PitStop 2020: Investor-startup conference reflects optimism

More than 70 investors from all over the world dialled into PitStop, our annual investor conference, this week to meet over 60 growth-stage startups from Sequoia India’s portfolio.

There were over 900 individual meetings over the three-day period – and if the conversations that took place are any indication, the level of optimism and interest in India and ASEAN’s startup ecosystem is at an all-time high.

Here are three key points that emerged.

1. The digital economy in India and ASEAN is deepening and capital flows are responding

The majority of corporate and financial investors, family offices and sovereign wealth and pension funds that attended PitStop are looking to India and Southeast Asia to gain significant investment returns, as many factors are uniquely converging in our region at this point.

Over the next decade, the combined GDP of India and SEA is expected to cross $14 trillion. The region is forecast to have 1.6 billion mobile internet users by 2030 as rock-bottom data plans and affordable mobiles continue to drive smart phone penetration. The population in this region is also relatively young, and consumers are comfortable adopting new technologies into their lives. Entrepreneurship has gained significant acceptance in society and high calibre teams are going after large problems. All this is fuelling rapid growth of the digital economy.

As a result, $19 billion of venture capital was invested in India & ASEAN in 2019, according to CB Insights. This is almost a 2x increase from the $10 billion invested in 2015 and well up from the low of $7 billion in 2016. Market data for 1H 2020 indicates that we will be in similar ballpark for 2020, despite the recent turbulence.

2. Deeper markets are creating companies of scale

As the region’s internet economy deepens and the ecosystem continues to mature, we’re starting to see more technology-led startups hit scale. Take Sequoia India, which has over 200 startups in its portfolio across India and ASEAN, as an example: in the last four years, the number of companies with over $100 million in revenue increased by 8x!

COVID-19 has accelerated both digitization and adoption across the combined region, providing significant tailwinds to a range of sectors, including online education, e-commerce, grocery delivery, health tech and digital content & gaming.

Digitization of small and medium businesses is another important trend. Consumers have been adopting technology at a rapid pace over the last few years, and the region is now seeing a surge in adoption among merchants. A new wave of startups are now rapidly creating digital tools for payments, billing, inventory management, supply chain management, etc. Many large tech companies are expected to be created in this important B2B category.

We are also witnessing the rise of software or SaaS companies from our region that are building for the world. As programming talent is plentiful in our region, particularly in India, we believe this has the opportunity to create more than a $100 billion in market value over the next decade.

The above mega trends were reflected in investor meeting requests at PitStop this year, with portfolio companies in these sectors seeing the highest investor interest.

3. Significantly large number of startups improved their financial profile during COVID

The COVID-19 crisis deeply impacted many consumers and businesses and therefore many startups, prompting virtually every founder to take a hard look at their operations, costs, and core vs non-core initiatives. The founders mounted a strong response in embracing fiscal prudence, taking steps to focus on the core, improve gross margins and reduce burn. A review of Sequoia India’s mid-to-late stage portfolio companies show that significant number of them improved their gross margins and reduced EBITDA burn in the first half this year.

It’s a trend that struck a chord with PitStop participants. Many of the conversations turned to the topic of grit, resilience and agility, and crucially a focus on enduring business models.

Conclusion

The combination of a larger internet economy and larger startups with sustainable financial profiles creates the ideal environment for many to aim for public markets. From our experience in other geographies, this creates a virtuous cycle of companies going public, generating returns for founders, employees and investors – a lot of which gets recycled back into the startup system and attracting high calibre talent to create the next wave of startup winners.

This column was originally published on LinkedIn.