Blume Ventures’ Karthik Reddy on Indian startup ecosystem, geo-political tension with China and coronavirus – ProWellTech
Despite the coronavirus outbreak, which has slowed the conclusion of deals around the world, dozens of startups in India have raised sizable amounts in recent months. Unacademy, which raised $ 110 million in February, closed a new $ 150 million round this month.
These large check sizes and the frequency with which they are banned were almost unheard of in India just 10 years ago. The list of problems these local startups were solving was also quite small back in the day.
Karthik Reddy saw this change very closely.
He co-founded the venture capital firm Blume Ventures, of which he is also a partner, 10 years ago. Blume Ventures is India’s largest venture capital firm. In an extensive interview with Stop 2020, Reddy talked about the state of the startup ecosystem in India, some of the challenges it faces today and what awaits the market.
“Fifteen years is what you should consider the active build-out of VC in India. For the first five or seven years, we were pretending until we made it. We have sold the idea that we can replicate what the US and China have done, “he said.
The highlight in India came when cheap Android smartphones flooded the market. A handful of startups with consumer-facing services like Flipkart, Paytm and Zomato has emerged to serve the top tens of millions of smartphone users in the country.
“The moment of the Ave Maria was the arrival of Reliance Jio on the market,” he said. India’s richest man, Mukesh Ambani, entered the telecommunications market in the second half of 2016 with the cheapest mobile rate in the world.
Plus, for several months, Ambani simply didn’t charge Jio subscribers anything for accessing 4G data. So India in general, once aware of every megabyte spent on the internet, suddenly started consuming gigabytes of content every day. “It has democratized data and smartphones on a scale we haven’t seen in countries other than China,” Reddy said.
With the arrival of hundreds of millions of Internet users to India, dozens of startups in the country have begun to solve more complex problems: the startup Meesho, based in Bangalore, today helps millions of women to sell products digitally; Classplus, a startup backed by Blume Ventures, has built a Shopify-like platform for teachers and coaching centers to directly serve students.
As India has grown to be the second largest Internet consumer in the world, it has also attracted American and Chinese tech groups, who are looking for the next billion users. 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 have become aggressive in their investments in recent years.
But the geopolitical tensions between India and China have complicated matters slightly. In April this year, India changed its foreign direct investment policy in China to seek New Delhi’s approval for their future deals in the country. In recent years, Chinese investors have invested billions of dollars in the Indian startup ecosystem.
It is a sensitive issue, given the government’s involvement, that most VCs in India are not comfortable dealing with it even informally. But Reddy weighed.
“If not an arm or a limb, cut a finger or two for your choices. You’re a little handicapped, “he said.” But there’s a caveat in that. It’s limited to certain market segments. I don’t think investors in China and Hong Kong, even if they knew the VC success story very well. Chinese, were genuinely interested in India’s deep, cross-border technology, “he said.
Today, those areas account for more than a third of India’s robust ecosystem, Reddy said. “If you look at the whole ecosystem collectively, there is a single-digit influence on Chinese capital. […] If you ask me personally, 40% of my portfolio is not even in the slightest affected by it, “he said.
But several large Indian consumer-facing startups, such as Paytm, Zomato and Udaan, have Chinese investors in their capitalization tables. Reddy said they would be affected by uncertainty as to when – and if – India would offer some relaxation at its current location.
He said he hopes the government will give some distinction to the VC-managed fund money that isn’t necessarily Chinese just because it’s managed by someone who originated there.
Reddy also talked about why he believes early stage startups, despite the proliferation of venture capital firms in India that focus on young businesses, continue to receive less attention. We also talked about how the coronavirus is affecting its portfolio startups and the industry in general, and what advice it has for startup founders to navigate turbulent times. You can watch this and more in the interview below.