Accel Partners, the US-based global venture capital fund which has backed blockbuster companies like Facebook during its formative years, entered India by acquiring Bangalore-based early stage venture capital fund Erasmic Ventures during late 2008. Post that move, Accel during the end of last year raised $170 million for its India-focused fund within just three months. In India, Accel has backed companies such as Flipkart and is making efforts to identify the next $1 billion company from India. In a chat with Raghuvir Badrinath, Prashanth Prakash, Partner, Accel Partners, says there is a good possibility that in the next 5-7 years, India may see 10 Internet-based companies valued at a billion dollars.
There is a sudden spurt in venture capital funds backing Internet-based companies all over again in India. Where do you see this rush going?
In addition to broadband penetration and an increase in consumer spending, what is playing out in the marketplace is the access. Take any retailer and the presence in the tier-II or tier-III cities is limited by various factors. Even if they are present, the catalog available in those towns is limited by as less as just 20 per cent. Internet alters that with access. Awareness has grown substantially. Let’s be pragmatic. Things are certainly moving in that direction wherein consumption will happen over the Internet and we are sure over the next 5-7 years, there is a possibility that we may see at least 10 companies valued over $1 billion.
India has been yearning for a Facebook or a Twitter which have phenomenal valuations. Accel Partners in the US has watched these companies grow, at a close range. What are the catalysts for such companies to grow in India?
While it is true, the US is the hotbed of such phenomenal success, one must see that success in the right perspective. There are just a handful of companies from the scores of start-ups. Honestly, people who invested in Facebook in its formative stages did not know it will turn out into such a huge success. There are a couple of more elements which needs to fall in place in India before we can start thinking of such phenomenal successes. One is the 250 million internet users, online advertisement market of a couple of billion dollars and the ability of the Middle India to spend more online. In the existing scheme of economics of India, we are still a while away from such occurrences. However, we have not stopped looking at it and we are at it. Flipkart, for example, has still a lot of road to travel even though it has achieved so much in the recent past. In India we have to be patient and will see meaningful exits in the internet play over a 10-year period.
There was a time when VC funds could choose entrepreneurs. But now it is more of the entrepreneur choosing the VC fund. And this is leading to tough situations for funds like yours? How are you dealing with it?
There is absolutely no doubt that entrepreneurs are much more mature and focused than in the last five years. They know exactly who to tap; they are much sharper with smarter teams. It’s not just the experienced ones, even fresh college graduates are redefining how VCs approach them. It is also true that there are more VC funds in the market, but what differentiates us is that we are willing to go in at very early formative stages, investing as little as $200,000. There aren’t many VC funds with our pedigree that look at such investments. Angels do to a large extent and in many cases we co-invest and see the entrepreneurs to the next level of investments.
Monetising investments in Internet companies can be quite tricky as revenues based on advertisements is yet to yield substantial value in Indian landscape. How are you addressing this issue?
The internet advertising scenario is far from convincing here. Advertisers want to reach the masses as much as possible. Television garners the majority, followed by print. Internet advertising is focused and still narrow. But there will be a tipping point when enough people go online. But when the shift happens, the cycle will be very fast. In the US, almost 25-30 per cent of the advertising dollar has shifted online. The Internet advertising would have arrived in India, when for example; an advertisement of Lifebuoy soap is there and the internet players have to ensure to add value.