[Investor Summit 2021] 5 sectors Bertelsmann India MD Pankaj Makkar is bullish on
"We have a relatively concentrated portfolio with 14 assets. I do think that we will end up with at least about seven to eight unicorns in the portfolio,” said Pankaj Makkar, Managing Director, Bertelsmann India Investments (BII).
Speaking at YourStory Media’s Investor Summit 2021, Pankaj said expecting seven to eight unicorns from the portfolio is almost like a 50 percent hit rate.
“We believe we are at the right place at the right time with the right strategy.”
In conversation with Vishal Krishna, Business Editor, YourStory, Pankaj highlighted the various booming sectors in India and spoke about where the next batch of unicorns and potential exits will come from.
Pankaj said BII took an early start in the education sector in the 1990s, realising that education would be disrupted the way ecommerce was. This means that the first large companies are being formed in the education sector in the same way an Amazon, eBay, or other ecommerce companies were being formed at that time.
“That's what's happening with education right now. It would take probably another 10 years and probably many more companies to form an extremely large deck to transform education the way it should be in the new tech era now,” he said.
He highlighted a few exciting trends in the education sector:
- The East was relatively behind and did not have too many Harvard-like institutions outside of IITs. There is a massive wave of that quality education coming to India either organically or with these institutes setting up that kind of infrastructure.
- Online is transforming education massively
- Use of technology in education will create a curve that will transform how education is delivered for kids
- Earlier, education was the public good for a very long period of time, but was controlled by governments around the world. Governments are now letting go of that concept. Education can be a private good, which means that enterprises can own education businesses.
“The combination of these four mega variables will create massive education outcomes, and we're super-excited to be in the middle of it, trying to find great entrepreneurs building those companies.”
From the perspective of whether B2B SaaS is here to stay from India for the globe or India for local, Pankaj is bullish on both. He believes India to the globe is the easier one, because the market recognises good products at reasonable costs.
However, with India now producing SaaS unicorns like Zenoti, Freshworks, Zoho, and Innovaccer among others – and capturing the India market well - ‘India for local’ is again an emerging market for SaaS companies.
“I do feel that slowly the Indian companies would also appreciate software being built for them, at enterprise and SME level. We see a lot of very exciting companies getting built for local SaaS,” Pankaj said.
Pankaj believes that there’s a lot of scope in fintech, and broadly looks at five or six big areas. For instance, in payments, a lot of things are playing out with strategic investment activity. Hence, venture capital activity will be less and in niche segments.
“When we look at segments like lending, wealth, insurtech - those are areas that are still playing out,” he said.
A lot of companies are relatively small, they're not retrieving unicorn status there. “We would see a lot more assets building very interesting businesses. So fintech, I would say, will be a very relevant sector for the next 10 years. It's not going to go anywhere.”
Rural was always considered a space where one had to do public good and needed to be charitable. But times are changing now. The current set of founders aim to help their businesses turn a profit and create wealth in the social and rural side. That is something BII wants to bet on.
“When we start looking at the rural area or the next 500 million users, as they’re popularly called in the VC circle, we listen to what rural people are consuming, how they spend, and more,” Pankaj said.
“For instance, when we look at agriculture, there are areas where farmers will spend even if they have less money any month, say to buy seeds and fertilisers. So, there is opportunity to build very interesting businesses in areas where there's still income or wallet share available to spend.”
Pankaj said there was a large market without any channels for distribution, and people who end up building those channels will be the big Unilevers. He added that there's a multiple layer of businesses one can invest in in farm to fork.
“We do see a lot of entrepreneurs building very exciting businesses there. And these are extremely large markets, where you will have large outcomes,” he added.
The logistics story was always there in India. Now, it's getting digitally transformed with entrepreneurs solving for niche areas within this sector.
“Logistics is a $200 billion market. So 1 percent of this, let's qualify that as a niche, is a $2 billion market. That translates into a lot of opportunities to build amazing businesses in this sector,” he added.
Pankaj emphasised that logistics was an extremely fragmented and inefficient sector, leading to high costs of logistics in India.
“If we can build amazing technology solutions, which can help even solve part of that problem, it will unlock significant amount of value for the entire ecosystem, the nation, and entrepreneurs building these companies,” he added.
There are a lot of opportunities within the media in India and globally. But most media companies typically have a tussle between content and distribution.
“Whenever a new form of distribution comes, let's say mobile or OTT platforms, there is a secret amount of value that goes into building such platforms, while content takes a backseat,” he said.
These platforms become relatively big; they are hungry for content. That's when the story for content companies comes in and there will be large outcomes.
“In my mind, the opportunity is with content creators for the next five to seven years till new platforms come and then it will again shift into that era. It will keep going and going but that's our thesis. And we do feel that a significantly large company can be better,” Pankaj said.