Venture Capital Beliefs & Views On Indian Internet Space – (Must Read For Online Startups)
We had the good fortune of listening to a presentation by Ritesh Banglani from IDG Ventures India at the recently held Startup City event in Bangalore. He pointed out the assumptions and beliefs that their VC firm had on the Indian Internet space. We quite enjoyed the presentation and are sharing his points here. A must read for any internet entrepreneur looking to pitch to a VC.
1) Average monetization per user is 1$ – As a VC they believe that the average per user monetization per year is 1$. Hence they look for companies which can prove that they earn substantially higher per user revenues for them to be interested in investing in the startup.
2) Ad only models dont work – VC’s (IDG ventures in this case) firmly believe that business models online which are supported by purely advertising don’t work. Their assumption is based on the above point of 1$ per user which they feel is too low to support the scaling costs of an online startup with millions of users.
3) E- Commerce works for soft goods – Ritesh stated that prior to entering the Indian market they held the view that ecommerce worked purely for soft goods i.e. those goods that can be downloaded online or sent via email for e.g. etickets. But with time their view changed as they realised that ecommerce had very little margins and the credit card base wasn’t yet large enough for ecommerce to be completely successful even for soft goods. As far as real goods is concerned they felt customized offerings like the company they invested in (Myntra) did well purely due to the high average margin on good sold they were able to command.
4) Internet hasn’t taken off as we expected – Ritesh admitted that Internet hasn’t taken off as they first expected and growth has been slow. He also pointed out that this was the very reason that fewer investments have taken place in this space over the last 2-3 quarters. The audience at startup city argued that this might change with the advent of netbooks and datacards could change all that. Ritesh response was that even he hoped it did.
5) Rich media models (like youtube) wont work in india – Ritesh stated that the earlier premise of this view was the fact that users don’t have bandwidth but that was negated by the fact that youtube is one of the top 10 sites in India. The real issue is that a rich media site cannot be local and if it is it cannot scale. He also stated that the cost of servicing rich media was higher than monetization expected from it.
6) Tech enablers / Aggregators will create value – Tech enablers which power the back end on the web or aggregators like ad networks will work as they bring efficiency by aggregating or earning from a large no of inefficient businesses. He also felt that the cost of marketing and delivery in these companies was relatively lower thereby making them profitable early.
7) Assisted internet services will get mass market to internet – Ritesh stated that one of their beliefs on assisted internet services bringing last mile connectivity had been proven wrong till now. Assisted internet refers to internet kiosks which he felt suffered from problems of scalability and high cost of operations. Nevertheless he felt this was required for the internet to be mass market in a country like India.
8 ) Many users first internet access could be on mobile – Ritesh reiterated a belief that was earlier echoed by Ajit Balakrishnan of Rediff in the same event i.e. the fact that most first interactions with internet in India could be via the mobile device. Which made mobile related internet services important in the future.
9) Local language market would be slow in country - Ritesh stated that they had earlier expected and still stand by their view that local language uptake would be slow in India. And unlike china where just chinese language clones of popular websites work India would be a tougher market to crack online when it came to local languages.
10) We have been disappointed with the quality of internet companies in India- Lastly Ritesh stated that they as a venture firm were disappointed with the sheer quality of internet startups they had seen over the last 2 years both in terms of ideation and in terms of team quality.
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pretty good post. Great to hear a VC talk sensibly and realistically.
I am totally with him on all the points
an insightful post, due to the fact that it tells us the viewpoints of the people on the other side..