[PREMONEY 2013] Karthik Reddy


Published on

Published in: Technology, Business

[PREMONEY 2013] Karthik Reddy

  1. Private and ConfidentialInvesting in Emerging MarketsIndiaBlume VenturesPre Money Conference,San Francisco, June 27Blume Ventures
  2. Private and ConfidentialIncredible India !Why it MattersSection credits: Citibank (India) Technology BankingBlume Ventures
  3. ChinaIndiaASEANUSEU(2.0)%0.0%2.0%4.0%6.0%8.0%10.0%0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%2012GDPGrowthPopulation Growth (2012–14)…is Expected to Propel Consumption to NewHeightsSource: The World Factbook and Economist Intelligence Unit.High GDP Growth, With a 1.1 billion & GrowingPopulation…India Continues to Have a Favourable Macro-Economic ProfileBubble Size  CurrentPopulation15622237875615560200400600800100012001400160018001985 1995 2005 2015F 2025FAggregateConsumptionInUS$bnSource: McKinsey Global Institute Consumer DemandAggregateConsumptionto Quadruple1,556Calendar YearFDI flows in India continue to remain strong(US$ bn)43362734252008 2009 2010 2011 2012Source: Economist Intelligence Unit.Note: Figures in US$ bnThere are Concerns – but also Confidence• Currency devaluation• Political uncertainty given generalelections in 2014• Lack of political consensus• Uncertain tax environment• That said, Growth projected to be 5-6%+,and if the above concerns are alleviatedand a more investor-friendly Govt is inPower, this could be higher
  4. Attractive Economic & Demographic Trends…2010 World Population(mm of People)Real GDP per Capita Growth(2011 – 2020 CAGR)Source: US Census Bureau (2010).Total Population: 6.9 Billion People6.6%6.1%4.1%3.5%2.1%1.9%1.4% 1.4%1.1%0.9%ChinaIndiaRussiaBrazilGermanyUSJapanFranceUKItalySources: The Economist Intelligence Unit, CIA Fact Book and Citi Investment Research as of March 2011.China18%India (1.2 bn people)17%Africa15%North and Latin America14%Europe8%Indonesia4%Pakistan3%Asia (Other)14%Others7%Just this month (June 2013), Fitch upgradedIndia’s Rating Outlook to Stable – driven byGovernment steps to contain the deficit,stabilize the rupee and other positive reform-oriented actions
  5. Attractive Economic & Demographic Trends (Cont’d)…Projected Shift in Composition of World Economy2010 / 2030E Global GDP CompositionProjected Evolution of the Global Economy($ in trillion, purchasing power)(1)TotalEmergingEconomies70%DevelopedEconomies30%TotalEmergingEconomies52%DevelopedEconomies48%C.E.E4%C.I.S4%Japan6%Aus & NZ1%WesternEurope19%NorthAmerica22%Africa4%DevelopingAsia27%LatinAmerica9%Middle East4%Rank Country 20101 US $14.122 China 9.983 Japan 4.334 India 3.925 Germany 2.916 Russia 2.207 Brazil 2.168 UK 2.169 France 2.1210 Italy 1.75Rank Country 20301 China $38.492 US 24.623 India 23.274 Japan 5.555 Brazil 5.286 Russia 4.827 Indonesia 4.288 Germany 4.059 UK 3.6710 Mexico 3.20Developing Asia27%CEE4%CIS4%Latin America9%Middle East4%North America22%Western Europe19%Aus & NZ1%Japan6%Africa4%Developing Asia44%CEE3%CIS4%Latin America8%Middle East4%North America15%Western Europe11%Aus & NZ1%Japan3% Africa7%Sources: The Economist Intelligence Unit, CIA Fact Book and Citi Investment Research as of March 2011.(1) “PPP” stands for Purchasing Power Parity, which is a theory of long-term equilibrium exchange rates based on relative price levels of two countries; the purchasing power of differentcurrencies is equalized for a given basket of goods.
  6. …Driven By Rising “Middle Class” and Domestic Consumption87 1091582202903505906501961 1971 1981 1991 2001 2010 2030E 2050EIndia is One of the World’s Youngest Nations…. . . With a Rapid Increase in Urbanization(in millions)… With the Most Diverse Society2010A – 2030E CAGR: 2.6%2030E – 2050E CAGR: 0.5%64%50%26%15%31%35%40%32%4%13%25%29%6%17%3% 7%1%2%1%2000 2008 2020E 2030EAnnual Household Income (USD)<$2,000 $2,000 - $5,000$15,000-$25,000 >$25,000$5,000 - $15,00046% middleclass by 20300-411%5-912%10-1412%15-1910%20-249%25-4427%45-6414%80+1%65-794%Over 300mm People Withinthe Target Age GroupAoAssameseBengaliGujaratiHindiKannadaKonkaniKashmiriKhasi & GaroMarathiManipuriMalayalamMizoNissi/DaffiaOriyaPunjabiTamilTeleguJammu&KashmirPunjabHaryanaRajasthan Uttar PradeshDelhiUttaranchalBihar AssamWest BengalOrissaMaharashtraMadhya PradeshAndhra PradeshKarnatakaTamilnaduNepalBhutahArunachal PradeshNagalandManipurMizoramChhattisgarhKeralaMahe(Pondicherry)GujaratHimachalPradeshSikkimMeghalayaBangladeshTripuraAndman & Nicobar IslandJharkhandYanam (Pondicherry)Karaikal (Pondicherry)Pondicherry(Puduchcherry)A Growing Middle ClassSources: Street Research, Mckinsey Estimates and The Economist Intelligence Unit
  7. India is Among the Most Attractive Internet Markets GloballyLow Internet Penetration Presents Further UpsideUnique Internet users in India India: 2nd Largest Wireless Market GloballySource: Internet World Stats, as of December 2011.Internet Penetration (%), As on December 31, 201112114019027337610.0%12.4%15.3%21.7%29.5%2011 2012E 2013E 2014E 2015EUnique Users (mm) % Penetration(Wireless subscribers as of December 2011, in millions)245 61 79 513 2,267 1,016 121# of InternetUsers (mm)78%44%39% 38%33%26%10%US Russia Brazil China World Asia India984.1893.8333.4246.4 242.5 216.8125.6China India USA Brazil Indonesia Russia JapanSource: WCIS and TRAISource: Street Research
  8. Rapidly Growing Smart Phone PenetrationSmart Phone % of all Cell PhonesSource: TomiAhonen Consulting Analysis December 2011, Citi Investment Research andAnalysis.Active Internet Enabled Smart Phones(1)Source: KPMG in India Analysis.1024581051662640501001502002503002011 2012P 2013P 2014P 2015P 2016P(Millions)6010726102012E 2013E 2014E 2015EEarly 3G numbers are encouraging and point to medium-term upsideAnalysts project a c.8% 3G penetration by 2015, which we believe isconservative1% 2% 8%5%Penetration3G / 4G Adoption a Key Growth Driver…(2)…Supported by Increasing Smart PhonePenetration(Subscriber base in mm)8%12%14%15%2012E 2013E 2014E 2015E0%10%20%30%40%50%60%SingaporeUSAustraliaSouthKoreaUKFranceIsraelGermanySouthAfricaMalaysiaJapanChinaIndia(%ofCellPhonesthatareSmartphones)Source: Analysys Mason, IDCNotes: (1) Includes Wi-Fi and 3 / 4G enabled smart phones. (2) Includes 3 / 4G enabled smart phones.
  9. India  The “Mobile First” Digital Economy will kick in (very) soonSource: Qualcomm, KPCB Report
  10. Private and ConfidentialEarly Stage VC in IndiaVenture 2.0; building ground-up this timeBlume Ventures
  11. Why “India early stage”?Blume VenturesPrivate and ConfidentialEarly stage venture in India can offer higher risk-adjusted returns relative to other assetclasses. Investors can potentially get earlier and multiple exit options – besides IPO or M&A,stakes could potentially be acquired by VC/PE investors across various financing roundsPublic marketsPrivate equityVenture capitalEarly stageAsset class14-18%18-22%20-25%> 25%Target IRRreturnsIncreasingCompetition100’s> 50~ 255-10# of OrganizedFunds (India)IncreasingRetuMorecompetition,inflatedvaluations,capitaldeploymentpressuresValuationsare stillattractive,Investorscollaborate& cooperateBlume Ventures
  12. India - Early Stage FundingPrivate and ConfidentialMany VCs in India have moved upstream, into the realm of Growth VC and PE.This has created a gap for startups that need critical seed and angel fundingBlume’s focus A majority of VCs have moved upstreamPre -Series A• Angel groups• Individual angels• Angel funds• Incubators & Accelerators• Inventus• Accel• Helion• Sequoia Capital• IDG Ventures• Saama (formerly SVB)• Kalaari (formerly IndoUS)• Matrix• Nirvana• Omidyar• Qualcomm• Nexus• Canaan• NEA• Bessemer• Norwest• SAIF• Lightspeed• Fidelity• Tiger• Vertex• Intel• CiscoBlume Ventures
  13. India – Shift from 2009 to 2013Private and ConfidentialPre -Series A• Burst of accelerators, seed funds, superangels (& their quasi-funds)• Blume was first of its size in this cycle – atleast a dozen more emerged in last 24 months• Reduced attractiveness of the 2006-08vintage angel groups• Fragmented angel networks dont work wellas yet (close-knit networks only)• Lack of a network / marketplace of mentors,advisors, domain experts, service providers(we may build it like FRC / @500)• Almost NO change in the set of SeriesA / B / C players• Some wind-downs, some rebranding,some splits amongst larger VCs• Most of them on new funds + limitedexits => large active portfolios• IPO market as dormant as ever intech, focussed only on exceptionallylarge cash-flow or gross rev biz models• Trickle of M&A; we need a floodBlume VenturesLack of transparency around VC performance
  14. Private and ConfidentialSmorgasboard of Investment Styles Blume Venturesthe Pre-80’s style smallfunds, small investments(not too many deep techplays though)the 2005+ disruptorfunds such as the entireaudience at pre-moneythe 2008+ "newaccelerator" models(YC / TS clones and badones at that) - morefocussed on demo daysthan value-the pre-2005 "incubator"models - legacy collegebased, govt fundedthe we-are-the-domain-experts accelerators liketandem and angelprimethe lets-copy-the-valleymodel (classic $150-250mill funds, all the usualsuspects)all models coexisting andjostling for space - what wehave is a smorgasbord ofstyles, lots of noise, everyonewaiting for the music to begin
  15. India – the NuancesPrivate and Confidential• RedBus (Bus Ticketing)• Tally (Accounting Software on CD)• AppsDaily (offline App Store)• Gharpay, Delhivery (e-comm OnlyLogistics and Payments)• JustDial (yellow pages on Voice)• MadRat Games (Indic language, localcharacter design – board games)• Large Cash Economy, cardsunderpenetrated, payment infra highlyregulated• Do-it-for-me > DIY• Transport Infrastructure creaking –overburdened as its being built• Every City’s Tech culture is quitedifferent• Broadband Infra well below optimal• Mobile Service Providers have toomuch control over app economyBlume VenturesEvery challenge is an opportunity, but nuanced….Some Localized Startup Ideas Localized problems thatInvestors need to be aware of
  16. India – some big ideas & themesPrivate and Confidential• Mobile First (device and access penetration much higher)• Fix the SMB problems (35-40 million small businesses)• Location tracking and services• Fixing e-commerce backends – B2B commerce, payments• Video bigger than text?• Audio / Video Indic languages content bigger than English• Gaming – will leapfrog consoles to Mobile and Tablets• Crowdsourcing – Surveys, Information, Tasks, Capital• Reimagine traditional plays – travel, jobs, housing, dating/marriageBlume Ventures
  17. Private and ConfidentialBlume Ventures@ the heart and center of the microVCmovementBlume Ventures
  18. Private and ConfidentialBlume – a short historyBlume Ventures Fund I is a 2011 vintage $20 mil India-focused seedstage fundHelping Indian tech startups seeking a round between $100,000 to$500,000 in a seed/angel roundBlume’s sweet spot is $100-$250K (in rounds that it LEADS; >50% ofround)And $50-$250K in Syndicates (<35% of round)We then support our best companies with bridges (mostly convertnotes to next rounds) + pro-rata participation in Series A rounds –with an additional $200-$750KStakes post-Series A are 10-15 % (in Leads) and 5-10 % (inSyndicates), with a few exceptions on either end of the range
  19. Blume PerformancePrivate and Confidential6 “up-rounds” (Series A / “green shoots” Series A’s) in Blume’s portfolioto date – from VCs including Accel, Helion, Kalaari (formerly IndoUSVentures), Nirvana Ventures and Jungle Ventures (Singapore)Blume Ventures……Another 3 in term sheet stage………..Average multiple achieved @next round = 3x……………..2 shutdowns, both cos’ assets being sold for a small price
  20. Blume - Investments & Sectors Blume VenturesHR / Skills /EmployabilityInternet + Mobile- Infra &PlatformsAd Tech /Marketing /Mkt ResearchConsumer(other)Consumer(e-Com -Goods+enablers)Content /PublishingSaaSInternet /Mobile /Digital MediaClean /Green TechITeServicesOther Niches(25%)Life SciencesConsumer(e-Com –Svcs+enablers)Manufacturing /RoboticsCore (75%)We invest in the change we want to see in India and founders who believe the same55 Investments (as of Mar 2013, 27 months from launch)About 40% will grow out into or cater to international markets – more B2B, some B2C100+ founders, 10% Women, 5% Non-Indian citizens40% Bangalore, 30% Mumbai, 20% Delhi NCR (Rest in Pune, Hyderabad, Chennai)60+ LPs (all entrepreneurs) invest $20 mill; 1st VC fund w/100% Indian money4 member Investment Team, 4 member Support team, 3 member platform teamPlatforms being built out – 1sthacker on payrollITeServicesEducation
  21. Private and ConfidentialBlume Mantra = Back to basics + best-of-breedIndia’s need:to build a classic bottom-up Venture Ecosystem model with best-of-breedpractices adopted from disruptor funds - both from US Innovators andOther Markets (China / Europe / Israel)We take “inspiration” from all the godfathers- USV / FRC / Felicis / @500 teaching us risk/capital allocn- First Round teaching us building automation of ecosystems- Angelist will enable future building of co-investment syndicates- Innovation Works & Andreesen Horowitz teach us scaling ops- Learning from Israel on how to “Build in India, Ship to the Planet”We will further adapt for India- Build proprietary angel network for high quality co-investors- Build proprietary mentor and advisor networks- Build own M&A platform for systematic exit strategy
  22. Private and ConfidentialThank you @500You’ll see a lot more of India and Blume soonBlume Ventures