A venture capitalist walks into a bar... few years later, the bar is a restobar serving world cuisine and hosting live shows that discover indie bands. VCs are constantly looking for opportunities, even when out to have a drink or when the rest of the world is down with a flu. In this pandemic, Elevation Capital’s (formerly SAIF Partners) managing director Mayank Khanduja has kept a keen eye out for tappable trends and found some. In this conversation with Outlook Business, Khanduja shares the learning from managing such an unprecedented crisis and why his optimism is still intact.
Which sector surprised you this year, and which disappointed you?
While the growth of edtech and gaming during COVID is well chronicled, we are also very excited to see the rapid adoption of technology among the SMEs and even MSMEs in India. These business users are in fact consumers first, and thus, have latched on to technology products that help them push their businesses digitally. We witnessed this first-hand in the growth of IndiaMART. On the flip side, we were expecting digital healthcare to go mainstream but the progress on that has been slow, despite tailwind from COVID.
How did COVID change the world of investing?
Post COVID, investing has become a lot faster and efficient, where meetings can happen at very short notice with complete quorum. Companies are able to reach product-market fit much faster. This has opened many new avenues for investing, which earlier had a slower growth curve. Also, working from home has taken away the day to day workplace noise from founders, letting them focus on the things that really matter. On the other hand, discovering new companies is a process of structured outreach as well as serendipitous encounters. In the world of remote work, these chance encounters, such as meeting interesting entrepreneurs and their ideas at a coffee shop or at another start-up’s office, have all been eliminated.
Can you share a bit more on the opportunity you see in the non-formal education space, such as those which help people pursue a passion?
Independent entrepreneurs, home business owners, freelancers and creators have all been key to economic growth. For example, the personal beauty space itself employs 10 million women in India, greater than the IT sector in the country. There are 20 million-plus freelancers in India, five million-plus micro entrepreneurs with more than 3,000 followers each on Instagram, two million-plus Meesho entrepreneurs, and thousands of creators on Moj, who have 100,000-plus followers. We estimate that a total of $20 billion could be spent in India every year on non-formal learning avenues by these indie entrepreneurs. The learners come from diverse economic backgrounds, from Tier-II and III towns and beyond, and in the age group of 18-40 years. But, they pursue their passion by making great personal sacrifices or by paying extremely high fees or travelling to larger cities, where the established trainers or institutes are. With the new digital avenues available, there is a rising demand for non-formal educational content online from people looking to pursue these independent paths. And, these people are not only looking for education on core skills but also help on practical topics such as how to build an online following, how to set up an online store, how to manage finances for a small outfit and so on. We are strong believers in the rise of this creator economy and our investments in Airblack (which trains people in beauty and make-up) and FrontRow (which helps people learn skills such as singing, standup comedy and cricket from celebs) are built on this thesis.
You had said that you were excited about real-money gaming space. Is this largely poker and card games? Aren’t there regulatory concerns?
Historically, ad-driven casual games have found it hard to monetise in India. Given that and the high customer acquisition cost (CAC), casual games have not been viable ventures. Real-money gaming has seen far better adoption and monetisation because they give immediate gratification to users. Therefore, it is a more interesting investment opportunity. Like any new space, regulations are bound to evolve as the sector evolves. I am sure as companies and regulators engage more and more, the laws will be framed in a manner that promotes skill gaming and puts adequate controls over gambling.
Casual games in India compete for the attention span of the user versus not just other India based casual games but also international games, social content platforms such as Sharechat and Moj, and OTT platforms such as Hotstar and Netflix. Given the deeper monetisation pools for such platforms, they can advertise (promote their products) much more heavily, thus raising the CACs for casual games in India. At the same time, monetisation of casual gamers through ad-driven plays remains low due to low CPMs (cost per mille, which is a measure of how much it costs to get thousand impressions for an ad), especially when these games are played by people on low-end devices, which advertisers read as lower purchasing power.
You had said that interesting opportunities will open up in commercial real estate. Why do you think so, especially when this asset category seems to have lost value during the pandemic?
New areas for investing in commercial real estate are fast catching on. Warehousing is one such example where e-commerce and related logistics companies are experiencing runaway growth, and with that the need for more high quality warehousing space. We are seeing this play out very well in our portfolio company Strata, which allows retail investors to part-own a commercial real estate asset. It is seeing a pipeline of more than ten properties at any time, and it recently completed the sale of the last warehousing asset of Rs.250 million in seven days with 2x oversubscription.
While it is true that companies are looking to shed their real estate costs, the demand for grade A commercial real estate is still very much intact as it is being filled in by new companies that are coming up. In addition, Tier-II towns are seeing growth in demand for high quality commercial space as companies are looking to set up offices in these locations to keep costs low as well as allow employees to work closer to their hometowns. With more employment avenues opening in these towns, residential demand is likely to pick up as well.
In agritech, as with other sectors, you have said that all a product needs is one compelling hook like the promise of getting a farmer a fair price, and then, of attaching the other services along with it. Since existing start-ups already do this, what new change do you see in this in the coming year, especially after the farm bills?
I visited interiors of Maharashtra and Karnataka, four times before the pandemic hit, to understand the needs of Indian farmers. And, I was pleasantly surprised to realise that the Indian farmer is fairly tech-savvy and hungry for knowledge that will help him improve the return on his efforts. But, it is only the larger farmers that can afford to hire consultants to improve their yields, secure financing and also get access to larger buyers. The current solutions that depend on offline purchases would automatically get attracted to the same larger farmers as they give immediate scale. The solution that will have mass-scale applicability in India is the one that can provide similar solutions to mid and small size farmers using technology. Such a solution would have to depend on providing inputs to farmers remotely on a smartphone, in a near WhatsApp-like interface, as they understand that best. With the farm bills, farmers of all sizes can legally access buyers outside the mandis and get a fair price for their produce. This will eliminate inefficiencies in the system as the platforms can connect buyers and farmers of all sizes in a transparent marketplace.