Why Alibaba-backed eWTP innovation fund is bullish on investing in Indian startups
In an exclusive interview with YourStory, the Alibaba-powered fund’s founding Partner Jerry Li talks about why India is one of their ‘most important’ markets, what entrepreneurs should do and not do, and why founders must not chase capital blindly.
Alibaba group backed eWTP tech innovation fund was launched in May last year to focus on emerging markets like India and support the local startup ecosystem. In an interview with YourStory, Jerry Li, Founding Partner, eWTP, talks about why India is one of the “most important” markets, and what kind of startups they are looking to invest in.
A former entrepreneur, Jerri Li sold his startup to UCWeb in 2013, and joined Alibaba five years ago when the mobile internet company merged with Jack Ma’s multinational conglomerate.
Jerry details the factors that propelled the innovation boom in China, and what Indian entrepreneurs can learn from them. He believes that India will lead the “third wave” of the startup revolution, following the US and China that led the first two rounds.
(The answers have been edited mildly for clarity and brevity.)
The Alibaba-powered fund’s Founding Partner Jerry Li believes Indian startups and entrepreneurs are "quite sophisticated."
YourStory: You have played various roles at Alibaba. Tell us your story and how you became the founding partner at the eWTP innovation fund?
Jerry Li: I started as an entrepreneur, and in 2004 set up my first company, which became one of the largest social media platforms (called PP) in China. I ran that company for almost a decade and then the company integrated with UCWeb in 2013. I have had the opportunity to witness and experience the evolution of the entire Chinese Internet ecosystem over the last decade and a half.
I have worn multiple hats within the Alibaba ecosystem. I had the opportunity to lead multiple businesses within the group, including VP at UCWeb, CEO of Alibaba Literature, VP of Alibaba Pictures, and Chief Staff Officer of Alibaba entertainment group. Right before I was entrusted with the responsibility to work with eWTP ecosystem fund last year, I contributed in building Alibaba Entertainment Group, playing a key role in the establishment and corporate restructuring process. Alibaba Entertainment Group invested in or merged more than 100 companies over the last few years.
My experience in these roles with the Alibaba Group allowed me to have a deep understanding of complex corporate integrations.
Over the last two years, I have also worked on the Indian ecosystem, and have some observation of the Indian market as well. We are very excited about the potential of the Indian market.
YS: Tell us about your investment strategy. Which sectors and startups in India are you looking to invest in?
JL: We believe India is one of the most vibrant markets and are consistently meeting exciting teams in the country.
We are primarily focused on consumer internet businesses solving real problems. We are relatively flexible from verticals, stage, and size perspective.
That said, we are more than financial investors. We look for opportunities where we can add value in addition to the capital. Capital is just a starting point, but we are more hands-on regarding supporting our investee companies. We have a strong relationship base across China, Middle East, and several other markets, and - by virtue of our multi-country footprint - have seen the evolution of businesses in multiple markets.
We can support our portfolio companies in terms of know-how, technologies, developing monetisation models, providing access and learning curve so that they don’t make the same mistakes that have been made in other markets. In terms of verticals, we are looking for consumer-focused businesses and are quite interested in niche ecommerce, logistics, content, fintech, healthtech etc. However, in general, we are happy to evaluate businesses in the B2C space, irrespective of the sub-vertical.
YS: You have already invested in three Indian startups. Are you looking at investing in more? What excites you about the Indian startup ecosystem?
JL: Yes, we are. India is one of the most important markets and we have already started making investments. Since the mandate of our fund is to invest in global markets, and thanks to our pedigree, we understand consumer businesses with large volumes very well – India is a natural focus area for us. What excites us is the large market size and the enthusiasm of the entrepreneurs.
India is one of the fastest growing markets, and has a large young population driving growth, extensively accessing the internet, and trying to change the world through technology. We believe that India is at the cusp of an important inflection point and the market size is still waiting to explode. Though it is hard to time the market exactly, we want to position ourselves in a comfortable way so that we are able to leverage the high growth phase that India is likely to witness in the next few years.
I would also like to add that some of the entrepreneurs that we meet from India are phenomenal and we really like the energy.
In addition to capital, we are happy to guide them based on our learning from the Chinese market and my personal experience as an entrepreneur.
YS: What is your current portfolio in India? How did you decide to invest in those companies?
JL: eWTP started making investments in India rather recently. We have made three investments in India so far. One is where we led the Series C round for the company. What stands out about Box8 is the execution focus and discipline of the company and the founders. Their understanding of the business and ability to keep a watch on things across different levels of operations is phenomenal. They have already gone through one cycle of VC capital drying up, which has brought incremental focus and pragmatism in their approach.
Admittedly, the food tech market is relatively crowded currently but Box8 partners with the delivery players. Also it is very capital efficient. The company does not lose focus of economics. It successfully drives efficiency to stay ahead of the competition while staying disciplined on economics.
We have also made an investment in CRED, which is focused on the relatively elite market. While a number of players are focused on going to the masses, there is much to be desired for in terms of financial services to the relatively well-to-do population also. Serial entrepreneurs like Kunal Shah are miracle-makers and pioneers of innovation, who can make a real difference to the market here. We believe there is huge potential for this company. We are also invested in Xender, an offline file transfer and sharing platform.
YS: In the last five years, the Indian startup ecosystem has evolved and matured significantly and entrepreneurs have changed a lot. How do you look at Indian entrepreneur?
JL: Indian startups and entrepreneurs are quite sophisticated. We are always impressed by the quick learning ability of Indian entrepreneurs. Their tendency to do well in other markets such as the Middle East, the US, and Europe is an indication of that. Their strong educational background helps as well.
Similar to China, some of the entrepreneurs have returned from developed markets to set up businesses and solve problems in their home market. We also meet a number of entrepreneurs who come from premium schools such as the IITs.
Over the last few years, we have seen the maturing of the ecosystem and entrepreneurs. They are learning from other markets while localising the business models for India quite exceptionally. In fact, we are seeing some of the founders now taking their businesses to new and sometimes more competitive markets as well.
However, one word of caution for Indian entrepreneurs is that they should not lose focus of the underlying economics of the business model just because easy capital is available.
YS: India is a hyper-competitive market with global VC interest. Do you think that big money coming in and the narrative growing around hyper-scaling and market dominance is affecting the ecosystem?
JL: India is a huge market with a lot of potential. The large young population, growing economy, high mobile penetration, cheap data, and increasing aspiration levels make it a unique opportunity. Hence, it will continue to be attractive for investors from all over the world. The availability of capital for entrepreneurs is heartening.
That said, one thing that we notice is that sometimes availability of capital makes entrepreneurs assume that a particular market is ready for growth. The metrics improvement driven by capital is mistaken as sustainable growth. This is something that entrepreneurs need to be cautious of. It forces entrepreneurs to lose focus of their vision and chase larger amount of capital to justify the valuation and raise of the previous round. Some markets, particularly dependent on aspirational or discretionary spend, might not be ready and might be driven by discounts and financial incentives. Entrepreneurs need to be careful about that.
We, as investors, are relatively disciplined and look for businesses with solid economic potential and like founders who focus on capital efficiency without missing out on growth.
YS: China became a power player in the Indian startup ecosystem in 2018 with funds from the country investing in 21 startups, compared with 12 in 2017. What is your take on this?
JL: As I said, India is a large, promising, and attractive market. Chinese investors understand the potential of this market as well. They have experience of investing in China. India is quite often compared to China in terms of market size potential and opportunity. Investors from China aspire to benefit from their learnings from investing in the Chinese market.
China is one market that understood the power of operating with large volumes and has successfully customised technologies and revenue models for different verticals and businesses. Some of those learnings are surely applicable for India as well.
However, we believe the similarities are limited to horizontal capabilities such as technologies, monetisation models, learning curve, and capital etc. From a front-end perspective, India is a complex market due to its heterogeneity – be it languages, cultures, religions, or other soft factors. It is very important that investors as well as founders understand these fine nuances of the market, which are unique to India. The learnings from China should be leveraged, but those need to be integrated with the understanding and peculiarities of the India market.
YS: Tell us a little bit about the scope and reach of eWTP?
JL: We are a global fund and part of the eWTP ecosystem. eWTP stands for electronic world trade platform. The purpose of this platform is to support businesses globally and help them evolve and grow. eWTP Capital Fund was set up in May 2018 to make investments in global markets.
We have strategic operations in China, the US, South and South East Asia, and the Middle East. South Asia, Middle East, and South East Asia will be our priority focus going forward. The Middle East market has sizeable population from India as well. There are big differences in these markets, but also tremendous opportunities. We started evaluating the Indian market in late 2018 and are very fortunate to have invested in three companies since then.
Our strategy is to contribute not only funding, but also support the portfolio company in other value creating capabilities. We try to bring in strategic value for the companies in terms of know-how, technologies, monetisation, learning curve, etc.
YS: What are the things Indian entrepreneurs should and should not do to win your interest?
JL: We would say focus, quick learning ability, and localisation are the three key qualities that we look for in an entrepreneur. The entrepreneur needs to deeply understand the market in which they operate in. They should understand the nuances of the market well to ensure their product is fit for the target market and economics work well at scale. Quick learning ability allows the entrepreneur to streamline the model in time if required. The entrepreneurial journey requires a lot of patience and is exhausting; hence, passion is necessary as well.
We don’t like copied models from other markets without any customisation. What worked in another market is unlikely to work in India if not customised for the Indian market. Another thing to avoid in our view is blindly chasing capital. Capital is a means to achieve the vision of the founder and not the end goal. In fact, excess capital can be counter-productive in certain cases.
YS: Tell us about the factors that have propelled the innovation boom in China, and what Indian entrepreneurs and the ecosystem here can learn from that?
JL: The professionals returning from developed markets after learning from those geographies and then trying to use technology to solve problems in home market kick-started the innovation boom in the Chinese market, in our view.
The other important factor was the government support that the technology companies received. The government provided a conducive environment as well as the required support to the ecosystem to drive growth. Once the momentum is built up and an innovation culture is developed, then new entrepreneurs come to the market and start developing new ideas and business models. Also, visionary leaders in the internet industry provided support to the ecosystem for growth.
YS: What kind of opportunities do you believe India can take to the world?
JL: We are already seeing Indian entrepreneurs taking their businesses to the outside markets. Zomato is a good example. It is present in more than 20 countries, including some of the developed countries. It is making its presence felt in some of the relatively competitive markets as well. Oyo is another example, having expanded to multiple markets. Also, we meet a number of Indian entrepreneurs in the MENA (Middle East and North Africa) region such as Trukkr, which is successfully building businesses for the market there. There are several Indian founders in the US and other markets as well.
That said, replication of a business model to outside markets is more conducive for horizontal business models. Otherwise, horizontal capabilities can be replicated, but the model needs to be streamlined for the local market.
In our view, India is relatively young in the startup game and has witnessed significant success in the last five to seven years. The US dominated the first wave, while China was at the epicentre of the second wave. We believe India will lead the third wave.
Currently Indian entrepreneurs are working on their core market and it makes more sense to go outside when you have dominated your core market. Hence, we need to be patient in our view.
(Edited by Teja Lele Desai)
