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Great Indian Internet Stories might have different Shapes and Sizes!

The initial title of this essay was: an open letter to LPs, and since there is only one LP in my emailing list - I changed the title. This is going to be a radical and different POV from the rest of the ecosystem. Let’s face it, at this point - we need all POVs. In fact, I think the progress and maturity of societies are directly proportional to the number of radical/different POVs.

Without further ado, let’s get started…

My essay “Building India’s first trillion dollar company”, is one of my highest viewed essays. I wrote to sow the seed of India’s first trillion-dollar tech company in my mind. But there were questions about why can’t the formation be like the conventional - the way the rest of the developed nations built their world’s biggest tech companies. As we have been figuring out solutions and answers to each problem and unknown question - we have been ignoring the status quo and conventional POVs. And it seems that is probably the best way to stay away from the noise and build a lasting global-size tech business in India.

Before I try painting the picture, here is an interesting insight into India’s Healthtech and Monetization and why building a large tech business by generating revenue from the Providers - Health facilities, Health Professionals etc. - is almost impossible for the next 5 to 7 years.

If you look at the USA’s large VCs (a16z, Sequoia, GC etc.) Healthtech portfolio - 95% of Startups are generating revenue from Providers. And this makes sense because all these software are creating net positives - Improvements in performance, productivity, cash flow etc. Now seeing this, if LPs expect a similar portfolio for India, 99% chances are that startup will not become a Venture size business for the next 5 to 7 years. (why?).

To understand this, we need to look at India’s Provider distribution. As of the latest data points, India has 3,332,000+ Providers. And Public and Private Hospitals contribute only ~9%.

Out of 80,000+ Private Hospitals, 40% are chained Facilities situated in the top-2 quintiles of Urban India. And these odd 32K facilities have been digitized, in fact, the need was so high that most of these chained facilities have their own interoperable Health id, Patient identification system, EMR, EHR etc. This means out of 3.3 million facilities - just 4% of providers can actually pay for software. Let’s say a total of 8% of Health Providers are ready to pay for the software - it is still not significant to build even a $100 million ARR business, no? Just FYI, India has 500+ companies offering Health Management Information Systems (HMIS) but how many of them have even $100 million ARR? We are talking about revenue from Indian facilities? It seems we missed fundamentals.

The real question is how many of us are bothered to find out the root cause behind facilities' inertia against digitisation and the use of software - HMIS, EMR, EHR etc. This is one of the advantages of being among the customers - you have access to the right customers and partners at walking distance. You don't have to schedule a meeting to get to know the root causes of the problems. And we were serious about knowing the root cause of why these small providers were displaying resistance especially when the builders of software used to claim so much - making the lives of these providers easier. And hence, after talking to 100+ small providers and facilities from Lower quintiles of Urban India and Higher quintiles of Rural India, we did the math - the net value creation by the available Health Management Information System (HMIS). According to that math, the available software is creating a net negative. And hence no motivation to use it and forget about paying for the currently available HMIS.

What I have observed: as soon as tech companies experience resistance to adapting HMIS - they ignore these 3 million small providers. Our on-ground experience has been different. If HMIS and other software are designed according to their needs- these providers love adapting software in their day-to-day operations.

We believe making Healthcare costs affordable for 1.2 billion Bhartiya is a long game, and if we are serious about the impact and massive value creation, we must think differently. One hint, Google gave Android Operating System freely (why?), we all know right? (lol). But not many founders can think and play such a long and impactful game, no? [too many question marks, lol].

What I am going to write might feel like a personal attack however It is not a personal attack on any individual, this is just a First Principle thinking, and you don’t have to agree. :)

Apologies, before I start this part of the essay, I need to write this as well. It is difficult for me to generate respect for any VC (Individual or Fund/firm) out of thin air. But then there are inner respects and inspiration for VCs (Individual or Fund/firm). For example, we as a company will do everything to work with a16z (why?).

Even after living in Patna (a city belonging to our target customers), we only had a partial picture of the problem. But thanks to their essays on Healthcare, AI, and Bio - We have a complete picture of the problem. You won’t believe it: we have printed many essays, created detailed notes, read multiple times, and implemented that on the Indian scenario (our target audiences), and hence we have a better picture than anyone out there. Today, the depth of our conviction about the opportunity and market has a lot to do with a16z’s essays.

Today, when we read about Bima Sugam, Bima Vistar, or any other public goods - we are amazed that the coming future is going to be an inclusive India. But I don’t think we would have got this complete picture of the future - if we had not come across all the amazing a16z essays of Healthtech, AGI, and Bio. They helped us see the unseen - now tell me, how come there will not be self-respect and inspiration to be around them or work with them?? But then I don’t get that kind of respect or inspiration for others just because someone is VC or Powerful. What do I do? Generate a sudo inspiration??

Okay, this time we are not deviating to any other topic, promise (lol).

Many a time, we made mistakes by ignoring the fundamentals and do Apple to apple comparisons. In a similar apple-to-apple comparison, we assumed the shape and size of the tech companies will be the same across all geographics. Just because the world’s largest tech companies made money through ads revenue, we assumed India will have large tech companies in the same shape. But we missed the backend story of the shift of revenue. From the first principle, it seems: India will not have a large tech business based on the revenue model (Ad revenue) compared to the world's largest tech businesses - Google, Meta, Amazon, Tencent etc. Because in the case of the above companies, the revenue transfer was from the conventional media to new-age tech companies. But in India, the total ad spending was just $12 billion in 2020. Let's understand this in detail.

In 2000: the USA’s ad spending was $247 billion. In that, spending on traditional media was 95%, and digital ad spending was just 5%.

In 2020: the USA’s ad spending was $290 billion. In that, spending on traditional media was 37%, and digital ad spending was 63% ($183 billion). And out of $183 billion in digital ad spending, all four biggest Internet companies (Google, Meta, Amazon, and Apple) capture 67% of the digital spending. See, that's how they become the world's biggest tech companies. It was a shift of spending from traditional media to the Internet.

The story is almost similar for China: out of $130 billion in ad spending in 2020, ad spending on the Internet was $74 billion.

But if you look at India, the story is totally different. In 2020, India's spending on the ad was $11.1 billion in that, the digital ad spending was around $2.4 billion which is 21.5% of total ad spending (not bad). And most of this spending is on Google, Youtube, Meta, Amazon, and Flipkart. The real question we are not asking ourselves is - if we are talking about building even a $100 billion Internet company, is the route of the USA or China suitable?

According to most reports, India’s ad spending average growth rate would be 12%. If we are doing a compounding for the next 10 years based on the ad spending in 2020- India will have a total ad spending of $46.48 billion by 2030. Also, there is a maturity duration in the conversion from conventional ads to digital ads - In the case of India, it seems highly unlikely. At any point, the digital ad might not cross 70% of the total ads, and most probably, the current biggest Internet companies - Meta and Google - would dominate these digital ad revenues in India as well. Also, it is companies like us, who are doing all the hard work to crack the 1.2 billion, as and when (soon, lol), we will win the trust of our users - we are not going to let anyone simply win the ad market. Especially, in the case when we have seen almost everything.

Now, you know the best and biggest outcomes in the case of India for tech companies might not come in the shape and size of the current world’s biggest companies.

But this doesn’t mean, India will not have the global size Internet companies or companies in new emerging technology. What I have understood in the past 12 months staying in Patna. I really believe India has a true potential to build global-scale large tech businesses in - Healthcare, Insurance, Fintech, Logistics etc. And most importantly, there is a direct parallel with the shift of revenue from incumbent to new-age technology companies. This means it would not be a case of creating a new market. The way USA’s large tech businesses snatched Ad revenue from conventional media, India’s new-age tech companies could snatch revenue from these incumbents.

The unlocking of Indian societies is inevitable. India will be the third-largest economy in the next 15 years and the second-largest economy in the next 45 years. A multi-trillion dollars of value will get unlocked, and these values should be available for new-age-tech companies to capture. However, unlike the two developed countries, it seems the transfer of Ad revenue from conventional media to new-age tech companies is difficult. I think the new-age tech companies that will unlock the next 1.2 billion will have the biggest advantage of winning the newly generated ad revenue as well. I know I am hinting: companies like Jile probably have the highest chances of becoming India’s biggest companies in terms of revenue... :)

Here is what I wrote about India’s first trillion-dollar company, and if you read, you will realise maybe VCs communities and even LPs need to make some adjustments around their processes and thesis. This would not be the first time, in the past many times, the LP communities have made such adjustments. And I think these adjustments are not very drastic

  • It might demand VC to back startups who are looking to disrupt incumbents using technology - an already proven user tendency to pay.

  • The turnaround cycle might be get extended by a few more years (Maybe 10 to 12 years)

  • The category of startup selection might be different.

I don’t know why I have these strong feelings startups building for these markets, if they execute, will survive for centuries and will generate hundreds of billions of dollars of revenue.

I think this is the best time for LPs to take more bets on India, spend some energy to understand India from 1.4 billion, not just 50 or 100 million population, and back fund/fund managers those who understand India in terms of 1.4 billion not just 50 or 100 million. If LPs are doing this, the probability is their investments shall create history’s biggest value, and LPs will enjoy the highest ROI.

I understand global LPs are expecting the same portfolio as US or China, but I think local LPs can understand this fundamental difference and method to build a large tech business. I am not sure who needs to read this but we must understand this sooner to increase the odds of building global-size tech businesses in India...

Thanks for reading! If you find this essay informative, please share this with your network!

I will see you all the next week... :)

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