Wings of Opportunity in Tech Startups - iSPIRT VC Thesis

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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

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Thanks to MNCs, great Product/Engineering talent that creates 2X value at ½ the cost

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 Nov’16

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%)<$3.3k annual gross HH incomeHHs with the majority of spend on basic needs such as food, shelter, power & water

India 2020

India 1Elite, Affluent and Aspirers (Current Opportunity)

India 2 Next Billion (New Opportunity)

India 3 Strugglers

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 won’t 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

<30% households having any form of debt

Overall household debt to GDP is < 20%, with banking sector consumer loans to

GDP at ~10%

High Degree of Financial Exclusion

http://pn.ispirt.in/ispirt-the-india-stack-pilot-commercialization-of-techno-creative-innovations/

● 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 India’s consuming class to ~ 350mn people vs < 60mn earlier

Inflection point in growth for solutions that leverage this tech infrastructure

Putting it in Context

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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 Apr’16)

Public Goods at work: New Sector JourneyFinancial Inclusion

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Thank You