An American VC investing in India, conversation with Martin Tobias and Hershel Mehta.

Hello.

Hello, everybody. Nice to see you again, Herschel. We have a few people coming. We had about 30 people respond. We'll see how many people come, but we're also recording this, so thanks for taking your time. I know you're a busy guy and, you know, we've invested together in India and I thought we'd just start off. Maybe you could tell me a little bit about your venture fund, how you got started investing in India, and then let's talk about some macro trends and stuff that's going on in India and I'll talk a little bit about, you know, why, as an American, I'm excited about the Indian market and at the end we can do a few questions.

Definitely, definitely. And Martin, I appreciate all your support. Very early in the, in the, in my own venture career, it's been phenomenal doing deals with you and having you be a part of my networks. I appreciate all that you've done. So you're a phenomenal guy. One of our, one of my first believers. So always forever grateful. So thank you.

Thank you.

So, yeah, you know, my, I started angel investing here in the US So kind of some background on myself. I, I grew up in Los Angeles. Obviously I'm Indian origin. You know, I, I'm 30, 33 now, about to turn 34. So in the 90s, growing up Indian American, there was this kind of dual. You have a dual identity. You know, the Indian culture is really strong and you're only one generation removed. Long distance calling, while painful, there was always still communication with family back home, which is a little atypical for a lot of, you know, for a lot of Americans, especially, you know, ones that have been here for generations on generations. So the longer you stay within the States, the further from your homeland you tend to be naturally.

Right.

So coming in the, you know, my parents came in 1980, I was born in 1990. And, you know, so there's always a tie to India, but the tie was relatively loose. Now, I like to say that I was never, I was never kind of ashamed of being Indian, but I would always make it really clear that I was American. Yeah, that started to change as time went on and mostly because, you know, I had family in India and my family in India, you know, was business family. You know, I have a cousin that's 20 years older than me. He's a successful tech entrepreneur, sold a couple software companies and became a pretty prominent angel investor. Around 2010 is when he had his, he had his first exit in 2000, 2011, and then he had Another one in. I'm sorry, in 2008 and then 2012. So during that time, there wasn't much of a venture ecosystem, and he became like a angel in India. You know, back then, I think Excel India was probably a $10 million fund in 2010. Today, it's a $100 million fund. So you can kind of see growth within, just within the. The big boys there. But nonetheless, the ecosystem wasn't developed. You know, India is probably 10, 20 years behind in terms of just a venture ecosystem. Development and capital inflow. Smartphones change everything. WhatsApp changed everything. So when WhatsApp came about, you know, all the families on WhatsApp communicating regularly, and then I went to India and I did a backpack trip by myself in 2017. And that's when it hit me that something was really happening there. It was. It was easier to travel in India than it would be in the United States. And, you know, I've male privilege there. But part of it was because of the software that was available for Indians, mostly PAYTM and Breadbus. So I was going to kind of remote destinations and PAYTM in particular. I had electronic wallet. And it was hilarious. I went to my uncle, and my uncle gave me a. An absurd amount of cash. He's like, you're gonna be gone for six weeks. You need cash in India. And I had backpack full of cash, like, as if I was doing nefarious transactions. It was hilarious. I was so scared. I was like, I can't lose this bag, otherwise I'm screwed.

Yeah.

Was like, Download PayTM. And he. Back then, PAYTM didn't have a KYC requirement, so he sent me, you know, 10,000 rupees on Paytm, and I was able to navigate the entire country just with this electronic wallet. Everything from booking trains to booking buses to booking hotels. You know, I used OYO rooms. We were first. We were early investor in oyo rooms. And so I was, you know, getting. Getting the lay of the land. And it was a phenomenal trip. And I. I started to realize that, oh, this country is unique in that the local populations have a global mindset. Everybody has a cousin somewhere in the world. English proficiency was quite high. And I started to notice the. The country and my own family was going like this. So you see a convergence of kind of identities where the Indian American identity is quite cemented at this point. 1% of the American population. And, you know, data's coming out that, oh, this is a successful ethnicity and something to be proud of, right? You see all these tech CEOs being of Indian origin and they're not Indian like myself, they're Indians from India. The clear differentiator. And then you see India also kind of rising. I saw my family go from a one bedroom home with 10 people living into now a six bedroom home, you know, on top of the city. So you saw this change occurring at a ground level and you saw this national identity being cemented and, and this is what kind of led me to go all in on India. So around 2017, after that trip, you know, I told my cousin I, I want to be a part of something. I was a cpa. I was always a entrepreneur. I would consider myself more of a entrepreneur in the sense that I didn't have the gumpt to really, really go into something hard, which is something that, you know, certain founders have this ability to focus and believe in themselves to execute on our vision and really make this happen. You know, if you're a little bit risk averse, good luck being a successful founder. Martin, you're successful founders, so you know what it takes of that everyday belief that I'm going to do this. And so you know, my cousin has it and you know, he was able to kind of install in me a mindset of hey, this is what we look for when we want to invest. So, so got very fortunate that you know, he kind of put me in the right circles to start investing and I built up our about a 50 company angel portfolio here in the US at the same time, every once in a while he would throw me a bone from India of like, hey, this is, this is a deal that I'm doing. And I noticed that the entry point was very, very good for early stage. I'm talking sub $3 million entry points and the cap tables would be very exclusive. Yeah, started. Okay, well in India I, I have something a little bit more specialized, a competitive advantage versus what I was having in the States where I was doing a lot of YC deals. You know, I was sourcing myself with, with different founders. I knew xyz, but in India this was something proprietary at the same time doesn't launch something called 100xvc, which is now the largest pre seed accelerator in India. They've done close to 200 deals over the last three, four years.

Yep.

And so seeing him build that then kind of realize like okay, well I have something here where I can look at deal flow that's coming directly, you know, via this channel as well as I can source my own deals too. And this was around Covid time. So we launched 2MVC 2MVC is a micro fund that is a US domiciled India only venture fund investing in early stage Indian companies. We have a Gen Z centric thesis meaning what we're seeing is there's 600 million people under the age of 30 in the country which is the largest young population in the world and consumption is on the rise and it's at a point that we haven't seen before in the country. So just when I started investing the GDP per capita was $2,000 per person. Now it's 2,500 and that's a, it's a large increase per person. $500. So discretionary spend, consumption growing and a lot, it's a lot of young people. So this revolves around what how do young people think, how do they consume. And most of the consumption trends tend to be digital first. So that leads us to believe that these businesses are interesting just because of the fact that there's new buying habits and those habits are going to come via software. And that's where we see a large opportunity. We're very fortunate to hit on a company called zepto which in three years I invested at a, at around a 2 million dollar valuation and now the company's valued at a 1.4 billion dollar valuation. Numbers are phenomenal. They have, they, they do grocery delivery and you know, have 250 dark stores, half of them profitable, phenomenal business. I'm so proud of those founders and the founders were at Stanford, 19 years old, computer science, which is very tough to get into from anywhere in the world. Forget about the United States. But coming from India to, to, to attain that kind of admission, it means that these boys are special and they dropped out of Stanford their freshman year to go to India and build a company. And that is a kind of a common trend that we're seeing is that these new H1B immigrants in India from coming from India into the United States are now looking back at India and saying this is a once in a multi generation opportunity to build a country. Something that, you know, India is a new country. 1947 achieved independence and flirted with socialism about the 90s. And so a lot of industries were, were subsidized by the government. And so in the 90s things started to liberalize and then you saw these industries pop up, starting first with IT services. That's why we had the vipros, the Infosys of the world. And then now it's very product heavy and now it's domestic. So our thesis, about 20% of the deals we do will be a build in India for the world SAS kind of thesis and the rest will be India for India. And, and that's where we think the meat is. That's where we think that the growth opportunity is and that's where we think we'll generate alpha. The cost arbitrage is great. SAS is very hard to invest in. It's tough to build anywhere in the world and sell in the United States. Building a home office is challenging. We feel that given that we are kind of in both geographies that we have an advantage there. But more importantly, we also believe the better bet is on the domestic market. And all the deals we've done, Martin, together have been those domestic plays.

Yeah, domestic ones.

You know, I'm happy to kind of dive deeper into kind of what we've noticed with Gen Z or, you know, I'll let you kind of direct.

Yeah, yeah, let's talk a little bit about some of the meta trends that you think and, and I'll let me give it a little bit of my interest in India. I remember when we first started talking about it, you know, I was doing angel stuff here and I was doing syndicates in the US and when you went through some of Those numbers, like 600 million Gen Z's, I'm like, that's twice the number of people in all America. And you just look at any demographic you want to target with any kind of application and it's two or three times bigger than the west in India. And their technology adoption is sort of, you know, earlier. So I thought those were all great macro trends. Plus you've got also, you know, a little bit more penetration of some things like high bandwidth Internet cell phones than you do in America. So there are some unique opportunities. I also thought it was pretty interesting that there were spins on companies that had worked in the west but that were doing, you know, specifically for the Indian market. I was going to talk about, for example, Spare8. Spare8 is kind of like acorns in the US but instead of asking people to save and put it into the stock market, they're saying let's put it into gold, which is an asset class that local Indians particularly like. So it was not just a copy paste from the US but a copy localized and make specific to something that's unique about India. And I thought that was an interesting way to approach the Indian market too. So I'm super interested just because of the demographics also a little bit the arbitrage on valuation. And so why don't you talk about like from you talked about the trends you saw in 2018, you know, 17 and 18. What do you think are the trends for the next two or three years that are going to be driving India? One of the trends that I had heard about is we all heard that the wipro and you know, the big outsourced customer service shops. But you know, one of the comments is AI could put those people shops out of business in India. And you know, are there things that are coming that are going to affect the Indian story either positively or negatively in the next two or three years?

Yeah, India's a challenging market.

For a.

Few reasons but like the opportunity is massive. So I'll kind of go into kind of the hurdles and why those hurdles are actually opportunities. So right now with young Indians, one of the trends that we're seeing is young Indians have figured out their own arbitrage of how do I earn a living in USD or euro Australian dollar and live in inr? This living arbitrage is phenomenal. The purchase power parity of the rupee is beyond what you could see. So for example, a $15,000 a year salary is probably the equivalent of like a 60 to $70,000 a year salary in the United States. And then when you go into tier 2 India that number just keeps going up. So what you're seeing is a young population that has figured out how to earn a living digitally. So be it. For example Facebook groups, if you go on Facebook or meta, I should call it Meta groups. If you go on groups and you search for Photoshop, a Photoshop group, you'll see a name there that'll be like surrender. And Surrender will be based in somewhere in South India. And if you post on that group, I need this photo photoshopped within seconds. He's the admin of the group. He will answer and he will get the job done within like five minutes. He'll charge you ten dollars. You your phenomenal. This guy's going to do my this thing that I would have charged somebody would have charged me $100 in the states. He'll do it for 10 and it's done instantly for him. That is an amazing salary that he's going to be able to earn managing this Facebook group now that you can be making 10k, 20k a year and he'll have more money than he knows what to do with it. And that's where discretionary spend gets really interesting. Now India is a still an emerging market when $2,500 per person, it doesn't seem like a lot so you really to kind of understand the tiers that India operates in. And what I mean by that is income is stratified across geographies and income is stratified across classes. So when you look at venture opportunities, you kind of want to focus on that top 10% India and then the top 30, 40% that will become top 10 India over the next 10 years. And what are they going to be spending money on and then how they, how they spend money, what are the things that they need? So one of the things that we focus on or trend that we like to see in the domestic market is going to be around renting. So this is a huge pain point for young Indians. The last deal that we just did, it basically allows for individuals to list their homes. It's a managed rental marketplace. So if you have rental property, instead of you being the landlord, determining is this person going to mess up your home or not, there's a big trust cap. This company will then say, we manage these marketplaces, we manage this for you, this property for you. You have to think of this as an annuity. So now they have like a kind of almost a guaranteed lease that they'll start earning on this and then our company will furnish the place. No young Indian can move to Bangalore and furnish a place. Why, why would they do that? It's, you know, that's, that's large capex upfront cost. So they'll furnish the place, make sure the place is nice and then they'll rent it out at a bit of a premium. That individual signing up now doesn't need. The pain point of looking for a home, staying in a hospital for three, three months and doesn't have to pay six months rent up front, which is some of what these landlords require. So solving pain points for those, that type of migration of young people moving from, you know, a tier 2, tier 3 city into the city is something that's interesting to us.

Oh, that's cool. That's pretty cool. Yeah. Maybe you could also talk about some of the unique challenges you mentioned. Some that turned into opportunities. I invested in one company. I don't know if you did it with me, but it was Tribe which was trying to do the public.com for India and what happened there? The thesis was good, like you know, millennial investors getting them into the stock market, same kind of thing, user generated, Robin Hood type thing. But then what happened in India is that the government changed the regulation and said in order to make a stock recommendation, you need a license. So they Basically outlawed the business model of user generated stock recommendations. And you know that was something you couldn't have known going into it. Or maybe you, but you know, maybe you could talk and I know that you know a lot of people were the, the payment system you talked about was an interesting opportunity but the Indian government put a lot of restrictions around companies ability to make money on those payments. So maybe you could talk a little bit about the regulatory environment or what's sort of unique about the way the regulators think about India. That might limit some opportunities in technology.

So interesting you touch on that. And a lot of these regulations will be around Fintech in general. So sure. Fintech is the most funded sector in venture in India by the way. It will continue to be the most funded sector. I mean payments, digital payments have gone through the roof. It's like trillions of transactions per year. It's phenomenal what UPI has done for the country. The issue is that India has a very, this is a, a government that's a democracy but it's very reactionary. So for, for example there was a law called an angel tax which basically all Indian companies have to file a valuation report. And Martin, you've gone through this with every company that you've invested in with. They have to justify their valuation to a red, to a regulator before they intake money. Well how are you going to justify evaluation of two kids and two laptops? What's going to be evaluated? $10? Like what, what is it? Right now they're, they're saying okay, well we have to justify this 2 million dollar valuation. And they do it. IP, we have this software XYZ. They filed this report. What was happening in the past was that individuals were kind of gaming the system. So they would say oh I invested in this shell company which would be operated by them and it's a loss. And they were avoiding tax that way. So the government came in and said no, you have to file valuation port, you have to justify it. Well that impacted the venture community because now if I was investing in a company, that company, if they couldn't justify the valuation would have to recognize that investment as income. Well then it gets taxed. That's ridiculous. I don't want to make a investment that's going to get taxed 30%. So that was a regulation that came out and then they, within six months they kind of reformed that and that's continual. So you'll see a reactionary law that will come out that is trying to mitigate some sort of other issue that affects that Has a effect that you don't know yet. And then there's kind of this back and forth that occurs and that is in India it's called fud, Fear, uncertainty and doubt. And that, that is something that you have to be along for the roller coaster ride. I'm a very early investor in the coinbase of India and the crypto regulations are constantly changing. They enacted a 1% TDS, which is like a trade tax. Well, if you're going to tax people on trades. Right. Then they're not going to trade as much. Well then what happens to the exchanges?

Right.

Their trading volume, that's a big part of their business.

Right.

So things like that, you know, it, it, there can be painful. I mean we had a company that's also in the, in the corporate credit card space and they removed their license to be able to charge an interchange. Well, that was their whole business model.

Yeah.

So they have to rework that. So this is something that, let me put it this way. SEBI and RBI are phenomenal regulators in the sense that they are true watchdogs. The SVB collapse that happened in the United States would have never happened in India. That would be caught all beforehand. At the same time, there's a bit of overregulation that investors need to be weary of. Right. So anytime I have a fintech deal, this is in the back of my head. So I have two options. Either I don't invest in fintech, which is not an option, you have to invest in fintech, or you bake that into the price that you're willing to pay. And this is kind of how we see it, is that if I'm an early investor and I'm going to be taking this risk, well then the valuation at which I come in on should be impacted by the risk that I'm going to be taking. So we bake in maybe a 15, 20% valuation decrease as a US investing in rupees. Right. So there's ways to mitigate it. There's way, you know, in the end we're early stage investors. It's a 9010 bull looking for one large outlier. And so you, you, you have to be okay with this risk and you have to be okay riding this roller coaster ride. It is not for the faint of heart. DCX itself, you know, the family must have invested probably a sub $2 million kind of valuation. So now that company's valued at a $2 billion valuation. So you're looking at huge multiple, you know, 100 to 200x kind of stuff. But as soon as these regulate regulations were passed, well, the crypto market collapses. Well, where is the valuation of this company? We don't know.

Yeah.

So timing your entry point and timing your exit is critical in India, if you're, you can't be that person holding the last, the last bag. You have to know when to exit as well. Today, the way that we look at India was ten years ago, Martin, There was five. You could like five to ten unicorns in India. Okay. Today there's ten. Fast forward ten years later there's a hundred.

Right.

And there's ten decacorns. Fast forward ten years from now, they'll. It'll go again where it'll be hundreds of unicorns and probably 100 decacorns. And that's where the alpha is. That's where the opportunity is.

Yeah.

So being patient, understanding that these regular, these regulations are challenging, but it's worth it. It's still worth it. The opportunity is still there. And then diversifying, not just, you know, that's why we're, we don't put ourselves in a box as an investor. And I think you don't either, as far as I've seen your portfolio. Invest in all different types of stuff. Yeah. So the minute that you're flexible in kind of investing in individuals early, they'll navigate these spaces. Well, right now we're seeing a large boom in the Bombay Stock Exchange, meaning companies that are operating domestically in India are listing and creating exit opportunities in India on the Bombay Stock Exchange. This is phenomenal. That, that wasn't there before. Yeah, this very new. So now when you have a winner. Right. You'll see them. Maybe they, they started off as a US domicile or single per domicile. They will, if they are a winner, they will SW Indian domicile and look to IPO there. Again, that, that's now creating liquidity. So for every con, you can probably name two or three goods. And that's why the, that's why venture is still pouring into India. And that's why the opportunity is still there. And that's why we still remain bullish. Yeah, they're. What India has done that's been phenomenally well, is they've reduced certain restrictions around foreign direct investment. So if you have a, if you have a compliance head that's local, they should be able to make sure that all of your investments into India are compliant. Step one. Step two is repatriation. And this comes in the documents that you sign. So, so when we go ahead and create a Document making sure that our exit is coming back in dollars. I'm not a currency trader, I'm investing in dollars. I want my exit. So little nuances like that which take time to develop because at first there's a lot of exuberance, but then understanding well how do I actually exit properly and then baking that into making the risk into the price that you pay at that early stage which Indian founders are receptive to see. Getting early stage investing, investment in India, it's still hard, it's not easy to get your first check and the dollar so far in India. I mean you see these burns, Martin. Yeah, burn 10k a month. You know, if you can burn 10k a month and you're intaking a 300 to 500k round, you have time to figure out your PMF that like if you're a good founder, you will figure it out and there's plenty of growth capital then kind of get to those next rounds and then you know, once you have pmf, the market's large enough. So that's where we see a massive opportunity when it comes to kind of AI disrupting industries. Wipro and Infosys are actually really well positioned and Tata Consulting and things like that to actually become like McKinsey type companies. That's what we see. We see India, I mean like kind of a leader in creating AI tools that are very service oriented for these companies. So there will be a McKenzie of India, of AI coming out of India. That's the, that we're looking for. That's the company that we're looking for. And that feels kind of a little bit backwards per se because you're investing in human capital. But that's the beauty about India. Human capital is what makes India different than every other market. So if you're not thinking human capital is an opportunity, you're going to be missing the boat here that's in this whole competitive advantage is that they, they have people and they have people that are literate and technical and if you can add that into kind of creating softwares and customized solutions, you're using different AI stacks, then there are companies that can, can be built there.

Totally. Well, all that insight that you just gave of you know how to manage the risk in terms of regulatory risk, which regulatory risk is material in India, it's not something we think a lot about in America because you just don't have the regulators. And that's why I'm an LP in your fund. That's why I like to co invest with you. If you're an American looking to invest in India, I think you should co invest with someone like you and certainly have someone on the ground there because to try to understand how to price it, how to put things in the document like getting your dollars back and dollars instead of something else that's really, really important if you're an American trying to invest in India is to have somebody on the ground that can help manage that. Those kinds of risks, it doesn't mean you're going to avoid them completely. The companies are still going to face some risks, but at least you can set up the deal in, in a way that manages for it. These are things that American VCs just simply very rarely think about. You know, I do a B2B SAS company in America. I'm never thinking the regulators are going to outlaw their business ever.

Absolutely. I mean you, you see it here. You know the, the figma Visa merger being nixed, you know that, that can create some fud. But the reality is that India is so small in comparison to the US like in the United States. You can have a garage door fixing company that could be making $100 million a year in revenue in India. That's not, it's not there yet. So there's the variety of the types of companies that come out of the United States. It's a non. It's comparing USVC and India VC is a huge mistake that you can't complain. The two. You're two different things.

Let me just ask one more question about opportunities. You think you mentioned that you about 20% portfolio might be these B2B softwares that are built in India for the world. And you mentioned one potentially AI for services businesses. Can you talk about. I'm personally interested in B2B software. That's what I invest in. What are the other one or two things that you're looking for that might come out of India that are B2B software opportunities? Yeah.

So we see a lot of, we see a lot of automation, we see a lot of martech, a lot of kind of ROI optimizers, the things that help resellers. Essentially what we see is a niche industry that requires so any kind of customizable software solution that would be heavy touch in India. Like I, I'm excited for the next Carta to come out of India.

Oh, okay. Carta definitely needs to be disrupted. Those fuckers.

Yeah. Or you know, that's where I see a huge opportunity. Because you have a country that's English proficient. Right. Like for example Ernst and Young. Ernst and Young is An accounting firm, consulting firm. Their largest margin comes from their India office. What they do is during tax time they will ship over a bunch of Indians who will come to Los Angeles or New York and they'll sit in an office and they'll pump out tax returns. Those individuals will probably be making 40-50k USD, which is great in India. That's a phenomenal. You're going to live a phenomenal life. Their counterpart in the United states is probably get 4x. Well guess what? The bill that they will charge the same stays the same. And that's where we think that there's a B2B opportunity along that kind of human capital arbitrage. Right. So a company that Carta, which is very employee heavy, right. You need the individual to come through the, the documents to put in the, the amount. I need somebody on site who I can message that will respond back immediately. Well, why can't that company be India based? Why can't my fund administrator be an Indian company? The knowledge is universal.

Yeah.

The proficiency is there. So those are the types of comments I think are quite interesting ones that leverage the human capital advantage. The other things that we see, you know that that comes out quite a lot or actually, you know what, I'll take a step back. Where to be careful in Investing in Indian B2B SaaS is a lot of times founders, they kind of test their thesis with Indian businesses. And the Indian B2B space is a lot smaller than the United States. The willingness for corporate to pay for a piece of software is low because they can just hire people to make that software. Right. So what ends up happening is if you test your thesis in India first and then you say well I want to be a global company, good luck, that's gonna be really tough to bring that knowledge abroad. So we see companies that are kind of entering into spaces that are a bit too saturated. And then when you're a last mover in a B2B space that's saturated, it is tough. You're gonna have a hard time. You have to find a space where everybody hates the incumbents like oh I hate this software then maybe. But if that's not the case, you're gonna have a hard time. So a few companies that have done phenomenally well, Postman, which API company, Browser stack. This is a like phenomenal business. They did not raise a single dollar to their series B. This the whole thing. And then Fresh Desk, which is now publicly listed. Fresh works. Fresh works, yeah, fresh. That's one of the products. So these are three SaaS, stories that have done really, really well, kind of build in India for the world. The rest you'll be hard pressed to find. I mean, there are some, but, but it'll be challenging. Where we see an opportunity is around B2B trade. So think if I'm a windmill company that builds large kind of new clean tech, actual com, you know, you know, large projects, you know, turbines, things like that, those components can now come from India. India has a large population that can get into manufacturing. Right. And this is how the population actually gets upscaled. So we saw Modi, you know, kind of host a big event in Gujarat called Gift City. And so, you know, he created. There's an area in India that's, they're inviting foreign offices to start there. There's tax incentives, things like that, less regulations. And you see Tesla opening up an office, Foxconn opening up. So now we think component manufacturing will become a viable space to look at. And that, that, that will be mostly in the B2B sector. And it ties in a little bit of deep tech nuance that we think India will be capable of. There is a beauty about skipping legacy infrastructure. And when you have young people and you can build something that you know that that's what China's playbook and from 2000 to 2010, I mean what they did with, with, with Shenzhen and Guangzhou, it's, it's phenomenal. I'm hoping that something like that can happen in India. Then you'll see tremendous growth and then you'll see upskilling happen with the population that needs these jobs. And once those folks are upskilled, better jobs, better wage, more consumption, domestic place and play out much better. So.

Okay, cool. Well, those are some interesting opportunities.

What do you think? What do you, what do you think.

Will be or do you have an idea of what innovation might come out of India for the rest of the world that is was unique and created in India as opposed to a copy of a US company or a, you know, something that's just a cheaper version done in India. Do you see any real innovation on that on the horizon?

So India is largely agrarian overlay.

Oh, agtech.

Yeah. So 50% of the actual economy is built on domestic agriculture. And starting in 2018, India had a food surplus. So something to note. India may be a developing market. There is poverty in India, but the hunger factor is significantly reduced. You don't see hungry. There's enough food. Right. And India is a very fertile land geographically, very fortunate to be where they are.

Right.

So when you have a Population that's highly agrarian and self sustaining farms. Agtech is very interesting. Now you're talking about increasing their yield and then going global. Well there's the largest population in the Middle east is going to be South Indian or South Asian origin, right From Pakistan, Bangladesh, whatever it is. Those are kind of the, the more the working class, middle class populations in these areas. Think UAE and Qatar and things like that. So naturally those, but those aren't fertile lands. They don't have ability to own crops. So India can become a natural channel. So we have a company that does B2B supply chain around agtech and what they'll do is they'll find like Basmati rice farmers and they'll kind of connect the dots to create a standardized product. And then you know, now they have a portal where buyers from around the world can go in and source grains and different vegetables from India which then if you tie in the agtech component, well, it's in their benefit to then give agtech solutions to those farmers to the private label products. So things like that, we're really excited. And there's a company in the 100x portfolio called Philo which is doing phenomenally well. They basically have an irrigation monitoring system that, that really helps founder farmers increase their yield. So things like that we think are, are, are going to be huge from a, from a deep tech perspective also space. Okay India, if you go to NASA, you'll be shocked at how many Indians sit in NASA. It's like absurd. So now those same individuals, especially from a young, young person perspective, they're going to go to isro. So we will. Space tech will be quite large in India just from a talent perspective. And then because Indians tend to be very cost effective when it comes to, you know, those actual kind of governmental products or projects. That's very interesting. I think space defense, these are going to be industries India is kind of focusing on. You'll see a lot of government support and more importantly you'll see large amounts of talent pour into these sectors. In the past that talent was leaving, there was a brain drain that occurred. That brain drain is significantly reduced today just to give a statistic. IITs are these universities in India which you have to test in to get into. You can't just give a donation to iit. That's not how it works. There's a specific exam and based on your score you get admitted and they actually will actually even select your major. I don't know if that's fair or not, but that's a different conversation Nonetheless, in the year 2000, 15 of IIT grads sought employment in India after graduation. Today that number left, it's now, yeah, 85% left today. In the year 2020 that number was 80% stayed.

Interesting.

So you've seen a flip in the, these are government schools so people could complain oh these and then they leave. And yeah, now you're seeing a kind of reverse of that where I mean young people see it as this is a once in a multi generational opportunity to build a country. And that too the amount of nationalism and national identity that's been cemented, sectors like defense, aerospace, space, like this is going to be so interesting. Right? And these are, the Indian population is so knowledge hungry. The culture is based on knowledge attaining knowledge. I mean you can go past, you know, the history of India. These are lifelong learners and that goes so well with entrepreneurship. So it's, this is a very special time. I, I, I would say like over the past probably 500 odd years there has never been a better time to be an Indian than today, which is something very special to say. And I, I did not predict this 10 years ago. You know, I talked about my own identity. This is something very new and so I hold it very dear and I'm excited. Next 30 years I'm like reverse immigrating. My parents are like, we worked hard to get here. What's going on here? You're going back?

Nice. Well I, I need to get over there again. The last time I was there I was there for a wedding in Goa and I, I got to come again. Well, we only have a few minutes left. Let's see if anybody, we have a few people listening. Let's see if we have anybody that has any questions. Does anybody have any questions? You can put them in the chat or come off of mute and ask a question. Let's see what anybody.

Hi, this is Todd. Thanks so much. This has been incredibly interesting. I just wanted to see if you guys could comment briefly on the ondc, this open network for digital commerce that's relatively new. How are you approaching it? Just what are you thinking about? I really appreciated you guys touched on the regulatory stuff. Oh, that was sort of giving me a lot of pause just because when that new regulation came out, you know, maybe six months ago, there was like a freakout in the whole startup sector. But I'll admit you, you sort of put my apprehensions at ease. So if you could just comment on ondc, I would really appreciate it.

Thanks Todd.

So ONDC is part of this. It's A initiative. It's called the India Stack. So India has created this digital stack. It started in 2009 with a. A system called Aadhaar, which is a basically digital biometric ID. And that now, by the way, like 90 of India's identified via Idahar. It's like, this is phenomenal. Like a country that didn't. They didn't know who their citizens were. Today, it's digitally recorded. Not only that, on a smartphone, you have a digital locker that you access with your fingerprint and your driver's license, your EMRs, it's all attached to this locker. So you travel with this wherever you go. Martin, if we lose your driver's license today, you're gonna have to go to the dmv. You're gonna fill out all this paperwork. Yeah. You lose your driver's license, it's still there. You click a button, it's gonna get mail to your house the next day. It's like, phenomenal. So started with that horror. Then the next kind of big breakthrough was something called upi, which is a United Payment infrastructure, which basically why it was created was Visa, MasterCard charges a merchant fee. So what was happening was these, you know, to accept a card, you know, it was a 3 to 5% fee. And that money was like, leaving India. So the government's like, hey, this doesn't work. So what they did was they created a software that connects your adhar to a full bank account. So now you can transact digitally. And when you go to India, it's, like, hard to spend your cash. I mean, it's. This is like crazy. I would have never imagined this because everyone used to complain, India, black money, corruption. Well, guess what? Now every transaction is recorded. The unbanked are now banked, and now they can transact digitally. Merchants are now accepting payments only digitally. So now you have a taxpayer base where everything's recorded and that everything's kind of now straight line, which is phenomenal for the country. So if you look up the UPI numbers, your mind will be blown. I mean, we're talking billions if not trillions of transactions occurring via this. And, you know, the. The companies that have really done well, they're QR companies that allow for merchants then to, you know, create their UPI account and for people to transact. But there's no charge, there's zero fee on the transaction. And this will lead into ondc. Todd. So how do those companies make money? Well, now they have data, and now they can lend to certain merchants that they know will be able to Pay, so that becomes a lending play. Well, guess what? When a economy goes from a debit economy to a credit economy, massive opportunities across the board for growth. Right now ONDC is really special. What ONDC is, is it's basically allows for any seller. Right. So an individual can create an app and let's, let's put it in a specific vertical so I can give a concrete example. So let's say kitchen appliances. So I created a kitchen appliance app and that kitchen appliance app is for, it's for sellers of a blender to list. And so they can list on my app. And if they list on my app, I can charge them a little fee if a transaction occurs. Now they list on my app. But not only is their product listed on my app, it's listed on every single other seller app that could potentially sell a blender. So now they have a buyer app, right, which is an E commerce app where this person can go on and they can see all the prices and the logistics of what something will actually cost to come to them and they can make a decision accordingly. So you're basically connecting any buyer and any seller for true price discovery within a market. This is like phenomenal. No fees charged. The only person that's going to get the fee is who listed it on what app. And, and xyz. So if, if I'm buying on an app. Yeah. That, then that app can capture that revenue. And if I'm listing, but everything is interconnected. So imagine an app where it showed you. You know, when you go on Google and you type in blender, you'll see an Amazon. You'll see, you'll see Amazon's, you'll see, you know, Walmart, you'll see all these different E commerce places right in that little sector there. Now imagine if that was on your phone. But not only that, they gave you true prices, true reviews, and you didn't, you didn't even have to open up these other apps. It's all within one framework. So it has not been adopted just yet. But there will be a massive player in this. In fact, we have, I have so many B2B marketplace companies that are struggling. My vision is those companies that are struggling will eventually transition into ondc companies. Well, they'll just say, hey, you know what, let's list on these open networks and then kind of provide these services and see how many people we can get to list via our product or via our actual app. So that's where things are heading. It's, it's, it's really consumer friendly, troop and, and, and seller friendly. So price discovery, price transparency match with a seller being able to then decide who they want to sell to and then being able to also see what their competitor are pricing and then match accordingly. So it's like open E Commerce, it's, it's something special.

So it seems like one of the things Indian regulators are trying to do is to take some of these big transaction opportunities like financial transactions like E Commerce transactions and lower the friction and lower the tax ability in those transactions which, which is going to lower the overall cost to the economy, which I think is amazing. I kind of wish in America we had some regulators that thought like that. You probably saw recently the, the settlement Realtors association making it illegal for them to charge 6% fee. In the US we charge on average to sell real estate a 10% total fee. When you include escrow fees and all of that stuff, it's the highest in the world. And you look at the total dollar volume, I mean the tax on the US economy of 10% on the largest asset class set of transactions, it's an astounding amount of money. Unfortunately in America we don't have any regulator who cares to reduce that tax. In fact they're, you know, bought and paid for by the realtors and the agencies that are making money in there. Maybe that's just because we've had them in, in our system for so long. But I think that's really interesting that India's government's thinking a little bit more forward like how, how do we enable these commerce things but lower the overall sort of, you know, big burden on our population.

Yeah, it's, everything's about transparency and fairness is what they're trying to do. Again, there are also unintended consequences. Oh sure. So UPI for example, there's like a duopoly on the UPI processors. Now they don't charge fees, but if there was a small fee maybe there would be more competition. Right, right now just two companies dominating the space. Maybe you can have 10 companies. So there are nuances that kind of take. But what is interesting is the government pushes out software that makes the life of Indians easier and there are venture opportunities around building in within these frameworks. Yes, it's exciting and I don't know any other government that has that capacity to ship software like that. It's really.

Yeah, yeah, yeah. I mean I've seen a few. You know, it seems like Singapore is pretty good at managing that kind of thing for the benefit of their population as well. Australia on the real estate side seems to be doing it right. They pay a total of 1% transaction fee in real in residential real estate and we pay 10. There's all sorts of regulations around that. But anyway. Well, let's see if anybody else has any questions, Kim or Sankar, if you want to come off mute and ask a question or if you don't, we can wrap up a little bit. Oh, here's one Sankar said in chat. Which sector within fintech one should be focused on where there will be ability to build a huge ar machines. If B2C is under risk, is B2B better? You have any thoughts?

I mean, yeah, yes, the See the. When with fintech most of the plays inevitably will lead to lending. I just think the B2C opportunity is better than the B2B currently. So I mean if you look at companies like Mobyquick Phenomenal. That's they're going to be on the B2B side, even Razorpay B2B side, that's like the stripe for India. Phenomenal company. We have one company, our Portfolio Carbon Card which is like a Brex of India. Phenomenal. But the actual opportunity then just becomes around lending. See India, the Indian merchant is in this stage of there's like different kinds of populations in India and this might sound a little crude but not every merchant has the desire to become a millionaire. And when you have, when you have individuals who when they do a calculation in their mind and they say okay at 5pm I need to make X amount to be okay and if they hit that amount at 2 o' clock they shut down their shop. Well then those types of individuals are really tough to sell to. And that tends to happen in places like where you live in paradise. If you live on the beach with your family, that extra dollar. So whereas B2C people need to consume and Indians are looking to consume. So where I think that the biggest opportunity is probably in credit for these individuals. I mean we're about to do a credit play which is really exciting. It's like a hyper localized, you know, starting with rewards and then going into credit. But underwriting these individuals that don't have a large transaction history is really tough. I mean if you're born American, you're have credit, you're just born with credit.

Do you know, do you know the macro numbers? I was listening. I'm also investing a little bit in Africa. I'm doing another thing next month with an investor in Africa. And places like Nigeria are still like a 92% cash business thing. And when you look at the total potential growth of economic opportunity in a cash economy versus a credit economy, it's like 10 times more in the credit economy just because of the access to capital. I mean, your ability to invest more in inventory or to build a new shop or whatever like that. Do you know the macro numbers in India and the trends, like in terms of percent of total cash versus credit transactions or anything? It seems like they're ahead of Africa.

In terms of credit.

Still like, but still, but still fairly low.

Very low. Very low.

Yeah.

There's probably close to only like 30 to 50 million Indians that are actually under, like you can underwrite for actual credit opportunities.

Yeah, yeah, yeah.

Which is, yeah, yeah.

It's interesting. The other thing you mentioned, like, you know, targeting either the top 10 or the next one down. And one of the companies I invested in was, I actually don't know how they're doing now but be my plan which was they're doing phenomenally well.

There's I, I, I, phenomenally well.

I thought so. But their thesis was, hey, insurance is a super inefficient thing. It's, you know, sold inefficiently. They pay 50 of the premiums to their sales channel. The premiums are really high. Only the top 5 or 10% can afford it. Let's make it more efficient, sell it direct and lower premiums without fundamentally changing the underwriting of the risk. And then you're going to increase access from the top 10% to maybe the next 30% and you're going to allow this next generation, next category of people to buy something they couldn't buy before. That was perfect for opportunity for me. I love that because technology can enable you to do things like that. When they told me that they could fundamentally reduce the cost of selling a policy without changing the underwriting and so you can reduce premiums without changing your risk, I'm like, okay, right, yeah.

And that's an embedded finance play, which is really exciting because I mean, you see like a company like Spirit will have hundreds of thousands of downloads. Well, if you, you know, have a little, you know, someone's saving, saving savings and then all of a sudden when they hit a certain amount, something will pop up for them to easily purchase health insurance. And if that's in their mindset of, you know, what, grandma's sick or, you know, mom's sick, no, we should health insurance. And that's how.

Yeah, yeah, I, I, I, I love those ideas. Using technology to increase access to something. That was before, you know, I, I didn't, I, I think I'm an investor in Carbon Card through an SPV or something like that. But I loved that I, I wasn't in bre, but I'm in Jeeves, which is in Latin America, which is a similar thing. But you know, what BRE did is, you know, for startups, they're like, listen, rather than underwriting the personal credit of the CEO, we're going to underwrite the bank balance of the startup and we're going to increase access to credit. For startups, they totally changed and it was very hard for traditional credit card companies to change their underwriting models and they were able to do it.

And.

But what it fundamentally did is it increased access to credit cards to this whole category that never had them before. And I love those things that make the market bigger. You know, it's like with Uber, right? What was the size of the ride sharing market before Uber? It was zero. There was no fucking ride sharing market. You know, it was taxis. And the number, I've seen the numbers. It's something like, you know, 30 or 40 times the number of rides that people are doing daily because you have Uber, whereas before you had this inefficient thing called taxis that people just didn't use because it sucked. I love those opportunities that make markets bigger like that.

So, yeah, you nailed it. That's the India story right now.

And that, and that's the India story too. You, you've got bigger markets that are growing faster with people that want, you know, more of these kind of access to things that they couldn't have before. And in cases where technology can increase the access by making it more efficient or whatever, that's pretty amazing. So I'm excited, I'm bullish. I hope we can do some more of those B2B things. I won't be in my current fund. I'm not gonna be doing the B2C things, but any of those B2B building for the world, make sure you let me know. And let's wrap up here. Where could I think people. A lot of people found me on Twitter. Martin G. Tobias, you're on Twitter too. What' the best way for people to contact you?

Hersel LinkedIn and. And email LinkedIn and email hersel2amvc.com 2.

LinkedIn okay, well, you are one of my favorite VCs over there and I hope to do more deals with you and I hope to talk to you again. Thank you everybody for coming. I'll send you a link. Take care.