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[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.
[Published on Yourstory.com]
India’s enterprise software industry has been slowly bubbling since the 1980s but has generally failed to deliver a large number of high impact, high value companies. We do have some companies that everybody talks about – iFlex, Tally, Zoho – but these are far and few between. I believe that we are seeing a new scalable wave of enterprise software companies coming out of India and there is a potential to deliver several high impact companies over the next decade. Here at Lightspeed Venture Partners, leveraging our global strength in enterprise technologies, we see opportunities to partner with companies that are cloud-native and have cracked a global market – examples of current active categories in India are CRM, analytics/big data, marketing automation and infrastructure.
India’s enterprise software industry has to be looked at separately from the outsourcing/BPO firms like Genpact, Cognizant, Tata Consulting Services and Infosys. Starting in the 1980s and early 1990s, this services industry is now mature and at scale.
Separate from the outsourcing/BPO industry, India’s enterprise software industry (or “products” as it is called by many here in India) has evolved from the 1980s to now in what I think can be divided into four waves, coinciding somewhat with three trends: 1) enterprise software moving from desktop to client-server to cloud; 2) evolution of Indian industry post 1991 liberalization; and 3) increased experience of Indians at successful US product companies.
The first wave of software products came along in the late 1980s/early 1990s – the focus was desktop products for business accounting. Companies in this wave include Tally Solutions (still the undisputed leader in SME accounting software in India), Instaplan, Muneemji and Easy Accounting.
This generation of software products emerged in the 1990s as projects within outsourcing firms or from internal services arms of larger corporates. Infosys launched Finacle. Ramco Systems launched its ERP. And Citibank launched CITIL which became i-Flex. Other notable companies included 3i Infotech, Cranes Software, Kale Consultants, Newgen Software, Polaris Financial Technologies, Srishti Software and Subex.
I remember attending CEBIT in Hanover in 1989 when many of these Indian software and consulting companies were first introduced to Europe.
Did you know? Year 1989, the first time CeBIT introduced the concept of a partner country. Our first partner? India! pic.twitter.com/9sWx68Yzmp
— CeBIT India (@cebitindia) February 13, 2014
The late 1990s saw a wavelet of ASP (application service provider) startups in India, most of which got crushed after the dotcom bust.
The 2000s saw on-premise India-first companies such as Drishti-Soft, Eka Software, Employwise, iCreate Software, iViz, Manthan Systems, Quick Heal Technologies, Talisma (for which I did some initial product management work while at Aditi Technologies) and Zycus get started. This was the era of 8-10% GDP growth in India which lasted till about 2010. Many of these companies had a direct sales model. After India, they generally expanded into the global South (Africa, Middle East, SE Asia, Latin America) where they found similar customer requirements and little competition from Western software companies. Bootstrapped in their earlier years, some of these companies grew over several years and have broken through to $25 million+ in annual revenue. Key verticals have traditionally been BFSI (banking, financial services and insurance), telecom, retail/FMCG (fast-moving consumer goods aka CPG in the US) and outsourcing/BPO.
Having been around for over a decade, some of these companies generally face the challenge of migrating to the cloud, upgrading user experience to modern Web 2.0 levels, and expanding addressable markets beyond the global South to the US and Europe. We have seen some of these companies get venture funded, typically at much later stages in their go-to-market relative to US-based software companies. Several of these companies have received funding in the past couple of years, ostensibly to “go international” and “go cloud,” not an easy task, especially when done together.
Starting in around 2010, a new wave of cloud-native companies were launched, perhaps following the slowdown in India’s economy and the growth/acceptance of SaaS as a delivery model and as a sales model in the US. These companies have grown and now could power beyond the $10M/year revenue glass ceiling. The reason for the scale potential being higher for this cloud-native wave is the cracking of efficient online sales channels to reach markets globally.
Why this decade? Because there is an increased willingness of companies around the world to search for and buy software products online. There is now a large pool of founders who have worked at global enterprise product companies (e.g. Indian offshore development centers or in Silicon Valley itself with companies like SAP, Oracle, Google, Microsoft, Adobe) and have experience in product management, marketing and sales. And finally, there has been a dramatic reduction in the capital required to bootstrap enterprise software companies. Everybody uses AWS and software from other startups to get started. It’s quite meta.
Wave 4 companies have the opportunity to break through the barriers that previously relegated Indian enterprise software companies to selling to the global South. We have seen Atlassian (Australia), Zendesk (Denmark) and Outbrain (Israel) do this move to Western or global markets. Zoho is an Indian company that is rumored to be at $100 million per year revenue scale – they have been part of many of the waves I have described.
This cloud-native wave, I believe, can be divided into two dimensions. One dimension is the platform/tools companies versus workflow automation (applications) companies. The other dimension is India-first companies versus the global-first companies. We see opportunities in all four quadrants, each having its own challenges. We are interested in looking at companies in all these segments, with a bias toward companies which have reached some scale ($1M ARR) and are going after large addressable markets with aggressive sales & marketing execution.
|Applications||Markets: Enterprise (retail, banking, telecom, BPO, ecommerce)
Examples: Capillary, Peel Works, Wooqer, Sapience
Categories: Employee productivity, verticalized
Examples: Framebench, Freshdesk, Kayako, MindTickle, Unmetric, Zoho
Categories: Mature SaaS segments eg CRM, SMM, horizontal
|Platforms/ Tools||Markets: IT dept, developers, SMB, media
Examples: Exotel, Knowlarity, Germinait
Categories: Telecom infra, app dev tools
|Markets: IT dept, developers
Examples: Browserstack, FusionCharts, Little Eye, Mobstac, Webengage, Wingify
Categories: app dev tools, marketing automation, security
|Model: License+AMC, direct sales, resellers||Subscription, telesales, online sales (SEO/SEM,content mktg)|
[Please note this is not a comprehensive list of companies nor a view on which companies we admire or not]
Global-first companies coming out of India have started to crack or have cracked the online sales model, using SEO, SEM, content marketing and telesales. They are typically going after mature segments where buyers are typing keywords into Google at a high rate. This online selling model results in an SMB and mid-market customer base. In many cases, founders may have to move to the US to pursue direct enterprise sales. It’s worth noting that scale markets are not necessarily all in the US – companies could get built with a general global diffusion of customers, perhaps with help from resellers.
I see India-first companies typically going after newer high-growth companies in India (e.g. ecommerce, retail) and startups. Some go after Indian arms of multinationals (MNCs). This is a reasonable early adopter market to cut a product’s teeth on, but has limited ability to scale. Of the newer crop of India-first companies, very few go after large enterprises in India – there are exceptions like Peelworks and Wooqer. The model here generally is SaaS as a delivery model but not SaaS as a sales model (ie direct sales, not self-service). Many software companies are essentially verticalized.
We continue to see a few high-ticket, high touch direct sales enterprise software companies which are global-first, including companies like Cloudbyte, Druva, Indix, Sirion Labs and Vaultize. Many of these start out with teams in both Silicon Valley and India or transplant themselves to the Valley over time. I think this will continue to happen but we will not see the explosion here that we are seeing in the number of companies utilizing low touch online sales models. I see several high-impact companies coming out of these direct sales enterprise software startups as well.
I think this dichotomy between India-first and global-first companies is interesting and makes India a distinctly different type of investment geography, different from Israel (which has very small domestic market where tech companies move to the US very quickly), different from China (which mostly has domestic market focused startups and very little enterprise software) and different from the US (which is primarily domestic-focused in $500B enterprise tech industry in the early years of most startups). In terms of investor and founder interest, the pendulum may also swing back and forth between these two models as the Indian economy grows, sometimes at high speed, sometimes at a snails pace.
[With input from the team at iSPIRT and several of the companies mentioned above].
[Also published on Yourstory.in]
Earlier this week, I was invited to mentor the GSF Accelerator’s startups on Pitching & Investors Decks. I thought I’d summarize what I said there.
I certainly don’t claim any special knowledge on what makes for a good first investor presentation. There have been many books and blogs written about this. However, I’ve seen hundreds of investors pitches over the past several years of coaching CEOs on IPO roadshows, raising capital as a founder and listening to pitches as an investor. Heck, I’ve even been involved with investing in the leading presentation sharing company – Slideshare – which has helped accelerate a trend toward storytelling in presentations.
The first meeting is not about getting investors to agree to invest (although perhaps it is when you are looking at angel/micro-VC funding). The key is to start to develop the relationship and get them excited enough and intrigued enough to want to dive in deeper in a subsequent meeting.
You can greatly improve the odds of having a productive first meeting by telling a compelling story in a concise and hard-hitting manner. Make it personal. Hit the main high points first to generate and assess interest. Then provide backup to your claims to cement the story.
Click here to see the 4 key slides (on Slideshare) that you need to nail.
After these four slides, stop and assess your audience by asking them what they think, their key concerns etc. You should then be adept enough to address these concerns as you continue with the familiar series of slides on traction, product overview/roadmap/differentation, market sizing, business model, go-to-market, financial projections and funding requirement & milestones. Finish by showing the Investment Highlights slide again and summarizing the key points. Leave this slide up while you go through any final Q&A with the investors.
Some other guidelines and pet peeves:
- The point of the slide should be the title of the slide e.g. don’t say “Team” as the title of the slide. Instead, say “Extensive Team Experience in Adtech” if you are doing an Adtech startup.
- The meeting is not about reading out the presentation, it’s about your conversation and engagement with the investors, with the presentation as support material.
- No more than 2 minutes per slide. I’ve seen 30 minutes spent just on the first slide where the whole pitch is given with that one slide.
- You should be able to run through the presentation by yourself in less than 30 minutes.
- Place yourself between the investors and the projected or laptop-based deck. Otherwise you’ll have the tennis match effect of spectators swiveling back and forth between the presentation deck and you.
- Don’t leave the meeting without asking investors: “What do you think?”, “What are your main concerns?”, “What did you like specifically?”
- Know what your investors have invested in or said about your space before you meet them. The Web is your friend.
- Please don’t take the slide deck I’ve embedded above as an example of the colors, fonts or layout that you should use.
[Published in Yourstory.in]
There are two levels to this question:
a) Is there value in vernacular content?
b) Is there value in online vernacular content?
(My thoughts below the image)
a) The first one is a clear YES, which wasn’t the case a few years back. In 2007, English publication readers constituted 10% of total print media readership, but garnered 60% of the total print ad-pie. Today, English still constitutes 10% of readers, but its share of the ad-pie has come down to 40%. In the same period Hindi grew from 20% to 30% of the ad-pie. To put things in perspective, the print-ad pie is ~$1B today, so Hindi print alone is at $300M of ad-revenue and growing at 17-18% annually. More data in a recent article in FE.
According to media buyers’ estimates, during 2007-09, the ad rate commanded by English newspapers was roughly 10x that of non-English dailies. This rate has contracted to about 8x and is further expected to come down to 5x or 4x in the next three years.
b) Value in online vernacular content is not showing in terms of monetization yet. Online advertising is gaining traction but it is mostly English today. However, it is encouraging that vernacular is building up readership – Dainik Bhaskar recently announced 200M monthly pageviews. Advertising spend on any media tends to inflect after reach (readership) crosses a threshold, and the signs for online vernacular are in the right direction.
Thus the answer to the question in the title of this post is “Yes, it seems so”, but it won’t be clear for some more time. Of course, when the answer is obvious to everyone, the opportunity no longer exists.
Takeaways for entrepreneurs:
– There is an opportunity in vernacular: Online vernacular readership is increasing and will increase faster as internet and mobile-data access continue to penetrate deeper beyond the English-speaking population.
– Monetization will take longer: Be prepared to keep a lid on the costs while the market shapes up. Good news is that the online ad-ecosystem is in place for English and given will bring $$$ to vernacular if there is an arbitrage opportunity in pricing.
– Local plays an important role in vernacular: 60%+ of ad-revenues in vernacular-print come from regional sources (regional fmcg brands, education institutes, local government, etc). The content too has a very local taste – print publications customize their content every 25 kms to fit into local dialects and preferences. So keep localization in mind in terms of content and as well as monetization.
– Think mobile: With cost of devices and access continuously falling, mobile might be the primary channel for accessing vernacular content in India, unlike English.
– Define your space: Large offline publications will always be faster and cost efficient in building content. You need to define your space but still be meaningful to a large enough population.
– Think out of the box, especially if you are looking to raise venture funds. Content production is a linear businesses. Can there be a platform play where the effort/cost of building content is not directly proportional to content monetization?
– Finally, keep an eye on vernacular even if you run an online transaction business (like ecommerce). If vernacular audience is valuable to an advertiser (online or offline), it is likely valuable to you as well, so don’t close your doors on them by having an English-only website. The “access” value proposition of ecommerce is also more suited to the non-metros of India, which constitute ~50% of the orders today.
Please add your thoughts in the comments section.
[Published on Yourstory.in]
So, how long will it take to get a term sheet?
This is a question that most entrepreneurs appropriately want to know. While there is no one size fits all answer to this question, the focus of this post is to ask what I think is an equally important question for all entrepreneurs – what does a term sheet really mean?
The reason this is important is because all term sheets are not equal. Some firms issue term sheets early in their investment and diligence process (Firm A), while others issue them at the end of their process (Firm B). While Firm A will be able to issue a term sheet more quickly than Firm B, there is likely to be a higher risk that the deal does not close as most of the detailed diligence is yet to be done. Conversely, while Firm B might take longer to issue the term sheet, if/when when they do so, they will likely have a very high likelihood of completing the investment, thus providing the entrepreneur with a higher certainty of close.
Since most term sheets contain exclusivity clauses that restrict the entrepreneur’s ability to speak to other firms and evaluate other financing options, wouldn’t you rather accept a term sheet that has a higher probability of close, even if this takes a little longer? So next time you ask an investor how long it takes to get a term sheet, be sure to also ask what level of commitment their term sheet represents.