I have been involved with Indian companies, in terms of evaluating and/or working with them through the ISB or TiE for the last two years. Overall I have been observing the Indian startup environment for the last several years. My overall take is that for the most part, product innovation or true IP is still lacking. However, there is a trend from services driven businesses to technology and product based enterprises. With the influx of institutional capital and venture investors, along with the migration of management talent of Indian origin from the US and elsewhere, the ecosystem for technology startups is solidifying. I think there is a fundamental change occurring socially when it’s ok to take risk and furthermore it’s ok to fail, something that has traditionally been a stigma on the Indian psyche. The influx of capital and expats with both successes and failure is helping foster innovation and risk taking in tech startups not before seen in India. Indian tech startups have a long way to go in terms of churning out global powerhouses, but the foundation for that is being laid today.
DFJ has been active in India as an offshore investor for a while and has even hosted a business plan contest for start-ups alongside The Indus Entrepreneurs. Why has the fund chosen this particular time to set up a ground presence here?
DFJ had discussions with several teams over the past couple of years to establish an India presence, but for one reason or another, those discussions did not come to fruition. With Fund IX, which closed earlier this year, there was very strong interest on the part of the LPs to establish a presence as part of the core fund in both India and China, which is precisely what DFJ has done.
Will the firm’s investment thesis for India differ very much from the one its follows in the US? How will investments here differ from China and other Asia markets?
Yes and no. The investment thesis for India is the same as any other for DFJ. We are looking for game changing companies that can be strong standalone entities and provide incredible returns for our LPs. On the other hand, the areas of focus will be much broader than they are in the US, for example. While strong emphasis is placed on intellectual property in the US, I will look at not only high tech with strong IP, but also mid tech and low tech. In India, we will very much look at non-traditional sectors (from a US perspective) including ITES, retail, logistics/distribution, and infrastructure. Investments in India will be in Indian companies initially serving the Indian market. Over time we will invest in companies in India with a global market footprint. Investments in other parts of India are, like the Indian thesis, centered round markets in those particular geographies. Obviously in countries like Japan and Korea, the broadband infrastructure is much more developed than in India. As such, we look at making investments that are pure online players. In India, however, we will be looking at a hybrid model with both online and offline components or with online and mobile components. Bottom line is that there are similarities and differences between investments across Asia depending primarily on the underlying technology, market and socio-economic trends.
DFJ had earlier spoken of plans to raise a specific $200 million fund for India. It now seems to have allocated $75 million from its $600 million Fund IX to this market. Why has the strategy changed?
The strategy overall has been to have a commitment to the region. With the strong interest shown by the LPs and the timing of the raising of Fund IX, it made most sense to extend the core fund into India rather than build a team and raise an India centric fund.
What segments of technology will DFJ invest in here? What will be your average deal sizes? How many companies do you target funding over the next three years?
DFJ will be stage and sector agnostic in its investments in India. The goal is to make 12-15 investments over the next three years with an average of $5-7 million per deal over the life of the company.