Mumbai-based Blume Ventures has been one of the most active ventures with over 120 investments in start-ups across multiple sectors since its inception in 2011. Business Today spoke to its managing partner Karthik Reddy about the coming of age of start-up funding and the role policy can play to spurt Indian entrepreneurial ecosystem.
Business Today: A lot of start-ups have entered new age sectors such as fintech and deep science. How is Blume looking at its investment strategy?
Karthik Reddy: It's always a mixed bag. We have evolved a lot from our first fund where diversification was a deliberate strategy. Now that we have learnt what we like in our founders and business models, we are now able to eliminate 90 per cent of the pipeline simply on the basis of thesis fit and within each space, we take up particular sub segments that we like the most. We decide to invest at least four-five times per cycle in that space. Exceptional founders who open our eyes to markets that we have not imagined yet are always exceptions to this framework.
Which sectors will emerge as the biggest bets for investors?
Commerce (of traditional offline businesses coming online - education / health / consumer services) and fintech continue to attract us from a scale perspective. SaaS and Deeptech bets that can scale globally also look interesting. Many more Unicorns will be built here. Digital media start-ups will also scale well, as some of gaming plays have shown.
There is a spurt in unicorns in India. From 10 until 2017 to 22 now. What are some of reasons for this growth? Is it because the time to become a unicorn is shrinking?
It is both. The access to cheap data, the higher quality of founders, their leadership teams (trained under the first generation of unicorns), large amounts of strategic and financial capital available to leaders and winners in a category - all of these have propagated the pace and breadth of Unicorn formation.
Do you see enough original ideas in the Indian start-up ecosystem?
A lot of these ideas are about using the Internet as an access and distribution mechanism for supply and/or demand and given that a sizeable portion of the business success depends on operations and execution, we believe originality will create a large winner. Flipkart, Ola and Paytm from the older set and Zomato, Udaan and others from the newer set are examples. We see enough original ideas in deep tech, digital first, global first businesses, but these have only begun to attract more interest over the last two-three years.
Is Delhi outpacing Bangalore in terms of the quality and quantity of start-ups? What are reasons for that?
Delhi-NCR is a magnet for talent across all North as Bangalore is for a big chunk of the south. Chennai with a SaaS/enterprise edge and Hyderabad with an IT Services legacy take a large chunk of talent pool out of the south. Language uniformity and adjacencies of two states and the proximity to a few more make Delhi-NCR an attractive option for talent ingestion. I don't think Delhi-NCR is outpacing but is growing rapidly, relative to any other market outside of Bangalore. Also, infrastructure in Delhi, even if hubs are spread out, is far more developed.
What role policy can play in boosting the start-up ecosystem in the country?
The government is trying to find a balance in giving Indian start-ups and legacy industry a bit of an edge before large overseas companies become dominant. This is fine but it needs to be executed early in the lifecycle of these massive industry shifts - not be reactionary. It sets back confidence for a bit. In the long-term, clear direction is something that founders appreciate since the march to a more dominant Internet-led economy in many areas is inevitable. A lot of wealth and GDP will need to be enabled by start-ups if tech-led growth engine has to to pull India into the $5 or $10 trillion economy club.
Further, unless there is some consumer harm due to someone abusing the policy or the lack of it, the government needs to continue with what it has been doing i.e. to transform policies more aggressively to suit the needs of a nation that has to adjust with new tech and new business models. The suspicion that every loophole has to be blocked creates a slow-moving policy procedure. I believe 90 per cent start-ups /entrepreneurs / Indians are trying to improve the economy and add value to the customer. Policy should be for the 90 per cent and then figure out how to punish the rest of them.
What more is required for India to outpace start-up hubs such as Tel Aviv or Singapore?
Companies that are building for global markets are going to register out of India. Flows of capital, resources, people and IP are all too regimented when crossing the Indian shores - for all stakeholders such as investors and founders. With the pressure of speed and scale, start-ups that are building for international markets / customers cannot afford to be held back by Indian regulations. We don't see this trend reversing any time soon.
You are in the process of raising money for your third funds. Is there any considerable difference in how you deployed the first and second fund from what you plan for the third fund?
We are seeing founders being more seasoned, engineers and skills being more expensive and market opportunities appear and scale much faster. It means the capital has to flow at the same size and pace. With every fund we are raising more capital and reducing the portfolio size since we want to do justice with founders and companies we back. Given that the early stage funnel keeps growing in size, Series A and B investors are spoilt for choice and are not growing as rapidly in terms of numbers. It has become important for us to have enough reserves to back our best founders. We are growing to cater to the strength of founders we attract and invest in.
What is the most exciting part of your job?
To back ideas that could change the world and work with founders whom you can gladly join as a co-founder.