Growth investing in the Indian Internet
There has been a fair bit of early stage investing in the Indian internet sector over the last 6-7 years across sectors. Many of these companies have scaled, achieved market dominance, but are still burning cash and are looking for $25-50m in capital that will take them to profitability and/or a public listing.
If these companies were in the US, many would have raised a growth financing round relatively effortlessly - market leaders in their space in open ended spaces with potential supernormal return opportunities. The investors understand the risk associated with the investment and fully understand that this is a higher risk higher return opportunity and they have a portfolio strategy that take this into account.
However raising capital for many of these unprofitable internet ventures has not been easy for a variety of reasons, one of them being the legacy of investing in India at the growth/later stage that have been profits/cash flow based with structures that protect downside and limit upside. Certainty of return is more important than magnitude of return. As one of the growth investors put it succintly, "I cannot afford an investment to be worth nothing. We don't take a high risk high reward portfolio approach. I don't care how big this upside can be". Most of these investors don't have a portfolio strategy that allows for an investment to fail and are looking for safe returns on most of thier investments.
So many of the Indian internet ventures have unfortunately have had to turn to growth capital from financial or strategic investors outside India who have an interest in investing in India. But because many of them are not based in India, they are concerns on trying to manage an investment remotely without being close to the market. So it has not been easy to raise this capital.
For Innovation to thrive in India in the Technology and Internet space, India will not only need more risk capital at the early stage but also more risk capital at the growth and later stage. Hopefully, either some of the global investors in this space will decide to focus on India and set up teams or the Indian PE players will start to change their strategy and approach and start investing in these sectors. Till that happens, the Indian Innovator will have to continue to look overseas for growth capital.
If these companies were in the US, many would have raised a growth financing round relatively effortlessly - market leaders in their space in open ended spaces with potential supernormal return opportunities. The investors understand the risk associated with the investment and fully understand that this is a higher risk higher return opportunity and they have a portfolio strategy that take this into account.
However raising capital for many of these unprofitable internet ventures has not been easy for a variety of reasons, one of them being the legacy of investing in India at the growth/later stage that have been profits/cash flow based with structures that protect downside and limit upside. Certainty of return is more important than magnitude of return. As one of the growth investors put it succintly, "I cannot afford an investment to be worth nothing. We don't take a high risk high reward portfolio approach. I don't care how big this upside can be". Most of these investors don't have a portfolio strategy that allows for an investment to fail and are looking for safe returns on most of thier investments.
So many of the Indian internet ventures have unfortunately have had to turn to growth capital from financial or strategic investors outside India who have an interest in investing in India. But because many of them are not based in India, they are concerns on trying to manage an investment remotely without being close to the market. So it has not been easy to raise this capital.
For Innovation to thrive in India in the Technology and Internet space, India will not only need more risk capital at the early stage but also more risk capital at the growth and later stage. Hopefully, either some of the global investors in this space will decide to focus on India and set up teams or the Indian PE players will start to change their strategy and approach and start investing in these sectors. Till that happens, the Indian Innovator will have to continue to look overseas for growth capital.
1 comments:
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