1Mby1M Virtual Accelerator Investor Forum: With Deepak Gupta, Founding Partner at WEH Ventures (Part 2)

Sramana Mitra: One of the trends that we see in the Indian small funds is that some of them are exiting their investments into the Series C or Series D. Is that something you are doing?

Deepak Gupta: That is certainly a path for us. Unless we keep investing substantially in the later rounds, it doesn’t make sense to keep holding a position because you do get diluted. We have raised funds from domestic investors who have a shorter lifecycle view on investments.

The other thing is that the M&A market in India has been quite limited. The incumbents have started doing M&A. Five years ago, I don’t think there’s much M&A.

Sramana Mitra: Can you share a little bit of your overview analysis of the Indian startup ecosystem? You have been at it for 20 years. How do you synthesize the evolution of the market?

Deepak Gupta: There are two to three vectors. If you see the quality of the founders, the speed at which they can acquire the skills and network and their foresight was never the case before. In the early 2000s, the companies that raised venture were IT and services companies that would typically need one injection of capital and would go public. That was slightly different from the US but not too different.

The other is the depth of the Indian market. When I first looked at the internet subscribers in India early in my career, it was around four million. Now, it’s 700 million. Now there’s the third wave which is Indian founders jumping into global markets. What is still developing is the capital market and the M&A market.

I would think, over the next 10 to 15 years, this will get bigger. It’s a good time. Some people say it’s a bubble. Over a decade, it sounds like there is depth building in the market.

Sramana Mitra: Definitely. What you said earlier about the kind of investments that you do – the early pre-seed and seed – this is a very important piece of the ecosystem. There are these bigger funds from Silicon Valley, but they don’t do seed. The fact that we are seeing this bridging of the long-exit cycle with some exits into follow-on venture rounds are creative ways of addressing the issues.

I would synthesize this conversation by saying that India is a very robust market right now. It has a high potential market. A large base of that customer base is extremely frugal and wallet size is low. To get wallet share in that market, you need to have something very compelling. On the investor side, investors are interested in those markets.

In the first part of the Indian venture ecosystem, we saw only the first hundred million affluent customer base as the target audience. That audience has broadened. The next phase of that needs a different way of servicing. These are the trends that you may want to look at.

We stress a lot on investor-entrepreneur fit. Instead of going from zero to $100 million in five to seven years with one set of VCs, you can split that up into two parts. You can go from zero to $10 million with one set of investors and have them exit to the next phase of investors.

Deepak Gupta: We’ve had companies hitting unicorn status within two years. Our ideal exit is a return of more than 1x. We do feel that they’ll happen at $500 million within four to five years.

Sramana Mitra: But not all entrepreneurs in India are going to become unicorns. Our audience is a much broader body of entrepreneurs.

Deepak Gupta: That is true. I would think, in a year or so, it’s possible that from a small portfolio, we might have one or two unicorns.

Sramana Mitra: Right. Even if you have one or two unicorns, you have another 18 companies that you need to find exits for.

Deepak Gupta: Absolutely.

Sramana Mitra: Thank you for your time.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Deepak Gupta, Founding Partner at WEH Ventures
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