1Mby1M Virtual Accelerator Investor Forum: With Rahul Chowdhri of Stellaris Venture Partners (Part 4)

Sramana Mitra: Besides these three categories that you’ve talked about or aligned to these three categories that you talked about, what are you seeing in your deal flow over the last 12 to 18 months? What’s in the pipe in India? I imagine you see several thousand deals a year, right?

Rahul Chowdhri: We see up to 1,400 to 1,500 deals a year. They vary across sectors. We are a sector agnostic fund. We have a very active problem-thesis based approach. So each one of us looks at one or more sectors. Then we go out and look for companies in those sectors.

Typically, they are vertical sectors. It could be logistics, retail, healthcare, education, or financial services. It’s quite diverse. There’s no one particular theme that we’ve seen more than others. A lot of very interesting software companies are coming up such as digital first brands. We have investments in EdTech, FinTech, healthcare, and logistics.

Sramana Mitra: The fintech and edtech deal flow that you’re seeing, does it align with that next 400 million consumers?

Rahul Chowdhri: It’s FinTech, mostly. Even as we say education technology, there are a lot of companies who are talking about vernacular language-based content creation. The first wave of EdTech companies targeting test preparation market were basically going after engineering and medical entrance tests.

But, now we’re seeing a lot of companies going after say a bank exam, which allows employment at a bank. It’s a very large exam in India, but it is something that the next 400 million users will find very relevant. The exams are in English but also various regional languages.

FinTech is a lot about financial inclusion for both SMEs and consumers. Most of that behavior exists in an informal economy. FinTech companies are providing better quality products in a more formal manner.

Sramana Mitra: How do you envision the financial story of this in the next 400 million consumers? Is it going to be in the form of some version of microfinance? What form is it going to take? Who is going to be lending? Is it your companies?

Are new FinTech companies, are they going to be lending out of their own pockets or the funds that they raised? Is it going to be peer-to-peer? Is it going to be high net worth individuals or family offices lending to these? What format do you see this taking?

Rahul Chowdhri: It’s very hard to answer that question because it’s such a large market. You will see multiple models emerge. It is such a credit hungry society. You will find a large segment of SMEs or consumers who are not able to access credit. It is very easy to lend money but really hard to collect the money.

There are companies that have failed, there are companies that are doing a good job. Over time, one needs to figure out why a smaller company win over an existing large entity. What is different? Is the distribution different? There are still a lot of unanswered questions when it comes to models.

I don’t think micro finance models, per se, Banks have lowest costs of capital. So, you have to somehow reach that cost of capital.

Typically, people start a marketplace or getting a small first loan with a personal guarantee. Over time, they try taking it public.

We don’t think that one model is better than the other. You can actually earn a decent spread even as a market player depending on which segment you are playing in.

Sramana Mitra: It was nice talking to you. Thank you for coming here today.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Rahul Chowdhri of Stellaris Venture Partners
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