Everyone is rolling up their sleeves to target the next million — and the millions after that — Indians expected to come online in the near future. With over 460 Mn internet users, India is the second largest online market in the world, second only to China. The number was supposed to reach 500 Mn by June this year and it is expected that by 2021, there will be about 635.8 million internet users in India.
And investors too are looking to have their fingers in this pie. Karan Mohla, partner and executive director at IDG Ventures India, is eyeing investments in consumer technology and media companies with a focus on the next 300 Mn-400 Mn consumers in India who are yet to be touched by ecommerce players like Amazon and Flipkart.
Mohla has been investing in the Indian internet consumer space for more than 10 years. He started his career back in the US with renowned investment bank Jefferies, where he focussed on helping early stage companies raise capital and also served as advisor for M&A deals.
Mohla’s tryst with the Indian startup ecosystem started when he moved back to India towards the end of 2006 to set up the India office of Jefferies. In this new capacity, he continued to focus on technology and media companies. He later joined IDG in 2010 and is based in Delhi.
For IDG, he has led investment in startups such as FirstCry, an online kids and baby products store; POPxo, a fashion, lifestyle, and beauty content site for women; HealthifyMe, a digital weightloss platform; Tripoto, a social travel platform; Little Black Book (LBB), local discoveries and recommendations platform; and Yatra, an online travel aggregator. All of these startups have made a mark in their respective fields.
In conversation with Inc42, Mohla described a concept that he calls the “Alternate Distribution for Commerce” model, using which he wants to reach the next few hundred million people who are yet to be untouched by ecommerce, but who are very important because they comprise the bulk of the consumer base is today.
Mohla believes that most areas of consumer retail are dominated by brands that have been there for many years. But today’s consumers, with new-age aspirations, identify differently with brands.
We also sought to understand IDG India’s strategy of focussing on disruptive models that have no or little precedent and creating omni-channels to focus on India-specific needs. Here are the excerpts of the interview in this week’s Moneyball.
Inc42: What is your investment thesis?
Karan Mohla: We look at disruptive business’ models that may not exist in India today or are very new. We were one of the first investors in the country to invest in the ecommerce segment (around 2009-2010), as can be seen in our investments in the likes of Myntra, FirstCry, and Lenskart. We were also early investors in the sharing economy sector with the likes of Flyrobe, Nestaway, and RentoMojo.
Our approach is to identify sectors before they become mainstream in India.
One other thing that we look at is whether the entrepreneurs will be able to build a business out of India, who is not necessarily building these business’ so that someone can come and acquire them… we like entrepreneurs with a large vision, which is very important
Inc42: How much stake do you take and at what stage do you come in?
Karan Mohla: We are an early stage investor and look to come in at the Series A and Series B stage and, sometimes, as an exception, we come in during pre-Series A and also later growth stages. On an average, our investment size is $3 Mn and the amount of stake we take is on on a case-by-case basis, but we take that decision knowing that we are the lead investors in these rounds.
Inc42: Where do you see the next opportunity coming from?
Karan Mohla: There is this concept that I call ‘Alternate Distribution For Commerce’ in India, which is basically reaching the next 300 Mn-400 Mn people that a Flipkart or an Amazon may not be getting to today. This is important because that’s where the bulk of consumer base is today.
Most areas of consumer retail are dominated by brands that have been there for many years but the new-age aspirants of today identify differently (with brands) and we have seen that in a small way through our own portfolio companies. Non-English focussed content and community platforms is another big opportunity.
There are fragmented industries where technology can play a crucial role in aggregating demand and supply and bringing them onto platforms. Take. for example, business-to-retail platform Bizongo, which is taking advantage of this scenario.
Inc42: What are some of the opportunities in the consumer Internet industry?
Karan Mohla: When we started looking at ecommerce, we felt that for a venture fund like us, it would be better to build vertical ecommerce platforms rather than invest in the same area as Flipkart or Amazon, because that would take a lot more capital as the segment already had established players.
Another opportunity that we see is in the sharing economy because if we fast-forward to a couple of years and even look at today, the demographic of India comprises a large population of youth.
We feel that the necessity to be tied to certain assets will decrease in value with a lot more of the population becoming mobile. Sectors that will be affected by this include housing, clothes, and furniture.
Inc42: Creating successful online-to-offline touchpoints — you have spoken extensively about this model. Could you elaborate?
Karan Mohla: As a business model, we didn’t look at the whole online-to-offline strategy as a retrofit. It was a strategy that we believed in from day one. When we were looking at Lenskart and FirstCry, the former had plans to go offline, but they weren’t sure as to when they should do that. Whereas FirstCry already had two stores operational and that was part of the founders’ vision. We partnered with the entrepreneurs who built these businesses which were online-to-offline almost from day one.
So, we didn’t have to retrofit like many business’ are having to do today. Our focus on creating opportunities and executing our plans were equally focussed on both the online-and-offline models.
The minute you have to start retrofitting these models, it becomes a bit difficult because it takes a lot more time to succeed but it’s not like it can’t be done.
Inc42:How does this play out in ecommerce?
Karan Mohla: Ecommerce, especially for product categories like eyewear and babywear (apart from diapers), requires the touch and feel aspect early on. What FirstCry founder Supam Maheshwari had done was to create those offline touchpoints in largely Tier II and Tier III cities right from the beginning, because in those kind of cities, there were no babycare stores that existed and, typically, one would go to the chemist to purchase.
As you want to try and build a brand, having those online-to-offline touchpoints helps in eventually driving conversions online at a later stage.
We employed some of the above learning in our portfolio company Flyrobe, wherein the value proposition for fashion rentals needed offline touchpoints for discovery. The startup today has eight-nine stores across the country and will be opening many such stores in an accelerated manner in the years to come.
Certain categories benefit disproportionately from having an offline strategy.
Inc42: You became investors in Flipkart when Myntra was acquired by the former, what is your view of the Flipkart-Walmart deal?
Karan Mohla: There were two main takeaways, one — there are large global platforms that see India as a large market and many naysayers have been silenced. Two — it did take away the opportunity of an Indian company to be built the way Alibaba or Tencent did in China.
We do believe that one can build global companies sitting out of India. Just look at our investments in enterprise software startups (like Unbxd, Uniphore, and Manthan) — they have started from India but have gone on to acquire international clients and the same thing can be done with consumer companies.
Inc42: How did your three-year experience of working in the Silicon Valley help you?
Karan Mohla: When I moved there, we used to focus on working with early stage private companies. If you look at the time period, Youtube was a company that had just started, Android was established the next year, and Facebook hadn’t even started.
I worked on everything related to the Internet and mobile, I saw how technologies worked and this was also very crucial because I come from a non-tech background. It showed me the power of entrepreneurship and the power of networking.
I can see some of the Silicon Valley culture is getting translated into the Indian ecosystem where you have founders, investors, and entrepreneurs increasingly partnering instead of competing all the time.
There is an underbelly of cooperation that is being seen, which will help us as we go forward. Even the Chinese ecosystem is very much relevant to us, no matter how different it is from Silicon Valley.
I believe the best entrepreneurs get exposure to these ecosystems and networks because they can get a clearer idea of what possibilities can be explored.
Inc42: In 2015, you had said that the digital consumer Internet sector is going to see consolidation and leaders will emerge. How do you see it now?
Karan Mohla: Companies in India that have grown and found homes in recent times have done it not because of foreign firms, but because of Indian leaders who have created large platforms and led consolidation themselves.
If you look back at 2014-15, the leaders were companies such as Flipkart, Ola, Snapdeal, and Quikr. In the last couple of years, we have seen the advent of new leaders such as Zomato, Swiggy, and Firstcry, whom we could describe as the next set of unicorns, and thats been a little bit of a surprise. Indian startups acquiring other Indian startups is a good thing because it builds an ecosystem that depends upon itself and I see no reason for this to not continue.
Inc42: How has funding changed for consumer Internet companies?
Karan Mohla: Earlier, there was a disproportionate amount of funding across most of the sectors and that has maybe changed in the last couple of years. The type of investors you had three-four years back and the ones you have today are different with more Chinese investors coming in.
I go to China two-three times in a year and, through my interactions, I have understood that they see India as a strategic market and are patient and not in a hurry.
Also, the domestic capital coming directly into Indian companies is many times higher than what it was a few years back, and that capital, whether it is institutional or family led, is patient because they know the ground realities and they are able to wait it out.
These reasons will play an important role in building a long-term sustainable ecosystem and this is something that is keeping us very optimistic about the markets.
Inc42: Any tips for people looking to pitch?
Karan Mohla: The simpler the things, the better they are. Whenever you meet an investor, always be clear and crisp while communicating what you are you trying to build, why you’re building it, and how will you build it.
You should also have clarity about your own and your team’s strengths and weakness. A great founder in a bad market can find good opportunities but that does not work the other way round.
This article is part of Inc42’s MoneyBall series in which we bring you up close and personal with the pioneers of the investment world. Dive in to find out about what excites them, their views on the latest technology and investment trends and what the future looks like from their viewpoint! Explore more stories here.