Just a week after Sequoia Capital hived off its India arm, effectively retreating from the country, Lightspeed Venture Partners' Bejul Somaia said India is a tough market to crack and not for the 'faint-hearted,' but it is worth it, instilling confidence in the world's third-largest startup ecosystem.
"At Lightspeed, our belief is that India's importance as the world's third-largest digital market should not be under-estimated, that significant value will be created in the transition to a digital economy, and that a new generation of founders will be central actors in this value creation," said Somaia in a note shared on Twitter.
"That said, the only firms and founders that will benefit from this opportunity are those that have underlying conviction, long-term orientation and staying power. India has always, and will always, test our conviction (and sometimes logic). You can't force this market, you can't time this market, you can't be short-term. Instead, you have to be patient, quality-oriented, disciplined, selective and prepared to play the long game," Somaia added in the note.
Somaia's comments come at a time when Sequoia's split, announced last week, raised concerns about whether the development was a reflection of the venture opportunity in India. In the note, Somaia shared statistics about India's internet market and digital public infrastructure and compared it with a decade ago to show how the country has adopted digitisation over the past 10 years.
Earlier this week, Silicon Valley investor and CEO of Social Capital Chamath Palihapitiya also voiced disbelief at Sequoia Capital’s decision to exit the India market as he questioned the VC's decision to leave one of the world's fastest-growing economies.
Lightspeed started investing in India in 2007, gradually increased pace after 2011, and raised its first dedicated set of funds in 2015 worth $135 million, Somaia said.
"This decision around sizing reflected our view that India offered significant potential, but was still early in its development and therefore needed to be approached with selectivity and discipline," Somaia said.
According to the note, since Lightspeed started investing in India, the venture capital firm has invested $1.6 billion, and has returned $1 billion to its Limited Partners (LPs), while holding assets valued at $3.4 billion.
"We're here for the long-term," Somaia said.
Somaia also said that while every company may not succeed in India, this doesn't indicate all everything is "hunky-dory in India tech." He also addressed the need for startups to improve corporate governance in India as in the recent past, a number of companies like BharatPe, Zilingo and GoMechanic among others have been pulled up for governance breaches.
He argued that the lack of liquidity or distributed to paid-in (DPI) is not a structural issue with liquidity in India, but rather reflects manager decisions around liquidity. Somaia said that venture firms with high-performing companies should have taken more liquidity in 2021, while arguing that the venture industry needs to do a better job of delivering liquidity gains.
Somaia also said that investors should stop 'cheer-leading' and hyping companies and should rather have real discussions at board meetings. He also argued that India actually might not have about 102 (107) unicorns as a 'large number of companies' are overvalued. But Somaia said even some of the highly-valued companies would earn their valuations over-time, but argued that some might lose significant value. He said a number of companies in venture portfolios might 'not make it' (big).
"The startup and venture model is predicated on learning and adapting fast, navigating to the high upside and understanding that the few companies that really succeed drive economies and humanity forward, and create enormous value," Somaia said.
"And those that don't succeed contribute to a cycle of creative destruction that is essential to the development of an innovation economy. The potential of India remains incredibly compelling: a sizable market, high-quality founders, and one-way adoption of technology. The question is not whether there is potential, but how best to navigate this potential," he added.
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