Blume Ventures’ Karthik Reddy on Indian startup ecosystem, geo-political tension with China and coronavirus
Despite the coronavirus outbreak, which has slowed down deal-making across the world, dozens of startups in India have raised substantial amounts in recent months. Unacademy, which raised $ 110 million in February, closed a new round of $150 million this month.
These huge check sizes, and the frequency at which the issue is being bandied out, were almost unheard of in India time 10 years ago. The schedule of troubles these neighbourhood startups were solving then was also quite smaller back in the day.
Karthik Reddy has seen this mutate very closely.
He co-founded venture capital firm Blume Ventures, where he too dishes as a partner, 10 decades ago. Blume Ventures is most important Indian risk capital house. In a wide-ranging interview at Disrupt 2020, Reddy talked about the state of the startup ecosystem in India, some of the challenges it is confronting today and what lies ahead for the market.
“Fifteen times is what you should consider the active VC build-out in India. For the first five to seven years, we were kind of faking it till we make it. We sold the relevant recommendations that we can replicate what the U.S. and China have done, ” he said.
The breakout minute in India happened when low-cost Android smartphones inundated world markets. A few of startups with consumer-facing assistances such as Flipkart, Paytm and Zomato emerged to serve the first tens of millions of smartphone users in the country.
“The Hail Mary moment there was Reliance Jio’s arrival in world markets, ” he said. India’s richest man, Mukesh Ambani, entered the telecommunications market in the second half of 2016 with the world’s cheapest mobile tariff.
Moreover, for several months, Ambani simply did not charge Jio readers anything for be made available to 4G data. So India at large, formerly intentional about each megabyte it spent on the internet, suddenly started devouring gigabytes of content everyday. “It democratized data and smartphones at a flake that we have not seen in countries other than China, ” said Reddy.
As hundreds of millions of users in India arrived on the internet, compositions of startups in the country started to solve more complex problems: Bangalore-based startup Meesho today is helping millions of women sell makes digitally; Classplus, a Blume Ventures-backed startup, has built a Shopify-like platform for teachers and coaching centres to serve students directly.
As India originated into the world’s second largest internet consumer, it has also enticed American and Chinese technology radicals, all of which are looking for their next billion customers. Several major investment firms, including Silver Lake, Alibaba Group, Tencent, GGV Capital, Tiger Global, General Atlantic, KKR, Vista, and Owl Ventures have also arrived and become aggressive in their investments in recent years.
But the geo-political tension between India and China have slightly involved matters. In April this year, India amended its foreign direct investment policy to China to seek approval from New Delhi for their future deals in the country. Chinese investors have ploughed billions of dollars into the Indian startup ecosystem in recent years.
It’s a sensitive topic, given the involvement of the government, that most VCs in India are not cozy addressing it even off the record. But Reddy weighed in.
“If not an forearm or leg, it cuts off a thumb or two for your picks. You is rather hampered, ” he said. “But there’s a caveat to that. It’s limited to specific segments of the market. I don’t envisage China and Hong kong residents investors, even though they were very familiar with Chinese VC success story, were really interested in India’s deep tech and cross-border tech, ” he said.
Today those areas account for more than a third of the robust ecosystem in India, Reddy debated. “If you look at the entire ecosystem collectively, there’s a single-digit affect of Chinese asset. […] If you ask me personally, 40% of my portfolio is not even remotely was influenced by it, ” he said.
But several sizable consumer-facing Indian startups, such as Paytm, Zomato and Udaan, do have Chinese investors on their cap tables. Reddy said they would be impacted as hesitation towers over when — and if — India would give any relaxation to its current stand.
He said he is hopeful that the government would render some distinction to VC-managed fund money that is not necessarily Chinese really because it’s run by someone who originated there.
Reddy also spoke about why he reputes early-stage startups, despite the proliferation of VC firms in India focusing on young firms, continue to receive less courtesy. We too speaking in how the coronavirus is impacting his portfolio startups and the industry at large and what opinion he has for startup founders to navigate the disturbance period. You can watch this and much more in the interview below.
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