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Why I’m wary of investing in Indian Startups

Updated: Jun 9


My journey into this exhilarating world of Angel Investing happened almost by chance sometime in 2014. After a long stint in the corporate world, I had turned an entrepreneur and was working on establishing a B2B Workplace Food business. While all my energies were focused on it, out of the blue came a not to be missed once in a lifetime project. It was in the new and exciting world of Insulin Biosimilars, a global business opportunity and was brought to us by a team of talented and experienced scientists. A band of close friends soon cobbled together an informal Angel group, agreed on a business plan, set up a company, and funded the team of scientists who were tasked to deliver on the agreed objectives. While I understood little about the technicalities of the complex business, there were others in the group who had successfully built and exited pharmaceutical businesses and I ran along with their conviction. That’s it, unknowingly I became an Angel Investor. GeneSys Biologics has evolved from its humble origins at an incubator to now having its own huge campus and attracting global attention. The project sucked up massive capital, the original Founders funded all of it without diluting and it still is my largest Angel Investment to date. When I look back it almost seems like a novice move. Would I have done it differently today? Of course!

This set the ball rolling, post which I began actively exploring other opportunities and during this period my investment thesis got further crystallized. Most of my work experience up to that point was in legacy industries; Advertising and Financial Services and I realized that I had missed the entire technology and internet revolution. I was so consumed with the work I was doing; I hadn’t noticed the world changing right in front of me. And so, started my quest to catch up on everything that I had missed in this technology permeated world. Maybe if I started Angel Investing a decade earlier, I could have hit upon an Uber, AirBnB etc., was my thinking.😊

I began by studying Indian startups and tried to understand their product-market fits, revenue models, burn rates, unit economics, valuations etc., and was constantly unnerved by what I was learning. Having spent a long-time building business across industries, I know first hand how infuriating it can be to scale a business in India. The so called Indian middle class market is like a mirage, and mostly flatters to deceive. In my time, I’ve seen many a global brand bite the dust and radically alter their plans after entering the country.


This phenomena is best explained in Sajith Pai’s article – India2, English Tax and Building for the next Billion Users; where he opines that the real consumption market in India (which he calls as India1) is no more than ~30m. These are individual consumers, which means around ~23m households, and a total population of ~110m people (5 per family), an approximate per capita annual income of nearly $9,000. They comprise about a tenth of India’s population but well over a third of its GDP. This segment of India is what constitutes the audience for brands and services such as iPhone (10m users), Netflix (~500k paid subscribers) and Amazon Prime (10m members). Within this segment are also India’s online shoppers (20m monthly active online shoppers), its flyers (~65m or 5% of the population) and its post-paid users (~50m). This group is similar to Mexico, a country with a ~130m population, a GDP of $1,150 bn, and a per capita income of $9,300. Beyond this market, the ability to consume products of the above nature is very limited in India.

The above is further augmented by Samidha Sharma’s article – What’s next for Indian Startups; where she states that the Indian consumer has not followed the same trajectory as her Chinese counterparts. India’s per capita income was Rs 64,316 in 2011-12, Rs 88,533 in 2014-15, and five year out in 2018-19 it went up to an estimated Rs 1,26,406. Per-capita income as we know is an indicator of the prosperity of a country. Compare this to China’s almost $10,000 or Rs 7,17,627. Which means the size of outcomes investing in a Chinese startup is 5 times more and a Silicon Valley startup with an addressable global market would be many times that.


Now picture the above in context of valuations, most startups in Silicon Valley were being valued anywhere between $5m and $7m at seed stage until recently. A few years earlier they were in the $3m to $5m range. India startups too were being valued at similar numbers. Extrapolate the market sizes they are addressing, and it really is a no-brainer. Add to this the problem of exits in India, save for Flipkart there is nothing to write home about, which means long periods of illiquidity and being satisfied with paper valuations. Silicon Valley startups are innovative, have first rate Founders, address a global market and are backed by the best VC’s in the world. Indian startups largely are ‘copycat’ products and address a limited Indian market. So, if you have a dollar to invest, where would it go?

Thus, my investment philosophy further got crystallized; technology companies, but with global potential and being built in an ecosystem where the chances of breaking out are faster and their rate of success much higher. Secondly, not to concentrate investments in only a few companies, but to spread the risk and build a diversified portfolio. I followed up on my above learnings and have attempted to build a strong portfolio of global technology investments over the years including in Crayon Data, a fast growing Singapore based AI/ Big Data company and in Silicon Valley based startups like Dexter - a futuristic high-tech Private School, Cafe X Technologies - a Robotic Coffee Barista, Anyplace - a global Marketplace for flexible-term furnished Housing Rentals and Miami based Shoot My Travel, a global photographer Marketplace. While GeneSys Biologics, my first investment is an Indian Startup, the market for its products are mainly in the US and the EU. Other investments in the pipeline include a London based Robotic Process Automation (RPA) company. It’s early days yet in my Angel Investing journey, but as the saying goes “A good beginning is half the battle won”!

Having said that, one doesn’t need to turn a complete blind eye to Indian startups. I keep talking to Founders frequently and review new pitch decks almost every week. There are some very interesting categories emerging and young Indian Founders are continuously innovating and trying to come to speed with their global peers. Maybe I will have a true blue Indian startup in my portfolio sooner than later.


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