BII MD Pankaj Makkar talks about competition from Chinese apps like TikTok and large hospitality players to its portfolio companies such as Roposo and Treebo, the fund's role as an LP versus GP, the mood of the venture capital ecosystem with respect to general elections etc.
Bertelsmann India Investments (BII), the strategic investment arm of Germany-based one of the world’s largest mass media companies Bertelsmann, began investing in the Indian startup ecosystem in 2013. It has made 17 investments so far in India and had its first exit in December last year when music streaming service Saavn was merged with Reliance Jio. As a Series B investor, the fund is comfortable making three-four investments a year even as it does follow on investments. In total BII ends up doing 5-6 deals a year which is a good pace for a Series B fund, Managing Director Pankaj Makkar at BII told Financial Express Online in an interview.
Makkar talks about competition from Chinese apps like TikTok and large hospitality players to its portfolio companies, what should startups focus at early on, the mood of the venture capital ecosystem with respect to general elections etc., in interaction with Sandeep Soni. Here are edited excerpts:
Do you think Spotify’s launch in India will make any dent in the music streaming market?
We don’t think so. We think that two-three players will end up building this business and JioSaavn with its lead over other players in the market is at least three-five years ahead. So Spotify will probably end up getting top customers in a city set up but across India, it is a different ball game altogether. It will take a lot of time for them to do so.
You have been investing in the Indian ecosystem both as a limited partner (LP) and a general partner (GP). Which one is easier to do?
Being an LP from execution perspective is easier given that we have to find the right GP. Also, there is no day-to-day value of building companies as well as exits are not our issue. We took the LP strategy in India was to build a network and hence, in the beginning, we made some LP bets. We are no longer doing that and we think our relationships are very strong in the country now. We will focus on making direct investments.
Do you see TikTok eating into the market share of companies like Roposo that is one of your portfolio companies?
Yes and no. Chinese apps building businesses in India doesn’t mean a lot of those will be successful here. It is because if you have a global playbook to build a product which works universally including India then as a foreign company you build a good business. But if you are building a local business then being a global company can only help you by virtue of technology and money. You don’t have consumer insights to build that business. While you can still build that kind of business but it cannot be as easy as having an international product thrown into the Indian market.
A BMW car is same everywhere globally but when you talk about having consumer psyche which could be in sectors like cab hailing then it has a lot of local nuances. So it won’t be easy for players like TikTok to build a business in India as it might be for Chinese mobile manufacturers. It doesn’t mean they cannot win but it will not be very easy.
So do you think both can co-exist?
TikTok is just one out of eight-nine apps the group (ByteDance) has in China. In that setup, since it is local media and every user has different tastes and preferences, you may need to have multiple apps. ByteDance has worked very well because they have multiple apps across the Chinese ecosystem for media consumption. Similarly, in India, you can have different apps for different needs. So over time whether all of them will be owned by one company in India or will they be owned by different companies and hence TikTok and Roposo can co-exist needs to be seen. One app winning the entire digital media industry will never be going to happen. Roposo has grown 20-30X since it started the video app.
Treebo, one of your portfolio companies, saw exits from the top level and also laid off a few employees. Do you see it scaling big ahead?
Absolutely and we are confident about how it is building the business. Since it (hotel chain/hospitality) is not a winner-take-all business, quality matters more than quantity.
So can large players have a quality issue?
No, you can focus on both quantity and quality or you can focus on only quality but players who will eventually win they would focus on quality. The large players can also focus on quality. It is not that they will focus on one thing only.
Do you see India delivering more exits in two-three years?
At some point, India will have to deliver a lot more exits but this is just a matter of time and it will come. Globally, in the next two-three years, the US (market) will be going to slow down. China too has growth issues and except Germany and a few other places where Bertelsmann is very strong, none of them (markets) are struggling. So there aren’t too many places where we have a very vibrant ecosystem that deploys capital with good gains. From this perspective, for international investors, India will have a very good credential for getting capital for the next two-three years. But it also depends on what happens in the general elections.
How’s the mood in the venture capital ecosystem with respect to the general elections?
Early stage investors would continue to deploy a lot more capital. Those who want to deploy large capital, essentially the likes of private equity, might take two-three months extra to decide on deploying that large capital. Rest of the VC ecosystem continues to work as normal. Both governments (in the past) in general had a very positive view about businesses and startups. So there won’t be any big hiccups irrespective of who comes to power.