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Sashi P. Reddi
Managing Partner-SRI Capital
Thursday, May 14, 2015
Sashi P. Reddi
There is tremendous excitement in investing in India right now. Is it irrational exuberance or the coming of age of the start-up ecosystem in India? Who really knows but here are some interesting points to think about:

(1) Finally, Indian business models? The first wave of investments was in Indian clones of US success stories:Flipkart (Amazon), Ola (Uber), and Zomato (OpenTable) fall into this category. The second wave of investments is in companies that are pioneering unique business models that have no obvious parallels in the US, but may have more in common with Chinese models. Examples of these are PayTM (phone recharge model evolving to a mobile marketplace), and a host of others that are still small but with great potential. Oyo Rooms(branded low end hotel rooms), Newshunt (news in 12 languages), and Housing.com (direct real estate purchase). And uniquely in India, there is a massive amount of money going into new QSR and "internet first" food delivery models, including gourmet cooking, various ethnic formats, fresh ingredients and groceries'vaster and more varied than anything I have seen in the US.

(2) False complacency of easy seed money: This is an issue that Josh Kopelman of First Round Capital recently blogged on and is equally applicable to the Indian start-up scene. Easy seed stage money from active angel investors is now leading to a situation where many entrepreneurs do not appreciate how hard it will be to raise Series A. The number of Series A deals in the US has not significantly increased even though seed stage investments have gone up an order of magnitude. What this means is that many founders are under-prepared for what it takes to raise Series A and we should expect a lot of damage at this stage as companies die (or scrape along) unable to raise the money they need to grow.

(3) When will B2B work in India? All the excitement is around consumer companies in India and this is understandable. We finally have a consumer market that is internet-enabled, smart phone equipped, and willing and able to spend. This is a dream situation. However, we have not seen any significant B2B success stories in India. There are small signs of hope as the high growth segment of SMEs is willing to buy off-the-shelf SaaS offerings to run their businesses. When these companies become a large enough base, say of 100,000+ companies, we could finally have a viable B2B market that can then fuel a whole bunch of innovation.

(4) Quality of entrepreneurs: For years the common refrain was that there are not enough high quality entrepreneurs to back in India. I believe we now have the reverse problem-many super smart, aggressive, hungry, risk-taking, confident (arrogant?), youngsters wanting to conquer the world. From the many start-up events I attended over the last 12 months in India, I came away very impressed by the depth of the talent pool in the start-up ecosystem.

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