Indian startups came of age while a pandemic raged around them


India’s startup sector has bounced back after facing unprecedented disruption due to the Covid-19 pandemic and the resultant nationwide lockdown last year. Funding for the sector fell 29% to $4.2 billion in the first half of 2020, according to data platform Traxcn, raising concerns about its sustainability, but during the last six months of the year, $7.2 billion flowed into the ecosystem, boosting its outlook for the year ahead. The outbreak has, in fact, strengthened India’s startups, said Zerodha’s Nithin Kamath, Swiggy’s Sriharsha Majety, Wingreen Farms’ Anju Srivastava, Bejul Somaia of Lightspeed Ventures and Sandeep Naik of GA Capital, in a candid discussion with ET’s Samidha Sharma. Edited Excerpts:

Zerodha has benefited from the bull run in stock trading and financial services, but what do you make of 2020 and its impact on your business, Nithin?

Nithin Kamath: This year was spectacular. If you had told me in February that this country was going to be locked down and we will grow 3-4x, I would have laughed. I’ve been trading the markets for 20-25 years, yet I haven’t been able to call one thing right this year. I think what happened is that there were a lot of fence sitters, people who always thought of investing in the markets and probably didn’t have the bandwidth to take the plunge. I think work-from-home enabled a lot of these folks to start investing. Some of my school and college friends who’ve known me for 15-20 years opened an account in the last six months.

Also, what happened this year was that a lot of new people came in March and April, made some money, and then you know greed is an enabler. The good thing we’re seeing is there’s not a lot of speculative activity. It’s not like people are trading derivatives or a lot of these guys were opening accounts to leverage margin funding. Most of the accounts that opened this year are actually people investing in stocks, which has certainly broadened the capital market ecosystem in the country.

Now, with a bunch of these new IPOs, it is expanding that market even further, because IPOs have usually been enablers to growing the capital market participation. So, I hope Swiggy can IPO soon because that will attract a lot more 20- to 35-year-olds into investing.

Why do you say Swiggy should IPO and not Zerodha?

Kamath: We’ve been bootstrapped and plan to remain like that. But I think, when more brands that the 20- to 30-year-olds recognise and aspire to own list on the Indian exchanges, the markets are going to broaden quite a bit. The opportunity right now around saving and investing is to be able to direct people to do the right thing, because a lot of these first-time investors don’t really know what they’re doing. They are essentially buying some stocks based on some advice they get, but I think India is missing a big advisory ecosystem. While the rich guys are taken care of, I think there is wealth management in the Rs 0-25 lakh or Rs 50 lakh range. I don’t think the answer for that is really digital, because people still don’t trust an app pushing you to buy a stock. The way is to somehow find a phygital model.

Direct-to-consumer brands have had a banner year in 2020, so Anju, tell us what have been your key takeaways that new generation founders can gain from?

Anju Srivastava: This has been a great year for startups. We thrive on disruption and when it happens naturally, then automatically we look at where the relevance is and what we can do with that. The functional

quakes are really felt by the bigger companies. This has been a phenomenal year, which has shown us a lot of direction and kept us ready for any kind of uncertainty. My suggestion would be to continue to keep agile manufacturing models, to have very agile sales models, to have very nimble systems.

Those things can get completely disrupted the more rigid you are in times of uncertainty. Because of our nimbleness, there is a great opportunity, especially in food. People are eating a lot more at home than they used to, and the standards of what people eat has gone up a lot. Making food or even snacks has become almost a hobby as that latent chef is yearning to come out.

We launched new products very quickly because of our agility, which gave people the ability to have that

kind of fun with food, while not compromising on taste, health or convenience. These are the three elements that are really going to lead to success in the food category in future.

The food delivery sector was hit badly but made a sort of comeback in the last few months. Sriharsha, can you shed some light on challenges you faced that can help founders looking to start up at a time like this?

Sriharsha Majety: For someone who is going to start up in these times, I think their ability to form teams is going to be harder than attracting talent to an established company. Unless me and my cofounders were hustling, meeting a bunch of people for coffee or drinks, dreaming up the pitch and selling the company

when it was literally nothing, that possibility going away is definitely a meaningful dent.

This means that more of the companies that we’ll see being formed now are potentially going to be based on existing networks. People will have to work a lot harder to get the right founding teams and early core teams, which I suspect is going to be a bigger challenge than the business uncertainty itself. I don’t think t’s any more uncertain now, given how uncertain starting up in very early stages itself is. I also think the fundraising game is going to be slightly different as people aren’t going to be able to come to offices, meet teams and understand their operations as much as they could in the past. I keep hearing this from all my investor friends and I guess it places a much higher bar on founders to put on their charm offensive for Zoom calls.

With fundraising being so crucial for early-stage companies, what has changed in terms of parameters that you look for when you evaluate companies?

Bejul Somaia: With respect to fundraising in 2020, it was a tale of two halves, right? The first half of the year was very quiet, the second half was quite active. I think a lot of firms have now built some capability and adence to invest in this new environment and that will continue into 2021. I think at the stage thatLightspeed invests at, which is typically early, not a lot changes because we’re investing on the basis of the strength of the founders, their connection to a market and the market itself. At that point in time, the business usually is almost always pre-revenue, and quite often it’s even pre-product. So, from a market perspective, there should be no change to the points of view that firms have developed over time.

In terms of people, I think obviously we all prefer meeting in person and spending time and there is no substitute for that. That said, I think the role of referencing becomes even more important now. I don’t mean referencing to check whether someone is high integrity or not. Hopefully, that’s not the issue we’re dealing with. But it’s really about getting under the skin of the entrepreneur, what motivates this person, what is

their commitment to the market, how do they deal with ambiguity, how well do they attract talent, how well can they sell, how strong are they at execution?

I think the nature of how that happens changes but can still happen. It can just happen through a number of different conversations with people that have surrounded the entrepreneur over time. And so, I think that’s why you’re seeing this get reflected in investment activity. I don’t doubt at later stages when more capital is being exposed, valuations are higher, things do change, because you do want to touch and feel and perhaps visit those companies in a way that may be trickier to do.

It seems that the big became bigger in 2020. Sandeep, what are your thoughts on this, considering you’ve backed a giant like Jio Platforms?

Sandeep Naik: I actually don’t see it that way. At General Atlantic, we’ve been backing tech enablement as a core tenet for the last 40 years and we’ve seen all the highs and lows. We invest as little as $25 million to as much as $900 million, which we did with Jio. Given our core investment tenets, we believe in backing entrepreneurs driving change in global disruption.

Our fundamental belief is India can create over a trillion dollars of economic value from the digital ecosystem. What that means is that you will see the equivalents of Alibaba, Tencent, Baidu show up in India, which will

be domestic Indian companies getting to that hundreds of billions of dollars of value. This is one of our themes in backing Jio, which is democratising the digital society.

You will see Zerodha being a multi-decacorn, you will see Swiggy being a $100 billion company and in spite of these existing large tech companies in the space, digital startups will also create immense value. So, it’s not that the big will only get bigger, you will see many more Nithins, Harshas and Anjus of the world come in the

next 5-10 years.

So then, what has changed because of Covid-19?

Naik: I was always a bull on the digital startup ecosystem in India and I’ve become an even bigger bull post Covid-19 (outbreak). This shock, in many ways, will overcome the natural inertia that resides in any system and accelerate change that was already under way before Covid-19. Adoption has significantly accelerated by almost 5-10 years on the demand side. As Nithin mentioned, he’s seeing users show up who would have never shown up before, and we’re seeing that in Byju’s and Unacademy on the edtech side.

When it comes to Harsha’s side of the business (Swiggy), we always questioned how big the total addressable market (TAM) is once you cut down the subsidies and take back the discounts. Covid-19 showed us in a beautiful way that when that happens, there is still a very large market that is growing at a very fast clip that truly uses these services for convenience.

Discounts just went to zero and customer acquisition costs fell, but these are still huge businesses with large TAM. So, it’s given more confidence to us as investors.

Swiggy is a classic consumer internet company, always in need of cash to grow, but how has this changed in the last 9-10 months?

Majety: The need for cash has come down very meaningfully. I think, like Sandeep said, there were changes underway that got accelerated. Our business also had a mix—the food delivery business, we’ve accelerated

profitability significantly, and new initiatives—we’re going to continue chipping away at and investing in. I think the year was for us also two parts. For me, personally, it was first denial, then acceptance, and then a little bit of determination on the back of some strength that you find month on month. Now, finally, we’re getting back to feeling very excited. We have so many learnings that we now just have to make the most of.

While Zerodha doesn’t have the pressure to do an IPO, in terms of the strategies that you had drawn up for the business, has anything changed?

Kamath: Last year, the problems we had were all good problems to have. Back in January, we were doing 2.5 million trades a day, but then we had a day where we almost did 10 million trades. A couple of things that we were working on before, came through very well for us this year. First was this platform that we’re building called Nudge, which essentially warns a customer when they’re making a mistake while trading or investing. There was a rush of people trying to buy penny stocks, so the first thing we did on Nudge was we essentially

scared them. We told them they can lose all the money they are investing, and what we’ve seen is our penny stock trading volumes are down like 70% pre-March.

Of course, the customer can always override that nudge to go ahead and buy that penny stock, but what we’re doing can actually help a customer take the right decision. Almost 70-80% of the customers we added last year were first-time investors who may not know what they’re doing. Even with our scaling issues, we were very lucky that we were working on a bunch of things that came through because of which we were able to power those 10 million trades a day. Strategy wise, it remains the same.

D2C companies were always said to have a lot of potential but then these brands would not get the kind of valuations a typical tech startup would get. What has changed?

Srivastava: Most of the consumer companies, at least the startups that I know and including us, are looking at becoming foodtech companies. We want to be a gourmet marketplace, mostly with our own brand. We have augmented our delivery systems, our warehousing systems, because that’s where the bigger crunch comes.

Getting through to people isn’t a challenge because we were so visible offline, and people already know us, and we found that they were looking for us everywhere. When you are on other tech platforms the problem is

that you are dependent on them to showcase you. So, setting up something of our own while still being on other platforms makes a lot of sense.

It’s a complete change of model in a way, the continuing growth in D2C will be a huge bonus. We’re looking at 50%-60% of our sales coming from food tech going forward.

Before you go, I’d like each of you to tell us what the big transformational shifts will be in 2021.

Majety: I think we will see a lot more at the intersection of social media and commerce. The green shoots of that started showing up last year, but I think we’ll really start seeing more of the potential of how they can come together in full bloom.

Somaia: There has been a transformational shift in confidence in the ecosystem. Entrepreneurs, in the face of very significant disruptions to their businesses, migrated entirely to home and then executed with resilience,

ingenuity and creativity. Then there is genuine pull in the ecosystem from small businesses to large firms that are automating more, to consumers across categories.

Naik: I really believe that we have seen the shift of innovation hubs. It all started in the Silion Valley and then predominantly moved to China, and I now think it’s time for India. We’re going to see some real innovation coming out of India that will address the needs of Bharat, which is really the belly of the market where there are a billion-plus people who have aspirations.

Kamath: I think in the business of money, building credibility takes a long time. People don’t trust a brand very easily, but I think that has changed significantly. People are saving and investing with newer companies much faster. I think there is this whole breed of first-time investors who are trying to get more than fixed deposit returns, so potentially this market can grow quite fast.

Srivastava: We’re looking at a coming together of companies and like-minded brands, and how we can work together to build the kind of innovative ecosystem that customers are looking for.


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