Why the China model may suit startups targeting Bharat

The second most active one in the last quarter of 2019, according to Crunchbase, was “accelerator VC" SOSV. It runs hardware accelerator HAX in Shenzhen and San Francisco, cross-border Chinaccelerator in Shanghai, and “mobile-first" MOX in Taipei. Recently, it launched a life sciences programme IndieBio in New York, where it also runs Food-X and the blockchain-oriented lab.

SOSV participates in follow-up funding after the seed-stage as well. Over three-quarters of its funds have gone into follow-on rounds. Crunchbase puts it among the top three most active early-stage investors for series A and series B deals in the last quarter of 2019, ahead of the likes of Accel and 500 Startups. SOSV also announced an oversubscribed fourth fund of $277 million in December.

William Bao Bean has been hands-on with the expansion as a general partner at SOSV and MD of Chinaccelerator and MOX (Mobile Only Accelerator)since 2014. One of his new focus areas is India, where SOSV stepped up activity last year. Six of the 10 startups in the eighth MOX batch demonstrating their innovations in Taipei on 25 February are Indian.

GREATER POSSIBILITIES

Cheaper smartphones, lower cost of mobile data, and an expanding digital payments infrastructure are a trinity of factors sweetening the India story for Bao Bean. It also explains why he’s more interested in the Tier-2+ or Bharat demographic than the “top 30 million" well-off urban Indians. A monthly income of around ₹20,000 and growing use of Android phones in everyday life creates new possibilities.

“This little thing that they carry around in their pockets, which is maybe among the three most valuable assets they own, has the potential to really change their lives," he says. “It’s like we’ve seen this movie before, right? We’ve seen how the internet and accessibility changed China."

He was a partner at SoftBank China and India before SOSV, and an equity research analyst as VP of Deutsche Bank earlier. “I started covering China in 2004, when the total value of Chinese internet companies was $3 billion and now it’s $2.5 trillion. So we have a huge amount of experience."

This was SOSV’s value proposition when it started investing across Asia in 2010. Initially, it was consumer internet in general, but then MOX focused on mobile internet. “We focus on people whose first experience or the only experience with the internet is on a smartphone. This sort of mobile revolution had a much bigger impact in China than it did in the US or Europe," he says.

Comparisons with an earlier stage in China can be fraught with mismatches because the economy and per capita income grew so fast across the border. India is far from reaching that sort of accelerated growth. Lower capacity to pay, poor infrastructure and a patchy internet have kept VCs focused mostly on urban consumers in India. But Bao Bean can see the parallels between India and China more clearly than most.

“I’m not saying China is the same as India, but the challenges people face in Tier-2+ cities in China were similar to those that people outside Indian metros face. So the approaches that worked in China are more likely to work in India than the approaches that worked in the US."

For example, MOX-backed Flickstree is riding on the video binge-watching phenomenon. “Mobile video consumption in India went from near-zero to 60% of internet data usage. If you look around, everybody’s watching videos on their phones," points out Bao Bean, who has been mentoring the startup.

While Flickstree is obviously not the only one riding this wave, its partnership model makes it Chinese in character. Phone brands that want to engage its users with video services are among its partners. The Flickstree video player, which sources content from multiple creators, is embedded in phone video apps. For example, it powers Samsung video and Mi video.

NEW CHANNELS

Thus, creators of videos also get new channels to reach viewers instead of depending wholly on social media like Facebook and YouTube. “The thing about YouTube is that all the creators get crumbs. YouTube keeps most of the money. But if you look at what happened in China, it’s more of a partnership and revenue-sharing model," says Bao Bean.

A number of Indian startups in MOX reflect a David-vs-Goliath theme. One of them in the current batch in Taipei is Supplynote, which is trying to help restaurants reclaim the digital reins they handed over to food delivery apps.

On the one hand, technology has helped restaurants broaden their reach and ramp up orders. On the other, footfalls have dropped and margins squeezed by commissions paid to apps. This recently prompted the National Restaurant Association of India to protest “deep discounting, lack of transparency, and abuse of their dominant position by online aggregators".

“Dependence of restaurants on delivery platforms led to the loss of control over the data on their consumers which is vital for growing their business," points out Kushang Kumar, co-founder and CEO of Supplynote. This is where the startup is helping restaurants get in the driver’s seat by digitizing their operations.

“We had the same challenge in China where everything was manual. So we want to bring technology to help the small restaurants," says Bao Bean. “The Supplynote platform also connects the restaurants to wholesalers and groups their purchases to bring down costs and increase profit margins. It helps them track inventories and place orders just in time."

SOSV was among the 10 most active investors in India last year with 15 deals and is likely to top that in 2020. “We’re looking forward to bringing the expertise we have to Indian entrepreneurs, because it’s very difficult to survive when you’ve got Google, Facebook, Amazon, and SoftBank-backed companies with pots of money and big user bases. It’s hard for a small startup to break through the glass ceiling that the big companies are laying over the market. But we’re investing in scrappy entrepreneurs who can do that," says Bao Bean.

One of the ways in which SOSV helps level the playing field is by encouraging its alumni startups to cross-promote one another. This can make a significant dent in customer acquisition cost. It counts 56 million monthly active users among the Indian startups it has backed, which is a significant user base to tap for a fledgling startup joining the programme.

Sumit Chakraberty is a Consulting Editor with Mint. Write to him at chakraberty@gmail.com