I was meeting a classmate from college after many years who is now a senior engineer at the Mountainview office of Google. We were toasting his 10 year anniversary at Google and our conversation shifted to Indian startups.
Pretty soon his exasperated question to me was – “Where are the big startups that we have been talking about from India since ages. Where is India’s own Google or Facebook that we have been dreaming about ?”
“2007 to 2017 is good 10 year window to look at this. There has been one Flipkart which has grown exponentially but even that is yet to create liquidity for investors and thereafter pretty much everyone else are valuation fluffiness. For someone joining as an engineer at Google or Facebook in 2007 (10 years ago) was the wise career move to make” he quipped.
I said “ Peter Thiel asked simillarly of Silicon Valley for flying cars but got Twitter instead ” and that twitter has still helped overthrow governments potentially far more impactful then the imagined flying cars.
It is hard to predict when non linear change takes hold, one should not predict but be prepared for the inflection by having a view when it might come around. 4 years in startup & 5 years in a large corporate in trying to innovate for India & from India market has led me to a few observations that I shared with my friend.
I said “think of it as CAGROMOTA — CAtegroy, GROwth, MOat, TAm”
CAtegories of new market
Indeed very few new market categories got created in the last 10 years, i.e 2007–2017.
- Broadly speaking Internet Commerce for India (Naukri, Makemytrip, Flipkart, Zomato, Matrimony, Ola, Naukri etc)
- And Software Products for global market (Druva, Eka Software, Zoho, Freshworks, BrowserStack, Fusioncharts, Wingify & others)
Few categories that looked promising eventually were not — Digital & Mobile Payments, India focussed games, Social media, Mobile VAS, Portals, OnlineNews. There never was sufficient demand in digital games in India to make it an Industry that can compete with Bollywood. Confusion on who will regulate killed the mobile payments market in 2008 (a similar fate is looming for Fintech in 2017). Facebook for India is Facebook and not Minglebox.
Even there winning in an existing market category involves a different playbook than creating a new one (see market map). When creating a new category it is almost like a designing a new game, getting it included into olympics and playing to emerge a winner. In fact new market categories can’t be copied or created, they emerge.They emerge due to a combination of many reasons. A a shift in user behavior and demand that creates a strong pull in the market, combined with straight forward regulation environment for operation and global comparative advantage (i.e something unique to India)
In playing within an existing category one has to train for the unknown game and find unique strengths.
“Is it better to get Kabaddi added to Olympics or train to win in Iceskating”
Key to look for here is not a copy of silicon valley success, Google from India will not look like Google at all.
GROwth Rate
Technology Industry is expected to grow at 20%. Lets compare some key data in India.
Macro growth rate for India is stellar compared to any (other than China).
Anyone invested in the Indian stock market would have made 2X more compared to the US.
Some industry category had grown faster than expected baseline whilst others are yet to. It is hardly a surprise why few hedge funds have poured billions and chasing the winner in Internet commerce category.
Public market IRR in India comparable to private market IRR in US
Overall macro growth is great, some categories are amenable to non linear growth and some don’t , in some inflection point are yet to hit.
[graph data is sourced from various place, collated here]
MOat
Staying a market leader is as important as becoming one. Different business, market yield to different kind of moats. In India economies of scale through owning proprietary infrastructure & distribution has been a key source of advantage. Iterating business at the speed of the regulator is another one. [Agreed such fast change in regulation has also vaporized many moats]
Top 5 brands of India in 2007 are not the top brands of 2017, hardly any business in India gets value multiple through network effects. Brand stickiness, network effects have not been amongst the strong moats. Raising more capital than competitors has looked to be a a short term advantage but claws future options. Outdoing others in fund raising is hardly going to help preserve a business. Anyone doing so may not be a likely candidate (the race between Amazon and Flipkart seems to be illustrating that so far. )
TAm — Total Addressable Market
At 49 millions small business alongside 50 million Urban Indians and 250–350 India2 & India3 consumer market size, the TAM argument never fails to inspire. However of all the above discussed TAM seems to be the biggest source of disillusionment.
It is not the size of population but is when the market becomes serviceable it is useful to consider. That happens when an underlying infrastructure and access is available (mobile, internet, roads, payments). To repeat number of people is not equal to TAM, the infrastructure available to serve people with any service is what should be used to calculate TAM. 2009 was the turning point of pre flipkart era and post flipkart era while the number of people stayed the simillar.
Underlying infrastructure that makes a population size serviceable is a more appropriate lens for TAM.
In Nutshell
There is still a great macro, nice category specific growth rates, very different sources of moat and need for a better lens for TAM.
“It is the India thesis not the India theme”
A theme led approach will feel like moving in a blindfolded game. It will be initially exciting and if you did not get lucky soon frustrating later on. While with a thesis led approach it would be like sensing the terrain with a blind walking stick.
Instead of excitement and despair in broad theme based outlook having a unique view such as a thesis around CAGROMOTA may help find the Google that we are looking for.
mtrajan.com 
Super interesting read