They draw from the tenets of ancient wisdom of guru-shishya parampara and rely on an eclectic mix of ethics, commitment, perseverance, skillset-honing, and a keen focus on execution to succeed. Venture Gurukool is an industry pioneer in India’s tech ecosystem, and has already made successful investments in early-stage proprietary investments in Olly, MaxMyWealth, Sattviko, Meddo, and Karbon & HomeCapital.
Ntasha B, co-founder and managing partner of Venture Gurukool, was the latest guest of KrASIA’s “Venture Matters TV” on Thursday night and helped unpack the local ecosystem in India offering insights for foreign investors and entrepreneurs looking at the region.
Co-investment with local funds can plug blind spots
India is known for the popularity of the co-investment model, a strategy that involves multiple funds coming together to invest in a company. Ntasha explained the phenomenon: “Domestic VCs tend to gravitate towards large foreign funds. However, there’s an opportunity for even newer VC funds in Southeast Asia to come into India as well, so we see lots of co-investment opportunities happening here. Because India is huge with 28 states, and it can be very chaotic for investors coming in here for the first time. It makes sense for foreign VCs to start by making co-investments with domestic VCs, which have local teams that can be more aggressive in managing portfolios and taking the lead in terms of proprietary deal flow that domestic VCs have”, suggested Ntasha. “It’s a win-win perspective.”
Ntasha also shared how Japanese investors were an ideal example of such fruitful co-investment. “Japanese investors have always believed in doing a lot of collaboration and cooperation with local VC funds here. Along the way, they build momentum and get experience in the Indian ecosystem here. A fly-in and fly-out approach really does not work in India.”
Ntasha wanted to bore down the idea that foreign investors should not overlook earlier-stage investment opportunities. “I hear that a lot of foreign investors want to do Series B investments, but there is a limited number of these rounds available because only a handful of early-stage companies make it to this point,” vexed Ntasha. “Focusing on Series B+ sort of rounds means that they miss out on growth and Series A investments, which are important because it is necessary to help to take these companies to the next level. It, therefore, makes a lot of sense to collaborate and co-invest in local VC funds which are familiar with local markets and have good inroads into the network.”
Further, because due diligence on a personal level is tricky to acquire, Ntasha also suggested that local VCs with deep networks into the local ecosystem could be crucial when carrying out diligence on startup founders. “Only [so much] can be done by the Big 4. They can give you whatever is there on the paper, which is very limited, but at the end of the day, it all comes down to the founders.”
For women, networks can both build and limit
KrASIA probed into Ntasha’s role as a woman in a position of leadership in India’s VC industry. “As a woman in the VC industry, it is hard to get opportunities. In fact, China has a higher representation of women in VCs than in India—around 15% representation compared to 7% in India. And within this 7%, a lot more of this representation occurs at the associate and senior management level. There are very few principals and partners,” said Ntasha. “I don’t think there’s a bias towards men or women in terms of capacity or capability, but it can be challenging. This is because VC is very network-based, and it can be very daunting or challenging to get into the circuit of investments over here.”
However, Ntasha was hopeful about future changes. “Increasingly, there has been a growing trend towards diversity in the ecosystem. What women bring to the table is unique. This is important especially in ventures where women are a key target audience. It makes a lot of sense to have more diversity in an investment team to get those insights.” In her capacity as a leader at Venture Gurukool, Ntasha actively makes conscious attempts to take a lead in hiring more women and bringing them into the VC fold.
The froth is going away
The attractiveness of India’s market is a big draw for foreign capital. “India is a large and attractive market with huge potential for tech disruption to happen. The way Reliance Jio, for example, has raised money in the middle of this pandemic speaks volumes about the size of the opportunity in India with the biggest tech companies in the world investing in Reliance. The huge uptick smartphone users, currently standing at around 450 to 500 million people, in a population of 1.3 billion people, is hugely attractive,” said Ntasha.
Still, the current COVID-19 pandemic has redefined how capital has been deployed in the Indian ecosystem. “2019 was a year of exuberance in India’s VC ecosystem, with more than USD 15 billion worth of investments having been made. Valuations have been very aggressive and aspirational. Since then, there’s been a lot of correction from that point of view,” said Ntasha. “The pandemic has changed the focus from scaling to unit economics, sustainability, and organic growth…A lot of the froth is shifting away. Companies with strong metrics will get support from investors, and if you are not in line with this philosophy, it is high time that you do. It is do-or-die.”
India has always been well-positioned to learn from the development of the startup and funding ecosystem in US and China. Yet, Ntasha cautioned that the tremendous shake-up generated by COVID-19 means what has worked well in the past may not be so applicable when looking at the future. “Copy-paste really does not work successfully in India now. It will not get you the home run you are looking for.”
Because of the uncertainty surrounding the lasting impact of the pandemic, VCs in India are also now starting to look inwards to reinvest in their pre-existent portfolio companies, as companies now require a longer runway to sustain themselves during this trying time. “There are a lot of investments happening, but they are mostly follow-on rounds and there are very few new rounds.”
Still, Ntasha was keen to emphasize that not all was doom and gloom. “At the same time, a lot of exciting opportunities have emerged in the edtech and gaming space, so it’s a mixed bag,” said Ntasha. Yet, with the investment ecosystem becoming increasingly complex and diverse in India, foreign investors wading inwards need to watch their step. Ntasha was keen to reiterate a crucial piece of advice for foreign investors looking to India.
“Network[ing] with local investors and more importantly domestic funds with access to proprietary deal flow and have a team in place, who are open towards co-investments and strategic investments,” urged Ntasha, making a distinction between investors who wisely adopted a long-term rather than short-term approach in market entry. In addition, foreign capital and networks offered by such investors can often be much-needed to fill in the funding gap for middle-stage startups locally.
Globalization cuts two ways
Like investors, foreign startups looking to enter India need boots on the ground. “A lot of the time, foreign entrepreneurs have a very limited focus. They want to set up a sales office, here, for example, but they need to be innovative with their marketing that is localized to their audience. This is important, especially if you want India to contribute, for example, 25% of revenue in your future.”
Concrete decisions need to be taken in order to express commitment to the country. “It is important to have someone in the founding team who is quite locally strong here. You need more than just a satellite office. This helps with attracting talent as well. Employees want to be a part of a company with a larger vision,” explained Ntasha.
Conversely, Indian startups looking to expand outwards, on the other hand, face their own share of difficulties as well. “They need to decide what tier of audience they want to focus on. Still, it takes a lot of time to expand to new markets. If you are only going to focus on tier 1 audiences, there will be a limit to the market you have. India has numbers, but overseas has margins.”
Still, Ntasha was emphatic on looking first at the huge potential of India’s startup system—something very much in line with Venture Gurukool fund strategy of focusing on early-stage investments in India. “I am going to quote our Prime Minister which, to be “vocal for local”. There is a huge opportunity to be vocal about local ventures here, and locally, we have huge opportunities to go global. For SaaS (software-as-a-service) companies, there is a huge opportunity to expand out to MENA and Silicon Valley. First, focus on India, and then export this to the rest of your world.”
“This is what our focus is going to be.”
The “Venture Matters” webinar series will return on August 27, 2020 for the 6th episode with Koh Soh Boon, co-founder and managing partner of iGlobe Partners.