible to achieve scale in India.
What is one trend that you hadn’t expected but happened in 2014? What are your observations?
Suvir Sujan, Nexus Venture Partners
– Mobile commerce has grown faster than predicted.
Karthik Reddy, Blume Ventures
– Overreach by Series A VCs into seed. The gap in seed players as well as risk+capital appetite being more attractive than Series A has led to this move.
K Ganesh, Portal Medical (GrowthStory)
– Despite the increasing number of Internet users from Tier 2, Tier 3 cities, adoption and usage of social media channels among non-English speakers still lags the English audience. This is likely to change quite rapidly in coming years with more content in local languages and content with a non-metro focus being produced.
Anshoo Sharma, LightSpeed Venture Partners
– Quantum of risk capital that has come in from new sources that weren’t previously active in India.
Rutvik Doshi, Inventus Capital Partners
– The line between desktop browser based Internet and mobile is completely blurred.
– Prior to 2014, we (and many investors) use to classify companies as consumer Internet or mobile separately. They are no longer separate, since every tech enabled company needs to provide both desktop & mobile experience. Even mobile first companies need desktop web experience to complement/augment their products.
– The exponential growth of content based companies was also something which took me by surprise.
Which are the sectors that you intend to focus on in 2015? Why?
Ashish Gupta, Helion Venture Partners
– Online services (like jobs, matrimonial, classifieds etc), e-commerce, mobile applications across many areas and enterprise software.
Anshoo Sharma, LightSpeed Venture Partners
– Mobile led growth – transaction based businesses, online to offline, virtual services/experiences, SaaS.
Rutvik Doshi, Inventus Capital Partners
– We will continue to focus on consumer facing tech companies in India. – We are very bullish on enterprise software companies which address global markets. We have the right talent pool in the country and the cloud based delivery models have made companies’ geographical location redundant.
What are some of the broad trends that you expect to see in the digital industry in 2015?
Suvir Sujan, Nexus Venture Partners
– We will see advertising start to mature. It generally follows e-commerce.
Karthik Reddy, Blume Ventures
– Mobile = Internet. – Everything will be built mobile only / mobile first, else why bother? – Digital media’s time will come – beyond music and YouTube.
Ashish Gupta, Helion Venture Partners
– Adoption of technology by the domestic enterprises – especially SME. – Some monetization models for the mobile application companies.
K Ganesh, Portea Medical (GrowthStory)
– Major shift is the mobile usage and apps usage catapulting with consumers accessing products and services through this medium.
What are the key trends you see in Venture Capital in the coming year?
Suvir Sujan, Nexus Venture Partners
– There will be a lot of early investments made in Internet/mobile in 2015.
Karthik Reddy, Blume Ventures
– Push for exits and teams/bankers designed to focus on this. – Larger funds (both series A and the foreign funds) playing aggressive larger bets in Series A (that’s the last frontier of aggression which we haven’t seen). – More new players emerging in Series B and beyond. – The “fashion” of Series A VC’s playing large number of Seed cheques will stay alive, shifting from one set of VCs to another until all of them hit their natural limit of management bandwidth. – More and more seed / superangel funds will be attempted. – Angel investing by organized groups will deteriorate further and aggregate in other forms.
Ashish Gupta, Helion Venture Partners
– More money coming into India. Some firms will lose people and new firms will start out of it.
– Money will continue to flow even if there is a global hiccup. If there is a hiccup, I think companies will be built with a more sane approach (of not burning money), so I am actually looking forward to a slow down.
K Ganesh, Portal Medical (GrowthStory)
– Lot of new VC money coming in especially VCs coming into India for the first time. – Acceleration of hedge funds and late stage PE funds / growth stage funds playing in the VC sector in India. – VCs getting active in seed stage investments by putting small money in very early startups.
Rutvik Doshi, Inventus Capital Partners
– Hedge funds and PE funds will continue to invest large rounds in Indian companies. – Several VC firms may also raise new funds to support the growing startup ecosystem.
Which are the sectors you’re going to avoid in 2015 and why?
Karthik Reddy, Blume Ventures
– By nature of our fund size and scope, we will avoid anything that’s already been funded by the larger VCs.
K Ganesh, Portea Medical (GrowthStory)
– Horizontal E-commerce. – Replicating already evolved sector with very well funded, large players. – Me-too plays in Education and healthcare, since it’s very difficult to differentiate and scale. – Replicating US models for India without localization and changes for country specific factors. For eg AirBnB for India, Facebook for India.
Anshoo Sharma, LightSpeed Venture Partners
– Real estate and capital intensive business.
Rutvik Doshi, Inventus Capital Partners
– We are agnostic to sectors and prefer looking at every opportunity from the fundamentals of the business.
What are some of the challenges in the digital segment that you feel, need to be addressed in 2015? How do you think these challenges can be addressed?
Suvir Sujan, Nexus Venture Partners
Consumer Payments continue to be a challenge.
Karthik Reddy, Blume Ventures
– Sustainable long-term Revenue models ahead of exaggerated capital infusions. – Capital infusions OK if not artificially (and absurdly) stoking supply and demand for the short-term. – Eventual liquidity events – M&A’s and IPOs – to validate above. – Domestic regulations – it seems like the lack of domestic capital participation makes them lobby hard to keep status quo while consumers are demanding better and better integrated tech solutions to costs and bottlenecks in India.
Ashish Gupta, Helion Venture Partners
– While the numbers of users is very large in India – their ability to pay meaningful amounts of money is still unproven. So we have adoption being driven at huge expense; but have yet to see whether the economics of most of the online companies will be sustainable.
K Ganesh, Portea Medical (GrowthStory)
– Government in India, both at the Centre and state-level, seems ill-equipped to handle issues related to digital businesses. A case in point is the knee-jerk reaction of authorities to the Uber incident.
– Simplifying of laws across business segments is essential since it is only a matter of time before every sector is impacted by digital. There is no sense in framing regulations on the fly, as and when situations arise as it will lead to investor sentiment getting hit, hardship to consumers and bad PR for the country.
– Digital Bharat should not be just a ‘term’ that’s seen the flavor of the month but should be accompanied by a true appreciation of what is involved and its impact on a society that is digital.
Anshoo Sharma, LightSpeed Venture Partners
– Access to high quality talent pool is a key issue. It is a virtuous but slow cycle – more startup success will lead (and is leading) to better talent availability.
– Payments ecosystem needs to be seamless and allow for micro transactions outside of telcos; Many companies are working towards solving it and slowly making progress on this front.
Rutvik Doshi, Inventus Capital Partners
– Monetization for content based companies is still a challenge in India. The monetization of most of these companies is disproportional to the kind of traffic they get.
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