As we were developing the Q3 Venture Pulse Report in partnership with CB Insights, we identified a number of regions where VC activity is on the rise. As an investment opportunity, many in the VC community look to India as a country of immense potential. The challenge is figuring out how to take advantage of it.
With 1.2 billion people, India is the world’s second largest country by population next to China. And yet despite an immense population, the country has been a challenging one for investors. Part of this is the fact the country lags far behind China in terms of key metrics, including internet penetration and e-commerce sales.
According to Morgan Stanley, India’s internet penetration was approximately 17 percent in 2013 compared to China’s 47 percent. At the same time, India’s e-Commerce sales were approximately $3 billion, compared to $314B in China. But these numbers are changing – and they’re changing rapidly. Morgan Stanley predicts that by 2020, the Indian internet market valued at $11 billion in 2013 could reach $137 billion.
India is a country on the cusp of significant transformation – driven by successful entrepreneurs and new graduates wishing to emulate them. Right now, there is a strong focus in India on introducing disruptive business models aimed at enhancing customer choice and convenience. VC activity has been growing across industries that drive customer value (e.g. e-commerce, fin-tech, healthcare, transportation, luxury retail).
Transportation in particular has been gaining a lot of VC interest in India, with both Olacabs and Uber taking the stage during Q3. For those that may not be familiar with it, Olacabs is an app-based taxi cab aggregator service based in Mumbai; the company raised $225 million in Series F funding during Q3. Retail is also an area of intense VC interest in India, with both Snapdeal and FlipKart e-Commerce sites raising $500 million and $100 million respectively.
As can be seen by the number of VC deals in India topping 100 for the second straight quarter, VC investors are making moves in India. But VC investors need to recognize that India is unique. India’s market is diverse and evolving, with organized market share growing compared to the significant size of unorganized market share. As a result, the VC community needs to take a medium to long-term view in order to be successful. This may require constant funding for new businesses to become, and remain, a part of the top 3 to 5 businesses in each segment that will be able to survive and emerge as market leaders. At the same time, there are issues around high valuation expectations by new businesses in early rounds of funding, and rationalization to meet investors ROI expectations.
If you would like more information on VC activity in India and other key trends from our Q3-2015 report, visit our Venture Pulse Report website.
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Partner, Head of Family and Mid Market Enterprises,
KPMG in India
Mr. Aggarwal leads the KPMG Enterprise practice in India. For over 15 years he has been working with both family businesses and private companies across India, assisting them with their growth strategies, and helping them to develop scalable and sustainable businesses. He works closely with his clients to develop a customized approach to support each other, their individual business, and growth objectives.