India offers attractive startup opportunities as it sees better infrastructure

This article is from an episode of Matrix Moments by Matrix Partners India, a podcast featuring candid conversations on what it really takes to survive the startup world. This is heavily revised from the original show transcript. For the full interview, go here.

In this episode, Matrix Partners India managing director Tarun Davda and Miten Sampat, vice president of corporate development at Times Internet, discussed the current state of India’s startup and venture capital ecosystem.

Samidha Sharma, business editor of The Economic Times, moderated the discussion.

How is today’s ecosystem different from that of 2015 and early 2016 in terms of deal activity?

Davda: I think it’s a very exciting time. It’s different in a few respects. Firstly, the market depth has never been clearer.

Secondly, a lot of the ideas that we used to see years ago tended to be copies of things that had worked elsewhere. I think this hasn’t completely changed yet, but we are seeing more unique ideas aimed at solving India’s problems.

Lastly, founder quality is significantly higher. If I look back at what made Silicon Valley and China successful, it was because of the people who were closely involved with successful companies – maybe not as founders but as parts of key executive teams.

The same thing happened in China with ex-Alibaba, ex-Tencent, and ex-Baidu guys building some of the largest companies. Many of the founding teams that we see today have some elements of that.

Sampat: I think the depth of the Indian consumer market is massive. I’m very bullish on the sector overall and on a number of ideas that are coming up.

There will be a little bit of overenthusiasm and some excessive investments. But out of all of this will come some repeatable infrastructure that can be leveraged over time. I don’t worry about the excesses because I think, ultimately, they yield some value.

How does the entry of SoftBank, Tiger Global, DST Global, and the like affect the market?

Davda: It’s a net positive, especially for investors like us that come in significantly early at seed and series A. Generally, the companies that we fund tend to be feeders to the ones that SoftBank and the like look at – not always, but most of the time.

In terms of focus, I think opportunities are everywhere. We continue to see lots of opportunities in the business-to-consumer space.

In terms of check sizes or valuations, it’s very relative. For a fund that is as large as Tiger or SoftBank to come in and give slightly higher entry valuation, they understand that that’s not the last check they’ll be writing. They also have significantly longer horizons when they make some of the investments.

When they come in, they see the investments as a step in the door to get some ownership. As the company scales, they will get opportunities to put in more capital and basically get to the blended ownership, whatever that number may be.