A Quick Introduction to FinTech in India

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“Show Me The Money”: India’s Big Promise to VCs

“Show Me The Money”: India’s Big Promise to VCs post image

According to CBInsights, there are seven Indian startups are already valued at more than $1 billion. If you include Micromax, Mu Sigma, and InMobi, the number would be ten. Merely 2 years ago, there were only five unicorns.

It won’t be long before large exits confirm India’s ability to deliver meaningful returns to startup investors. There have been more than sixty mergers and acquisitions in India’s tech sector worth more than $800 million in just 2015. Indian IPOs increased nine times in 2015. Also in 2015, “21 IPOs were launched on the BSE, the Bombay Stock Exchange, compared with five in 2014, the highest number since 2011, when 37 IPOs were launched.” Sure they weren’t tech startups but it shows that the domestic appetite for IPOs is on the rise – something, tech startups are very excited about.

While many Indian startups may not take the typical path to an IPO, the opportunities for exits are real and more options continue to emerge. Here are a few of these promising signs for Indian startups and investors.

IPO Me, Please

In September, the Securities and Exchange Board of India (SEBI) approved e-commerce firm Infibeam’s plan to sell US $68 million in shares. Infibeam was India’s first e-commerce IPO in March 2016, clearing the way for future e-commerce companies. Snapdeal hopes to go public in India within the next few years. It was valued at nearly $5 billion last year, and has said it is likely to IPO in India rather than on a foreign exchange. Flipkart is, also, likely to IPO in the next few years, although rumors of a merger between Amazon India and Flipkart keep making rounds. Other tech unicorns like PayTM, MuSigma, Micromax may also entertain IPOs either in India or in the US. As they go public, they will act as proxies for the broader digital startup sector where many larger investors can’t easily participate.

Acquisitions and Investments by Major Players

India’s major startups are spending significant amounts of money to round out their portfolios as they prepare for their next, more public phase of competition. Snapdeal acquired mobile prepaid recharge provider, FreeCharge for $400 million in April, then launched a digital wallet for their bundled  services in September. They’ve acquired ten more firms over the last year, such as online loan platform RupeePower, luxury goods retailer Exclusively, and MartMobi, a mobile apps developer and TechStars alum.

Meanwhile Ola, another member of India’s Unicorn club, acquired rival rideshare service TaxiForSure for $200 million. Ola also acquired Qarth and trip-planning company, Geotagg.

According to Crunchbase, Flipkart wasn’t sitting on the sidelines either, publicly announcing three acquisitions in 2015 as well as PhonePe so far in 2016.

MakeMyTrip, the NASDAQ-listed travel firm, picked up last-minute booking site MyGola, 500 Startups’ first investment in India back in 2011, and has launched an “innovation fund” to invest in more startups.

It’s not just Indian firms who are doing the buying – Twitter picked up ZipDial, an Indian firm that turns missed calls into smartphone alerts, for an undisclosed amount (also a 500 Startups portfolio company). Yahoo bought Bangalore based, BookPad in 2014.

Times Internet, part of the media heavyweight, Bennett, Coleman and Company, recently announced leading an investment of $11.2 million in Haptik, an Indian concierge service. FreshDesk, another Tiger Global backed startup, recently announced its 5th acquisition.

What’s In It For Investors?

The Reserve Bank of India recently made it easier for foreign investors to sell or transfer their stakes in Indian startups, and loosened disclosure requirements. Relaxing rules like these should go a long way in attracting new investment dollars from overseas investors as well as continuing to make investing in startups attractive to local investors.

Prime Minister Narendra Modi, has promised to make it even easier for investors to both enter and exit startups through its Startup India Plan. This initiative, launched in January, intends to expand the country’s culture of innovation in technology startups to other areas, such as agriculture, manufacturing and healthcare.

India Accelerating

There were 141 M&A deals worth US$1.26 billion involving Indian tech startups in four years from 2010 to the end of 2013, a stark increase from years prior.  If you consider the massive growth in mobile phone penetration, the second largest Internet user base in the world, acceleration of e-commerce in India (which is expected to top $17 billion this year, having quadrupled since 2010) and a government that is committed to creating the next “Startup Nation” of 1.3 billion people, then the future of exits in India starts looking far more interesting.

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Why India is the Next Frontier for Mobile

Girl Talking by Ramesh LalwaniUnmodified picture by Ramesh Lalwani under Creative Commons 2.0

All over the world, opportunities are flourishing for mobile development (and investment). In some countries, like the U.S.,64% of adults owned a smartphone in 2015. In China, 68% of adults have a smartphone. Yes, these countries still offer room for growth. But not like India.

Indian use of smartphones is rapidly growing. Google-sized companies will be created over the next decade to satisfy user demand, which is significantly more than in the U.S. and China over the same time period. Here’s why India is primed for massive mobile growth. This is why we are getting more aggressive in India.

Mobile Growth All Over the World

It’s hard to believe that just 20 years ago, the world had about only 80 million mobile phone users, representing 1% of the world’s total population.

By 2014, the world’s mobile phone user base had grown to 5.2 billion, or 73% of the population. 40% of that user base had a smartphone.

Based on these stats, it’s hard to argue against mobile development as a lucrative business endeavor all over the world. Even so, growth in countries like China and the U.S. is slowing. Based on what I’m seeing as I invest and work with Indian companies, India offers the greatest opportunity for mobile investment. According to a report by IAMAI and KPMG, the number of mobile Internet users is set to double by 2017 to 300 million!

India already has over 900 million mobile phones, representing 79.39% of the population, and it’s on the path to having more smartphones than the entire U.S. population. It has the second highest number of mobile phones in use, after China and before the U.S.

In 2014, the number of smartphones in India grew 54%, and is expected to reach 651 million by 2019.  In 2013,  only 6.2% of Indian people owned a smartphone. India’s smartphone usage is growing faster than any other country. It’s currently the third largest smartphone market in the world.  

Indian internet penetration is also rapidly increasing. India currently has an internet userbase of at least 232 MM users. This is only 19% of the population, which leaves quite a bit of room for growth.

Scalability

Having a population that is four times bigger than that of the U.S at 1.27 billion people, offers a massive opportunity to scale a business. Though, margins in India are typically pretty low, the numbers are massive. There are hundreds of millions of people across India  who will access new technology for the first time via their mobile phones. They will want entertainment, content, services, and communication. Startups that can figure out how to meet the demands of mobile-first urban and rural Indians will create multibillion dollar companies. Even now, most people use a mobile phone to access the Internet vs a computer or desktop – “According to Meeker’s report 65% of people accessing the internet in India do so from a mobile device and 41% of e-commerce in India takes place on mobile.”

Growth in India

According to the App Annie Index, “Emerging markets grew as low-cost smartphones continue to penetrate India and Southeast Asia. First-time smartphone owner numbers are on the rise.”

I also think that people are inspirational at their core. If you provide the best hardware, QoS, content, and services, they will pay for it as long as their payment options become easier and ubiquitous.”

Takeaways

Indian use of smartphones is growing rapidly. The cost of smartphones continue to decline. “In 2015, the number of mobile internet users from rural area doubled from 2014, and in 2016 the growth percentage is estimated to surpass all the previous figures.

  • India is a market that can’t be ignored by corporations, investors, and startups
  • Growth in mobile usage and GDP is surpassing the US and China
  • Internet penetration is second to China and there’s still a tremendous amount of growth left with less than 25% of the population online
  • India is one of the youngest countries on the planet with a massive workforce

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What’s For Dinner? The Foodpocalypse.

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The trouble that some Indian startups are facing is being touted as the harbinger of a coming apocalypse. What happened at TinyOwl in Pune with employees holding the founders hostage was an embarrassment to all of us.

Dazo shutting down. Zomato laying off employees. Foodpanda, well, just Foodpanda. These are normal occurrences at startups. Most of them are, in any case. Some things are hard to comment on without knowing details.

6 months ago, almost all of the bloggers and reporters were writing about how foodtech is the second coming of the Indian startup economy and how VCs are falling over themselves trying to get into as many deals as possible. Today, those same folks are pontificating on “the bubble” and the coming apocalypse.

I recently read a post on Quartz about how the demise of food delivery will result in the end of the Indian startups. It’s difficult to comprehend the reasoning behind a small sector setting off a domino effect of collapses across startups.

One small, and I mean TINY, sub-sector does not a bubble make. Contrary to what people would like to think, food/grocery delivery is a very very small part of the much larger Indian startup world. PayTM is going after everything from m-commerce to taxi booking payments on Uber to hotel bookings to hyperlocal to movie tickets. Flipkart, Snapdeal (though far from startups any longer) have changed the way Indians fundamentally think about purchasing products. Freshdesk, FusionCharts, Wingify and many others are going after global markets and are seen as serious threats to incumbents. Even some of our Indian companies are changing the way people think about hiring, education, commerce, gaming and finance. Companies like CultureAlley and OnlineTyari are taking language learning and test preparation to the masses at affordable prices thru the only device they need – a smartphone. Consider how Kraftly is giving cottage industries where men, women, and even children are making baked goods or clothing or art at home and able to easily reach and transact with customers not only across India but overseas as well or how SwitchMe is making refinancing your home loan quick, painless and cost effective.

My point is that the Indian startup scene is far broader and diverse than this one small sector. The food and grocery delivery vertical has been overfunded. Some of the companies closing rounds forced me to scratch my head and ask, “what am I not getting?” That’s Ok. You know why, there are amazing entrepreneurs and developers, and designers and financial wizards building solid businesses. And guess what, it’s not going to stop. What else isn’t going to stop? The funding of great companies but also of companies that aren’t run very well.

Would I invest in Zomato today? Definitely. Deepinder and the team don’t give up. They will make the hard decisions when required and they will continue to push the limits of what’s expected from them and at the same time, force the rest of us to compete better.

Would I invest in a pure food or grocery delivery business that picks up veggies from the local mandi or from the 3 restaurants in my neighborhood and deliver it to me? Not likely, though, I have invested in ChalDal in Dhaka. I would definitely consider investing in entrepreneurs that understand warehousing, logistics and supply chain to provide grocery delivery via distributed warehouses in a city. Or a food company that understands how to manage large centralized kitchens, and has an expertise in logistics. Oh wait. Didn’t the Harvard Business Review write about a cooperative that does this? In India.

So all of you talking about the rot in startupland, keep doing what you’re doing. You will get your clicks and likes and shares and eyeballs with sensationalist headlines but all you’re really doing is scaring a young dreamer’s parents into not letting them work at a startup or start a business or get married because they aren’t working at Microsoft, Infosys or TCS. Once the cycle completes, you can begin again. This time writing about how those parents are unfair and ruining their child’s chances of starting a multi-billion dollar startup. Please, just ask yourselves, how any of this helps anyone.

One has to let loose a lot of arrows before learning to shoot and hitting the target. Even after learning to shoot, we will still miss. Often.

At 500 Startups, we’re not going to slow down our investing in India. In fact, I love all this talk of doom and gloom. Why? It’s going to send wannabe founders, angels (who figured they can make more money investing in startups than real-estate) and the glory seekers running for the hills. This means less noise, serious founders pushing the limits of creative destruction because they will have to do more with less, and investors, in it for the long haul, getting access to great founders building real companies.

Cover photo from https://pixabay.com/en/apocalyptic-war-danger-apocalypse-374208/

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Building Facebook for India is a Waste of Time

Photo by Pankaj Jain. All Rights Reserved.This post originally appeared on CitizenTekk.

In a country of almost 1.3 billion people, mid-20th century infrastructure, rampant corruption, over 400 million people below the international poverty line, roughly another 400 million people who are considered middle class and one of the youngest populations on the planet building the next Facebook isn’t exciting. What is exciting? Solving problems for over 800 million people who don’t have access to smartphones, tablets or computers. The real opportunities for smart, savvy entrepreneurs is to solve the problems plaguing them on a daily basis. There really is no shortage or problems, big or small.

A SMS based service that brings “mandi” (market) prices directly to a farmer allows the farmer to know exactly how much his produce will get him at a market in Mumbai, Delhi, Indore, Kolkata, etc. In 2009, Thompson Reuters was making over a million dollars a year by providing the service to farmers in only three states in India. In many cases, information about current market prices has made farmers better able to negotiate fair prices with middlemen, sometimes tripling the amount of money that goes to the farmer.

Every hear of “star dialing”? Chances are that if you live in the US, you haven’t. In India, on my mobile phone, I can dial *123# and I will get my current balance pop up on an iPhone just as easily as a Nokia 1100 feature phone. The best part is that “star dialing” doesn’t cost the caller anything. No call ever gets terminated. Well, can you imagine building a banking solution on top of this for people who don’t have access to a bank? Eko Financial, based in New Delhi, has done exactly that. For millions of people who don’t have access to a bank or millions who need to send money back home to their family in a small village can do so quickly and easily by going to a local bodega (we call them “kirana” stores in India) and give cash to the store owner who enters a sequence of numbers to authenticate with the service and transmit the cash to the destination account. All of this is done in minutes and payments can be tiny or relatively large.

Imagine you lived in a rural area with no terrestrial Internet connection, no 3G, no 2G, nothing. You had a mobile phone to communicate with the world via voice and SMS. Now imagine you could search the web simply by sending an SMS to 55444 or you can find the Rotten Tomatoes ratings for a movie playing over the air. You can join IRC style chat rooms simply by using SMS. Innoz let’s you do all of these things and a lot more. It’s bringing the power of the Web and applications to people who would never have access to them. The reality is people living in remote, rural parts of India can now connect with people in cities over IRC style chat rooms, find out the seven day forecast, and even get the best price for a TV from EBay simply by sending a text message.

These are just a few examples of mobile applications that people have built in India over SMS. Add in smartphone apps that alert civic authorities to sewage problems, garbage piled up on the side of the road, illegal construction, unsafe working conditions, etc. and you have a tech savvy urban population that can use technology to improve their quality of life. The opportunity in India isn’t in building another social network or e-commerce site that sells printed kurtis online. The poor across India are hard-pressed to get access to basic resources. The middle class is very aspirational and though price sensitive, the household savings rate as a percentage of GDP fell to 7.8%, the lowest in 20 years, according to a report in Times of India. This means middle class Indians are spending and it’s been increasing.

Today, it’s possible to get a basic smartphone in India for INR 4,500 or less than USD 85. The Aakash tablet, was an ambitious project to produce a basic Internet device that can be used anywhere a mobile phone can at USD 50 subsidized to USD 35. A good deal of controversy surrounded the Aakash tablet. However, the push from the Indian government as well as manufacturers towards more affordable smartphones and tablets will create massive opportunities for entrepreneurs to provide solutions to everyday problems along with education, entertainment, sports, content, and other utilities. All going after hundreds of millions of people who are getting access to technology for the first time.

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