India2, English Tax and Building for the Next Billion Users

Rehan Yar Khan’s follow-up tweet

There is a ~30m consumer / user market in India today

In my opinion, it is not even ~50m consumers as Rehan Yar Khan postulates. It is about 30m large, or small (see Annexure 1 for my estimate). These are individual consumers, which means around ~23m households, and a total population of ~110m people (going by the norm of just under 5 members per household), with an approximate per capita annual income of nearly $9k. They comprise about a tenth of India’s population but well over a third of its GDP.

India1, India2 & India3 are akin to Mexico, Philippines and Sub-Saharan Africa

My estimate of these segments

Table1: India1, India2, India3 estimated.
  • See Annexure 1 for how I arrived at these estimates. That said there have been many attempts at defining the size of these segments. I have compiled three such estimates — from Kishore Biyani, Haresh Chawla and iSPIRT / IndiaStack’s Sharad Sharma. See Annexure 2 for the same.
  • Sub-Saharan Africa is Africa without the 5 North-African countries (Egypt, Libya, Tunisia, Algeria and Morocco)
Table 2: India1 vs Mexico

India is an over-ventured market at ~22x Mexico’s VC market!

Thus, when we look at most consumer-oriented startups, including app-led ones, they are all playing at best in a Mexico-sized market of ~110m consumers. Keep in mind that Mexico’s early stage investments totalled $130m in 2016, and is likely at $100m in 2017. What about India?

  • Qikpod — a smart locker startup funded in 2015
  • Raw Pressery — cold-pressed juices brand
  • Beardo — men’s grooming brand

Indian startups need to push for profits earlier than their Chinese peers

One interesting consequence of this funding land-grab and the overventured market that results is the need for startups in India to get to profits early. This is because of the nature of the funding funnel in India which is wide at Pre-A / Series-A and then narrows sharply around Series B/C investments. Let me elaborate.

To win in India2, avoid the ‘English Tax’

At some point, India2, the ‘Philippines’ part of India will get richer and expand into India1. Still, I am extremely skeptical of present India1-oriented products expanding their appeal to India2. As India2 gets richer and digitally-comfortable they are likely to look to native apps with no English tax and a UI that is non-intimidating.

Starbucks wall menu from China
Starbucks wall menu from Dubai
Starbucks wall menu from India

Building for India2

Mumbai; Photo by Martin Roemers

Getting from ‘Mexico’ to ‘Brazil’

We are near Mexico presently at ~110m population and per capita of $8,800. We will at some point get to where Brazil is now at ~210m population and $10,000 per capita. But clearly what got us here won’t take us there.

Table3: Three old definitions of India1, India2 and India3
  • 10m iPhone users (source)
  • 18m wi-fi households (source)
  • 20m monthly ecommerce shoppers (source) & 54m annual ecommerce shoppers (source)
  • $18–20bn ecommerce market (source)
  • 32m car owners (source: 28m as per this, updated to 32m for 2017; 70% of used car sales (apprx 3.5 to 4.0 mn each in last two years) is by first-time buyers, as well as 40–50% of new cars (~3m each year). Hence updated 28m to 32m — taking into account older cars exiting the system.)
  • 37m credit cards (source)
  • 50m post-paid mobile accounts (source)
  • 59m tax payers (sourced from Economic Survey 2018, Govt of India)
  • 65m domestic flyers (source) and 24m international flyers (source: 22m in 2016 as per this, upped to 24m in 2017)
  • **

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Sajith Pai

Sajith Pai

‘VC’ at Blume Ventures, an early-stage fund from India | Writings on startups, venture capital & other miscellany at sajithpai.com