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Private and Confidential
Investing in Emerging Markets
India
Blume Ventures
Pre Money Conference, San Francisco, June 27
Blume Ventures
Private and Confidential
Incredible India ! Why it Matters
Section credits: Citibank (India) Technology Banking
Blume Ventures
China
India
ASEAN
USEU
(2.0)%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%
2012
GD
P G
row
th
Population Growth (2012–14)
…is Expected to Propel Consumption to New Heights
Source: The World Factbook and Economist Intelligence Unit.
High GDP Growth, With a 1.1 billion & Growing Population…
India Continues to Have a Favourable Macro-Economic Profile
Bubble Size Current Population
156222
378
756
1556
0
200
400
600
800
1000
1200
1400
1600
1800
1985 1995 2005 2015F 2025F
Agg
rega
te C
onsu
mpt
ion
In U
S$
bn
Source: McKinsey Global Institute Consumer Demand
Aggregate Consumption to Quadruple
1,556
Calendar Year
FDI flows in India continue to remain strong(US$ bn)
43
36
27
34
25
2008 2009 2010 2011 2012
Source: Economist Intelligence Unit.Note: Figures in US$ bn
There are Concerns – but also Confidence
Currency devaluation Political uncertainty given general
elections in 2014 Lack of political consensus Uncertain tax environment That said, Growth projected to be 5-6%+,
and if the above concerns are alleviated and a more investor-friendly Govt is in Power, this could be higher
Attractive Economic & Demographic Trends…
2010 World Population (mm of People)
Real GDP per Capita Growth (2011 – 2020 CAGR)
Source: US Census Bureau (2010).
Total Population: 6.9 Billion People
6.6%
6.1%
4.1%
3.5%
2.1%1.9%
1.4% 1.4%1.1%
0.9%
Sources: The Economist Intelligence Unit, CIA Fact Book and Citi Investment Research as of March 2011.
China18%
India (1.2 bn people)17%
Africa15%
North and Latin America14%
Europe8%
Indonesia4%
Pakistan3%
Asia (Other)14%
Others7%
Just this month (June 2013), Fitch upgraded India’s Rating Outlook to Stable – driven by Government steps to contain the deficit, stabilize the rupee and other positive reform- oriented actions
Attractive Economic & Demographic Trends (Cont’d)…
Projected Shift in Composition of World Economy 2010 / 2030E Global GDP Composition
Projected Evolution of the Global Economy($ in trillion, purchasing power)(1)
Total
Emerging Economies
70%
Developed Economies
30%
Total
Emerging Economies
52%
Developed Economies
48%
C.E.E4%
C.I.S4%
Japan6%
Aus & NZ1%
Western Europe19%
North America
22%
Africa4%
Developing Asia27%
Latin America
9%
Middle East4%
Rank Country 2010
1 US $14.12
2 China 9.98
3 Japan 4.33
4 India 3.92
5 Germany 2.91
6 Russia 2.20
7 Brazil 2.16
8 UK 2.16
9 France 2.12
10 Italy 1.75
Rank Country 2030
1 China $38.49
2 US 24.62
3 India 23.27
4 Japan 5.55
5 Brazil 5.28
6 Russia 4.82
7 Indonesia 4.28
8 Germany 4.05
9 UK 3.67
10 Mexico 3.20
Developing Asia27%
CEE4%
CIS4%
Latin America9%
Middle East4%
North America22%
Western Europe19%
Aus & NZ1%
Japan6%
Africa4%
Developing Asia44%
CEE3%
CIS4%
Latin America8%
Middle East4%
North America15%
Western Europe11%
Aus & NZ1%
Japan3% Africa
7%
Sources: The Economist Intelligence Unit, CIA Fact Book and Citi Investment Research as of March 2011.(1) “PPP” stands for Purchasing Power Parity, which is a theory of long-term equilibrium exchange rates based on relative price levels of two countries; the purchasing power of different currencies is equalized for a given basket of goods.
…Driven By Rising “Middle Class” and Domestic Consumption
87 109158
220290
350
590650
1961 1971 1981 1991 2001 2010 2030E 2050E
India is One of the World’s Youngest Nations…
. . . With a Rapid Increase in Urbanization(in millions)
… With the Most Diverse Society
2010A – 2030E CAGR: 2.6%
2030E – 2050E CAGR: 0.5%
64%50%
26%15%
31%35%
40%
32%
4%13%
25%
29%
6%17%
3% 7%1% 2%
1%
2000 2008 2020E 2030E
Annual Household Income (USD)
<$2,000 $2,000 - $5,000
$15,000-$25,000 >$25,000
$5,000 - $15,000
46% middle class by 2030
0-411%
5-912%
10-1412%
15-1910%20-24
9%
25-4427%
45-6414%
80+1%
65-794%
Over 300mm People Within the Target Age Group
AoAssameseBengaliGujaratiHindiKannadaKonkaniKashmiriKhasi & GaroMarathiManipuriMalayalamMizoNissi/DaffiaOriyaPunjabiTamilTelegu
Jammu&Kashmir
Punjab
Haryana
Rajasthan Uttar Pradesh
Delhi
Uttaranchal
Bihar Assam
West Bengal
OrissaMaharashtra
Madhya Pradesh
Andhra Pradesh
Karnataka
Tamilnadu
Nepal
Bhutah
Arunachal Pradesh
Nagaland
Manipur
MizoramChhattisgarh
Kerala
Mahe(Pondicherry)
Gujarat
HimachalPradesh
Sikkim
MeghalayaBangladesh
Tripura
Andman & Nicobar Island
Jharkhand
Yanam (Pondicherry)
Karaikal (Pondicherry)
Pondicherry (Puduchcherry)
A Growing Middle Class
Sources: Street Research, Mckinsey Estimates and The Economist Intelligence Unit
India is Among the Most Attractive Internet Markets Globally
Low Internet Penetration Presents Further Upside
Unique Internet users in India India: 2nd Largest Wireless Market Globally
Source: Internet World Stats, as of December 2011.
Internet Penetration (%), As on December 31, 2011
121 140
190
273
376
10.0%12.4%
15.3%
21.7%
29.5%
2011 2012E 2013E 2014E 2015E
Unique Users (mm) % Penetration
(Wireless subscribers as of December 2011, in millions)
245 61 79 513 2,267 1,016 121# of Internet Users (mm)
78%
44%39% 38%
33%26%
10%
US Russia Brazil China World Asia India
984.1
893.8
333.4246.4 242.5 216.8
125.6
China India USA Brazil Indonesia Russia Japan
Source: WCIS and TRAISource: Street Research
Rapidly Growing Smart Phone PenetrationSmart Phone % of all Cell Phones
Source: TomiAhonen Consulting Analysis December 2011, Citi Investment Research and Analysis.
Active Internet Enabled Smart Phones(1)
Source: KPMG in India Analysis.
1024
58
105
166
264
0
50
100
150
200
250
300
2011 2012P 2013P 2014P 2015P 2016P
(Milli
ons)
60
107
26
10
2012E 2013E 2014E 2015E
Early 3G numbers are encouraging and point to medium-term upside
Analysts project a c.8% 3G penetration by 2015, which we believe is conservative
1% 2% 8%5%Penetration
3G / 4G Adoption a Key Growth Driver…(2)
…Supported by Increasing Smart Phone Penetration
(Subscriber base in mm)
8%
12%
14%15%
2012E 2013E 2014E 2015E
0%
10%
20%
30%
40%
50%
60%
Sin
gapo
re US
Aus
tral
ia
Sou
th K
orea U
K
Fra
nce
Isra
el
Ger
man
y
Sou
th A
fric
a
Mal
aysi
a
Japa
n
Chi
na
Indi
a
(% o
f Cel
l Pho
nes
that
ar
e S
mar
tpho
nes)
Source: Analysys Mason, IDC
Notes: (1) Includes Wi-Fi and 3 / 4G enabled smart phones. (2) Includes 3 / 4G enabled smart phones.
India The “Mobile First” Digital Economy will kick in (very) soon
Source: Qualcomm, KPCB Report
Private and Confidential
Early Stage VC in IndiaVenture 2.0; building ground-up this time
Blume Ventures
Why “India early stage”?
Blume Ventures
Private and Confidential
Early stage venture in India can offer higher risk-adjusted returns relative to other asset classes. Investors can potentially get earlier and multiple exit options – besides IPO or M&A, stakes could potentially be acquired by VC/PE investors across various financing rounds
Public markets
Private equity
Venture capital
Early stage
Asset class
14-18%
18-22%
20-25%
> 25%
Target IRR returns
Increasin
g C
om
petitio
n
100’s
> 50
~ 25
5-10
# of Organized Funds (India)
In
crea
sin
g R
etu
rns
More competition,
inflated valuations,
capital deployment pressures
Valuations are still
attractive, Investors
collaborate & cooperate
Blume Ventures
India - Early Stage Funding
Private and Confidential
Many VCs in India have moved upstream, into the realm of Growth VC and PE. This has created a gap for startups that need critical seed and angel funding
Blume’s focus A majority of VCs have moved upstream
Pre - Series A
• Angel groups• Individual angels • Angel funds• Incubators & Accelerators
• Inventus• Accel• Helion• Sequoia Capital• IDG Ventures• Saama (formerly SVB) • Kalaari (formerly IndoUS)• Matrix• Nirvana• Omidyar • Qualcomm
• Nexus • Canaan• NEA • Bessemer• Norwest • SAIF• Lightspeed• Fidelity• Tiger • Vertex• Intel• Cisco
Blume Ventures
India – Shift from 2009 to 2013
Private and Confidential
Pre - Series A
• Burst of accelerators, seed funds, super angels (& their quasi-funds) • Blume was first of its size in this cycle – at least a dozen more emerged in last 24 months
• Reduced attractiveness of the 2006-08 vintage angel groups
• Fragmented angel networks don't work well as yet (close-knit networks only)
• Lack of a network / marketplace of mentors, advisors, domain experts, service providers (we may build it like FRC / @500)
• Almost NO change in the set of Series A / B / C players
• Some wind-downs, some rebranding, some splits amongst larger VCs
• Most of them on new funds + limited exits => large active portfolios
• IPO market as dormant as ever in tech, focussed only on exceptionally large cash-flow or gross rev biz models
• Trickle of M&A; we need a flood
Blume Ventures
Lack of transparency around VC performance
Private and Confidential
Smorgasboard of Investment Styles Blume Ventures
the Pre-80’s style small funds, small investments (not too many deep tech
plays though)
the 2005+ disruptor funds such as the entire audience at pre-money
the 2008+ "new accelerator" models
(YC / TS clones and bad ones at that) - more
focussed on demo days than value
-
the pre-2005 "incubator" models - legacy college
based, govt funded
the we-are-the-domain-experts accelerators like tandem and angelprime
the let's-copy-the-valley model (classic $150-250 mill funds, all the usual
suspects)
all models coexisting and jostling for space - what we have is a smorgasbord of
styles, lots of noise, everyone waiting for the music to begin
India – the Nuances
Private and Confidential
• RedBus (Bus Ticketing)
• Tally (Accounting Software on CD)
• AppsDaily (offline App Store)
• Gharpay, Delhivery (e-comm Only Logistics and Payments)
• JustDial (yellow pages on Voice)
• MadRat Games (Indic language, local character design – board games)
• Large Cash Economy, cards underpenetrated, payment infra highly regulated
• Do-it-for-me > DIY
• Transport Infrastructure creaking – overburdened as its being built
• Every City’s Tech culture is quite different
• Broadband Infra well below optimal
• Mobile Service Providers have too much control over app economy
Blume Ventures
Every challenge is an opportunity, but nuanced….
Some Localized Startup Ideas Localized problems that Investors need to be aware of
India – some big ideas & themes
Private and Confidential
• Mobile First (device and access penetration much higher)
• Fix the SMB problems (35-40 million small businesses)
• Location tracking and services
• Fixing e-commerce backends – B2B commerce, payments
• Video bigger than text?
• Audio / Video Indic languages content bigger than English
• Gaming – will leapfrog consoles to Mobile and Tablets
• Crowdsourcing – Surveys, Information, Tasks, Capital
• Reimagine traditional plays – travel, jobs, housing, dating/marriage
Blume Ventures
Private and Confidential
Blume Ventures @ the heart and center of the microVC
movement
Section credits: Citibank M&A
Blume Ventures
Private and Confidential
Blume – a short history
Blume Ventures Fund I is a 2011 vintage $20 mil India-focused seed stage fund
Helping Indian tech startups seeking a round between $100,000 to $500,000 in a seed/angel round
Blume’s sweet spot is $100-$250K (in rounds that it LEADS; >50% of round)
And $50-$250K in Syndicates (<35% of round)
We then support our best companies with bridges (mostly convert notes to next rounds) + pro-rata participation in Series A rounds – with an additional $200-$750K
Stakes post-Series A are 10-15 % (in Leads) and 5-10 % (in Syndicates), with a few exceptions on either end of the range
Blume Performance
Private and Confidential
6 “up-rounds” (Series A / “green shoots” Series A’s) in Blume’s portfolio to date – from VCs including Accel, Helion, Kalaari (formerly IndoUS Ventures), Nirvana Ventures and Jungle Ventures (Singapore)
Blume Ventures
……Another 3 in term sheet stage
………..Average multiple achieved @next round = 3x
……………..2 shutdowns, both cos’ assets being sold for a small price
Blume - Investments & Sectors Blume Ventures
HR / Skills / Employability
Internet + Mobile - Infra & Platforms
Ad Tech / Marketing /
Mkt Research
Consumer (other)
Consumer (e-Com -Goods
+enablers)
Content / Publishing
SaaS
Internet / Mobile /
Digital Media
Clean / Green Tech
ITeServices
Other Niches (25%)
Life Sciences
Consumer (e-Com –Svcs
+enablers)
Manufacturing / Robotics
Core (75%)
We invest in the change we want to see in India and founders who believe the same 55 Investments (as of Mar 2013, 27 months from launch)About 40% will grow out into or cater to international markets – more B2B, some B2C 100+ founders, 10% Women, 5% Non-Indian citizens40% Bangalore, 30% Mumbai, 20% Delhi NCR (Rest in Pune, Hyderabad, Chennai) 60+ LPs (all entrepreneurs) invest $20 mill; 1st VC fund w/100% Indian money4 member Investment Team, 4 member Support team, 3 member platform teamPlatforms being built out – 1st hacker on payroll
ITeServicesEducation
Private and Confidential
Blume Mantra = Back to basics + best-of-breed
India’s need:to build a classic bottom-up Venture Ecosystem model with best-of-breed practices adopted from disruptor funds - both from US Innovators and Other Markets (China / Europe / Israel)
We take “inspiration” from all the godfathers- USV / FRC / Felicis / @500 teaching us risk/capital allocn- First Round teaching us building automation of ecosystems- Angelist will enable future building of co-investment syndicates - Innovation Works & Andreesen Horowitz teach us scaling ops- Learning from Israel on how to “Build in India, Ship to the Planet”
We will further adapt for India- Build proprietary angel network for high quality co-investors- Build proprietary mentor and advisor networks- Build own M&A platform for systematic exit strategy
Private and Confidential
Thank you @500You’ll see a lot more of India and Blume soon
Section credits: Citibank M&A
Blume Ventures