1Mby1M Virtual Accelerator Investor Forum: With Ashish Gupta of Helion Ventures (Part 2)

Sramana Mitra: Springing off your comment about huge amounts of money coming into India, it’s all relative. Even when you started in about 2006, there was too much money and too few deals. At that time, the product entrepreneurship ecosystem was still very nascent. There weren’t really a lot of fundable deals.

That is not the case anymore. There are a lot more fundable deals. As you said, the entrepreneurs are more sophisticated. There are more global plays starting to happen. It’s true about Silicon Valley too.

Ashish Gupta: About $3 billion got deployed in venture funds over seven years which is a fairly small amount of money, given the opportunity set. Let’s go back to 2006 for a moment and then I’ll address what is happening right now. 2006 was the third coming of the venture industry in India.

The first one was 1995 to 1996 which didn’t last very long. 2000 lasted slightly longer, but echo of the bust from the Valley took the wind out of the boom relatively quickly. That lasted a year. 2006 was the third coming which has proven to be the real creation of the venture business. The first two were precursors.

At that point in time, a lot of the money coming in was because several of us had believed in and sold the story of China in India. That was a little out of whack because India and China are still nowhere close to each other. At that time, we definitely were not close when you factor in technology adoption. Economists wrote articles about it. We were all drinking our own Kool-Aid. A whole bunch of money showed up there including a lot of US investors who were tourist investors.

One of the things that has happened is, all the tourists have gone home. Now all of the seed and Series A money that is on the ground is very much first-class firms on the ground in India. The tourist investing is now happening at the later stages. That is where you find comfort investments. If one is coming from the outside and is going to deploy some bit of cash, one is looking for typically a growth stage company.

There, valuations are out of whack. If you look at Series A and seed, there is not an excessive amount of money compared to the opportunity set. There are barely a dozen firms, which is very ironic. If you look at India from a seed and Series A perspective, it is hard to count even 12. The supply of money is far slower than the opportunities. You will find that it will increase in two to three years.

Sramana Mitra: Seed ecosystem in general has been slow to evolve. Part of it is because the culture is not a heavy risk-prone culture. That one is going to take time to do anything with. My mantra to address that problem has been bootstrapping. Indians tend to be good at bootstrapping. They are scrappy. They are frugal. Culturally, enough people have good values in terms of being capital efficient.

Ashish Gupta: Very much so.

Sramana Mitra: It is going to be something that will stand India in good stead in the long term. All these entrepreneurs being forced to bootstrap is going to give them a lot of advantage because they will be able to get to the Series A with much stronger credentials.

Ashish Gupta: The angel ecosystem has also taken off in a fairly meaningful way over the last year and a half. Just in the last year and a half, about 15 new seed funds have come about, all with smaller amounts of capital. The number of angel investors has exploded.

To your point however, the checks that are being written are such that it is tantamount to bootstrapping. One finds a fair distance covered with fairy little expense. You see the kinds of salaries paid to engineers by Amazon are reaching levels of $30,000 per annum. In then next office building, you will find an engineer of equal talent who’s working at 10 times less because they’re passionate about it.

That is one of the other very interesting things that is hard to wrap one’s head around when you go to India. For the same quality talent, you might find a factor of 10 difference in the salary. In the US, you might have a factor of two difference. That is a very interesting phenomenon which allows smaller companies to get much further ahead while coexisting with richly-paid engineers.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Ashish Gupta of Helion Ventures
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