"EDITION 198"

Published: 11/17/2020

Good morning, it's Tuesday and we've had a couple of large startups drop their S-1s lately- DoorDash on Friday and Airbnb today. Sequoia is large investors in both these and they've been on a roll lately (or maybe all the time?) with the IPOs of Unity and Snowflake a couple months ago. And with today's S-1 of Airbnb, I thought it would be perfect to talk about Tourist Capital in India (yeah yeah this is a terrible segue i know)

➡️ India is no stranger to tourist capital and by this point we've seen several cycles of investors coming & going, while some stick around. In the early days of Indian venture ecosystem (late 00's and early 10's), there were several US firms who wanted to invest in India but not all looked to bringing on investors in the region and hence decided to leave the country several years later. While others, like Sequoia, realized that they'd only be successful if they let partners from the country run the firms locally.

➡️ There was then also the cycle of Rocket Internet and their model of starting companies- copying models from western markets and implementing them elsewhere. Rocket India's companies have largely all been failures with some large-ish acquisitions but none really turning into category-defining companies. One of the reasons that Rocket failed in India was the fact that the German internet conglomerate expected large and quick exits in India within 3-5 years of launching each company. Unfortunately India doesn't work that way and required more patient capital. As a result Jabong, Foodpanda and FabFurnish were all acquired and the conglomerate failed to build companies in India.

➡️ This isn't to say that all foreign investors in India have failed and left the country. Ex-Tiger Global Partner Lee Fixel has probably one of the most successful venture investors in India backing the likes of Flipkart, MakeMyTrip, Ola, Delhivery and Freshworks (among many more). He has also actually seen exits from India (Flipkart's acquisition by Walmart & MakeMyTrip's IPO in 2013) and continues to invest in India through his new fund- Addition. Similarly, while Softbank's entry in the country has been more recent it seems like they are here to stay for a while continuing the invest in largest companies in the region.

➡️ And now coming to present-day tourist capital in the country. If Flipkart put the Indian startup scene on the global map, Reliance and Jio have certainly accelerated the rate at which global eyeballs are moving towards to India. And as a result of it + the growing number of Indian companies in Y Combinator, we're seeing US and other western investors investing in India as early as the seed & pre-seed rounds and even leading the rounds at times. I think this is largely good for the ecosystem but definitely it is a nuanced subject.

➡️ If a company is going through YC and largely plans to sell products and services to US and global audiences, it certainly makes sense for the company to raise from US firms. But if someone is building for consumers or business in Tier 3+ India, does it make sense for the founder to exclusively raise money from partners who've only lived in the South Bay of Northern California? Maybe or maybe not. By bypassing all Indian investors, the company might potentially set itself up for a hard time raising their venture rounds (A, B) but that is probably a case-by-case difference.

➡️ On the other hand, it doesn't seem like all US investors investing in India quite understand the competitive landscape or know all the players in the Industry- I recently saw an American firm syndicating their first investment in the country where the company claimed they were the first to be building a product (while well known companies in the same space have existed for a couple of years and have already raised their seeds & As).

➡️ Regardless of some of the tourist capital, I think the western attention on India is still largely beneficial to the ecosystem. Some investors might not make the smartest decisions and will be burnt and some companies will die out. But over time, more and more investors will stay back and continue to invest in the country bringing more investors to the region. Just remember that if you're raising capital as an Indian company building for the Next Billion Users, it might not make the most sense if your investor's claim to fame is their Grammy Award.

Feedback & ❤️ always appreciated BONUS (Tweet of the day): https://twitter.com/Rahul_J_Mathur/status/1328263954741817345

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