The fintech industry in India is booming — it is expected to touch 500 Bn by 2020, driven by the government’s push for a cashless society and increasing user adoption of digitally available financial services — from mobile wallets to loans and insurance.
According to a PWC report, the Indian fintech sector gives the highest rate of return on investments across the world. “Overall, India offers the highest expected return on investment on FinTech projects at 29% versus a global average of 20%,” the report said.
Prime Venture Partners is a prime example of an Indian venture capital (VC) firm that has made and continues to make investments in fintech, keeping in mind the sector’s upward trajectory.
As Sanjay Swamy, managing partner and co-founder at Prime Ventures says, “We are speaking through our wallets.”
Based in Bengaluru and established in 2011, Prime Venture Partners is a tech focussed VC firm with extensive involvement in fintech; it has a total of 19 startups in its kitty. The firm is very selective in its investments, choosing to only invest in three to five companies every year.
Swamy has extensive experience in fintech and also in scaling services. He was previously the CEO of mobile payments startup Mchek and also the co-founder of Zipdial, a mobile marketing company that used missed calls as a tool to enable marketers to connect with their users (who did not use feature phones).
He has also worked closely with Nandan Nilekani and the Unique Identification Authority of India (UIDAI) as a volunteer during the inception of the body, working on an authentication platform for Aadhaar to be used through mobile devices for financial transactions and other purposes.Thus, he has a deep understanding of scale, to say the least.
At Prime Ventures, he has led investments in Ezetap, a mobile payments company; HackerEarth; Happay, a business expense management software startup; Synup, a startup that offers digital marketing tools through its software; and Nimble Wireless, a real-time temperature monitoring company. It’s other investments are NiYO, a fintech company that helps salaried employees access company benefits; Moneytap, which offers credit line to customers via a app; and Tracxn, which provides a database and analysis of startups.
Here are excerpts of this week’s Moneyball with Sanjay Swamy of Prime Venture Partners.
Inc42: You seek out entrepreneurs who are looking for mentorship — it’s mentioned on the agenda on your website. Why so?
Sanjay Swamy: If you talk to entrepreneurs who are in the early stages of their entrepreneurial journey, you will find that they value not just the money, but are also constantly looking for validation of their ideas and the product-market fit.
This is a very lonely phase for entrepreneurs — many will come and tell you that your idea is going to fail.
What many of these entrepreneurs also want are people who are awake at night, worrying about your business as much as you are or, at least, actively worrying or thinking about it. People who have context, and understanding of business, and deep insights.
All entrepreneurs crave to partner with people who will spend time on their business and that’s where we come in. This is also a phase where more things go wrong than right and having somebody against whom you can bounce things off is very valuable. There will also be times when founders have disagreements among themselves, so we serve as a unbiased party to help resolve them, which is also important.
Inc42: How has your experience working for Xerox PARC, which is considered to be cradle of modern computing, shaped your technology outlook?
Sanjay Swamy: Two of my shortest career stints have probably had the most profound influence on me. One is Xerox PARC and the other is the two years I spent with Nandan (Nilekani) and the Aadhaar team. One of the big takeaways from Xerox PARC was this: You have to remember that innovation comes from the product guys. When companies become larger and startups scale, you start milking the product innovation and become sales-oriented, and those are the people who end up getting rewarded. Xerox could have been the biggest company on the planet, but the copier business was given priority.
So you need to continuously keep innovating.
From my Aadhaar days, what I learnt was that you have to think at a massive scale. There is no point in winning something small, just as there is no shame in attempting something very big.
One of the other things I observed since my Aadhaar experience was that communication is very crucial and in the case of Aadhaar , some of the communication has been suboptimal when it comes to explaining the benefits of the service and addressing security concerns. It is easy to point your finger at things, but it (Aadhaar) has been a big success and life has changed for so many people… it’s become pre-Adhaar and post-Aadhaar.
That’s true for startups as well, you need to have your ‘A’ game in all dimensions. In all the companies we have backed, we look for the above traits.
Don’t go conservative. Scale is important.
Inc42: Could you take us through the period between 2012-15, when you went from raising $8 Mn to $46 Mn in funds? What did you do right?
Sanjay Swamy: Prime Ventures is our startup. It is still a work in progress, and all of us partners have been entrepreneurs. We have learnt a lot though our mistakes.
I would attribute a lot of it to luck and to us getting the opportunity to build strong entrepreneurs… entrepreneurs with strong market insights. (This helped us get) What they call 10X differentiation in terms of some aspect of the business such as technology or product. This is something we have done well so far.
We got this right in the very beginning and we keep trying to raise the bar. Even entrepreneurship has changed.
Earlier, one turned entrepreneur when one couldn’t find a job. Now, it’s the reverse; now, one works for someone else because one couldn’t become a entrepreneur or hasn’t yet become an entrepreneur.
So, entrepreneurship become the profession of choice, if you can pull it off. We are getting very high quality of entrepreneurs now.
Inc42: What is your investment thesis?
Sanjay Swamy: There is a macro trend where everything is getting digitised. Fintech and financial services was one of the first verticals to get digitised. We have people (including me) who have a strong finance background and this will continue to be a important part of us, perhaps globally as well.
Because of the Internet and digitisation, we are seeing huge potential in verticals such as healthcare and education as well. There is a real need to increase the reach of these services and, that too, at an affordable rate.
Also, AI-based, value-added services seems like an exciting opportunity. One must remember that data is a way of improving the quality of service and not necessarily meant for monetising. We have been very conservative about monetising data with our with portfolio companies and it has to be with customer consent.
Inc42: There is a sense of real optimism about digital payments and billions of dollars worth growth is expected. Do we need to reassess the industry and thread with a bit of caution?
Sanjay Swamy: 500 Bn is probably a reasonable target to aim for. A lot of these payments will be B2B payments — why should you be issuing cheques when you can pay digitally on the due date. There’re a lot of inefficiencies that waiting to be solved.
Digital payments in consumer retail or face-to-face will not grow as fast, but the cost associated with, for example, paying by cheque, includes the cost of the cheque and other costs if it not delivered or not encashed.
There is no need for caution in digital payments, in my opinion. We have less than 3% digital payments in India and there is no reason why we can’t get that up to 30%, which itself, for me, is a very low bar. My wallet does not have an ounce of cash.
Inc42: Is regulation is playing spoilsport at the fintech party?
Sanjay Swamy: I disagree with that. There might be a case of interpretation of regulation and its implementation might be slower than we would like, but we have a forward-looking regulator in the RBI.
If there is something you want to do that’s in keeping with the spirit of the regulation, and find the norms ambiguous, just walk up to the RBI and explain to it what it is that you want to do and ask if you can run a pilot. It would be good for the RBI to put a fintech regulatory sandbox in place.
Inc42: How much investment do you ideally make and for how much stake?
Sanjay Swamy: Over the life of a company, we invest $3 Mn-$5 Mn. We typically like to come in with a cheque of $500k to $1.5 Mn. We take between 20%-30% stake in these startups.
Inc42: Don’t you feel the need to increase this initial investment amount like some of your peers?
Sanjay Swamy: The question we really ask ourselves is what is the objective of this round (of investment). More often than not, when we come in at the seed stage, we like to set the product-market fit and also the business model.
It’s not enough for a startup to just tell us that a million people have downloaded their app. Rather, we are interested in listening to someone who says 100,000 people have downloaded their app and someone who also provide us with details like the cost of acquisition, the life-time value of the customer, etc. Startups that ask for money based on these data points. Most often, software business servicing Indian markets don’t need more than this (investment) range.
Inc42: What advice would you give to entrepreneurs looking to pitch to Prime Venture Partners?
Sanjay Swamy: We look for three things — they need to have a deep understanding of the problem. Solutions may change, but you need to really understand the problem, whether it be through research or experience, it needs to come through. The problem statement has to be such that even if a few things change, the person is adaptable to such changes.
You can’t create markets, markets are what they are. You need to find a problem where there is a massive opportunity that is already well-defined and that you are trying to solve.
If you have to evangelise and educate people, then that’s going to take a lot of effort and startups don’t have the luxury of time.
The only way you can stay young is by challenging the status quo. That’s the formula!
It’s an amazing time for people to become entrepreneurs and the support ecosystem is strong. If you are in your 20s or 40s, it’s a good time to be a entrepreneur. I think people will regret not having done it, and if they don’t take a risk, they will never find out. One regret that I have is that I should have done this when I was much younger.
This article is part of Inc42’s latest series, MoneyBall – Get 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 & investment trends and what the future looks like from their viewpoint, explore more such stories here.