Patient Capital — India’s key to thinking big

India needs multibillion-dollar impact funds to help build infrastructure that addresses the country’s most fundamental problems

We’ve just come back from attending the Milken Global Conference — an event which has been referred to by ‘The Wall Street Journal’ as the “Davos of the West Coast” — where one of our portfolio companies, Reverie Language Technologies (along with and our own Sahil Kini and old friend Reuben Abraham) led a terrific discussion on Digital India. If you haven’t seen it, here’s the video:

Throughout the week, we attended numerous panels and workshops on technology trends and the future of the sharing economy, fintech, healthcare and education. While we were inspired, we were also reminded that India’s most fundamental problems and challenges faced by its entrepreneurs don’t even register as fleeting thoughts in the minds of those in more developed markets.

As I’d mentioned in an earlier post,

“Much of the reason platforms work so well in the US is because the pipes have already been laid and the cement has been poured. There is uniformity in palletized containers and cold chains, there’s a common language, an existing high quality offering of existing service providers, 24 hour power, a predilection toward customer service, and enforceable legal consequences for non-compliance and malfeasance.
However, in India, you can’t take these pieces for granted, and in order to ensure a seamless customer experience — whether it’s healthcare, small business loans, or delivering vegetables — you largely have to build the stack and its component parts yourself.”

In Western and developed economies, the physical infrastructure more or less just hums in the background. People on the West Coast don’t need to worry about things like diesel gen-sets, access to a small business loan and finding skilled labour. Just like having roti-‘kapda-makaan’ and an education allows one to worry about higher-level problems like what car to buy; having ‘bijli-sadak’-pani allows developed economies to think big by dreaming up models that are built on platforms and marketplaces.

It takes a certain deep immersion into the Indian condition to be able to articulate these problems:

— India has 800 languages, but the entire backbone of the Internet is built in English. How can we eradicate the language barrier when it comes to growing an online business and bringing formally excluded consumers experiencing technology for the first time into more formal markets?

— Somebody we met touted the transformative potential of artificial intelligence (AI) and machine learning in radiology and insisted that it will “change the world”. We were hopeful, but circumspect. Because we know that the Indian government spends less than 1% of GDP (gross domestic product) on healthcare. How can AI solve the problem that we have less than one hospital bed for a 1,000 Indians (a metric where even war-torn nations Iraq and Syria have beaten us)?

— On a visit to Whole Foods (which is like Nature’s Basket or Foodhall on steroids), my colleague Sahil kept stopping at the fresh product aisle and swearing loudly at the products on offer: $6 for half a kilo of mangoes, $2 for a tiny bottle of water with a mint in it. While watching him was amusing, it also reinforced a fundamental question we’ve been asking at the firm: How does one increase access to markets for a small Indian farmer, given the fact that a small farm in the US is 500 acres and in India, it’s often a single acre or less?

— With 250 million students in grade school, India will soon confront its much-touted “demographic dividend”. A manufacturing-led economy that absorbs them seems unlikely given China’s dominance. Realistically speaking, where will opportunities of this magnitude come from?

— Sahil and I never had to withdraw cash once during the trip. All our expenses were met by either a single swipe (no PIN required) or by entering our card details online (again, no “Verified by Visa” pages for the US!). The digital and frictionless nature of commerce definitely aids in the growth of a consumer-driven economy. Contrast that with India where 95% of all transactions are cash and less than a quarter of Indians even have a credit score. Barriers Indians face include not having a bank account, a credit score and a mode of digital payment, besides others. How will this change once the Prime Minister’s Jan Dhan Yojana, Aadhaar and mobile phones start interacting? How will payments banks and the Unified Payment Interface address these challenges? To us, this represents massive opportunity.

This visit has only strengthened our conviction in the fact that India needs multibillion-dollar impact funds to help build infrastructure that addresses the country’s most fundamental problems. Sometimes, we fear that even that might not be enough to achieve any meaningful scale because it’s not just the quantum of capital that is important, but also the timescale of investment. These problems will not be solved by venture funds with limited lives of 7–10 years seeking exponential returns in sectors where the exits are obvious. Solving these problems requires patient capital that will help build these companies over decades. This is the very reason that Aspada was structured as a holding company that can stay invested for the long haul.

When you help build the third largest economy and the largest democracy in the world, the societal returns are manifold and the financial returns are but inevitable. How’s that for a big idea?