India’s Tech Ecosystem: A Conversation with Romit Mehta

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March 30, 2022

Romit Mehta, an investor at Lightspeed India, joins the Alariss Global Podcast to discuss what he sees as a bright future for India’s tech ecosystem.

I’m glad to have Romit Mehta, an investor at Lightspeed in India, on the podcast. A lot of companies would love to get an investment from Lightspeed. Tell me about what you look for in the companies that you invest in.

Hey Bonnie, great to be here. Yeah, at Lightspeed, we’re in the business of backing inspirational founders. The stage at which we come in, often these are founders with paper ideas, it’s pre-product, there’s nothing really like sort of diligence, so when we’re making those investments, it’s primarily understanding what makes this the right team to go after this opportunity, was their opportunity interesting in the first place, and why does the business model make sense to execute today versus anytime in the past, right? When these three things come together, it makes for a compelling opportunity, but more than that, when you start digging in, what you find is that special founders really have insights about the market that is truly unusual. They make you learn or see aspects of things that you yourself could not have uncovered, right? So every time I’m in conversation with a special founder, they uncover facets for me which were not visible to me earlier or are extremely counterintuitive. They do this because they have special insights, they do this because they’ve spent a lot of time chatting with potential customers and have just synthesized and connected dots in a way that makes them very, very unique. And when this kind of comes together, you know this is someone special and you want to go on a journey with them.

That’s great. Which companies have you invested in? What are your favorite aspects of these companies?

Yeah, a bunch of them, but maybe the one I talk about is GlobalBees. It’s an e-commerce aggregator, which a lot of people said it’s called Thrasio for India, essentially, it purchases small businesses listed on marketplaces like Flipkart, Amazon. Flipkart is a large Indian e-commerce marketplace like Amazon and then Amazon and some of the other vertical-focused marketplaces, it acquires those sellers and helps them grow. It helps them grow by essentially centralizing their back-end operations, which includes sourcing but also more importantly growth marketing as well as stuff like listings. When we invested in them, a lot of people called this category Thrasio for India, and Thrasio is a massive company in the US and that expanded to Europe as well, but what made this opportunity particularly compelling for us was that the founders really understood what it means to set business deals in the Indian context. Unlike the US, where a lot of these sellers are essentially one or two people shops that list their products in marketplaces and sell them, in India, many of these businesses are actually family-owned, right? These businesses are considered to be a part of family heirloom and it’s not common for them to be able to sell or flip those businesses. So the kind of partnerships that you strike are not necessarily outright buyouts, which often ends up happening in markets outside India, like specifically the US, but you would think that cultural consideration and structure a deal that does justice and accords respect, most importantly, to these sellers and their history of business to be able to acquire them eventually and then help them grow. The business has done fantastically well, it’s one of the fastest unicorns in the history of Indian startup internet commerce, it’s got great investors on board, and we absolutely love the team. It’s a special company growing really, really fast, has 27 high-growth brands under its umbrella today, and I’m sure it’s poised to do a lot more.

That’s great. How do you spell the name of the company?

GlobalBees, so Global and B-double E-S.

Cool. You went to graduate school in economics at the University of Cambridge and participated in the Harvard College in Asia program; that’s how we met. Why did you decide to stay in India for your career rather than move to the UK or the US?

Yeah, well in fact, to add more to that list, I had a really generous offer for an MBA at Wharton a couple of years ago, which I turned down as well, to stay back in India. And the reason why I stayed was pretty simple, Bonnie. Look for me, I think when I meet a founder, I look for clarity in what their plans are and conviction to go after their beliefs. I would feel that I would not be a good investor if I did not do that for myself in my own personal career. I’m bullish on the India growth story. I think there’s a lot of things that are coming together for India in terms of economic growth and just the general zeitgeist of entrepreneurship, and I can play a part in shaping that outcome. So instead of, let’s say, moving to the US, which already has a lot of great talent, I would rather spend my talent and energy shaping this nascent market and be a part of a once-in-a-generation opportunity to change the lives of millions of people. I think very few people are lucky enough to be in that position because it’s outside of your control and you have to be in the right place at the right time, and that opportunity was present in front of me. So instead of moving to the US, I decided to stay back and go deeper here.

That’s great. You live in Bangalore. What is Bangalore like, in particular its tech scene?

I’d say it’s got a lot of raw energy, that’s what comes to my mind when I think about Bangalore. Let me paint a picture of the city to you. It was actually called somebody who’s retired, their paradise, because the weather is great, unlike many parts of India where it gets blazingly hot, Bangalore is pleasant throughout the year. You’re talking about a cool 70-80 degrees pretty much throughout the year, which is kind of amazing if you think about it, and it’s pretty green, it’s got great parks, and it’s just a pleasant place to be. And so it was a place people came to after they retire. What happened is that there are a couple of large IT companies that started in Bangalore in mid-2000s, and this was the year of globalization, and they started winning large contracts, which were outsourced by US multinationals. As that ecosystem grew, more and more people saw the opportunities that tech provided to them and the ecosystem started growing. In 2006 and 7, the first wave of venture capitalists, VCs, started funding the ecosystem here, which led to the bulk of startups, and the biggest one was Flipkart, which Walmart acquired for $18 billion dollars in the mid-2010s. What this has done is that it’s essentially created a hub for technology, it’s created a hub, an aspirational hub for young entrepreneurs to come in and build something interesting. So the energy that you see in hubs here is actually pretty pleasant, you have new ideas in every corner, in cafés, and tech hubs of the city. You can overhear pitches being made, you can hear people talking about growth marketing, people talking about ESOPs, and that’s just the language here, right? So in that sense, there’s a lot of raw energy in the city, which is pretty exciting, but what that has also meant is that much like large parts of India, the urban planning has struggled to keep abreast of actual population pressures that have happened in the city because of the number of people who are now moving to the city. So the city is kind of struggling to keep up with all this pressure, but hopefully with more investments and with more government support, that bit gets sorted, and the city, I think, is on its way to be one of the global tech hubs. Pretty bullish about that.

India now has 88 unicorns and a number of public tech companies. Why do you think India’s tech ecosystem has been able to grow so fast?

Yeah, that’s an excellent question, and something that I’ve thought about a lot as well. You know, Bonnie, I think there are a few factors that have come together in India’s favor. I think the big one has been that for all practical purposes, the working language in India is English, right? But what that’s allowed people to do is to actually learn very, very quickly from some of the best startup practices globally and then adapt it in the Indian context, right? Maybe that was the first wave of startups that started, maybe building the Indian version for Amazon or building the Indian version for Uber, but very, very heavily adapted to the local context. And this really in some sense outcompeted the US counterparts as well who set up shops in significant investments in India. Once that happened, I think it just gave confidence to the entire ecosystem to sort of come up with original ideas and go and build them. This sort of coincided with a lot of Indian talent coming back, setting up early VC funds in India, US capital setting up funds in India as well, and I work for one such fund, Lightspeed, which was started in the Valley in the late 90s. We started investing in India in 2008, today we’re on our third fund, we have over six or seven hundred million dollars of early-stage capital under management and we’ll raise multiple new funds in the future, right? So what basically that has meant is that there has been a great consolidation of talent, great consolidation of capital, and at a macroeconomic level, India has been a growth story for the past decade and a half. And just that political stability, with economic growth coming together with capital and talent, which is conversant and fluent in English, and unlocking their aspirations because now the talent has seen large outcomes happen, has unlocked something magical in India. And that’s what makes me so bullish about what founders and entrepreneurs will achieve in India.

That’s great. What are some of the tech companies in India that you look up to the most and why?

Gosh, there’s so many of them. You know, I can obviously talk about, and one company in particular I talk about is Udaan, Udaan is spelled U-D-double A-N, which is a Hindi word, which basically means flight. I think it’s a fantastic company because of what it does and how transformational it is for large parts of the Indian ecosystem and how uniquely Indian the problem that they’re solving is. So let me paint you a picture, right? India has about 6-8 million mom and pop stores, these are called kirana stores, these are neighborhood stores or groceries that stock your everyday items, right? The way they would restock would be through wholesalers or distributors. Now distributors are aligned with large FMCG companies and have exclusive partnerships with them and they would sell to these mom and pop shops, but the fact is that the distributor network was fundamentally limited, right? So what that meant is that a lot of these mom and pop shop owners would have to shut the shops for a day, go to a wholesaler, load up what they needed, and come and restock the shops, right? Just a process that was completely inefficient. In comes Udaan with its massive investments in infrastructure to serve even the smaller parts of India where especially the distributor network was completely lacking and at the back end, it struck large-scale partnerships with FMCG companies themselves. With the convenience of an app today, most of the gross sales in India, almost a million of them across pretty much all urban centers in India, including tier two, tier three, and tier four towns, small ones, they can get next-day deliveries of all the items that they need. Now the big thing in these relationships you need to understand is that there’s working capital involved. You often take stuff on a short-term debt, which you’ll pay back over 15 days. To sort of solve that problem, they made financing available on their platform as well, and today it’s by far a leading digital wholesaler for the entire country and a leading distributor for the entire country which has made lives of I’d say over a million of these mom and pop shops better. This required fantastic execution, a ton of physical infrastructure building, thinking about supply chain operations, but more importantly just dreaming about scale, which is what the founders have unlocked. The company is valued at over $3-4 billion dollars today, and I’m extremely bullish about what this will achieve going ahead.

That’s great. What are your favorite parts of India’s tech ecosystem?

I’d say the fact that it provides an opportunity for many young Indians who do not come from means to dream of a better life. And to dream of a better life by creating world-class products that make lives of a lot of other people better. I just find that really, really powerful, and while that’s been true and that’s happening, I see that even more accelerated with web3 and crypto, which Bangalore is also becoming a hub of in India. Especially with web3 and crypto, the founders and the developers that I find, they belong to even smaller parts of India, they have gone through even less prestigious universities than some of their other counterparts who may be working in large web2 startups. But these guys, many of these developers were in crypto because that was the cool thing that they were hacking away, but it was not cool. And today, just given the boom that’s happened in the web3, today they’re in that spotlight, and it’s changed lives overnight for so many of them, and they’re building fantastic products coming out of India. Polygon is a great example, it just raised $450 million at a valuation of over $10 billion dollars from a set of marquee investors. And the founders essentially come from extremely humble backgrounds, and today they’re at the forefront of blockchain development globally. And it’s just that’s so powerful, what the startup ecosystem has been able to unlock, and that’s absolutely my favorite part about it.

That’s great. And do you think that opportunity for being able to do better than the way you grew up in, is that possible for both founders and employees?

Yeah, absolutely. I mean look, I think that there’s still bubbles of privilege and wealth, right? So the top-tier engineering colleges of India funnel a disproportionate amount of funding, both in terms of VC as well as talent. With that said, as startups proliferate, it’s only natural that more and more founders and dreamers will come to the forefront and which also means that more and more people will be employed across the board. And just for context, right, like how it’s trending, in 2020, Indian startups raised about $12 billion in funding. Last year, that number was $42 billion, so we’ve had almost a 3.5x increase in terms of capital that’s raised. At the same time, a lot of funds have loaded up and raised large early-stage funds. So capital is there for founders to build, and this is hunting for good founders. So it’s inevitable that more and more people will come under this umbrella and build some really awesome stuff.

How do you think India’s tech ecosystem can be improved?

So I’d maybe answer this in two parts, right? The first is that I think there are a few sectors that India does really well in and I’m talking about it from a global angle, so for example Indian SaaS ecosystem is firing, Freshworks listed on Nasdaq late last year, and that was an awesome achievement for the entire ecosystem, and there are many more startups that are on their way to do really, really well. I’d like to see the Indian consumer ecosystem grow well too, I don’t think global consumer products have been built at scale from India today, and I think that’s something that Indian founders can certainly do more of. A part of the reason is that because I think consumer preferences across markets are very, very different, and it’s harder to build a product that is ubiquitous across the world, and I think probably the only such example that comes to my mind for a product that was built outside the US that’s kind of captured the global zeitgeist is probably TikTok, and that is itself a special company. But I’m hoping that Indian founders sort of crack that as well. But I’ll take that, I think in terms diversity, we can certainly do better, like it is still male-dominated, certainly it would be great to have more female founders, more female engineers, and the problem is at the top of the funnel, right, it’s not even at the bottom of the funnel, it’s at the top of the funnel, which needs to be solved to make sure that we have more women, more minorities, also be a part of this ecosystem. So I think it can certainly be more inclusive as well, and I hope that’s something that we get to soon.

What do you think are the prospects for the future of India’s tech ecosystem?

In some sense, I’ve bet my career on this, so you can guess it’s bright, at least my perspective is that it has to be bright because, as I mentioned, I had offers to go live in the US and study in some top schools in the US, and I sort of chose to sit out of it. But the reason I primarily think it’s bright is because I think a few things need to come together for something to really take off, and the biggest thing in my mind is that a place should become a hub of talent, right? Now there can be multiple reasons why it becomes a hub of talent. It can be a hub of talent because there was one large company that spawned off network effects, it could be a hub of talent because the government policy was super supportive, which in turn attracted a lot of capital, there were government incentives, whatever. But the point is that any place to be successful has to be a hub of talent, and in some sense you could argue that’s why Shenzhen in China has done so well, that’s why Silicon Valley has done so well because it was a hub of talent. What I’m seeing in India is very, very clear hubs of talent develop where people are aiming to build world-class products and are super ambitious. And once you sort of marry that with the magic of tech and what it can unlock, I think massive outcomes will be created out of India. Thankfully, the way the Indian government has run policy, it’s also ensured macroeconomic stability, which in turn has meant a lot of global capital is comfortable investing in the Indian markets and the Indian startups. Last year, we had a spate of tech startups that IPOed in local markets which provided exits to many of the investors as well. So many of the things that need to be de-risked from a startup ecosystem landscape, are on its way to be de-risked, and so that makes me supremely bullish on what we have in store for us in the future.

Has the government of India been helping India’s tech ecosystem? How do you think the government can help?

Yeah, I think they’ve largely been good. I think they can certainly do more, but I think the government of India has supportive of startups, I think every budget for the last three or four years since I remember has had allocations towards startup funding, it’s something that they mention a lot about. It’s something that the prime minister has encouraged by holding one-on-ones or meetings with startup founders, and that kind of provides a feeling to the entire ecosystem that the policy is behind you. That said, I think we can certainly do more, I think these policies are not the friendliest here, the taxation policies on angel investments also need a bit of work, and at the same time, I think the biggest bugbear I’d say is what India’s currently doing with web3, the taxation laws that have come out which includes a 30% flat tax, the fact that you cannot offset your losses against your gains is really sort of damaging for the ecosystem. And we’re already seeing the impact of it because strong Indian web3 founders are actually choosing to locate to Dubai or Singapore to start up and register their company, so all the tax dollars and all the talent that could have concentrated for the sector in India is actually moving out. So I think while on the whole it’s been good, it certainly has room to improve a lot more, and I hope that’s something that the government gets to soon.

Is there anything you want to add?

No, I just hope that your listeners sort of think a little bit more about the Indian startup ecosystem, some of them consider working for Indian startups as they expand globally, I promise them an environment that’s super fun, that’s super aggressive, and it’s in some sense coming from behind but has dreams to conquer the world, right? And that’s the fun of it, right, when the underdog wins, and so yeah, whoever’s listening to this podcast, do keep a lookout for some awesome Indian startups and consider working with some of our best founders.

Thank you, it was great to have you on the podcast.

Thanks, Bonnie. Pleasure to be here.


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