For VC funds, millennials drive investment decisions

With two out of three Indians under 30 years, venture capital funds are increasingly turning to startups that are tapping the large population of millennial consumers, multiple investors said.

A recent report by private equity firm KKR said the Asian millennial is expected to reshape the global consumer market, since the continent has more than six times as many millennials as in the US and Europe combined. This will have far-ranging implications in healthcare, wellness, leisure, financial services and entertainment, the report said.

“We are interested in businesses that target customers who have shown a willingness to try new things,” said Sandeep Murthy, founder and managing partner at Lightbox Ventures. “Millennials have repeatedly demonstrated their comfort with technology and openness to new products and services. This makes them a segment that we are excited to see being addressed by startups,” says Murthy, whose portfolio includes furniture rental website Furlenco and online Kitchen brand Faasos, both of which have a large clientele of millennials.

In a recent report, World Economic Forum said that domestic consumption, which powers 60% of the Indian GDP today, is expected to grow into a $6-trillion opportunity by 2030, driven by a population that is younger than that of any other major economy.

A number of trends in the startup industry today—the sharing economy, increasing health awareness and an increasing use of technology as an enabler—are driven by millennials, who are digitally savvy and have high disposable incomes.

“I do believe that most investors would be targeting millennial consumers across all investing segments,” says Kanwaljit Singh, managing partner, Fireside Ventures, a consumer-focussed fund. “Millennials and Generation Z consumers will also make the largest consuming segment with high disposable income. For Fireside, we believe that most of our brands will be millennial brands,” he added.

VCs have invested over $10 billion into Indian startups in each of the previous two years. Indian startups raised $12.7 billion in 2018, 12% lower than the $14.5 billion raised in 2017, according to Tracxn, a data tracker.

New-age startups seem to reflect the millennial preference for brands offering quality, and are environmentally and socially conscious. The dominant presence of millennials on social media and the ease of accessing them through digital channels make them even more relevant for startups.

“Millennials are a key cross-section of highly active internet users and high discretionary income spenders. Due to high urbanization and evolved consumer behaviour, this generation is most lucrative for both content and commerce players,” says Karan Sharma, executive director and digital and technology co-head, Avendus Capital.

The role of millenials even extends to software or B2B startups, which have gone from clunky and relatively boring interfaces in the 1990s to software that is easy to use.

“Consumerization of IT is a decade long trend in the West and is now in play in India because a majority of the workforce is millennial - they expect enterprise applications to be as easy to use as WhatsApp and Facebook,” said Dev Khare, partner, Lightspeed Venture Partners India “We see enterprise software companies launching with modern , easy-to-use software rather than clunky software that requires training classes,” he added.

Startup investors are well aware of the fact that millennials could tip the scales for or against a business, and want their portfolio companies to understand and thrive in this ecosystem. “Millennials are agents of change. They are ready to rethink old ways and in India, where incumbent services haven’t existed, oftentimes they are the ones defining the way that products and services will be consumed,” says Lightbox’s Murthy.