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Oyo is like a first baby to me. It is special. And the tale of how we discovered it is an interesting one. Oyo did not happen through the usual prospecting methods that VCs follow. It was rather serendipitous.
I love watching Sarah Lacy’s (PandoDaily) fireside chats. They throw insight into the mind of the entrepreneur/investor and tell inspiring stories. One late Saturday night, I logged onto YouTube to watch her conversation with Peter Thiel. During the chat, they talk about Peter’s ‘20 Under 20 Fellowship’programme. Peter is a strong advocate of young people choosing alternative paths instead of college education. Under the programme, Peter’s foundation grants USD 1,00,000 to 20 students who are under 20, to drop out of college and work on something revolutionary. I was intrigued by some of the examples (14-year-old kid building a nuclear reactor) and decided to learn more about these bold, visionary entrepreneurs who were doing amazing things instead of spending their time in college.
The current year Thiel Foundation fellows included two Indians. Ritesh was the only one doing something here in India. I reached out to him on LinkedIn and followed up with a Skype call as he was traveling to San Francisco.
The first conversation with Ritesh was mesmerising. Somewhere buried in Oravel’s introductory deck was the idea of Oyo. Oravel was a plain aggregator, much like an online travel agency (OTA), but Oyo was a fully integrated model that controlled customer experience right from discovery to booking, and all the way to the stay and check-out. This 19-year-old had traveled for months staying at budget hotels, attended customer calls everyday and immersed himself in every possible experience to learn about budget hotel customers and their expectations. That was the kind of on-the-ground learning that helped him pivot Oravel to Oyo. At Lightspeed, we gravitate towards entrepreneurs who build their consumer understanding bottom-up – Ritesh clearly stood out.
Subsequently, I arranged for Ritesh to meet Bejul, who was at SF as well at that time. Bejul had tracked the online travel sector for more than five years and met startups trying to connect travelers to budget hotels before. Internally, we had a point of view that a light touch aggregation approach is not likely the right one, given the nature of hotels in India. When he met Ritesh and learned about Oyo’s model, which had more control over the inventory and customer experience, he believed it to be the right answer. The fact that Ritesh had arrived at this conclusion based on his market experience and had the courage and conviction to pivot from the original model gave us important insight into his ‘learning orientation’, a characteristic we value highly in an entrepreneur.
We decided to spend more time with Ritesh and the team at Oyo to learn about the opportunity. Quintessential to Lightspeed’s diligence approach, we planned to experience, firsthand, the consumer experience at budget hotels.
That same weekend, I visited Mahipalpur – an area near the Delhi airport, which has about 50 budget hotels in a small stretch of less than two km. I knocked on the doors of eight to 10 hotels and pretended to be a medical representative who frequently travels to Delhi and is looking for reliable options at an affordable price. Learning from these conversations was mind opening in many ways.
On the demand side:
- It was extremely difficult for a consumer to gauge the experience “XYZ residency, inn” would offer. Reviews at Trip Advisor and/or pictures on OTAs would not solve experience expectation problem
- Pricing was completely arbitrary. Similar hotels at the same location would vary from Rs 1000 to Rs 2500 a night
- One could never be sure whether the booking will be honoured or not
On the supply side:
- There was a large pool of such hotels in the country
- It was clear that these hotels operated at low occupancy because of competition and a non-definitive/differentiated proposition. Also, they did not have a structured way of capturing demand
- Most of these hotels were not the primary business of the entrepreneur and a ‘general manager’, who usually took care of the day-to-day operations, had little incentive to increase occupancy
As I came out of Mahipalpur and watched the strip again, it finally dawned on me why an Oyo should exist for every 10 hotels in this strip. And if it did, the occupancy of the other nine hotels would gravitate towards the one Oyo, which is a national brand and one that people can trust. Today, there are more than seven Oyo hotels in the same Mahipalpur strip.
Bejul and I subsequently visited the three Oyos that were operating in Gurgaon and met their owners as well. A sleepy residential lane in Gurgaon had several of these budget-stay options, which further cemented our market depth thesis. It was also clear from our conversations with the owners that the Oyo model was working and that they therefore treated Oyo like a partner who has access to complete inventory rather than a marketing channel (e.g. OTAs). Interestingly, when we spoke to the OTAs, some of them did admit that this was a huge opportunity and they had themselves thought of capitalising on it. But it required a completely different organisation and it would be very tough to execute.
Oyo was still very young and in a state of transition:a few hotels and less than 10 people in the team, some of whom were part time and working from a different city. Ritesh and Anuj used to double up as call centre agents, business development executives and all that could possibly be there in the middle. We recognised that Oyo was in its cradle and would require enormous amount of company building. But our conviction in Oyo stemmed from our point of view of the opportunity, signs of early product-market fit, a belief in what the company could become and the clarity in Ritesh’s thinking and vision.
It has been an awesome rollercoaster ride so far. We are proud and fortunate to be a partner on this journey with Oyo, a startup that can truly claim that it is ‘disrupted in India’ unlike most models which become successful first in the West and then get copied here. Oyo for ‘X’ – primary care, diagnostics, schools, auto-service centres is quickly replacing Uber for ‘X’.
Oyo will celebrate its presence in 100 cities this month. It has a world-class team that strives to make it the largest network of technology-enabled hotels in the world. Ritesh is now 21, a dreamer who operates with clarity of purpose, speed and conviction that is a defining trait of successful entrepreneurs.
Watch out for the next post in this Oyo blog series ’How Oyo built a world class team’
[Published on YourStory.com]
This week Craftsvilla announced a Rs 110 Cr round led by Sequoia and supported by existing investors Lightspeed and Nexus and new investor Global Founders Capital. This is an important milestone for a company that has quietly been building out India’s largest marketplace for ethnic apparel and products.
In our view, Craftsvilla stands out from the majority of e-commerce companies for a few reasons:
– It has broken into the top-5 ecommerce companies in India by GMV scale
– Has grown 4x in scale in the last six months (and continues that trajectory)
– It turned the corner on cash flow breakeven while achieving such scale and growth
All this, on the $1.5M that the company cumulatively raised from Lightspeed and Nexus across its seed and Series-A rounds in 2011 and 2012. This performance is exceptional by all standards and is driven in essence by two key factors:
A. A fundamentally strong business model: Craftsvilla is going after the massive ($30B) market of ethnic apparel and products in India. This market is highly fragmented across a very large supplier base and thus needs a specialized vertical player to go after it. Since the supplier base is fragmented, it takes longer to build liquidity on the platform but once the critical mass of buyers and sellers are live on the platform, then the margins are attractive and entry barriers are very high. ETSY solved a similar problem for the US market and is currently valued at $2.8B post its recent IPO. Craftsvilla has gone through the hard part of getting the platform to scale and the quality of the current business is reflected in several metrics:
- Marketing spend has stayed below 10% of sales while revenue has grown 4x in last six months
- Organic sources contribute two-thirds of the total traffic
- An active seller base of 12K artisans who by themselves upload and manage an inventory base of 2M SKUs on the platform
- High fragmentation within the seller base: Median contribution of top-10 sellers to GMV is 1.5% and beyond top-10 no seller contributes more than 1% of sales.
B. Extraordinary perseverance and focus of the founders: There has been a frenzy of ecommerce funding in India. Instead of going down the path of driving GMV through discounting and at the cost of margins, Manoj and Monica went through the harder path of building the core of the business – bringing thousands of suppliers across the country on to the platform and helping them sell online. To continue to do this for multiple years while the industry was rewarding a capital led growth path needs strong founders with deep conviction. It is always helpful to look back at certain ‘forks in the road’ and learn from the experience. The team made a number of critical decisions with crystal clear conviction that, in hindsight, worked well for the company. These include the following:
- A clear commitment to being a marketplace vs. a retailer (or mix of the two)
- With this clarity, focused aggressively on aggregating sellers and building strong technology-led capabilities to on-board sellers and allow them to sell through the Craftsvilla platform
- Letting the diversity of supply drive demand instead of using a discount led approach
- Kept the team lean and fixed cost burden low: Manoj and Monica gave it everything they had and built a young and highly motivated team around them – a team of 15 people till a couple of months back! Conventional wisdom might have argued for a seasoned and pedigreed team that allows for accessing capital faster.
When Lightspeed, along with our partners at Nexus, made the seed investment in Craftsvilla back in 2011, we were struck by the founding team’s passion for, and understanding of, the market opportunity as well as more measurable factors such as market size, the potential for attractive unit economics and the scope to build a differentiated company that the horizontal e-commerce platforms would not be able to easily replicate. We also believed that this was a powerful opportunity to leverage the internet to unlock new markets within India and globally for artisans and vendors who, until then, were only able to serve their local customer base.
As the company looks forward, there remains much work to do – from iterating on product to building company leadership and replicating the platform in similar markets globally. They can do this with the very strong foundation of capital efficiency and product-market fit that has already been built. We are fortunate to be associated with the company and look forward to being a part of this journey with Manoj and Monica.
Also read Manoj’s post on how the Craftsvilla team created this magic.
The technology world has become a little bit flatter over the last ten years; the US monopoly on producing technology startups with impact outcomes has been broken. We have all seen impact product companies coming out of Europe, Israel, and China over the past decade.
These startups are leveraging new platforms and customer behaviors that were non-existent ten years ago, including platforms such as app stores, SaaS app marketplaces, smartphones, tablets, content marketing channels, social media, and embedded payment options; and new user behaviors such as self-service on-boarding, bottoms-up technology adoption in SMBs/enterprises, use of open source technologies, and search as a primary way to find new applications/technologies.
We believe it is now the right time for Indian product startups to step up to the global plate, especially in mobile applications, developer tools/enabling technologies, and SaaS for SMBs. There are already several examples of such companies, including Browserstack, Freshdesk, Helpshift, InMobi, Kayako, Nimbuzz, Simplify360, Webengage, Wingify and Zoho.
Investing with this theme, we are excited to partner with Chandan and Vaibhav at Phone Warrior to take mobile communications to the next level. What Wikipedia did to encylopedias and Waze did to radio road traffic reports and paper maps, namely disrupting existing businesses with community, real-time and mobile, Phone Warrior is doing to plain old phone calls and messaging. Phone Warrior’s user growth, retention and engagement in countries around the world over the past six months gives us confidence that they are well on their way to finding product-market fit.
Phone Warrior (incubated at 91Springboard) is building a globally-relevant cloud-based platform to crowd-source mobile phone numbers and turbo-charge the value of this data through big data techniques, graph search and machine learning. Through this platform, Phone Warrior powers an essential set of services that has grown rapidly over the past year and could get onto every mobile device in the world across all forms of communication including phone calls, text messaging and over-the-top IP-based messaging. Their product is currently visible on mobile devices through services such as caller-ID, spam blocking and call-blocking.
There is much more to come that leverages this core platform. We look forward to exciting times ahead with the Phone Warrior team.
Post Authors: @dkhare and @anshoo
Here’s Ashish Thusoo, CEO & founder of big-data-as-a-service company Qubole, speaking with GigaOm:
Meena Ganesh, founder of Lightspeed-backed TutorVista spoke at the 2012 Grace Hopper Celebration of Women in Computing India. Here’s the video!
Mr Venkat R Chary, IAS (Retd), Chairman of Lightspeed-backed Indian Energy Exchange Ltd delivered a speech at the CII Southern Regional Power Conference in December 2012. Here’s the video!
Lightspeed India MD Bejul Somaia was interviewed by Paramita Chatterjee of the Economic Times newspaper about Lightspeed India’s experience with incubating both OneAssist and LimeRoad. Here’s the link to the article.
We are actively looking to incubate companies in these spaces, as well as back established companies and startups in these areas.
Our experience has been very positive:
“We were involved in incubating two companies in the last 12 months – OneAssist and LimeRoad – and have been very pleased with the results so far. Being able to work closely with teams during the incubation period really helps set the right foundation and strategy for the business. The incubation approach is very time-intensive, with no certainty of a successful outcome. But we will build on our positive experience by catalysing new companies in an organised manner.”
What sectors are Lightspeed looking to invest in?
“Education technology, financial technology, healthcare services, internet, mobile, software and software-as-a-service.”
Suchi Mukherjee, founder & CEO of Lightspeed-backed LimeRoad, spoke at the Women’s Forum on stepping into entrepreneurship. Here’s the video: