Iron Pillar

2019 India Truly Arrived

At the tail end of another trip to India, I am sitting at the Mumbai airport as I write this, trying to coalesce and summarize in my mind the learnings from various interactions over the past six days, across three cities, four flights, countless Uber and yellow-black taxi rides and more than a dozen meetings with entrepreneurs and other executives. And all of this happened in the middle of the monsoon season with yours truly getting drenched in Delhi, Mumbai and Bangalore. As usual, it was a truly immersive experience that strained all the physical (and often mental) senses. But I loved it. And that’s why I have been doing this trek as a VC for the last twelve years!!!

Two statements about India are absolutely true: 1) the only thing that is predictable about India is the fact that it is unpredictable; and 2) the rate of change itself is accelerating across the entire swath of the sizable geography as well as socio-economic strata. With respect to the latter, it used to be that I would be wowed every third or four trip with meaningful changes that I observed, whether it was infrastructure, mobility, technology adoption, urban sprawl, organized retail, behavioral change, consumption momentum, home grown brand development/adoption etc. Now, the wow factor is on virtually every trip. I live in Silicon Valley (Palo Alto, to be more specific), the self-proclaimed hub of global
innovation. But the center of innovation and scale is definitely shifting…and it’s doing so at a pace that many, especially in the developed world, have yet to fully internalize. For the first time in history, majority of the F500 companies were not from the United States. And while China has clearly risen in the ranks, my prediction is that many more Indian companies will make the list in the not so distant future. As an engineer, I love data, and every conversation in India, especially about India usually surfaces interesting statistics of one kind or another.

Here are a few to chew on – We, at Iron Pillar have crunched the numbers around the tech entrepreneurial ecosystem and the data is absolutely fascinating. There are now 30 Unicorns in India. Even more fascinating is the fact that 21 of them were created in the last 18 months! These unicorns are split between consumer centric companies (17) and enterprise software/B2B companies (13). 7 of the enterprise-centric set are global B2B SaaS companies being built from India. Drilling further into the data, while E-commerce (6) and Fin-tech (5) lead the pack in terms of sectors, the overall Unicorn cohort spans multiple sectors including logistics, gaming, social media, and health. That variety is a clear testament for both the depth of local markets as well as talented teams executing at scale. Companies are also getting to Unicorn scale faster, with 17 of the current 30 companies getting to that scale within five years of being founded. One of the metrics that I am personally a big fan of is what I call the MJ co-efficient (ARR/EC) with the current annualized revenue (ARR) as the numerator and the cumulative equity capital (EC) raised in the denominator. What this metric indicates is two fold: that there is a clear
product-market fit where customers are willing to pay for the value proposition (numerator) and that there is some level of capital efficiency and operating leverage in the business (denominator). The Iron Pillar team analyzed investment data further to see if there are certain trends with respect to sectors around either capital efficiency or capital intensity to get to a Unicorn status. Perhaps not surprisingly, we found that consumer centric business required more capital than B2B businesses. Specifically, the average cumulative capital raise for a B2C Indian Unicorn was $206M. Within B2B, the segment that was B2B for the Indian market required $131M while B2B Global plays (Indian companies addressing the global market) raised on average $97M to get to Unicorn status. Part of the reason for relatively capital efficiency for global plays from India is the fact that Indian entrepreneurs have been able to leverage lower cost, but highly impactful enterprise software talent pool in India, as well as ride the wave of technology democratization through the likes of AWS, Azure and Google Cloud, that has reduced the overall cost and time for software product development and deployment. Additionally, given the higher margin, higher ACV customers from US and Europe, they don’t have to deal with the high price sensitivity of a typical Indian enterprise customer.

There are other interesting data points that are bringing India to the forefront. India now has the largest two-wheeler market in the world with close to 22 Million sold per year (global market is roughly 50M units per year). The one data point that blew me away recently is that by 2025, roughly HALF of all college-age young people globally, will be in India. That is roughly 130 million of overall 260 million people between the ages of 18-21. Most of the world is aging, and even in China, the one child policy has led to a drop in the number of young adults. The college age metaphor is another wrapper on the underlying Indian demographic dividend that is often mentioned. But this particular statistic is both jaw dropping and nerve wrecking. As a young country, there are roughly 800,000 to 1 million people entering the work force every month in India. GDP growth has to be robust every year to keep unemployment under control. And quite honestly, it’s not going to be up to the government, but the budding entrepreneurial ecosystem in India that is going to, and I would argue has to, tackle this problem head on. Gig economy in India is on fire, which is definitely helping the real blue-collar urban population improve their standard of living. And it’s not just urban India that is benefiting from the startup tsunami. The same is true for the large agrarian economy and the so-called tier 2/3/4 cities, towns and villages.

I recently spoke with Lathika Regunathan, a woman entrepreneur and founder of Mimo Technologies, a company that has catalyzed the gig economy in villages and semi-urban areas. While bootstrapped, the company has scaled to almost 6,500 gig workers who help deliver goods for large brands and retailers, as well as take care of others tasks such as getting documents signed or KYC paperwork done for financial institutions who don’t have physical infrastructure/presence in the hinterlands of India. Having said all that, there will continue to be tech-enabled ebb and flow. Technology and technology startups will constantly bring new and disruptive technologies to the country to address massive issues across the board. In a large and incredibly diverse country like India, there are massive challenges and therefore opportunities for entrepreneurs to address by leveraging technology. Let me drill into a couple of such challenges/opportunities, starting with healthcare. Affordable, accessible, quality healthcare simply does not exist for the masses, with 70% of healthcare provided by individuals who have no formal training. According to a recent study, India lacks 600,000 doctors and over 2,000,000 nurses to adequately provide healthcare to the country’s population. When it comes to education, roughly 40% of the Indian population is illiterate. India’s young demographic dividend presents a huge challenge for the country and an opportunity for startups. Education is a fundamental foundation for quality of life improvement, and Indians across the socio-economic strata recognize that. I often have conversations with Uber and Ola drivers, or Swiggy/Zomato delivery guys about their top priorities. By far the number one goal for all of them is better education for their children. In this domain, proliferation of every-improving mobile, computation and natural language processing technologies will give rise to unicorns that are yet to be founded. And the opportunities are not limited to the education or health sectors. Just like the diversity of current Indian Unicorns indicates, there are multiple markets where future Unicorns will be created – from energy and infrastructure, to gaming and vernacular content, and AI enabled services for the young and old alike, with business and access models that fit the price sensitivity and affordability of the various Indian consumer segments.

On the enterprise front, India has just gotten started. The combination of talent, technology, creativity, and access to capital and markets will create multiple global product-focused giants, similar to what transpired on the services front two decades ago. As the entire technology stack from compute to networking and storage continues to be democratized and follow Moore’s and Metcalf’s laws of increasing capabilities, Indian enterprise-centric entrepreneurs (from India) will shine, just as they are doing in Silicon Valley. That is what gets Iron Pillar and the rest of our venture capital cohort excited about India and Indian technology entrepreneurship in the coming decades.

Recently, I have also met many Indian entrepreneurs making remarkable strides not only in consumer and enterprise software arenas, but in segments of “deep tech” such as drones, robotics, computer vision, autonomous vehicles, genomics, EVs, AI/ML/DL and the like. And many of these technologies will create massive disruption not only in developed economies, but also in India with potentially hundreds of millions of people positively impacted.

While the above are examples of grassroots innovation being driven by entrepreneurs in the country, I must also commend the current administration for significant policy evolution in areas such as renewables and electric vehicles, with a vision to be completely off fossil fuels for transportation by 2047, the centenary of India’s independence (in this case, from fossil fuels). On this particular trip, there was definitely buzz around India wanting to establish multiple Giga-factories for in-country battery production, swappable battery station at all petrol stations, lithium-ion battery recycling capabilities. OEMs (perhaps grudgingly) as well as EV startups (excitedly) in India are adopting the EV mission as they see massive opportunity, not only in India, but globally. Attero, for example, is a Lithium-Ion battery recycling company that has been approached by Niti Aayog to be part of the overall EV ecosystem, and has had visits from some of the largest global automotive OEMs. That, by the way, was the other trend that has really accelerated. No longer are Indian entrepreneurs satisfied with simply tapping into just the Indian market (which is admittedly large). I met a couple of Indian mobility companies where they have been spending time in other Southeast Asian countries such as Indonesia, Phillipines and Malaysia, with very similar demographic and infrastructure challenges. Several other startups have set up shop in places like Dubai and Abu Dhabi to tap into the middle eastern/GCC markets. Within the Iron Pillar portfolio, Freshtohome, a leading online fish and poultry company, has set up shop in Dubai and scaling rapidly. And Servify, a post-sales device lifecycle management platform, has expanded into Europe and the US through its OEM customers. OYO and Inmobi are perhaps the poster children of India in terms of starting local and going global in a big way. And while most of the buzz has indeed been around consumer-centric unicorns, there is a clear rise of enterprise software or SaaS companies originating in India, but scaling globally. Freshworks, Druva, iCertis, and Automation Anywhere are just a few names on a list of scaled global players that will blossom further over the coming months and years.

Bottom line: I would argue that India has hit an inflection point in 2019. Iron Pillar’s Unicorn analysis is a proxy for the depth, breadth and scale of innovation and impact that entrepreneurs are having in India and around the world. This is just the beginning. Like China, there will be dozens of Unicorns created in India across wide swaths of technologies and sectors, not because it’s nice to do, but because Indian entrepreneurs must. Unlike China, however, Indian entrepreneurs will shine not only in different aspects of the Indian consumer-centric ecosystem, but more importantly, build world class enterprise software and deep technology companies to serve the global markets. Additionally, there are incredibly large problems and opportunities to address throughout the country and the region. With a stable government, a young aspiration populus, a humming entrepreneurial ecosystem, institutional investment activity and cash being returned to investors, and 30 (and counting) Unicorns pulling the Indian innovation chariot, India is truly shining in 2019. And it will take a natural or man-made catastrophe to throw the country off kilter in the years and decades to come. Upward and onward!!!

About Mohanjit Jolly

Mohanjit Jolly

Partner at Iron Pillar bringing to the table more than 2 decades of investing and operation experience.