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Chaplot says Indian start-ups that are targeting emerging markets should look at South-East Asia as their first port of expansion.
Chaplot says Indian start-ups that are targeting emerging markets should look at South-East Asia as their first port of expansion.

South-East Asia is hungry for tech built for emerging markets: Piyush Chaplot

Piyush Chaplot, a partner in Singapore-based VC firm Innosight Ventures, says Indian software as a service companies are capable of competing globally

Indian start-ups that are targeting emerging markets should look at South-East Asia as their first port of expansion, given the region’s hunger for tech, says Piyush Chaplot, a partner in Singapore-based venture capital (VC) firm Innosight Ventures.

In an interview, Chaplot said Indian software as a service (SaaS) companies are capable of competing globally.

“A lot of people think that so far, Indian SaaS has not succeeded because they don’t know how to create world-class products. But I don’t see much merit in that belief. If they can make money in India by selling software, they can make money anywhere in the world," he added.

Edited excerpts:

According to recent reports, the ambitious Startup India initiative has managed to disburse only Rs5.66 crore of the promised Rs10,000 crore a year after its launch—what do you make of it?

If you look at all the countries where governments have been trying to meddle in start-up ecosystems, you will realize that they have created more of a mess. That doesn’t mean the Indian government should not do anything. But what exactly they do needs to be thought out very well. It is okay for the government to take time. It is certainly better than rushing into a scheme without proper thought and skewing the whole market. However, time is of the essence. They need to move. There are many avenues where government money can help. Our capital markets are not the most efficient.

We do not have university endowment funds like in the US or Canada. So, creating a purpose-built Fund of Fund (FoF) could help seed some more local venture funds for different stages to make the ecosystem more vibrant. They can underwrite some of the risks that banks might take in providing venture debt to growth-stage start-ups. And all of this is possible in a very for-profit and sustainable way.

This Fund could learn from the likes of Temasek (Holdings Pte. Ltd), GIC (Pte. Ltd), IFC (International Finance Corp), etc., on how to deploy public capital and still be accountable to its stakeholders.

What are the sectors you are bullish on when it comes to India’s start-up ecosystem?

There are two types of potential opportunities in India. First is the ultra-local businesses i.e. start-ups catering to the needs of local markets. That could be a product or a platform. Second is “Glocal" businesses i.e. building products from India that could be sold regionally or globally. So, the big wave of SaaS products is going to come soon. I think Indian IT is converting their service experience into products. They have realized that the days of sustenance are over. It is time to use their experience and build something of value. The only unanswered question is whether they would learn the art of scaling globally soon enough. I think they will and I am bullish.

What do you make of the whole capital dumping argument in India that the likes of Flipkart and Ola have suddenly been talking up?

I am in favour of the Flipkart and Ola founders. There are some businesses where you really do need money to change consumer behaviour. Indian capital markets are nowhere close to the US. Despite not having local support, Flipkart and Ola have reached out to rest of Asia and have been able to raise about $3 billion and $1.5 billion. This is not easy. But competing with someone like Amazon and Uber who have access to almost endless capital doesn’t look like a fair fight. These start-ups also have not been entirely prudent but still they should be supported on arm’s length basis. Maybe public sector banks could create venture debt programmes for growth-stage start-ups and Indian government could underwrite some of the risk.

You share the view that Indian start-ups should look to South-East Asia as their first port of expansion. But why have Indian start-ups largely ignored this region?

Indian start-ups look up to US as their first port of call when they expand overseas. US is a very lucrative market. It is well regarded as an early adopter of technology and people pay for intangibles. In addition, if they do well in the US, they can raise money from investors in the US and get a steep jump in valuation. Being in the US market also opens up exit opportunities.

There is nothing wrong with that approach if they have innovative products that can compete well in the US. However, if they have a product that is primarily built for emerging markets, then SE Asia is not a bad choice. It’s greenfield. SE Asia is hungry for tech that is built for emerging markets. And these markets pay fairly well. Not as good as US but still better than India.

Considering that you are so bullish on the Indian start-up scene, can the country produce global start-ups?

It’s inevitable. It’s not a question of “can". It’s a matter of “when". We already have some examples of global start-ups such as Zoho, Freshdesk, etc., and regional start-ups like Knowlarity and Zomato. There are many more in the pipeline. And I hope we can invest in some of them and bring them outside India.

Have Indian banks misread the fintech threat?

If you talk about private sector banks, I don’t think they are misreading. In fact, they are very open to partnering with start-ups. I have been pleasantly surprised to see young start-ups partnering with private banks—and in some instances, even public sector banks—as their customers or partners.

Banks are also beefing up their own technology stacks. For example, HDFC Bank Ltd’s platform is by far one of the most comprehensive product suites I have come across. They are moving much faster than many start-ups, and they have the incumbent’s advantages of distribution and trust.

In fact, to be honest, it is the start-ups who are underestimating the incumbents and a lot of them don’t even know how to navigate the regulatory challenges. Start-ups need to play to their strengths if they really want to make a mark.

According to a joint research report by Google and US VC firm Accel Partners, by 2025, India is likely to become a $10-billion revenue industry with 8% share of the global SaaS market. You are also very bullish on the SaaS space.

Indian SaaS can compete very easily globally. Against their western counterparts, they win on the cost arbitrage. Their cost of doing business is much lower. A lot of people think that so far Indian SaaS has not succeeded because they don’t know how to create world-class products.

But I don’t see much merit in that belief. I have seen really good quality products built out of India by Indian product managers.

And, when they head East, they have the “experience" advantage. Indian CTOs (chief technology officers) know how to build a product that can economically scale in emerging markets. If they can make money in India by selling software, they can make money anywhere in the world.

How do you see the start-up ecosystem in SE Asia? Singapore had a huge lead over all other countries, but has it been able to build on it?

The start-up ecosystem in SE Asia is still very fragile. Indonesia has made significant progress. But it has also seen some of the large investors come and go. We saw a few large funding rounds and some unicorns but the hot air seems to be out.

Vietnam, the Philippines, Thailand and Malaysia are still waiting for their turn. Some of the foreign investors—especially the Japanese—have shifted their attention to Thailand and the Philippines as the regulatory environment is much better. Some of the Chinese investors I spoke to remain interested in SE Asia as the last frontier.

However, Singapore, sadly, has lost its early advantage. A lot of government-supported seed funds are out and the remaining growth stage-guys are not finding the desired deal flow. In fact, start-up formation rate in Singapore has fallen to pre-2012 era. But the good news is, whatever is left is an organic market.

Be it India or South-East Asia, has the time finally come when we will see a lot more product companies get funded out of these two geographies?

I really believe that we have the talent to build products for local markets that we understand so much better than our US counterparts. What we need is some success stories in each of these countries, and that would inspire the rest of us to give it a try. Success inspires success.

Going forward, which are the sectors of the Indian economy that you see being rebuilt by tech companies? I am referring to the sectors that have so far not been touched by Indian start-ups because entry barriers have been too high.

So far, technology has only touched lightly regulated areas such as retail, logistics, transportation, education, etc. However, I really hope that we see some serious players in national security, defence, healthcare, insurance, disaster readiness, law, etc. It is time we consider software talent as a national asset and create a dozen Palantirs out of India.

How do you see the battle playing out in India between the Valley and Chinese giants? The likes of Amazon and Uber may want to build, while the Chinese giants—Baidu, Alibaba and Tencent—are looking to buy minority stakes, and sometimes even in competing companies.

I think Valley would win hands down over China. Chinese companies had the advantage in China but they face real competition when they come to India. And, personally, I think they haven’t made many smart bets yet. They have just thrown money without doing their homework. But if they are in the market for the long run, they will eventually find local partners to fulfill their ambitions.

When you compare the VC ecosystems between South-East Asia and India, what are the big differentiators? Positives and negatives.

The ecosystems in SE Asia and India can be compared with infants and toddlers, respectively. Market size and tech talent in India definitely makes it a much more lucrative ecosystem. However, SE Asia has its own special place. Each of the countries like Indonesia is large enough to have its own ecosystems. Local corporations and families are getting interested in participating in embracing technology. There are real signals on the ground that these ecosystems are buzzing. But how long this will continue, only time will tell.

Is the Indian start-up scene hampered by the lack of big and high-profile exits and initial public offers, or IPOs?

I don’t think exits is a problem anywhere in the world. Demand for innovation is much higher than ever before. If the incumbents are feeling the pain of disruption, they will pay up. Now it is the job of disruptors to make it hard for incumbents. The better they do it, the better their chances are of getting a good exit. The main reason for not getting good exits is the inability to create visibility. Founders in India do not invest much in public relations.

Indian VCs are also not doing enough to get their portfolio companies get the desired visibility. Most of their efforts so far seem to have been on raising money and deploying money

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