Wisdom From the Trenches

By Arun Natarajan, Guest Author, reporting on the Venture Intelligence Internet & Mobile Connect conference in Mumbai.

Acknowledging that the Internet is becoming core to people’s lives and that there is room for various online business models, Ashish Gupta, Managing Director of Helion VC, pointed out some of the challenges facing investors in the Internet sector. Indian Internet entrepreneurs seemed to lack the required patience and want to rush and spend on marketing. “Most people do not know how to monetize traffic on their web sites. Even in the US, it has been a hard task to build a business model based on advertising.” Given the relative difficulty and lower returns available upon exits within India, the tendency of Indian entrepreneurs to benchmark their company valuations to that of their peers in the US posed an important challenge at the time of investment.

Anurag Dod, Founder & CEO of Guruji.com, said the key ingredients to make the Internet a viable medium in India – like access, relevant content and ability to monetize – are falling into place. For example, unlike a few years ago, consumers are now quite confident of using their credit card for online payments. Emphasizing that it is very important for the medium to reach the grassroots in order to become viable, Dod cited the example of a small florist in Bangalore who already receives over 40% of her orders online and is contemplating a full-fledged web site.

Avnish Bajaj, Managing Director of Matrix Partners India, said how while in 1999-2000, perception of Internet-based businesses was ahead of reality, over the past few years, it has been the other way around. “Since investors have had such a negative perception, today we have a situation where while the audience is clearly there, there is a lack of compelling services and content.” He pointed out how India is among the few markets in the world where traditional media companies have latched on to the Internet quite early and ensured there wasn’t enough time for strong stand-alone businesses to emerge.

There is more opportunity for utilitarian applications in the Indian context than self-actualization ones, Bajaj added. Pointing to the success of the Indian Railways’ online ticket booking service, he said as long as there are compelling enough applications, companies can build significant businesses by serving consumers who would pay even small amounts like Rs.50 a month.

Ashwin Damera, Founder & CEO of Travelguru, said it was important for start-ups to focus on becoming profitable and self-sustained rather than hoping for someone to buy them out. While the economics are different, it is important for Internet-based businesses to have an offline strategy as well. He advised entrepreneurs to listen carefully to feedback from VCs – even if they don’t end up doing a deal – since VCs tended to have the benefit of interacting with several players, including the entrepreneurs’ competitors. When it comes to advertising spends, Damera recommended use of “controlled budgets” based on a hypothesis and then optimizing the campaigns based on measurement of what works.