A Great Writeup About India’s Startup Scene
A Great Writeup About India’s Startup Scene
Today: Sajith Pai, a venture capitalist focused on India, recently published an in-depth essay about startups there.
The Agenda 👇
India is promising and underwhelming at the same time
Sajith Pai’s extraordinary essay about the Indus Valley
Like Europe’s, India’s tech scene was wiped out in 2000
The Indian entrepreneurial ecosystem is distributed
An interesting segmentation of the market: India1 and India2
The importance of mastering the English language
Additional reading: Alex Danco on Canada’s startup scene
🇮🇳 India has become a sort of a beacon for the tech world these days (I even wrote about it). Large US tech companies are deploying lots of capital in the hope that it will facilitate their expansion on the local market. India is all the more attractive since the huge Chinese market appears to be closing unto itself, making it impossible for Western companies to serve the hundreds of millions of Chinese consumers hungry for more goods and services—including over the Internet.
Yet India is still a mystery. It’s hard to name prominent Indian tech companies beyond a select few like Infosys, Ola, and Flipkart. And it’s so often dismissed by the skeptics who aren’t convinced that there’s a huge potential there. Remember what my friend Martin Pasquier told me about India, as echoed in Another Round on Expanding in Asia (November 2020):
I would be very wary of India, which has around 50M people living at the level of a developed country, followed by a huge gap. By sheer volume, yes, there is money to be made, but I don't think India will ever beat China or South-East Asia. Below-par work ethics + a nightmare bureaucracy makes it immovable.
Since India seems promising and underwhelming at the same time, I was really looking forward to reading an in-depth essay that Indian venture capitalist Sajith Pai published on LinkedIn a few days ago: The Indus Valley Playbook.
Sajith is a director at Blume Ventures and a respected voice on everything that relates to tech startups in India—or, what he calls the “Indus Valley”.
His essay spans many different topics, from the local online advertising market to full-stack strategies to consumer segments in India. But the parts that I wanted to highlight are those that directly relate to India as an entrepreneurial ecosystem.
For each (short) section, let me simply quote Sajith and then share a few of my reactions.
India and the Dotcom Bubble
Much of the ‘90s were a quiet period for venture capital or even the startup ecosystem in India. Software Services was the hero sector of that era – Infosys, Wipro, TCS emerged as star companies during this period (though none of these three were venture-backed). Venture’s two big successes, both in software and coincidentally both backed by TDICI, were Mastek and Kale Consultants. It took the internet boom of the late ‘90s, concentrated in the ’99 - early 2000 period, to spark the creation of a tiny venture ecosystem. But it was short-lived, with the sharp crash of ‘00-01 wiping out many startups, and eventually leading to the disappearance of these venture funds. A venture winter set in for the first half of the noughties.
This is interesting, indeed. It’s actually a point I often make to explain why Silicon Valley emerged as such a clear winner in the race to build wildly successful tech giants: the impact of the dotcom bubble bursting was felt all around the world; but a major difference between Silicon Valley and the rest of the world is that the latter, having started earlier, already possessed much more capacity—to the point where it was more resilient and able to relaunch the effort not long the burst.
In comparison, the tech scene in regions such as Europe and India was much too frail in 2000 to withstand the crash, thus it was completely wiped out. Entire startup communities had to start all over again later when it came to building a local ecosystem.
Think about the fact that in 2000, Amazon was 6 years old and had already deployed $3B to grow its business! Google was still in its infancy, but it had raised so much money in 1999, at the peak of the bubble, that it had all the cash it needed to weather the storm, refine its search algorithm and advance its search for a profitable business model. No such situations existed in Europe or India at the time, and I’m glad Sajith noted this grim reality in his essay.
A distributed Ecosystem
Unlike Silicon Valley, which has a geographical connotation, the term Indus Valley has no such overtone. It is instead a reference to the entire Indian startup ecosystem, spread throughout the nation. It is also an attitude, a mindset. Of invention, ‘jugaad’ or ‘dekhi jayegi’, and chutzpah.
Now that is SO interesting. We have this idea that an entrepreneurial ecosystem is a local phenomenon, just like Silicon Valley. But we at The Family have been arguing for years that Europe shouldn’t try to emulate Silicon Valley in that regard, and there was no point in trying to decide if it was London/Paris/Berlin/Amsterdam/Barcelona that was the equivalent of Silicon Valley in Europe.
Rather, our view has always been that Europe can’t be anything but a distributed ecosystem in which founders should leverage wide cross border networks and pool resources from all over the continent. Or, as I wrote in Sifted in December, “the typical European startup was started in London by Italian founders, relies on talent based in Bulgaria and Ukraine, raises funds in the US, and serves customers in several European countries and beyond”.
A Combination of China and Israel
Much as how China evolved as a distinct or parallel startup ecosystem with unique codes and rulebooks for success, India, too, is evolving as one. That said, India will never be as distinct as China. It will perhaps be a ‘distinct variant’ given the similarities between our playbook and that of Silicon Valley. The folks at Nexus Venture Partners see India as a combination of China (with its huge domestic market) and Israel (with its strong tech talent and cross-border companies). It is a good way to look at the Indian market, and this dualism in some way inspires our unique approach, our Indus Valley playbook.
It’s a good comparison! Israel is a tiny entrepreneurial ecosystem located on a very small domestic market, but it’s incredibly well connected to the rest of the world—especially Silicon Valley. Meanwhile, China has a huge domestic market and a developing economy that clearly rewards innovation.
Sajith rightfully makes the argument that India has the potential to combine both: it has many of Israel’s attributes, starting with lots of talented engineers and a connection with the English-speaking world (see below); and, like China, it also has a huge domestic market and the favorable trends and mindset that come with being a developing economy (albeit one that’s developing at a much slower pace than in China).
A Small Consuming Class
India’s per capita income is $~2k putting us at the bottom quartile of nations. But the sheer size of the country means we are also the fifth or sixth largest nation in terms of total economic output generated. We have a small consuming class, that I call India1, of about 10% of the population, but 10% of 1.3b people is still large by Western standards: 110-120m people across 25-30m households that earn $~9k per capita on average (this is roughly the per capita income of Mexico, effectively the lower rungs of OECD nations) and account for a $~1tn economy. These 110-120m India1 denizens are comfortable with English, western in attitudes, work in white collar jobs and are plugged into the global economy. This small by India standards but sizeable by western standards consuming class is the engine driving India’s consumption economy. Its size, and expansion, determines in turn the size and growth of India’s digital economy.
I love this approach to segmenting the Indian population. Sajith makes a clear and enlightening distinction between several segments on the Indian market. One, India1, is essentially the high end from a business perspective, as described above. Another, which he calls India2, corresponds to the “less affluent, non-English speaking consumers” who “come aboard the Indian internet” thanks to the deployment of Jio—which, as you might remember, is all about equipping a large proportion of the Indian population with a mobile phone and connecting them to the Internet. We’re still early in that process, but Sajith estimates that this emerging consuming class is another ~100M people or so.
The Power of the Tongue
Now, I loved Sajith’s discussion on the importance of the English language in the Indian entrepreneurial ecosystem:
If you include the diaspora of about 8-10m English-speaking Indians to the 25-30m that are fluent English speakers in India, you are talking about a 35-40m affluent populace. With the diaspora we are the 3rd largest English-speaking nation (after US, UK), and sans the 8-10m diaspora, the 4th largest (Canada enters the picture then). If you estimate the number of fluent English speakers globally (including countries such as Nigeria, Pakistan) we would get 400-450m. We are about 8-10% of this. Not insignificant; remember these 8-10% in India constitute the elite of a nation, unlike the English-speaking population of USA, UK, Canada, Australia and New Zealand than span a wide range of incomes.
I’ve long argued that the English language is a major asset for any country where a large proportion of the population has mastered it. As can be seen in the case of the UK, speaking English makes it possible for a country to punch above its weight in the global digital economy.
However, the most revealing part of Sajith’s writing about the English language in India is how tiny the English-speaking population is compared to the sheer size of the country:
Again, only 25-30M Indians are actually fluent in English! We Westerners tend to have the impression that all people there speak and understand English to a decent extent. But by reading Sajith, I realize it’s a misconception on my part.
In addition, those who are fluent in English are effectively the Indian elite: the ones with the most money, the best positions, and the best connections with the rest of the world. That hardly makes English the right language for conquering India as a mass market, which means companies in India face a language issue that is very different from Mandarin-speaking China in that regard!
From a perspective closer to home, I realize this representation of the English language makes India different from my home country of France. Sure, there are many French people who are fluent in English and are outward-looking. But there are two differences with this “India1” elite Sajith is writing about:
First, unlike the 20-30M group of people that Sajith writes about, it’s a very small group of people. It might be the same as a proportion of the population, but since France is a much, much, much smaller country than India, well, that’s not much in absolute numbers.
Second, the segment of the French population that’s fluent in English is not even the elite from a French perspective. That means it doesn’t really pull the strings when it comes to deciding the fate of the country! As I explained in my France, As Revealed by its Elitev,
In general, the French language acts as a barrier keeping the French immune to ideas from the outside. There is a tiny group at the margins that looks for new ideas in books written in English. But for a book to be widely read in Paris, first you need to convince a local publisher to fund a French translation, and then you need to convince local journalists to cover it despite its lack of a French-speaking author. Needless to say, most global thinkers that are top-of-mind in London, New York, or Silicon Valley are completely unknown in Paris.
There are many more incredible insights in Sajith’s essay—I recommend you read it all. Here’s the link again: The Indus Valley Playbook.
As for me, I will make sure to keep studying it and quoting it when relevant, including on various aspects I didn’t dig into above, such as the importance of having a Silicon Valley-based diaspora for growing a local entrepreneurial ecosystem and the role that the Reliance/Jio system is playing in growing the Indian startup scene.
In the meantime, what about you? What are your views on Sajith’s essay?
🇨🇦 Here’s another piece of writing about a local ecosystem—in this case, Canada. What Alex Danco shares here reminds me of the state of many entrepreneurial ecosystems in Europe, esp. Paris:
In order to understand the difference between Good and Bad angels, I think it’s helpful to have a quick understanding of Finite and Infinite Games, by James P Carse. This book introduces a simple but profound idea about there being two fundamental kinds of “games”, or multiplayer activities, that we engage in as people:
First, finite games are played for the purpose of winning. Whenever you’re engaging in an activity that’s definite, bounded, and where the game can be completed by mutual agreement of all the players, then that’s a finite game. Much of human activity is described in finite game metaphors: wars, politics, sports, whatever. When you’re playing finite games, each action you take is directed towards a pre-established goal, which is to win.
In contrast, infinite games are played for the purpose of continuing to play. You do not “win” infinite games; these are activities like learning, culture, community, or any exploration with no defined set of rules nor any pre-agreed-upon conditions for completion. The point of playing is to bring new players into the game, so they can play too. You never “win”, the play just gets more and more rewarding.
Good Angels are playing an infinite game. They are contributing to a community; not in order to win something definite, but to earn the right to keep participating in the scene. They play the infinite game of growing their status within a growing community, which is a very good thing. And they often make a ton of money, leading to the perplexing advice for outsiders: “the way to make money angel investing is to not set out trying to make money.”
Bad Angels are playing a finite game. They are trying to win something.
There are two kinds of Bad Angels. The first kind are literally in it for the money: they want to see financial returns in a reasonable period of time, and push their founders to run their startups as an investment, like real estate. The second kind is more subtle: they’re Angels who’re doing it for the satisfaction and the status, but only among their own, closed peer set. They are competing for zero-sum bragging rights, not working to grow the community.
Bad angels waste founders’ time a lot. They’re always asking for something; either for P&Ls and business plans, or suggesting introductions that are clearly for the Angel’s social benefit rather than for the founder’s. Bad Angels care a lot about milestones. (More on this later.) You see these sorts of Angel investing clubs or societies on the east coast a lot. Canada has them too.
Good Angels have an entirely different attitude about the relationship between angels and founders. They’re not trying to win something; they’re trying to create something. This is a good thing, because that’s exactly the mindset you need to have, if you’re founding a startup. Startups are also infinite games. At the moment you found a startup, at no point in the next ten years (or whatever appropriately long time horizon) will you have “won” anything; nor is there a fixed set of rules you’re agreeing to. You are playing in order to keep playing. Your goal is growth, and growth is never done.
Read the whole thing here: Why the Canadian Tech Scene Doesn’t Work.
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From Munich, Germany 🇩🇪
Nicolas
