Hans Tung is no stranger to India. A managing partner at Singapore- and US–based venture capital firm, GGV Capital, Tung has been tracking the South Asian nation for over two decades.
He first connected with Indian founders in the mid-1990s when Indian BPO (business process outsourcing) companies were expanding to Southeast Asia. The second wave of Indian founders he came in contact with was around 2005-06, many of whom were building offline businesses. The third wave, Tung says, was in 2012-13, when Indian entrepreneurs had started visiting China to learn and grow.
All this time, Tung says, it wasn’t easy for the India market to take off. However, the entry of telecom operator Jio, the implementation of Goods and Services Tax (GST), and the introduction of government-backed digital payment tool Unified Payment Interface (UPI) over the last few years made GGV Capital think the time had come to make some bets.
“We had been looking at India before, but we chose not to make investments because it was easier to make more money in China than India. We have been waiting for India to take off,” Tung told KrASIA in a recent interview.
In 2019, GGV made its first investments in the B2B marketplace Udaan and digital ledger startup Khatabook. According to Tung, despite India’s slow economic growth, the quality of Indian founders—their willingness to learn and getting better at building products—gives him hope that multiple Indian companies will be able to grow beyond India.
KrASIA (Kr): How do you think the Indian startup ecosystem changed in 2019?
Hans Tung (HT): After Flipkart was sold to Walmart—the first big exit for Indian venture market in 2018—it changed people’s perspective that there could be exit through M&A, and that an exit doesn’t have to happen only through IPO. Secondly, IndiaMart went public showing people that exits could happen through domestic IPOs.
More exits need to happen in India. MakeMyTrip was listed on NASDAQ about 10 years ago. Then we have Flipkart being sold to Walmart. We have Oyo that’s buying back shares from early investors. These are the only three exits that people talk about.
The ability of companies to get listed overseas will be important. You have many Indian companies with the US dollar funds, and waiting for domestic IPO takes time. We think the government will let some of these companies to list overseas. Investors hope India will get better even though the numbers don’t look encouraging. After China, which we have seen grown dramatically, India is the best market to potentially have that kind of exits and that kind of growth. So, people will want to give Indian companies more opportunity and more time.
Kr: Do you think the snail’s pace growth of India’s GDP would simmer down investors’ interest in Indian startups in 2020?
HT: I think the best-given GDP per capita in India is USD 2000, and there is a concern that the Indian market may never be as big as the Chinese market.
The slowing down of the Indian economy and the recent citizenship-related law passed by India that favors followers of Hindu religion over another, are together making investors think whether they should deploy more capital in Indian startups.
Our view is that there’ll be companies from India that could be the next ByteDance and expand globally. I’m bullish on some Indian companies that will grow beyond India and therefore would be less dependent on the Indian domestic market. The companies that focus on the Indian domestic economy, even with the apparent slowdown, have an opportunity to build a strong B2B2C model, which enables existing businesses to be more efficient when selling to their consumers.
The Indian e-commerce market still has very low penetration compared with China and the US. There are many kirana stores in India, so, we expect companies like Ninjakart that are improving efficiencies of existing companies to do well. We think the companies that are in education and lending will figure out ways to grow in spite of economic slowdown.
Kr: GGV has made only two investments in India in 2019. Are you taking things slow?
HT: For any international investor coming to India, the first year always seems kind of slow. If you look at what’s happening in the Indian ecosystem, there are not many investors in Series B, C, and D level. SoftBank came in 2014, and DST Global came in around 2015-16. Warburg Pincus has been in India for a while, but there are not that many real estate investors in India. Even though we only started investing in 2019 in India, we still are one of the largest international investors who is spending time in the country.
Kr: What will be your investment strategy in 2020 for the India market?
HT:Â There are three things that happened that made us think India is better for investing. One is Jio dramatically lowering the cost of 4G. Without lowering the data service cost, it doesn’t make sense to invest in India. The second is GST, that made it easier to build a national business than it was before. Lastly, UPI has made building a mobile payment business in India much easier than before.
We especially see a lot of opportunities in B2B e-commerce, education, fintech, and enterprise. More Indian companies run and build global businesses in the enterprise (segment) from India. It takes more effort for them to get to know the US enterprise market because a lot is driven by domain experience and knowledge of the customers’ needs. So, we will be looking and helping companies that can set up a good backend development in India, which is easier, and also be able to do the harder part of building a strong sales organization in the US.
In the last two-three years, inventions such as GST, Jio, and UPI have made it possible for India to take off without having more founders like Vijay (Paytm founder) and Manu (Xiaomi India head), who are willing to seek different things. We like the quality of the founders in B2B commerce, education, and fintech. In the enterprise market, founders will take more time to become better as they need to learn how to crack the US market better. So, the enterprise segment is lagging behind a little, but it’s catching up quickly. These are four sectors that we’re very bullish on in India.
Kr: Do your investment strategies differ in China, Southeast Asia, and India?
HT: We always look at investments based on whether the macro makes sense, and if there is a secular shift happening, that could be a tipping point to build big businesses that are going after a large addressable market.
In China, we started investing in 2003 with our investment in Alibaba, because we thought China was ready to take off in the internet space, specifically in B2C or B2B2C. We saw that shift happening in China much before other people did. In addition to the US, we thought China was the best market to invest in.
In the last seven to eight years, we started investing more in Southeast Asia. In the first 18 years of GGV’s history, we made about 10 investments in Southeast Asia, with four to five investments in 2019 alone. They have all done well, giving a good return on investment to our LPs.
Learning lessons from the Chinese internet businesses about the B2C model, Southeast Asia is finally taking off. Now we are making investments in Indonesia and Vietnam more than before. In Southeast Asia, we have made investments in fintech, transportation, B2B commerce, and education. What we’re doing in Southeast Asia is quite similar to India. The only thing we haven’t done in India is transportation. For us, sectors such as fintech, education, and B2B are similar in both Southeast Asia and India.
Kr: Do you think B2B would be the savior of Indian startups given that Indian GDP is slowing down?
HT: B2B will play a much bigger role in a few selected B2C sectors like education and lending. We expect most of the innovations that can get funded will be in B2B.
As a VC who has invested in China, it’s easy to be wary of the Indian market because the Chinese VCs make money through B2C commerce. But in India, GDP per capita is so low it is hard for B2C companies to grow fast without losing a lot of money. If you look at the difference between the Chinese and Indian government—the former has been very good at laying down the foundation, helping Chinese companies grow fast on top of the infrastructure, transportation, logistics, and so forth. In India, that’s much harder.
We think Indian companies will do well, with a different playbook than China. B2C market will take more time to grow than it did in China, but the B2B market will show faster growth. Given the advantage of the English language, Indian companies may expand globally faster than Chinese companies do. Many Indian founders and SEA founders come to Beijing and Shanghai to learn what has worked in China. The ones that will learn lessons well and do better, will end up being in more B2B companies than B2C.
Kr: How are Indian founders different from their peers in, say, China or Southeast Asia?
HT: Back in 2005-06, Indian founders were mostly running offline business and not internet companies. However, the Indian founders we have met in the last five years are more tech- and internet-oriented. For example, all three founders of Udaan come from Flipkart. They know how hard it is to scale the B2C model, as internet access was expensive, and people didn’t have a lot of disposable income to buy anything beyond smartphones and the necessary items.
When I ask Indian entrepreneurs, what they think of 9-9-6 work-culture in China, they tell me 9-9-6 is a luxury in China as it’s more developed. Indian founders believe in 8-11-7 work-culture. I don’t see founders from any other country working such long hours and learn as quickly as the Indians founders.
There are going to be a small number of people in India, who would make decisions that would change the course of mobile internet history in India. Obviously, there have to be some certain social forces that have to be there for miracles to happen. If you look back in China, without a Jack Ma or Poni Ma, there may not be an internet sector in China, even though the government provides the foundation. So in India, the foundation is not as easy as China, but there can still be room for great founders.
This interview has been edited for length and clarity.
