Before making a sizeable investment in an early-stage company, any well-meaning investor invariably weighs a slew of pros and cons. Ashutosh Sharma, Head of Investments (India) at Prosus Ventures, in an interview with MintGenie says that there are numerous factors that go into deciding whether they will make an investment or not. These include spotting the sectors where technology can bring a significant change, and finding entrepreneurs who can be partnered for the long term, among others.
He also speaks about their interest in agri-tech space to make a positive impact at the bottom of the pyramid through investment.
Despite having graduated from Chicago Booth School of Business, the second-oldest business school in the US, he emphasises that spending more time in India at the grassroot level is more useful, instead of an MBA from the US, in becoming a good investor. It is vital to first understand the pulse of the consumer, he rationalises.
While underscoring his optimism about the start-up ecosystem, he plays down the talks of impending ‘recession’ by referring to it as a part of ‘short economic cycle’.
Edited Excerpts:
Prosus Ventures has invested in Vegrow , a marketplace for fruits by investing $25 million. There is an investment in DeHaat as well. Tell us something about the growth prospects of agri-tech firms in India such as the ones mentioned above.
We have been tracking the agritech space closely for several years. Agriculture, like most other producer consumer ecosystems in India, is deeply fragmented with millions of farmers selling to 100s of thousands of intermediaries before the produce, either processed or unprocessed, reaches end consumers. The space therefore allows for the existence of tech-enabled marketplaces that do the job of connecting/mapping various participants and thus driving efficiencies.
Besides this, Prosus is also excited about the ability to make a positive impact at the very bottom of the pyramid (millions of farmers) through our investments.
In identifying the need Vegrow is addressing, it was obvious to see the fruits industries being historically unorganized, fragmented and inefficient, and poised for similar tech-led disruption as other spaces we have invested in previously.
India’s fruit market is valued at $60bn where every fruit is a multi-billion-dollar opportunity.
What are the key factors which you analyse before investing in start-ups and what is the expected strike rate in terms of possibility of converting an investment into a profitable investment.
We identify needs that are being transformed by technology, and find founders and entrepreneurs at early-stage companies across the globe who are addressing those needs in the most innovative ways.
There are several factors that input into whether we will do an investment. First, Prosus Ventures looks for businesses that are addressing big societal needs in high-growth markets, and where we can really make an impact as an investor.
Next, we are zeroing in on sectors of the economy where technology can lead to meaningful change in consumer behavior and economics. And most importantly, we look to invest in world-class entrepreneurs that want to partner with us for the long term to build leading technology companies.
We are very flexible in terms of amount of investment and the stage of the company. We build leading companies via whatever structure makes sense - minority or majority; early or late stage and have partnered with Series A companies through to public companies and have invested from $1m to $1bn. Also, we are long-term investors, looking to partner with companies for an extended period.
What are the sectors that are likely to do well in the immediate future in India particularly in the start-up space?
In India we feel that we are still scratching the surface when it comes to proliferation of tech in the lives of people. While there is a lot of startup activity, in terms of market penetration, barring a couple of categories, a major chunk of spend still happens offline.
Prosus therefore is keen to look at all spaces where tech-enabled disruption can meaningfully change the lives of market participants.
In some cases, these new ideas improve the way business is done in the offline world (ElasticRun being an example of that), and in other cases these ideas challenge/improve/further what the online incumbents are doing (Meesho is an example).
And we see this happening across sectors (consumer, brands, B2B, software, logistics, and more). We are therefore very careful in not aligning ourselves to a specific sector but keep our minds open to any innovative ideas that come our way.
You are an alumnus of Chicago Booth School of Business. Did the exposure to a US B-school help you become better in spotting the right investment opportunities? In case you keep track of the start-up environment in the US, can you shed some light on the key differences between investment opportunities in the US market and those in India?
I would not say that a US MBA necessarily helps with spotting the right investment opportunities. To be a good investor, one should have deep local context. Therefore, someone who spends more time in India, and at the grassroots level, does better. Having the pulse of the consumer first-hand is very important.
One cannot sit in an ivory tower and claim to know what the country thinks, needs or aspires for, or how it behaves when provided a certain stimulus. India is very different from any other country, and therefore extrapolating too much of what’s happening globally will lead to false positives or negatives.
Having said that, the course work (at MBA) helped to provide a knowledge of basic frameworks and induced a temperament of analytical rigor, which is very important to the art of investing.
Around the world, there are worries of an impending recession and unusually high inflation that was seen nearly four decades ago. In such a scenario, what are the future expectations from Indian start-ups and how do investing firms like Prosus Ventures assess the current investment climate?
As I briefly mentioned earlier, key among our advantages as an investor is our long-term perspective, so short economic cycles do not a big impact our overall outlook. We are long on India’s growth story and Indian entrepreneurs. That said, when evaluating new investments, the bar is indeed higher given the level of uncertainty in the market.
This may result in a lower quantity of deals, but we are continuing to prioritize our earlier stage Ventures investing, and, as a business, are hyper-focused on our theses across industries and geographies
Have you observed any interesting trends relating to Indian start-ups during your investment journey with Prosus Ventures and previous organisations?
Given that the Indian startup ecosystem is relatively young it continues to be extremely dynamic, which means that the trends change on a quarterly basis. However, there are a few trends that are very clear:
First, the ideas, over time that the entrepreneurs come up with, are very original. These play on the strengths of India and solve for India’s problems in a very unique way. ElasticRun for one uses a crowd sourced logistics infrastructure to solve for distribution in rural India.
Second, the dream at the same time for a lot of founders is to expand globally. Built in India but for the world is a real phenomenon now.
This has been the case for SaaS companies always but increasingly consumer companies like Urban Company, Lenskart, and Eruditus which are expanding outside India. The B2B marketplaces like Moglix, Zetwerk, Captain Fresh, DeHaat and Vegrow are catering to the world as well.
