Dave McClure: hard to see why investors are not more bullish on India, there will be a feeding frenzy in 5 years

Skyrocketing smartphone usage, a rapidly spreading internet, a burgeoning middle class, and massive online distribution platforms – “It’s really obvious from the demographics,” says Dave McClure, founder of 500 Startups, “that there’s going to be a feeding frenzy in India.” He was referring to how entrepreneurs and investors will be falling over each other in this largely uncharted market within five years, by which time a lot of the friction from logistics, payments, and infrastructure would have got sorted out.

“We (the VCs) are just not ready for it,” he says on the sidelines of Nasscom’s Product Conclave in Bangalore. “Valley VCs are too focused on the US. Most people there think going international is a waste of time.”

There are exceptions like Tiger Global, DST, Rocket Internet, Sequoia, and now SoftBank, who are betting big on emerging markets like India. And 500 Startups itself, which is an early stage investor, is rapidly expanding its India portfolio. It has made 25 investments in India in the past couple of years. But the number of investors is still too small for a market of such potential, according to McClure.

One reason for investor caution is the low level of mergers and acquisition (M&A) activity out of India compared to thriving ecosystems like Silicon Valley or even Israel. But McClure still thinks there’s irrational bearishness, given the huge opportunities online businesses have for making money in India.

McClure explains to Tech in Asia:

I understand the dynamics around not having clear paths to exits. There are not as many of those in India. But I think if you are investing in revenue-oriented businesses, you can mitigate some of that. It is not the case that all ecommerce businesses are operating in negative margins. That is just not true. It is certainly not the case that all startup businesses are unprofitable. Even if you limited yourself to the startup businesses that have positive unit economics and significant growth, you will still have a ridiculous number of opportunities. So it is hard for me to analyze why people are not more bullish here.

“A lot fucking harder five years ago”

The San Francisco Bay Area venture capitalist feels it’s much harder for an entrepreneur to make it in America today than in India. “The US market is so much more saturated, there is so much more competition. On a relative basis, an entrepreneur in India has much less competition and a much larger market.”

But what about the friction points you find only in India? Such as the stipulated two-stage authentication process for credit card payments that Uber has yet to find a way around – the Reserve Bank of India has just given Uber another month’s grace period to sort this out. But McClure quickly puts such problems into perspective:

Yeah, there is corruption, challenges in payments, challenges in everything else. So what? You think it was harder or easier ten years ago? It was a a lot fucking harder. So relatively the change that has happened in the last five years is absolutely phenomenal.

See: Seeking funding? Here are 10 venture capital firms in India you should meet

“I know there’s a big dip coming in China”

McClure thinks that it is China where a big bubble is building up. “There is far too much capital going around in China, particularly since Alibaba had this huge IPO. It is the late nineties in China, people are just throwing ridiculous amounts of money at Chinese companies.”