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The “two Speed” State Of Indian Market Adoption

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Indian Market

I have been watching / following 7 startups (3 in eCommerce, 2 in SaaS and 2 in consumer Internet) that target the Indian market over the last 14-18 months. All the entrepreneurs approached me with an intent to get seed funding so I had a chance to go over their traction, progress and future projections.

I have formulated a theory of market adoption of products / high technology products in India which I have tested with these and other companies and also with several venture investors.

For background please read “Diffusion of innovations” by Everett Rogers and Crossing the chasm by Geoffrey Moore. Don’t worry, I have only linked to their Wikipedia page, so it wont cost you anything.

Diffusion of innovations

At the top of the consumption (and monthly income) pyramid in India are what economists and marketing people call the SEC A and B class who have enough disposable income to spend on innovative new products. For the purposes of this blog post I am going to use 10 Mill (SEC A) + 20 Million (SEC B) households as the target.

The Innovators (less than 1 % of the population or 12 Million individuals) in India (entrepreneurs mostly) who conceive and develop these products for the Indian market and the early adopters (less than 5% of population or approx 60 Million individuals) together make up the entire “early adopter” category. Unfortunately less than 30% of them have both the interest, and the desire to be early adopters of technology.

Indian markets do not follow traditional diffusion characteristics when first innovators buy, then early adopters, then the early majority, and then the late majority and finally the laggards.

My theory on how diffusion of innovations works in the Indian context is as follows.

In India there are only 2 market adopters – those that are early and those that are not.

Abhijeet calls it the “low hanging fruit” and then everyone else.

So lets look at the implications of this observation / theory.

So what does that mean for entrepreneurs?

You will see a “headfake” of adoption and then a taper off.

E.g. The B2B SaaS company will quickly (within 3-6 months) get 10+ customers and over 30 in the pipeline, only to find the next 50 and the next 100 or the next 1000 are either non-existent or will come in 3-6 years.

E.g. The eCommerce company will see 1 -3 Million “registered” users and 1000’s of transactions within 12 months and find that the next 1000, 5000 and 10,000 transactions take 4-5 times as long.

E.g. You will see an initial 20,000 users for your mobile application for social TV extremely quick (within 3-6 months) and the next 50,000 or 100,000 take you the next 3-6 years.

I have seen these numbers play out again and again to know there are exceptions but those are rare.

These numbers are also dramatically different than those of companies targeting US or other markets.

When should you (as the entrepreneur) raise money?

You should raise it at the peak of inflated expectations. I.e. After you have some traction, which the investors think will be long lasting, steady and rapid. You will get the best valuation for the company at that time. Once your investor has some “skin in the game”, they are in to get their money back and then some, so they will do all it takes to make you successful.

Trough of disillusionment

What does this mean for investors?

The best time to invest is either very early (starting to build a company, idea and team stage) OR at the trough of disillusionment stage.

If they are early, you will get the bump from the initial adoption, so the value of the company increases many fold before the next round (which you should help the company raise at the peak of inflated expectations.

If you are post the trough, then you benefit from a growth stage.

What makes you go over the trough to the slope of enlightenment?

In my experience:

TIME

Nothing else.

You may think I am being facetious, but I am serious.

This may be a cultural thing, but in India, over time if you have the ability, patience and willingness to survive, you will reach the plateau of productivity.

Anecdotal evidence over several sales transactions also suggests to me that once people in India see you around for 2-3 years, they think “Okay, this company / person is for real. We should give her / the product a shot”.

Big thanks to Abhijeet and Shekhar for helping me with their data points to reinforce my theory.

Read Also: The Indian Startup Ecosystem Should Look At Israel As A Role Model

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Is The Opposite Of Winning And Success, Learning And Not Losing Or Failure?

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Learning

I was reminded of this yesterday when a friend, Rajesh Setty eloquently put it in an email signature to me.

The opposite of winning is learning.

Which should technically mean that the opposite of learning is winning, but that’s not true. You do learn when you win, The mystery of success and the articulation of failure is a big problem overall.

I have found that when you dont know what made you successful, you make new mistakes.

So my question is, f you keep having multiple “failures” and end up learning a lot, how can you incorporate learning into your learning. Meta Cognition is an important field of science I am paying some attention to.

Metacognition refers to higher order thinking which involves active control over the cognitive processes engaged in learning. Activities such as planning how to approach a given learning task, monitoring comprehension, and evaluating progress toward the completion of a task are metacognitive in nature.

Simply put, learning how you learn is an important skill for most people.

Self awareness, (not nirvana or even self realization, in a spiritual sense) or understanding what makes you as an individual tick is important for entrepreneurs.

That’s another skill I seek to understand about entrepreneurs.

How do they learn? Do they know how they learn? This is less about how coach-able they are, but more about how they go about learning things they dont know much about.

When you get started, there are many things you dont know about the market, customers, adoption, sales, etc.

How you go about prioritizing what’s important to learn and how you learn them is critical to what is called “Execution”.

The ability to understand that is driven, I believe by 3 questions:

  1. How do you learn best? – By reading, but observing, by being tutored, by seeking advice, by doing it yourself, etc.
  2. How quickly can you incorporate the learning into your plans and execute them?
  3. How do you monitor and observe what the results were so you can continue to learn?

So, back to the question – Is the opposite of winning – learning?

And not losing? Similarly

Is the opposite of success, learning as well and not failure?

Also Read: New Ipo Filing – Remitly #Fintech Global Money Transfer Company, Previously Valued At $15.B In Jul 2020

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New Ipo Filing – Remitly #fintech Global Money Transfer Company, Previously Valued At $15.b In Jul 2020

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Remitly

Remitly, a Seattle startup that helps immigrants in developed countries send money home to family and friends in developing nations has filed confidentially for an IPO. Pricing and terms will be known by early July.

Remitly CEO Matt Oppenheimer

Remitly competes with Western Union, Transfer Wise, Money Gram, Xoom and others in the $550B remittances market.

Remitly competitor TransferWise has also seen its valuation rise, with investors recently pegging its worth at $5 billion during a secondary share sale in July 2020.

Matt Oppenheimer, started Remitly in 2011 after running internet and mobile banking at Barclays in Kenya with Shivaas Gulati and Josh Hug, as cofounders.

Remitly eliminates forms, codes, agents, and other fees typically associated with the international money transfer process. 

Send money to M. Lhuillier with Remitly

Remitly started with the Philippines market, but today lets over 4M consumers ship money to 50 countries, worldwide.

Remitly Review 2021: Low-Cost Platform to Transfer Money Abroad

It owns no retail outlets. Customers can only initiate a transfer digitally, although on the receiving end in developing countries, Remitly partners with cash-pickup locations.

On average, money transfer agents charge a 13% fee on remittance transactions.  For those sending money home, the appeal of faster and less expensive money transfers is obvious.

HOW REMITLY WORKS WITH GCASH? |Tesha EK - YouTube

Remitly makes money by charging transaction fees and marking up foreign exchange rates. Fees vary widely by country, but on average, Remitly charges about 1.5% for a transfer.

Western Union, which owns many brick-and-mortar locations and brought in $852 million in profit last year, charges roughly 5%.

Remitly expands coverage for mobile remittance program to 40 countries,  nears 1K employee mark - GeekWire

Remitly has grown revenue nearly 100% annually over the past five years, reaching an estimated $80M in 2018 and over $250M by 2020.

Remitly customer growth increased by 200% in 2020, compared to a year ago, with 3 million customers served in aggregate spread evenly across the 17 send-from markets and the 57 send-to countries.

Remitly | Impact 20 | Fortune

Remitly has over 1000 employees has raised over $400M in funding so far, with over $80M in debt alone. It last raised money from Visa in March 2021, and previously $85M at $1.5B in valuation on July 2020. It is seeking $4 – $5B valuation.

Remitly will use the IPO funds to invest in PassBook, a banking and debit card product aimed at multinational workers, who frequently face hurdles when trying to set up bank accounts.

Jeff Bezos-backed Remitly announces free money transfers to the Philippines  - GeekWire

Remitly has acquired 2 startups – Symphoni, an AI Product in the #Fintech space and Wire, a mobile messaging app.

Valuation

At $4B valuation and about $220M in revenue, (estimated), 18X last twelve months valuation is rich in the #fintech space but in line with $AFRM at 24X P/S. Given the rapid growth in customers this may be justified, but until we know the final valuation sought and the revenue growth this seems rich.

Analysis

With over 500 IPOs in the last 6 months, the pickings are great. Remitly will do very well during IPO time if the market conditions are good.

I do think however, that I am going to wait to see their final numbers and decide if they will be in the top 1% of IPOs that I will invest in.

What we still need to review:

  1. Revenue, customer growth in 2020 and expected projections
  2. Gross Margins (estimated at 30 – 40%)
  3. Average $ per transaction and average take rate
  4. Repeat customer usage of platform – do customers like using it or are they very price conscious and use the platform with lowest fees each time?

Also Read: How Can You Tell If An Angel Investor Is “Real” Or “Fake”?

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How Can You Tell If An Angel Investor Is “real” Or “fake”?

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Angel Investor

It has become quite fashionable to be an angel investor. The last 5 years has seen an increase in the number of registered angel investors on various platforms – from a mere 3000, we are at over 25K in the US alone. That begs the question – do we have more people who have become angel investors now, or are people richer, or did we always have them and we just found out about them now?

Many high net worth individuals would like to be angel investors, but just don’t have the inclination to do the heavy lifting that it requires to help entrepreneurs, source deals and find follow on investing. Most are also fairly conservative, especially if they have made money at a larger company and not been an entrepreneur before.

Here are key “leading indicator” questions that I ask before I try and syndicate deals with other angel investors, which might be useful for you to consider. YMMV.

  1. Have they invested before in a startup? The best indicator of an investor is if they have invested before. The time to make the first investment for a newly minted rich individual is close to 21 months. So, if in your discussions with a potential investor, they have never invested before, it is highly unlikely they will. Angel list is a good source, but not comprehensive. I would simply ask them this question. Or ask them for their previous investments? What companies have they invested in before?
  2. Do they come referred as an investor? The best network is still word-of-mouth. They best referrals for angel investors is typically not other investors, but entrepreneurs is what I have noticed. Even if an investor “passes” on an entrepreneur’s idea, I have found that if they have been respectful, consistent and fast in their communication, the entrepreneur will refer “relevant” deals to them.
  3. Are they accredited? When an investor has over $1 Million in investment capital (exclude the capital in their primary residence), or if they can show they have over $250K in annual income, they can be accredited. I have found the best way to determine this is ask the investor for who their financial consultant or tax consultant is. People who have that much money have a person for both or either. If they don’t, the signal I get is they are rather unsophisticated in their approach to investing.
  4. Are they involved and connected with the local startup ecosystem? Most interested angel investors are either mentors or advisers at local entrepreneur’s hot spots such as accelerators or co-working spaces. If they are not connected, it is likely they are not going to invest, since they don’t value the experience.
  5. Do they understand key terms and nuances? An experienced or willing angel investor understand convertible notes, equity rounds, key milestones and other “insider” terms well enough to not have you explain it to them. If you are educating the investor about angel investing, you are better of looking for someone else to do that, while you focus on your company.

What other questions would you use to differentiate between a “real” and “wannabe” investor?

Also Read: The Perfect Startup Team: Asterix And Obelix

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