From a scramble to protect portfolio companies to being amazed at the opportunities in some sectors and at the resilience of founders, this has been a rollercoaster year for Lightspeed India Partners. Hemant Mohapatra, partner at the early- and growth-stage VC, believes this crisis has separated the best-in-class from the also-ran. The VC has always been interested in enterprise tech, with 50% of their portfolio companies in SaaS, and it is a sector that has done exceptionally well during this pandemic lockdown. Mohapatra talks about the other opportunities that can be tapped.
How was this year for Lightspeed India Partners?
March and April were like being in the ER (emergency room) because we had no idea about how long the impact would last. Over a month/month-and-a-half went in scrambling around, trying to figure out where the damage is, how deep the damage is and what can we do to protect the companies. At that point of time, it was hard to be strategic because no one had a point of view on how the market will evolve. There were some sectors that had a pretty deep impact. Transportation was shutdown, travel and hospitality were shutdown, offline commerce was shutdown. So, those areas had an overall negative impact.
The positive impact of the pandemic in certain areas began to appear sometime around April-May. These were sectors such as edtech, content, SaaS and healthcare.
What were the signs that were visible in these segments?
For content, it is obvious. People were sitting at home and consuming a lot of content. So, companies such as Sharechat and PocketFM saw a strong uptick in engagement, on-boarding and retention cohorts. Companies in the SaaS space began seeing a lot less churn and faster sales cycle. They were closing larger deals in only seven to eight days, which earlier used to take over three months. And, these are not small deals, but close to quarter million-dollar deals.
We saw faster expansion within the companies that we were selling to. For example, people bought more licenses in shorter periods of time. Roughly speaking, some of our companies achieved their yearly goals, three months in advance. Some achieved their quarterly goals, a quarter in advance. One of our companies, Hubilo, which is in the virtual conference and events space, achieved its two-year target in six months.
So, that was the impact on the positive side. For companies that were negatively impacted, we are seeing, in some cases, things coming back to normal. In logistics, hospitality and travel, businesses are 60%-90% back to normal.
In FY21-22, do you see SaaS companies picking up and many among them emerging as unicorns? Do you believe that there will be a shift from consumer tech to SaaS?
I don’t think of it as a zero-sum game. I don’t think that dollars are going to shift from consumer categories to SaaS categories. I think what is happening here is market expansion. For instance, think of digital marketing. Before Facebook, Google, Instagram, Snapchat and TikTok, hundreds of billions of dollars were being spent in marketing on TV, radio, newspapers, magazines and banner ads. That market is still as big as it was, probably even bigger. It is not like the market has shifted from offline marketing to online marketing. With online, you can measure your impact more accurately, therefore you have confidence to spend more money because now you know exactly the return on every $1 spent.
Absolutely, SaaS is one of the biggest beneficiaries because it is right in the middle of digitisation. It is all service through the cloud, there are no boundaries, there are no limits. You can build from one place and sell to any place. Lightspeed as a firm began in enterprise SaaS in the late 90s. So, we understand global SaaS very well and believe that the next 10 years are going to be a lot more accelerated than the past ten years.
Other than SaaS, what are the other segments that look promising to you?
There are three to four sectors. Ed-tech, obviously, is a lot more promising than it was a year ago. There is a lot of capital flowing into this segment. So, we are being very methodical about which are the gaps that we really want to address — that can be accelerated and will remain even after COVID is gone.
People often talk about PMF or product-market fit. We think of PMF as pandemic-market fit. There are companies that will have a lot of traction and market pull for the next six to 12 months, or even after 12 months. But, once the impact of COVID is gone, they may not survive. So, we have a point of view on which companies are going to be sustainable and which ones are going to die, once COVID is gone.
Content is another segment that looks promising, but not all kinds of content. We tend to focus more on what kind of content is going to change the way people behave. So, gaming is one where behaviour change can happen. If you are hooked on to a game, you are hooked on to it. Then, you can gamify education. You can make education more social, collaborative and community-oriented. It does not need to be a one-to-many teacher-student model. There are other models that are more interesting. And, there are products and technologies that can make learning more interesting without people’s involvement.
Beyond that, we are seeing green shoots in the healthcare space. One of the biggest challenges in this space, especially in the US, is that if you are doctor in the State of Maine, you will not be able to practice in the State of Washington. The regulation did not allow it. But now, this regulation had to be changed because you had so much demand from all over the country. Once changed, you cannot back out after the pandemic and say, “Okay, now doctors cannot practice pan-nation”. Those things are not going to go back to normal again. Similarly, in India, it was unusual for people to meet a doctor online. But once you have experienced the convenience of that, you may go back to offline consultation at times, but not always.
We are also seeing doctors’ change in behaviour — to be more online and digital in nature. It was the hardest problem before. Now, we are seeing doctors stitching online into their workflow, and they are liking it. So, this is an opportunity for them to change their behaviour and an opportunity for us to build a large company in that space.
Which segments do you think will not do well next year?
Anything that depends on offline, full-contact behaviour. These could be massive companies, where you find partners to play with or where you buy and sell stuff online, or you book venues, and so on. We have seen many companies doing that, but it seems like a tougher market right now. Anything that is heavily dependent on offline behaviour, which is more communal in nature, is going to suffer for the next two to three years. Anything that is offline, isolated, does not really expose you to COVID risk (can do well)… for example, Oyo is doing quite well offline now. I was surprised to see that. But, the reason they are coming back faster than we had expected is because these are typically smaller hotels. People are willing to travel, except they want to go to places that are more isolated and niche, and live in hotels that are smaller.
VC funding seems to be moving away from early-stage investments towards towards late-stage, because of the slowdown and then the COVID risk. What is your opinion on that?
Well, I am glad they are moving away from early-stage because we like early-stage investing and we are going to stick to it. They don’t have the risk appetite, so they go for last stage investing and make less money.
Which is the one portfolio company you are most excited about for the next year?
This is a tough question to answer because everybody is in different parts of their journey. But if it is one company, then it would be Hubilo, which is in the virtual conferencing space. That space is exploding right now. It is doubling every month, the team has tripled in the past two months, revenue has grown 40x in the past six months. The start-up has amazing founders, who have built their entire careers in the events business. Their revenue went down to zero in February, but within 40 days, they kind of pivoted the company, built a lot of online features and shifted to online events… their first event was in March 16. Now, they are about to touch $10 million in run rate. All of this has been achieved in only six months.