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Wings of Opportunity in Tech Startups - iSPIRT VC Thesis

Jan 11, 2017

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    iSPIRT Indian Software Product Industry Round Table is a non-profit think tank formed by leading practitioners of the industry

    to assist in the cause of building a healthy, globally-competitive and sustainable industry. Visit www.ispirt.in for more details.

    India as Product Nation: 30 Year journey from zero to hero

    Wings of Opportunity in Tech Startups

  • Topics

    India as a SaaS Hub Theme Unlocking the Missing Middle Theme 30 year journey from zero to hero

  • India as a SaaS Hub

    Theme 1

  • Software Renal Model - Software As a Service (SaaS)

    Software can come from anywhere in the World

    Software Sales is Moving from Field Sales to Online Sales

    All of software is moving to Cloud

    Global Software Product IndustryDisruption Ahead

    4

  • Desk Marketing and Selling is to Indian SaaS as Global Delivery Model was it India IT Services

    Early Demonstrated Success from India already happening (Zoho, Druva, Freshdesk, etc.)

    Many Category winners are being created for SaaS targeting mid-and-small businesses (find them at PNgrowth and SaaSx bootcamps)

    India can do in SaaS what China did in manufacturing

    India Advantages

    5

    Thanks to MNCs, great Product/Engineering talent that creates 2X value at the cost

    http://pngrowth.in/http://saasx.in/

  • SaaS Talent | Engineers & Product

  • Significant margin advantage

    costs as % of total revenue for a typical SaaS company

    Source: Google-Accel SaaS Report

    Better EBITDA Margins by

    3-4x

  • Expanded addressable market in SMB and Enterprise

    $40per agent /month(1)

    $100per agent /month(2)

    $300-700per month(6)

    >$1000per month(7)

    Note: (1) Estate Plan billed annually (2) Enterprise Plan billed annually (3) Professional & Enterprise plan billed annually (4) Lightening Professional & Enterprise plan billed annually (5) Price comparison for a 100 room property billed annually (6) Pro & Advance plan billed annually (7) Base PlanSource: Company websites; Industry reports

    $20-35per user /month(3)

    for CRM

    $75-150per user/month(4)

    for CRM

    $100-120per month(5)

    for Channel Manager

    $150per month(5)

    for Channel Manager

  • $740 mn+ VC/PE Capital Invested In Last 2 Years (CY15 & YTD CY16) - 105% Growth Over Prior 2 years

    Note: (1) YTD as of Nov16

    Source: Venture Intelligence

    in USD mn

    $360mn+ across 72 deals

    $740mn+ across 74 deals

    2x$90

    $60

    $55

    $51

    $50

    $45

    $30

    $23

    $15

    $15

    Top 10 India SaaS Deals in Past 2 Years (USD mn)

  • Global Majors taking notice

    Chinese Investor Consortium

    AcquiredAcquired Acquired Acquired Acquired Acquired

    AcquiredAcquired Acquired Acquired Acquired Acquired

    $900 mn$130 mn

    $200 mn$136 mn

  • Unlocking the Missing MiddleTheme 2

  • Elite (11M HHs, 4%)>$37k annual gross HH incomeWealthiest class in India

    Affluent (26M HHs, 9%)$18.5k-$37k annual gross HH incomeTop 6-10% of highest income HHs

    Aspires (66M HHs, 23%)$7.4k-18.5k annual gross HH incomeMiddle Class- Looking to trade up & aspire to upgrade (Disposable Income - 60%)

    Next Billion (103M HHs, 500m, 36%)$3.3k-$7.4k annual gross HH incomeNew Consumers- HHs have some disposable income (33%), total spend $1 T

    Strugglers (80M HHs, 28%)

  • The Missing Middle

    Large informal economy > 45% of GDP

    Informal employment80% of workforce

    Low per capita spending 97% of population

    lives on < US$10 per day

    Lack of data Only 3% of population pays taxes

  • Unlocking India 2 (Bharat) Potential in 3 Steps

    India StackTechnology backbone for presence-less, paperless

    and cashless economy

    Financial InclusionPayments, Lending, Savings

    2nd DerivativesHealthcareEntertainmentConsumer CleantechSupply Chain Tech

  • Digital Identity1 Billion have Aadhaar

    Mobile200 M smartphones350 M have internet25 M smartphones sold per quarter

    India is changing

    GST70 Mn entities with digital invoices. Pulling in smaller enterprises into the formal economy

  • PRESENCE-LESS LAYER Aadhaar AuthenticationUnique digital biometric identity with open

    access of nearly a Billion users

    CONSENT LAYER National Policy on Data SharingProvides a modern privacy data sharing

    framework

    PAPERLESS LAYERAadhaar e-KYC,

    E-sign, Digital LockerRapidly growing base of paperless systems

    with billions of artifacts

    CASHLESS LAYER IMPS, AEPS, APB, and UPIGame changing electronic payment systems

    and transition to cashless economy

    COMMERCE(GSTn)

    SUBSIDIES(DBT)

    BILLS(BBPS)

    OTHERS

    I N D

    I A

    S

    T A

    C K

    TOLLS(ETC)

    JAM Jan Dhan, Aadhaar, Mobile

    India Stack

  • Source: UIDAI, NPCI, TRAI Website, Conversations with NPCI, eMudhra, Deity officials. Updated 18th Nov 2016.

    3 BnAuthentications of 500M unique ids

    1.075 BnEnrolments In 6 years since launch

    340 MneKYC in 3 years75 Mn unique ids

    349 MnAPB Accounts Linked1.2 B Transactions worth 4.5 B USD in 3 years

    >2.5 Mne-Sign in 15 months>0.8 Mn unique ids

    2.9 MnDigilocker users & 15 months

    4.8 MnUploaded Docs

    2M+UPI VPA in Just under 2 Months

    252 MnJan Dhan bank accounts

    200 MnSmartphones

    1060 MnPhone numbers

    Jan Dhan Aadhaar Mobile

  • Time

    Winning Next Billion Consumers needs new mindset

    Pene

    tratio

    nS-Curve 1 focused on India 1

    S-Curve 2 focused on India 2 (Bharat)

    Almost fully penetrated

    Created winners like FK, Amazon India, HDFC Bank

    Copy-paste business modelsSizeable discretionary spending power and appetite:

    - Consumption Spend is $1T in 2020- Unrecognized profit pools

    - China scale: 36% of population = ~500M people

    Unknown and unverified business modelsChina or US Copy-paste business models wont work

  • India 2 | Financial Inclusion

    India StackTechnology backbone for presence-less, paperless

    and cashless economy

    Financial InclusionPayments, Lending, Savings

    2nd DerivativesHealthcareEntertainmentConsumer CleantechSupply Chain Tech

  • 2.0x86% 690M

    Payments

    Currency in circulation withdrawn

    Card base now activated. 2.5x card

    transactions in 1 month

    Digital transactions are up 2x. Share of

    payments 3x

    Total value of digital payments by 2020 is estimated to be USD 1 Trillion

  • Consumer Lending

    Debt penetration remains low, with

  • 79% of enterprises in India have < 10 employees

    Lending to smaller enterprises is at a significantly higher rate

    With increasing digitization, share of bank lending should increase and cost of lending should come down

    Consumer and SME loans to grow 5x over the next 10 yrs.

    SME Lending

    High Degree of Financial Exclusion93% of MSMEs are reliant on self

    finance or no finance

    Institutional Sources 5%

    Non-Institutional Sources 2%

    Self-Financed 93%

  • India 2 | 2nd Derivatives

    India StackTechnology backbone for presence-less, paperless

    and cashless economy

    Financial InclusionPayments, Lending, Savings

    2nd DerivativesHealthcareEntertainmentSupply Chain TechConsumer Cleantech

  • Opportunity is large...Healthcare

    India needs 4x doctors and 2x nurses to serve the population

    EntertainmentLocal language internet users set to

    cross 500 Mn by 2020

  • Supply Chain Stack

    Use Cases

    Public Platforms

    Fleet / Remote Asset Monitoring

    Aggregators

    Engine Tech

    Food/Dairy, Pharma/Medicines, Manufacturing

  • 40m to the next Billion

    Homegrown solutions are finding success tapping this opportunity and attracting capital

    Technology unlock has raised Indias consuming class to ~ 350mn people vs < 60mn earlier

    Inflection point in growth for solutions that leverage this tech infrastructure

  • Putting it in Context

    27

  • Three types of ecosystem playersFor a long term sustainable ecosystem

    30 yr Architects

    10 yr Planners

    5 yr Doers

    Think Tanks Universities Research Labs

    VCs Policy Makers

    Missionary entrepreneurs Bootstrapped entrepreneurs Mercenary entrepreneurs

    Interplay and

    mutual respect

    across these three of

    players is important!

    Public goods

  • Market Scalers- Playbooks- Thesis based Funds- M&A Catalysts

    Arrival of Challengers- Evangelization (aka WhatsApp

    Moment in Banking)- iStack Hackathons

    Unlock transformational change- Drive Regulatory change- Catalyse through Grand Challenges

    India Stack

    Incumbents Wakeup- Embrace Non-Linear Change (aka FTLC)- Partner with startups (aka InTech50)- Adoption Sprints and Pilots (aka Alt.

    Lending Pilot in Apr16)

    Public Goods at work: New Sector JourneyFinancial Inclusion

    http://www.ispirt.in/Initiatives/MandAhttp://www.ispirt.in/Initiatives/MandAhttps://www.youtube.com/watch?v=aGM5TvAUF00https://www.youtube.com/watch?v=aGM5TvAUF00https://www.youtube.com/watch?v=aGM5TvAUF00http://intech50.com/http://pn.ispirt.in/ispirt-the-india-stack-pilot-commercialization-of-techno-creative-innovations/http://pn.ispirt.in/ispirt-the-india-stack-pilot-commercialization-of-techno-creative-innovations/http://pn.ispirt.in/ispirt-the-india-stack-pilot-commercialization-of-techno