Investors see an aspirational middle-class population with increasingly easier access to affordable smartphones and data connections potentially translating to a greater propensity to shop online.
“It’s not just about the 70-80 million of the Indian population that are currently online. It’s about the 200-300 million strong middle-class population that will be (online) in two-three years and will need a slew of products built for them,“ said Rehan Yar Khan, general partner at Orios Venture. Venture capital firms in India are taking a leaf out of the Chinese and US markets, where startups catering to the value or mass-market segment are growing rapidly. Chinese social shopping service Mogujie is valued at $2 billion (about Rs 13,000 crore) after its latest fundraise, and Jet.com, a USbased ecommerce company centred around savings, recently brought Alibaba Group on board as an investor.
In India, startups such as OYO Rooms and Zo Rooms offer budget hotel stays beginning at less than Rs 1,000 a night, and food-tech venture Yumist offers meals at less than Rs 100.
Orios, Matrix Partners India and Lightspeed Venture Partners are already injecting money in startups that serve a broader demographic than just the affluent urban population, seeking investment opportunities in sectors as diverse as bus aggregators, loan providers, online used two-wheeler retailers and refurbishment startups.
“Entrepreneurs have begun to understand the Indian online audience, and if you want to build a large company, you have to offer a product that caters to every single consumer segment,“ said Tarun Davda, director at Matrix Partners.
While such business models are still evolving, investors nonetheless want to pick stakes early on to take advantage of lower valuations, as well as to be among the first to back potential winners in various categories.
Orios has backed food-tech venture Yumist, which began operations in October, and online accommodation marketplace Zo Rooms that launched this year. In June, Matrix Partners led a $6-million series-A round of funding in affordable hotel chain Treebo, which began operations in March.
“We’re very excited about this massive middleclass,“ Orios Venture’s Khan said, adding that the VC firm plans to allocate up to 15% of the corpus of its new Rs 1,200-crore fund to back more startups in the budget segment.
Lightspeed, which is raising a $115-million Indiadedicated fund, has invested in OYO Rooms, which earlier in August raised $100 million from Japan’s SoftBank.