“Pace of money flowing into early-stage has accelerated… even post-COVID”

After backing more than 80 start-ups and seeing two IPOs, Chiratae Ventures is not letting a pandemic cramp their style. The VC fund dealt with the crisis in phases. First, they slowed down and helped portfolio companies manage costs and the changed market. Second, the fund got back on the saddle; it is back to scouting for opportunities. Executive director Karan Mohla speaks to Outlook Business on the trends that he sees emerging in 2021. Edtech and SaaS get his heart racing, but there are other promising sectors too. Read on.

Can you sum up 2020 for your fund? 

It has been a tale of two or three different phases. The first couple of months were slow because January generally is and also because of how 2019 was. After late March, till about June or July, we held an inward focus, working closely with our founders and portfolio companies, assessing the near- and medium-term impact. It is bit hard to gauge the long-term one. By June-end or July, we had a good handle on things and we started refocusing on what we normally do, even looking at new opportunities. What greatly helped was the tremendous work founders did in normalising things, in responding to what had happened and in changing course wherever needed.

For example, our portfolio company WMall, a social commerce platform for Tier-II and Tier-III audiences, was selling across multiple categories and their largest one was probably apparel. But with spends on apparel falling, the platform shifted to health-related and daily-use products. This requires a slight change in the business model, supplier base, distribution and communication. Another example could be Lenskart. They moved online completely after their offline stores shut down and started promoting antiglare glasses and such. While these were important adjustments, the big focus of portfolio companies across categories has been on controlling costs, controlling fixed assets and continuously having a lean operation for different parts of the country. The first categories to recover were e-commerce and retail.

Which portfolio company are you now most excited about?

There are quite a few. Pyxis is one. It is a marketing platform that automates the entire process from making the creatives to getting the ad out. Then there is Oye! Rickshaw (which enables an EV ecosystem, by bringing together drivers, accessory sellers, battery charging/swapping providers and transportation hubs on the same platform). It is, to my knowledge, the first company to hit pre-COVID level (sales). This company plays on three democratic trends. One is that it runs on electric vehicles, it is EV-based. Two is that it is asset light being an aggregator. Three is that it is for micro-mobility, which is within two to three kilometers (such as from Metro station to home), which will be the default option for years to come with its competitive pricing. It rebounded well after the pandemic. Like everybody in shared mobility has taken the right precautions, this one has too, by limiting the number of passengers, putting a partition between drivers and passengers, and by sending the details of the driver (like what Urban Company does before sending its professionals) to the customer. Then, there is GetVantage (which lends to small businesses based on their revenue).

In EVs, such as with Oye! Rickshaw, what about the infrastructure? Aren’t there concerns around not having enough charging points?

All players in this space are trying to solve this to whatever extent they can, whether it is through standalone, captive or shared infrastructure. People are looking at ways to extend battery life, to do battery swapping rather than charging… there is also a lot of support from various governments. It’s like petrol pumps. They were never going to come up till there was demand. It’s a bit of a Catch-22 situation but an equilibrium will ultimately be found.

What is your take on the rush in fintech?

We made one investment in the past few months, in GetVantage (in a $5-million seed round which saw participation from Chiratae and Dream Incubators, among others). The thinking was very clear. There are a lot of companies that are digital first and direct-to-consumer (D2C). They were present even pre-COVID but their business accelerated post the pandemic, and therefore, they would need different forms of financing, maybe for their advertising or to push their sales. Can a traditional lender meet this demand, when these young companies are just starting up and when they don’t have scale? No. So, we see GetVantage not as a broad lending platform but as a lending platform for a certain business segment that is growing rapidly. We think hundreds of such (digital-first and D2C) companies will be created across India in the next five to ten years. GetVantage is an ancillary play in that trend. 

Why is there such high interest in early-stage, when there is so much uncertainty?
With early-stage the risk is high, so is the potential return. Over the past five to six years, there have been many examples of early-stage investments giving high return. While it is a long-term asset, the fundamentals are much stronger today than what they were before. 

Probably a year from now, they may be even stronger. Therefore, international and domestic money are flowing to early-stage. The pace of this has accelerated a bit in last couple of quarters, even post-COVID, because there has been a fundamental shift in how businesses and consumers behave. Some of these shifts or changes will be permanent, some will be semi-permanent and some will go away, but there is very clear trend towards technology and digitisation.

In fact, this massive movement towards technology and digitisation has been one of the biggest takeaways from 2020. In the growth- and late-stage, too, pace of funding has surprised a lot of people because they were expecting a high level of caution. There has been some level of caution, not the same as it was in 2019, but the level of activity was definitely unexpected. Also, in late-stage, the intensity of the diligence goes up. So, those in late-stage might not be very comfortable investing, just after Zoom calls. In 2021, one will probably see a lot more activity in growth- and late-stage. By then, the investors will have a clearer idea on what would be the permanent shifts and what wouldn’t be.

What are the defining trends that you see in 2021-22? 

We have already seen, for instance, in edtech, how business has shifted and some of it will be permanent like in the K-12 and competitive exam space. In healthcare, there will be some vertical specialisation. Full-stack verticalised healthcare platforms have been able to grow and impact users more meaningfully than broader healthcare platforms. Whether you look at wellness/fitness, care for chronic conditions such as diabetes and thyroid, mental wellness or specialised cancer care, a focused solution that goes deeper into solving the underlying problem and not just a solution at the discovery layer is better suited for end consumers. 

Earlier, these types of specialised platforms found it hard to grow because there was not adequate or trained supply, which impacted the quality of service; and there was not much awareness or trust in digital platforms. There is also the change in user behaviour. Post Jio, from 2016 onwards, there have been many digital users experiencing entertainment and gaming content online. They became transacting users to a small extent in 2020, and this will get accelerated 2021 onwards. The focus will be on Tier-II and Tier-III audience. In SaaS, building from India started two to three years ago and this has accelerated this year. The product side was always there, the sales side and the go-to market which has become very digital will continue, and that will help a lot of these SaaS platforms from India expand much more rapidly. 

Given the optimism, do you think it will be business as usual in 2021?

I think it will depend on a lot of things. One, people have a view on things returning to normal, like some say by next half of 2021, and if that does not happen, the optimism will be dented. Two, while some companies are growing, if there is a macro-overhang, that will affect the sentiment. Seeing how economic activity will rebound will definitely be part of that. Three, a lot of funds have raised capital over the past year. Seeing how it will be deployed will drive the sentiment.