VC firm India Quotient’s first investment in ShareChat grew 540 times. They say that’s just the start

India Quotient's investment in social media firm ShareChat was ridiculed and questioned by many for years. While some questions still linger, the investment is an unmitigated success, and investors expect the unicorn to have a monthly revenue of $40-50 million in 2-1/2 years. Here's how and what happened.

Mumbai / April 08, 2021 / 03:22 PM IST
ShareChat was launched by three IIT Kanpur alumni- Sachdeva, Farid Ahsan and Bhanu Singh in 2015

ShareChat was launched by three IIT Kanpur alumni- Sachdeva, Farid Ahsan and Bhanu Singh in 2015


In late 2014, India Quotient invested Rs 50 lakh ($67,000) for a 10 percent stake in a tiny regional-language social network called ShareChat. That amount would get most venture capitalists laughed out of a room these days, where paper ideas with no products can get at least a few million dollars.


Today, that investment has grown 540 times to Rs 270 crore, and by investing in every round since, India Quotient holds a 4% stake in ShareChat, which was valued at $2.1 billion earlier today in a $500 million funding round.


It has invested $10 million in India’s latest unicorn over the years for the stake which is worth $90-100 million (Rs 700 crore). That’s more the size of its first three venture funds put together ($5, $20 and $60 million respectively).


Led by ShareChat, India Quotient’s second $20 million fund is also worth six times that on paper, potentially very lucrative for its investors (limited partners). The firm's current holding has still not materialised to actual cash gains -- paper valuations are a constant risk in the startup industry, but the fund is confident that the gains will materialise.


And this is after India Quotient sold a part of the holding two years ago, at which time they pocketed Rs 50 crore, a 25- times return on their investment. A good return in absolute terms looks paltry in the current content. But that’s the nature of venture capital.


Anand Lunia and Madhukar Sinha, founders and managing partners of the firm are visibly happy on the call. For years their marquee investment’s fortunes have swung, from ridiculous to promising, to sure shot, to nearly dead, to promising once again. And while luck -- via the TikTok ban last year -- has played a part, India Quotient’s strategy of backing vernacular social networks in India repeatedly despite no prospect of making money for the longest time, seems to be paying off.


Even today ShareChat’s revenues are insignificant and certainly nowhere near what its valuation would demand, but it still looks better placed for success than ever before.


India Quotient may still sell a part of its stake sometime soon, but Lunia is clear about his priorities. “By now the ban on Chinese players seems comprehensive. We feel that this is the beginning of the real opportunity,” he says.


“There is the potential to grow at least 15-20 times from here. We (ShareChat) are already four times bigger than other players in the market, and this round gives us the chance to widen that gap,” Sinha chimes in.


Humble origins


India Quotient’s role in the ShareChat story is more than being its first investor. They incubated the company. In mid-2014, Prateek Shukla, then CEO of real estate startup Grabhouse (also funded by IQ), told the firm about three of his juniors from IIT Kanpur, who were “trying to do something with Indian languages.”


“You guys have a thesis to invest in Indian language startups. You should talk to them,” Shukla told Sinha.
Farid Ahsan and Bhanu Singh, just out of college, landed up in India Quotient’s office in Mumbai’s Powai. They sat there for months on end, iterating, building and changing what would become ShareChat. The third co-founder (and CEO) Ankush Sachdeva was still in college but was working from there. Sachdeva and Singh were the coders while Ahsan was the designer.


Even though the founders had an idea and investors willing to fund them, they weren’t even a legal entity yet. While the product was taking off, the founders were scrambling for address proof -- they had none because they were working out of India Quotient’s office and still had their hometowns of Azamgarh and Lucknow in Uttar Pradesh as their address.


“Back then, everybody would tell us, Indians don’t know how to design apps. Indians don’t know product management. That India can’t build a social network. We wanted to find India’s Facebook,” Lunia says.


India Quotient’s content and social media bets are almost an industry lore today, similar to Sequoia Capital’s education bets (Byju’s, Unacademy, Eruditus) and Accel’s commerce bets (Flipkart, Moglix, Infra.market).


However, ShareChat is the firm’s only success in the space. Others such as Clip and Roposo shut down or were sold. But the firm’s thesis still hasn’t changed. Even from their newer fund they have invested in social media and content firms again- KukuFM, Lokal and Frnd.


Luck has played an odd part for the firm. ShareChat certainly got lucky with the TikTok ban last year. Till then it was fighting a losing battle for market share against China’s $100 billion giant ByteDance, which was ready to burn money endlessly in India until it bled every other player dry, and was the last man standing.


“You definitely need luck. But you need to do a lot of work for that luck to help you. We have been lucky because we have consistently invested in this space. We have not been sporadic and have backed our thesis from the beginning,” Sinha says.


But the partners argue luck has worked the other way too. Clip, a social media app funded by IQ and Matrix a few years ago, was also looking promising. “Their growth was good, the team was good, everything was set.


But people got scared that Clip has to compete with TikTok and ByteDance and no investor was willing to fund it. Everyone withdrew. That’s just bad luck,” Lunia says.


ShareChat’s future


ShareChat is eyeing serious scale in terms of revenues from here on. Sinha says in the next two and a half years, monthly revenue can rise to $40-50 million. It would still not be profitable, but it would be enough to sustain the company, stop it from burning investor money endlessly, and make its multibillion dollar valuation far more justifiable for the long run.


“Today we just have the number of users, but now we are playing for revenues. Virtual gifting, user subscriptions can all come in. ShareChat and Moj (its short video app launched last year) can be huge. In fact Moj will have twice the users of ShareChat in a year or so, and has better monetisation mechanisms because short video is a proven play,” Sinha adds.


The startup industry is full of such tales of sudden gains, sudden losses, and overnight changes in fate. But if ShareChat does fulfil the vision that Lunia and Sinha have for it, it could be one of India’s biggest startups across sectors, and would have proven many naysayers wrong. It could also rewrite the thesis that venture capitalists build and pride themselves on.
M. Sriram
first published: Apr 8, 2021 03:22 pm

stay updated

Get Daily News on your Browser
Sections