De-CO(VI)D-ing the Indian Startup Ecosystem During and Post the Pandemic
Conversation with Madhu Yalamarthi of GGV Capital
So let’s start with your story, what’s been your path to GGV Capital?
I grew up in India in a village 80 kilometres from Vijaywada. I went to IIT Kharagpur for university. I was actually the first in my family to go to high school and college, but privileged enough because Andhra is a developing state which allowed my generation to go to college. In Kharagpur, I was actively involved with entrepreneurship and led the entrepreneurship student body along with BlackBuck’s Chanakya Hridaya. After graduating, I worked at a consulting firm across India, Africa and Mongolia and then moved to Ethiopia to work in the Prime Minister’s Office.
After that, I moved back to India to open the India office for an incubator/accelerator in partnership with the Eric Schmidt Family Foundation and UC Berkeley’s Berkeley Lab. The goal was to create a Google X for social impact because social impact tech is sometimes not venture backable, but has the potential to create impact at scale. So the idea was to take the technology on paper, build products, pilot them in India, and transfer them to a big entity like TATA Group who can then scale it up. I spent a year on the ground travelling to villages and building products like low cost refrigerators and solar mini grids.
After that, I wanted to move to a global stage and decided to go to Stanford for Business School. I was passionate about working at a global stage and found meaning in connecting dots, connecting people, connecting geographies and pushing the frontiers. So I started looking for roles that would lead me to do that and reached out to senior people such as Hans Tung by going down the Forbes Midas List and the Forbes Billionaire List. I got the opportunity to work with Hans as an intern and we ended up doing some investments in India. Now India has become a core focus for the firm. After the end of my internship, I had the opportunity to join GGV Capital full time and I also started focusing more on LATAM. At the same time, I also started building my thesis on- Future of Work, Future of Food and Supply Chains, B2B Ecommerce and Ed-Tech. I have had the fortune of working with Hans in leading deals in India like- Vedantu, Rupeek, Udaan and Khatabook.
Your story is so inspiring! It’s amazing that you’ve had such a global experience while at the same time created so much impact. So with this cross-border mindset, what differences do you see in the way startups are reacting to COVID-19 between India and the US?
I see both commonalities and differences. The commonality that I’m seeing is that the difference between good founders and great founders is showing up. When COVID-19 hit, senior VCs advised founders to make cuts right away if they felt that their business would be impacted and actually advised founders to make the cuts deeper than necessary. They also advised them to communicate to their teams that they would not be making any more cuts after the initial ones. From a psychology perspective- the best determinant of team performance is psychological safety and therefore, founders who did that were able to eliminate uncertainty in the workplace.
The second trait that I saw was that great founders responded to COVID-19 immediately. They were also always hungry to learn and more importantly willing to learn from other people’s mistakes. One of our portfolio companies’ called Frubana in Latin America saw its GMV fall during this time, as did other companies’ globally with a similar model. The team reached out to us when COVID-19 had not even hit Latin America. They already started working with us to understand how much of their GMV will take a hit. They then planned for it, stocked up on all the essentials and got their supply chains ready to predict for different COVID situations. Before COVID, the company used to only serve restaurants, but during the crisis they launched a B2C arm, a Kirana store approach and a reseller model in almost no time. Now the model is back to Pre-COVID levels while the lockdown is still in place. The level of nuance and hunger with which the team planned for the situation was clear to me.
Now looking at the differences- the US is a technology based country so the impact isn’t as much. E-commerce companies were immediately able to switch gears and they ended up seeing a lot of pump up in their traffic. In India, which is a more operationally intensive country, there was a digital demand but the ability to fulfil that demand took a big hit. Another difference is fundraising between the two markets. The US has a larger bench of global investors who were able to provide funding immediately. In India, the late-stage investment pool isn’t as big. There are firms like ours who entered recently and are investing and looking at deals even now. But at the moment, platforms that operate across public and private investments are seeing more investments in the public market. This has resulted in even some category leaders in India finding it difficult to get a level of interest and appetite from investors to close the bridge round.
And what are the trends that you are seeing in both the US and India?
The obvious one is Ed-tech. In ed-tech traditionally there’s two sigma learning outcome differences with personalised online education- personalised education versus the general classroom education. The problem had always been that people had only experienced in-person classes. Now they’ve had experience with online education and they actually like it to the extent that they are willing to adopt it after COVID. We invested in Vedantu because we believe that parents may see schools as a must-go when the world opens up but tuitions are optional. Hence, there is an opportunity for online tuitions and supplemental learning to become big.
The second one is B2B businesses. For example- my dad in my village used to always go to the bank but after COVID, he’s keen to use cheque books more often, and has even installed the SBI app on his phone. Additionally, before COVID he would use Whatsapp for calls or to message vendors but now he is also thinking about how he can make sales or send invoices through the app. Therefore, this pull towards digitization has already started.
The trick for companies is product innovation during this time. However, the challenge that they’ll face is a small drought in terms of fundraising. In my opinion, the best way to do product innovation is to observe the customers. Looking at our portfolio company Khatabook, they observed what happens at a shop by looking very deeply at the problems their customers face. They saw that every day, after eight o’clock or nine o’clock kirana stores shut their shutters to do the tally. A pain point for the customers is that while they are doing the tally, their whole family is waiting for them to finish before starting dinner. That extra hour that the shopkeepers got to spend with their families because of Khatabook actually drove the biggest adoption.
For these founders in India, do you think COVID-19 would lead to a change in terms of the number of people who want to become entrepreneurs. Do you think people would be more risk averse or do you think because of people losing employment, there would be a shift towards entrepreneurship?
Human ingenuity and entrepreneurship is always going to be there. I think people will always gravitate towards entrepreneurship, because they’re passionate about something. Human fulfilment in Maslow’s Hierarchy of Needs, always comes at the frontier of pushing boundaries. Everyone in their lives wants to push something and push the frontier. And if you look at my path, I’ve been privileged enough to live in a village,in a small town, in a district headquarters and in a big city. When I look back I see that everyone wants to push their boundaries. For a person in a village, it’s the yield from their crops while for another person, it’s a motorcycle. Everyone wants to push their own sphere of influence. So I believe that entrepreneurship is always going to be there.
However, sometimes necessity is the mother of invention. If we look at Snapdeal’s founders, Kunal and Rohit- their H-1B visa got revoked in 2011 so they came from the US. At the time, they thought that India’s entrepreneurship landscape was in a very exciting space and ended up creating Snapdeal. It is similar for China and I even see it with other Indian immigrants. I run a community for Indian immigrants here with roughly 90 people who are fast growing leaders in tech companies. A lot of them want to start their own businesses but they can’t because of visas. Now, if they are unable to stay in the US, the Indian ecosystem will mirror the Chinese entrepreneurship ecosystem and when that happens, the level of potential of startups in India is going to be immense. This will especially happen because of their cross-border specialty. These people have a good network here in the US and when you pair that with an Indian remote workforce, it’s going to unleash a lot of technologies, companies and business models.
Absolutely! And looking at how Jio has been raising money even during the pandemic, what is the sentiment of people and investors in the US? Is India becoming increasingly on their radar?
Investing is different, public sentiment is different and ideas are different. In the entrepreneurial circles, globalism is always looked up to. If you look more specifically there are adaptations in business models in different parts of the world. An example is E-commerce- in the US, B2C e-commerce makes sense because logistics are efficient and the per capita incomes are higher. So even if you take a small cut, the unit economics still work. In India, the disposable income is not that high and B2C e-commerce companies are limited by the market because even the cream layer of India is sub-50 million people. This is why in India the game has been about B2B2C e-commerce. So going back to your question, as a founder you learn from other founders about different concepts and models that work in a particular region. As a result of this, founders in the US are always looking for people with diverse experiences, backgrounds and thoughts. It is similar at an investor level- we always want to partner with other funds. We regularly share knowledge with people in the ecosystem through calls or slack channels. So at a founder and investor level, multiculturalism is always valued but at a public level, there is more nationalism in the country right now. And as for us as investors investing in India, I am very bullish on the opportunities here.
And my last question is what does a post-COVID world look like in your opinion?
Some of the things that I see from a macro point of view is that the US will recover sooner. This is because the health infrastructure is better and the stimulus is better targeted. What that means is that the ability to get desired outcomes through the stimulus is higher in the US. On the other hand, India might take longer because we’re still offline and our health infrastructure is still not there. As for effective targeting of stimulus, we need to attack from multiple standpoints- we need to get the corporates, MSMEs, rural areas and the consumption engine back. This is going to take some time. Having said that, from a consumer standpoint I am cautiously optimistic but extremely hopeful in the Indian jugaad and Indian spirit to get back up.
There will also be a change in how work is done. I would say remote work is going to be the big trend in both countries but it’s going to be a mixed phasing out. For knowledge workers that require a lot of collaboration, there will still be in office meetings. For other remote teams, there will be challenges because in-person conversations create a level of comfort and safety that us as primal humans need. So there are going to be efforts in terms of building culture and feedback mechanisms virtually. A lot of the ecosystem surrounding remote work is going to get bigger which will lead to unbundling of video calls. Companies are increasingly going to start looking at things like how do you recreate coffee or how do you recreate water-cooler conversations?
Another change will be supply chains in the US. There are already laws in motion and whispers that a percentage of manufacturing will be mandatory to be done in the US. So if that happens, automation is going to be key. And because US corporations will want to keep it light, the ecosystem is going to unleash a lot of small businesses or manufacturers and partners. When a situation occurs where you have a lot of partners, then SaaS models come up to ensure they all work well together. Indian companies with B2B models have done that exceptionally well so I’m hopeful that they can implement similar models in the US.
And lastly, I think Indo-US partnerships are going to be seen a lot more. Indian immigrant founders starting companies from India serving the US market will get big. Additionally, Indian talent is going to start getting a lot more global opportunities. The reason for this is because US companies couldn’t hire this talent earlier due to visas and the hesitation with remote work. However, with remote work becoming increasingly normal, so will the shift towards hiring talent from here.
