1Mby1M Virtual Accelerator Investor Forum: With Rahul Chandra of Unitary Helion Ventures (Part 2)

Rahul Chandra: Our thesis, of course, changed in 2011 but it was multi-faceted. We were investing more similarly to a Silicon Valley fund which is consumer enterprise and consumer internet specifically. These are fairly broad terms.

Since you know both sides very well, you know that the depth you can get to in a particular vertical in terms of the disruptions that are happening and the range of companies that you could get to invest in in the Valley is far deeper.

In India, some sectors have evolved quite nicely. Still, it’s a shallower space. Expansion in multiple areas leads to some form of dissipation of value-add that a VC firm could do. Unitary had experience in certain areas which have done very well.

A common thread across these companies that did very well was that they did not run into the classic scale-up wall. Of course, we’ve seen the high cost of customer acquisitions in India. That same consumer has been targeted by every company. Of course, churn because the customer was just experimenting. These were in the early stages of digitalization in India.

The learning from all this is that the top hundred million consumers are the most targeted because they’re also the ones with the deepest pockets in India. They are the ones adopting faster than the others. What happens in that top 100 is that you do run into scale issues. The cost of acquisition makes it unviable to have that customer.

When scale issues happen, it becomes a double whammy. What we saw is, the common thread of what worked well for a well-spent acquisition was where the company was targeting the middle part of India which is the next 400 million. Here, the gaps are so wide again. The demand is so unmet that customers tend to actually seem like an infinite pool.

The challenge with targeting this segment earlier is the percolation of digitalization which has been sorted out in the last three years. The cost of acquisition is linked directly to the cost of bandwidth and the number of smartphones. Everyone is very familiar with what’s happening in India in terms of the price of bandwidth and the price of a smartphone.

Adoption is getting pushed by multiple factors. We feel that the tailwind will continue. There will be more and more spread of being able to get online. This is one entry barrier which has been lowered over the last three years, which gives us better access to the next 400 million.

Sramana Mitra: What are the customer acquisition channels that are producing for this type of customer – the next 400 million? Are they searching on Google? Is it a vernacular-speaking customer and you have to think about those kinds of points in acquiring? Is it primarily mobile?

Rahul Chandra: It’s a mixed bag. It’s sometimes a case of mobile acquisition through Google or Facebook, and conversion through face to face. There are some models, especially in education, where feet-on-street sales forces are essential.

We’re seeing that where higher ticket items are involved and it’s usually an annuity customer. It’s usually a combination of these two. That, of course, drives up the cost of acquisition to over a hundred. The second thing we’re seeing change is that B2B2C is becoming very relevant. The digital rails that India now has in terms of the identity management or the onboarding, the cost of those have significantly come down over the last three years.

It allows you to access business channel partners and acquire their customers. We’re seeing data companies giving access to credit companies where, in combination, we see companies working with a startup in insurance products for rural agriculture.

We’re seeing these combinations happen. Traditional Indian banks are opening to digital wealth management companies. We are seeing a lot of these marriages happening in the B2B space which is then keeping costs low as well. The third channel that we are seeing is for the lighter, content type of companies where the signups are lighter and churn is higher.

We are seeing customers come in through campaigns that are more brick and mortar. There are some variations in terms of how the channel opens up for customer acquisition. Here, you have to keep costs low. We’re seen one company where the partnership with Mobil phone brand has been very productive in customer acquisition. There are also shifts in the market share of phone brands. The business models of phone companies are participating in growth beyond selling the hardware.

The layering of the subscription models on top of the hardware cost allows several software companies to go and access the customers. Surprisingly some of the cost of acquisitions drop to as low as $2 to $3.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Rahul Chandra of Unitary Helion Ventures
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