1Mby1M Virtual Accelerator Investor Forum: With Sasha Mirchandani of Kae Capital (Part 3)

Sramana Mitra: I think there are some question marks that are coming up now that there has been some runway that the venture capital industry in India has had to play in the market. The other question out of that is the length of time it takes to grow a company in India.

The traditional venture model that has succeeded in the west is of a very fast growth – zero to $100 million in five to six years. That is not happening in India. Both the Indian consumption, as you said, and even the global consumption market have not produced that level of growth pace. How do you analyze that? If it takes much longer to build a company, then that starts to be a problem for the venture capital timeline.

Sasha Mirchandani: Good question. You’re absolutely right. Indian, being a smaller market, is definitely taking longer to scale. That’s why our fund is 10 + 2 years. Having said that, I can give you a few quick examples of companies that have scaled very fast. Take Ola. They started in 2011. By 2016, it’s already a $5 billion market cap company.

Sramana Mitra: What is the revenue level?

Sasha Mirchandani: I’m not privy into the revenue of the company. Even in the US, Uber is not generating that much revenue.

Sramana Mitra: Uber has very significant revenue though. They may be a highly overvalued company, but this is not a company that doesn’t have a revenue model.

Sasha Mirchandani: So does Ola. Ola has significant revenues. You look at Flipkart. Revenues are very large. If you’re talking only about revenue, all these companies are generating huge revenue. It’s just that the US investors are more sophisticated in understanding that it takes time for the network’s effect to play.

Sramana Mitra: In general, very fast-growth companies are few and far between even for the companies that are catering to the US market. This ultra-fast growth premise is not easy to achieve, but I think the market has a faster sales cycle in the US than in India.

Sasha Mirchandani: I totally agree. That problem still remains. You see companies that are scaling fast. My point is we can’t compare India to US. US is substantially a bigger market and will remain so for many more years. The point is there are certain companies that are moving relatively fast like Ola and Flipkart. Having said that, it will take longer for these companies.

Sramana Mitra: The idea that I’m trying to brainstorm with you is that does it make sense for the Indian market to operate in a two-phase mode where there is a set of early stage venture capitalists like yourself who take the company through the five or seven-year phase. Then another set of venture capitalists buy you guys out in private transactions.

Sasha Mirchandani: Nothing is off the table. The Indian ecosystem is falling into place very nicely. It still has a lot of opportunities for funds in different sectors to come in. Earlier, we had nothing in seed. Now there’s plenty of seed funds. Then, ventures started coming in. The reality is, as the market matures, more and more firms come in. People will have to be innovative if you want to survive.

Sramana Mitra: I don’t think the lack of capital is the issue in India. I think, if anything, there’s way too much capital. That has been the case for a while.

Sasha Mirchandani: There’s not enough capital for Series C and D. We have all the regular funds that are doing A and B. Then you got the Blackstone’s but those are doing public market companies. There’s a gap which will be filled soon in my opinion.

Sramana Mitra: That is probably only applicable to your India-facing companies because the global market companies can raise money in the international market.

Sasha Mirchandani: That’s right. My portfolio company InMobi raised money from SoftBank. There’s enough money for the cross-border companies.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Sasha Mirchandani of Kae Capital
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