"EDITION 184"

Published: 10/27/2020

Good morning, it's Tuesday and wow November is almost here. I've really been enjoying writing shorter deep dives the last two weeks so here's another one on VCs in India making competitive investments:

➡️ Last week, Lightspeed & Matrix announced their investment in Dukaan (and some messiness ensued)- Dukaan and Khatabook are embroiled in a legal case that the investors might or might not have been aware of while investing in Dukaan. Sequoia, Accel, Matrix and Lightspeed were all in talks with the company at some point of time, with Matrix and Lightspeed ultimately leading the $6M round (and Sequioia participating through Sprout Investments)

➡️ Now I've always felt it was a bit weird how certain Indian investors make bets into competitive companies. Several investors in the US have written how they don't invest in competitive businesses (and others go even further to say that they won't even invest in adjacencies). There are of course investors who also do not follow belief and they probably have their own reasons for doing so.

➡️ With the investment in Dukaan, Lightspeed seems have potentially set up a competitive environment between one of the companies it has backed through their seed - Series B (and even leading the Series B through its US arm)- OkCredit. OkCredit was one of the earlier Khata apps and also recently launched their own Dukaan app called OkShop. The company also competes with Khatabook and has not been growing as quickly as the Sequoia-backed Khatabook. Now I wonder how this impacts the Lightspeed - OkCredit relationship but if I was a founder and my main investor backed a new upstart competing in one of the verticals I operate in, I wouldn't be very happy.

➡️ The Sequoia investment into Dukaan seems even more suspect with the current animosity between the two companies. This also isn't the first time Sequoia has backed companies that are either directly competitive or soon-to be competitive, they have backed: BYJUs and Unacademy, Khatabook & BharatPe and epifi & Jupiter (oh and TinyOwl and Zomato).

➡️ The one distinction I should make here is that not all these investments were made when the companies were working on products or features that directly competed with the firm's current investment- Zomato hadn't launched food delivery when the Sequoia first invested in TinyOwl and BharatPe launched their Khata feature well after Sequoia had invested in both companies.

➡️ There's a famous anecdote from famed SV investor Ben Horowitz who despite having backed Instagram wouldn't invest in future rounds and backed the company's short-lived competitor Picplz. A16z had invested in Picplz when Instagram was still Burbn and the firm fell obligated to back Picplz as it was the original company building a photo-sharing platform. But there's also the recent incident of Sequoia leading payment company Finix's Series B, later giving up their stake in the company because it would compete with Stripe too directly (one of Sequoia's largest private holdings).

➡️ Now I think it's fair to say that Sequoia has backed companies who seem to be competing with each other from the outset and I'm not sure if the firm has a policy of not making competitive investments. The one reason of the firm making competitive investments, that I could imagine, is that the Indian market is still quite small & Sequoia has several large funds to deploy which ensues companies invariably stepping on each other's toes. Sequoia's 3 funds (Surge, Venture, Growth) have a corpus of over $1.5B cumulatively (~3x Accel India's $550M fund & ~4x Elevate's new $400M fund who both don't make competitive investments to my knowledge).

➡️ While India still hasn't seen too many exits in the market yet, I wonder is a firm's decision to make competitive investments affects both companies negatively and impacts their chances of a successfully building a public company or helps one of the companies down the line with the more successful company potentially buying out the other. I personally do not deploy capital at Sequoia's level in the country (no one does) so shouldn't judge the firm for their investment philosophy but still find it interesting how it somewhat differs from the US and India teams.

Feedback & ❤️ always appreciated BONUS (Tweet of the day): https://twitter.com/ankitkr0/status/1320939712106749952

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