Transaction-based startups mean business for Matrix
The India-China comparisons were at its peak four years back. Foreign investors saw India as the next big market to plough capital, expecting high returns.
In an interview with ET, the firm’s managing directors Avnish Bajaj, Tarun Davda and Vikram Vaidyanathan said that their Indian investment thesis had undergone a change in the past few years, after the boom cycle of 2014-15 gave way to skittish investor sentiments over the next two years.
The India-China comparisons were at its peak four years back. Foreign investors saw India as the next big market to plough capital, expecting high returns. While the mobile user base grew in those years with an explosion in smartphone sales, the consumption curve didn’t see an uptick as it had in China.
“What happened then (2014-15) was all of us were only looking at two parameters — mobile usage and data consumption which paralleled the China market at the same stage. What we forgot was that the GDP per capita needs to fall in sync for value creation to kick in. Which is why, we think that at $2,000 GDP per capita, India is still at the subsistence level. The real change will start to happen in the next three years when we inch up to $2,500-2,600,” Bajaj said.
Our thesis is to invest more behind disrupting existing GDP digitally, for instance, fintech models which are into lending rather than backing companies which will push incremental digital GDP, he said. To push that thesis, Matrix is looking to invest in transaction-based businesses, which would start to flourish once the consumer starts to pay for these products and services, said Vaidyanathan. Going forward, we expect all big sectors to have a tech as an underlying layer — be it a cab business or logistics, he added.
What this means is that the fund will back models which would support transactions rather than the ones based on a thin stack like advertising. In India, ad-based internet models work presently because the base of consumers willing to pay is small, Vaidyanathan said.
In another three-to-four years, when discretionary income starts to increase, it will help India internet reach a market capitalisation of $1 trillion by 2028. But the value creation in India will be more evenly distributed among a number of internet companies, unlike China which has created giants like Alibaba and Tencent, and US where Apple, Google, Amazon and Facebook account for a significant part of value creation, Matrix’s Davda said.
Matrix India’s Fund-III comes after more than two years of it announcing a $100-million extension fund and will take the total assets under management to over $1 billion.