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The Bull Case for India's Tech Sector

David Lawee, Partner, CapitalG-Google
Monday, December 26, 2016
David Lawee, Partner, CapitalG-Google
Headquartered in the U.S., is the late-stage growth venture capital fund focused on larger, growth stage technology companies, and invests for profit rather than strategically for Google.

We have been hearing questions in 2016 about the sustainability of some of India's largest internet companies. Subsidizing growth through deep discounting isn't working out the way investors expected it to and is leading to a drop in investor interest. At the same time, companies with strong fundamentals and unit economics are being rewarded on a relative basis. The pullback from the heady days of 2015 is positive in our view; it forces entrepreneurs to be resourceful, and pace investment to the size of today's market. Entrepreneurs who have defined their addressable market expansively are better off. Often this requires thinking outside the box and looking at solving problems more expansively than their counterparts in the U.S.

To be clear, we could not be more bullish on the long-term prospects for India's economy, its people and its technology sector. India's macro indicators for GDP growth, Internet penetration, wireless infrastructure and the quality of Internet products and services look better than ever. In 15 years India will be one of the world's largest economies. As exciting as the long term prospects are, it is critical to appreciate that we are still in the very early innings. There are only 60-70 million people in India today with annual incomes over $5,000. India's online transacting customer base is still fewer than 100 million users. India's GDP at $2 trillion is far closer to that of the UK than China so today's Internet and technology economy will not resemble China for some time.

The businesses that will survive the current turmoil and capture the growing market opportunity understand these fundamental realities about India and see India as it is. They are not building clones of American companies and operating in markets almost 1/10th the size. They are defining their markets more expansively, either by offering broader solutions than their U.S. counterparts or by defining their addressable markets to include customers outside of India.

Cardekho, a CapitalG portfolio company, is a great example of doing something like this. They are building the equivalent of 5 companies in the US. There are a number of offline and online companies building solutions separately for new cars, used cars, car financing and car auctions. Some of these companies have been around for decades. In India, Cardekho does not face this entrenched competition and can leverage its resources to pursue all these opportunities together. The advantage of defining the market expansively is not just a larger market and bigger business opportunity but a stronger value proposition for consumers, dealers and auto OEMs.


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