India has seen an exponential rise in start-up activity over the last half a decade and I have been fortunate to have a ringside view of the ecosystem over the last 7+ years, first as an entrepreneur and now as an investor at Nexus Venture Partners.
With rapidly rising disposable incomes among India’s middle class (fastest-growing major GDP economy in the world), access to increasingly affordable smartphones (smartphone penetration increased from 6% in 2013 to 24% by the end of 2018), availability of high speed mobile internet (at just $0.26/GB compared to $12.37/GB in US, and $9.89/GB in China), and a growing presence of investors that cumulatively invested $13.88 billion in Indian startups in 2018, India is ripe for disruption by savvy entrepreneurs who are willing to go the extra mile.
A unique ecosystem
Long perceived as a market for “me too” ideas from the west, the Indian startup scene is reinventing itself by building exclusively for the next billion Indians who are entering the digital realm for the first time.
The Great Indian Startup Ecosystem is taking a shape of its own (very different from the US and China) and is building for people who have leapfrogged several use cases. Several unique models have emerged that will redefine how Indians interact with technology over the years to come.
Some areas where we are seeing a lot of entrepreneurial activities and which we are particularly excited about are:
- a) financial services companies on top of new payment infrastructure,
- b) personal and enterprise mobility solutions,
- c) next generation e-commerce,
- d) technology based enablement of agent/broker networks, and
- e) user generated content creation and consumption.
United Payment Interface opens a beautiful new world
Traditional financial institutions are on the cusp of disruption because of the government’s push for digitization.
The introduction of the United Payment Interface (UPI) by the National Payments Corporation of India in 2016 marked a fundamental shift in the way Indians interact with money.
UPI facilitates real-time bank to bank transfers and has opened up a world of new possibilities by making payments a utility and reducing the costs. This year, UPI overtook both credit and debit cards in total transaction value, standing at 14.6 billion dollars in the month of May, according to the National Payment Corporation of India, the operator of UPI. More than 780 million UPI transactions took place in May – an all-time high.
Innovative tech-enabled models continue to emerge in insurance, lending, wealth management, and neo-banking. With a GDP per capita of ~$2000, India lags behind its BRICS counterparts by a factor of four. India’s household debt to GDP ratio is ~11% (compared to ~49% for China and ~77% in the US), insurance penetration is ~3.5% (compared to a global average of ~6.2%). Formal financial services are vastly under-penetrated in the market primarily because of the cost of distribution and operations for small ticket size products.
Nexus portfolio company Paysense is providing low ticket size loans to new to credit customers riding the wave of new platform adoption. The new platform enables companies to create sachetised products, and innovate on distribution models.
Traditional financial institutions are also feeling the need to innovate and become more tech-focussed, and are opening up to tech companies to enable digitization of distribution and operations. Nexus portfolio companies Turtlemint and Namaste Credit are leaders in enabling insurance companies and banks / NBFCs respectively.
Serving 200 million commuters
With public transportation systems such as metros still in their early days of development, and private transportation is increasingly viewed as less convenient and unaffordable, some Indians have turned to the likes of Ola and Uber for their daily commutes.
However, out of the 300 million commuters a day, taxis/four-wheelers would account for 15 million (5%) and two-wheelers for 75 million (25%) with the remaining 200 million commutes (70%) still happening through public transportation and other modes. Even on a gigantic scale, the majority of Indians are still unserved by Ola and Uber taxis.
Seizing the gap in the market, several start-ups offering more affordable rides have emerged including bike taxis, self-drive scooters that can be picked up and dropped off anywhere, and planned bus rides for intra-city commutes.
Apart from price, consumers also place heavy importance on convenience, and entrepreneurs are innovating to strike the right balance. Nexus portfolio company Rapido is the largest Bike Taxi company in the country, providing users with quick and affordable rides through its extensive network of bike taxis.
Given the large service economy, many Indian employers subsidize commutes, and in some cases even pay for them, and optimizing enterprise mobility is also required, and our portfolio company Move In Sync is seeing widespread adoption across large enterprises.
E-commerce start-ups have been in the limelight of the India start-up story for the last few years.
However, we are learning that traditional e-commerce platforms don’t tap into all the natural buying behaviors of a large proportion of Indians. In a “family-oriented” economy like India, most consumers have traditionally made purchases along with their friends or relatives or based on a trusted recommendation.
“E-commerce 2.0” startups are tapping into this behavior by leveraging existing platforms such as WhatsApp and Instagram to facilitate recommendation leading to transactions.
Reseller models like Meesho, Shop101, and Glowroad where individuals recommend items to people on their network through social media platforms have gained impressive traction and are a win-win for all the parties involved. Resellers, typically stay at home wives, are empowered to start a business of their own, and customers can discover items that are better curated for them.
Newer models like commerce on top of video-based product catalogues, live streaming by sellers, social media influencer based selling, WhatsApp based sharing for group purchases, WhatsApp based retailers, etc. are now popping up and showing immense potential.
Nexus portfolio company Urbanic (China-India team, procurement from China, building a lifestyle brand in India) is innovating on the distribution side through unique channels, providing a differentiated experience to consumers.
Empowering the middlemen
For several categories in India, contrary to popular opinion, we believe that it is difficult to remove middlemen in many scenarios because India is not a DIY economy consumers are not sophisticated enough to transact on their own.
There is a lack of trust in some categories, some complex categories need an advisory component to close sales, and some segments require the consumer to “touch and feel”. For example, many banks still promote credit cards through Direct Sales Agents (DSA) networks.
In such scenarios, we believe empowering agent or broker networks could be a large opportunity.
Although modern supermarkets and hypermarkets have made their way into India over the last decade, India is estimated to have over 12 million tiny local stores popularly known as “kirana stores” that are located at the corner of almost every street. These stores play a fundamental role in serving the daily shopping needs of most Indians.
There are several companies in the market empowering these stores by helping them digitize their supply chain, manage their accounts, build better customer relationships, and understand customers better. Nexus portfolio company Jumbotail is doing a great job helping kirana stores manage their backend supply chain.
About 95% of insurance in India is sold by a network of 2.5 million agents in the offline world. We believe it is more lucrative to work with enablers of agents (Turtlemint) since it caters to a larger and stickier market than B2C insurance.
Similarly, secured SME loans make up 90% of the $500B SME loan market, and almost all of it is facilitated by agent networks. Namaste Credit enables agents to get better quotes for customers and close deals faster at cheaper rates.
India is a land of micro-entrepreneurs (60 million registered MSMEs) and enabling entrepreneurs to grow their business is a great India specific opportunity, and in many cases, is much larger than corresponding B2C opportunities.
Entertained and educated, on your own screen
Affordable high-speed internet coupled with widely available smartphones featuring beautiful large screens has resulted in a sharp increase in the amount of time the average Indian spends on his mobile phone.
In fact, according to an Ericsson Report on June 2019, an average Indian subscriber consumes about 9.8 GB of high-speed mobile internet per month (7.0 GB in the US, 7.1 GB in China), which is among the highest in the world. The biggest beneficiaries of this Jio wave has been Youtube and Hotstar (Star owned OTT platform).
This consumption is being fuelled by widespread content creation and distribution.
Nexus portfolio company Unacademy is furthering learning by allowing educators to create lectures like videos on a variety of topics, including government college entrance exams. Another portfolio company, Pratilipi, enables users to self publish stories and is the largest Indian-language content platform. WhiteHat Jr helps K-7 students learn to code online.
Despite huge competition from Chinese apps, Sharechat and DailyHunt have maintained leadership positions in their verticals and continue to innovate and push boundaries.
More excitement ahead
The next 10 years hold tremendous potential and superior execution will determine which companies succeed. I am optimistic that the startup ecosystem will propel the nation to further heights and am grateful to be able to be part of the story.
Views are personal – not of the firm. Nexus is a 15-year-old India-US fund with more than $1.5B AUM. We are active early-stage investors across spaces – Commerce (Snapdeal, Shopclues, Urbanic), Logistics (Delhivery, Pando, Runnr (now Zomato Order)), Education (Unacademy, White Hat), Content (Pratilipi, Unacademy, MyUpchar, Bolo), Open Source Software (Postman, H20. ai, Hasura), Mobility (Rapido), Financial Services (Turtlemint, Namaste Credit, Paysense) and others.
Please feel free to reach out to me at [email protected] or follow me on www.twitter.com/pratikpoddar . Thanks Arjun Gandhi and Sandeep Singhal at Nexus VP and Jianggan Li at Momentum Works for reviewing the article.