As early-stage investments in the country slowed down in 2017, Silicon Valley-based venture capital firm 500 Startups accelerated its pace in India, locking in nine investments. Despite shelving its plans for an India-focused fund, the seed-stage investor has been tapping into its global funds for deployment in the country.
As it looks to tap deeper into the Indian market, 500 Startups has also broadened its focus by moving its radar of investments to companies that are looking to solve the problems of the Indian masses.
During last year, its investments included Spoyl, an online marketplace for pre-owned apparel, and Niramai, a healthcare-tech venture, and Moneytor, a software startup that automates the process of debt collection from defaulters.
In an interview with DEALSTREETASIA, Shalini Prakash, who heads the India operations for 500 Startups, talks about the shift in investment focus and the way forward for 500 Startups in India. Edited excerpts:
How was 2017 for 500 Startups?
We were planning on going a bit aggressive on India last year. We officially committed to nine investments last year, some are in the process of being closed. For example, Niramai, which is into breast cancer analytics, SportDraft, which is a legal tech company and fintech startups Moneytor and FTCash. It’s was across different sectors and not only focused on any one sector. It’s been very exciting. There are now new product-focused companies coming out, where innovation is at the helm of things. Most of us are looking for companies which would propel India forward with the digital economy and everything that is coming around it.
How do you view the investment ecosystem in India right now?
From what I understand, a few of us, the investment focus has shifted in terms of the kind of companies that we are looking for. There were a few things that worked for us and a few things that didn’t work. There have been some learnings from 2014 and 2015. For us, we are looking at companies that are solving problems at a grass root level or the next billion people or what cater to 80 per cent of India. These are traditional yet, have technology coming in and solving a bigger problem for a larger Indian market. These are the new wave of companies that have started coming in. So with a shift in investment focus, such number of companies that we can find are limited. We will probably see more such companies coming in this year and the next year.
Can you elaborate on your shift in investment strategy?
It’s not a shift in strategy. As an investment philosophy and thesis we look at everything, however, now it is more about broadening what we look at. We will continue to look at everything from consumer tech to SaaS to cloud technology. But by broadening we mean looking at what tier 2 and tier 3 markets need. What do the next billion people need. The early wave of companies were focussing on the urban markets, so now by broadening we are looking at the next set of markets. For example, SpoftDraft is trying to build legal tech for SMEs, which is for the next set of businesses.
Is this broadening of focus areas an India-specific investment focus for 500 Startups, given that the market is somewhat unique?
Irrespective of which market or geography you are operating in, you’re always looking at the market size for every investment that you make. So, in some cases, some investments will only find application in tier 1 cities or urban markets, which is fine as long as the market size is really big, which is something that we will continue to do. Along with that, we’re looking at another set in India because the demographic itself is so big, that you can’t neglect that. In the old investment stream, we were only largely looking at a 200-300 million audience, now we are looking at the next billion, which is what I meant by broadening. More than anything else, there are entrepreneurs now who are building stuff around that. Earlier it was a little harder to find. We are now finding good entrepreneurs working on some really interesting problems, locally and localising a lot of products and solutions, which is why we have broadened our investment focus in India.
How does 2018 look for 500 Startups?
I think it’s always exciting doing things in India. The number of companies we work with is not going to change, we will actively continue to invest in India. It’s not a number game, but as and when we find good companies to invest, we will continue to back the founder. Some of the things that we are constantly looking at is whether some of the companies can be taken to other geographies like Vietnam, Philippines or other Asian countries because some of our problems are similar. In terms of needs and access, their requirements are similar. So, the goal is to see that if we have some of these companies, how can we take them there. That is something that we will try and see what we can do.
Has the size of investments that you make seen any change?
We have always invested between $50,000 to $150,000 and an average cheque size is about $100,000, which has pretty much been the same, as we are seed investors. Earlier the average was probably smaller but now we average around $100,000 per cheque.
500 Startups’ plans for an India-focused fund were shelved for a while, what is the status of that now? Are there plans of an India fund anytime soon?
Right now we’ve not been thinking about it. The goal for us has been to look at interesting companies and back them irrespective of having an India-focused fund or not. It’s also interesting that we have been deploying capital from 500 US, 500 Southeast Asia and 500 Fintech fund. So, there is enough capital within the broad organisation of 500 Startups for us to have a good exposure to India. It’s amazing to see as someone on the ground here to see how different funds of 500 Startups are seeking exposure to India. Right now there is enough capital within 500 Startups to be deployed in India, and we’re more than happy to just be scouting for companies and investing. So, right now an India fund is not something we are actively looking at.
Are there any new sectors or areas that you are keen to invest in?
We have been trying to look at and have been having conversations around the last three-four months around blockchain and cryptocurrency. That’s an area that we have been actively looking at for the last few months. We haven’t made any investments in that area yet, but we hope to do something in that space this year. Also, whatever solves the logistics/ transportation problem, there is a lot that is going to come up in that space. We’re not looking very actively at that area, but it will be interesting if we can find companies who can efficiently solve the problem around this space. So, those would be two interesting spaces for us to look at this year.
How do you foresee the next one year for VCs like you in India?
As a seed investor, we really like this digital revolution that is coming along, with more and more things becoming active with the government push. As a foreign investor, it still looks like a favourable ground for us to be taking a lot of those bets and seed investments because we really think this is only going to get bigger with the digital economy revolution in the next few years. It’s important for us to be backing those early-stage companies so that when the revolution happens they are at a stage where they can really scale. It’s really promising from that perspective.