One strong reason to stay excited about the venture ecosystem in India

Why India & Why Now?

The Indian tech ecosystem has gone through a weird journey over the last 15 years. There have been some crazy highs & some prolonged lows. For every success story like a Flipkart or Paytm there are multiple other high profile failures like Byjus or Oyo. Unfortunately most literature on the tech-ecosystem is just from the funding point of view and to say, startups cumulatively got ‘x’ funding in 2019, this went to ‘2x’ in 2021 and now it’s down. Is there any relevant takeaway for someone trying to understand what might happen 5 years hence? Most of the LPs we speak to try to answer just one question, why India & why now? While there are multiple ways to answer the ‘Why India’ part from a macro perspective; I believe the only way you can answer the ‘Why now’ question is to look back at the evolution of other tech eco-systems like US or China and understand where we are in this journey. Everything in this article has a consumer-tech lens to it as opposed to deep-tech, but a lot of elements are universal.

The Premise

US hit 50% internet penetration in 2001

US got Internet fairly early thanks to the defence project, ARPANET. By early 1990s dial-up connections started becoming affordable which led to a boom of personal desktop computers with internet. The take-off slow in the first few years, between 1990-96, the penetration was still in low double digit. Then as the word spread, almost suddenly between ‘96-‘01 internet penetration doubled every 2 years leading to cross 50%. Let’s now look at some of the most used digital products right now and see when they were launched – Google – ’98, AWS – ’02, Facebook – ’04 & YouTube – ’05.

• Google was not the first search product, the reason they succeeded was of course because of their algorithm but also more importantly they iterated very often based on user feedback to deliver a great search experience for the user.
• With Facebook and YouTube being social products, the relevance of internet penetration was even more critical, imagine if these two products had been launched prior to 2000s, would they have continued to exist for the next few years till the users actually started using the internet? Most probably not. There would have been no critical mass and therefore no content being generated.
• The only outlier is Amazon which was way ahead of its time cos Jeff Bezos understood the power of internet super early and started the company in ’94. Having said that, AWS was launched in ’02 which capitalised on everyone using the internet and became the cash cow for their ecom experiments.

China was next in line, but only hit 50% penetration in 2015

China’s story is almost exactly sequential to what happened in the US. When internet penetration in US was 50% in 2000, it was 1% in China. Unlike in the US, dial-up didn’t take off in China. Broadband helped a bit between 2004-09 where the penetration increased to about 30%. The final spurt happened thanks to mobile internet which grew rapidly between 2010-15 leading to them crossing 50% penetration then. Now that we have two periods in China, it is interesting to see the contrast in the kind of internet companies that were built.

Before 2010, thanks to the dot com boom in the US, most Chinese internet companies were very similar models of what had happened in the US; Baidu – Google, Alibaba – eBay/Amazon & YouKu – YouTube! All of them are successful driven by pretty good tech & also the walled garden approach that China had.

Post 2010, once the internet penetration started increasing, entrepreneurs in China, had the luxury of understanding more about their userbase and build more nuanced products that made sense to them. Here are some companies/products that came during this period, WeChat – Messaging super app, ByteDance – Short form video, Kuaishou – Social Commerce, Pinduoduo – Group eCommerce, SheIn – Fast fashion Online Retailer.

What’s amusing here is that, none of these products existed in any successful scale in the US before; actually the reverse is true. A huge number of US tech startups/conglomerates have tried to copy and build a ‘Super app’ or ‘Social commerce’ or ‘Vertical online fast fashion brands’ and mostly failed. Given that US had a much better tech-ecosystem, why couldn't Meta build TikTok first? or Why didn't Pinterest attempt SheIn? Consumer feedback & Insights is a critical but underrated part of the process.        

The journey thus far, in India

Finally, coming to our story which is sequential to what happened in China. When China had 50% internet penetration, we were at the whereabouts of 15%. For us, dial-up didn’t work, it led to only a single digit penetration. Broadband was supposed to help us scale rapidly, but due to last mile connectivity issues it never did. The scale changed thanks to Jio & 3G, between 2016-19 we doubled to 30%. But the final push, unfortunately came through COVID where a lot of households had no option but to figure out a way to get internet to get access to the basic services. By 2023, we crossed 50% internet penetration in India and we ended up being fashionably late as we now also have the lowest cost of internet in the world!

Similar to what happened in China, most of the early successful startups in India from MakeMyTrip to Flipkart, Ola, Sharechat & Cardekho were emulating already successful companies from either US or China.

When less than 15% of the country is online, it’s hard to find inspiration on what to build. Or even if you do start with a hypothesis, it’s hard to get users to try out the product and provide feedback. Just user acquisition is expensive, let alone retention or monetisation.

We took awhile, but we are finally here. No more 'X for India'

We used to get a lot of decks with the first slide calling out 'X for India', with X being a benchmark company in the US (or if it was ed-tech, then China). This started changing in late 2019/2020 onwards, when companies started with a hypothesis and building ground-up, not caring for whether something had worked in the US or China. They iterated the product based on consumer feedback and understood the real need.

Here are some great examples of products truly built for India – Paytm Sound box (no other country has reached this scale of instant payments, so the innovation had to come out of India), Pocket & KukuFM (Audio based stories where users directly pay for them), Jar (Gold based savings app, our love for gold is probably greater than any other country, so where else could this come from), SriMandir (same holds true for spirituality) and more recently, Namma Yatri (commission less ride hailing app, ended up doing what Web3/Crypto promised to do, but without any of the jargon or the hype).

This innovation is not really that surprising since we now account for 25% of the overall internet usage in the world up from just ~5% in 2012. We now have over 70cr Indians who have tried at least one digital product (not counting UPI) - from Meesho to Dream11 to Sharechat or YouTube. So most people don’t need training for using digital products anymore and trust is already built. All the founders need to do, is to iterate and find a product which has a real need.

The feedback loop is also not just from the consumer. We now have lakhs of employees who have been part of ‘unicorn’ startups like Flipkart, Udaan, Oyo, Byjus, Ola, Unacademy etc. Irrespective of the stories spun to the outside world, the employees in these companies know the truth. Some of these companies have found products which worked & some haven’t. These employees have gone through these ups & downs together and they’ve learnt it the hard way that money doesn’t necessarily guarantee success. And now when they decide to start up, they bring all these learnings with them & wouldn’t make the same mistakes that were made in their previous organisations.        

We believe that the last 15 years were just a launching pad for the tech-ecosystem in India. This is just the beginning, we’ll see a lot more unique models built out of India in the next 5 years and who knows some of them could even scale globally.

If you're building something unique for India, feel free to reach out to me at rohit@wehventures.com.