Indian start-ups go global for growth as smaller cities take time to pick up

Push from a marquee investor like SoftBank to grab opportunity across the borders comes at a time when growth in India is said to be slowing down in particular categories as the firms go deeper into the geography.

Written by Pranav Mukul | New Delhi | Published: September 26, 2018 2:28:21 am
Indian start-ups go global for growth as smaller cities take time to pick up ‘Tier-II & -III markets likely to bring returns only 3-4 years later’

As consumer technology start-ups in India look at tapping smaller markets beyond metros and tier-I cities — where growth is coming at a slower pace than expected — a push from key global investors has made some of these companies look at international markets to capture growth.

Tuesday, hotel aggregator and hospitality chain OYO announced a $1 billion fundraise in a round led by SoftBank, with participation from existing investors Lightspeed Venture Partners, Sequoia and Greenoaks Capital. Apart from OYO, other SoftBank funded firms — taxi-hailing service Ola and fintech company Paytm — have begun operations outside India. While Ola has launched services in the UK, Australia and New Zealand, Paytm has started operations in Canada. Food-tech platform Zomato, one of the earliest companies to expand globally, is present in 24 countries including UAE, the US, the UK, Turkey, Italy and Australia.

Of the $1 billion, OYO has received funding of $800 million and a commitment of additional $200 million. In a statement, OYO said that a majority of the investment from the latest round of financing will be directed to strengthen its position in China. “With both the home markets, India and China on a steady performance trajectory, the company will continue to expand its presence its globally. The company will direct a significant part of the funds from this round of financing, approximately $600 million, into strengthening its position in China, which is still in the early stages of growth, while the rest will go into maintaining its leadership position in India and expansion into new markets,” the company said.

“Indian market is not saturated but the growth seems to be slowing down in all these categories. So it will take three to four years more before that growth returns and that opportunity will come from smaller markets beyond metro and tier-I. Companies will have to wait sometime in these markets before customers adopt to their services. For companies like Ola, number of rides are not growing as fast as they were two-three years ago. So since such companies have already built a product, it makes sense to scale it up and replicate it outside India,” Satish Meena, senior forecast analyst, Forrester Research told The Indian Express.

In the OYO statement, its founder and CEO Ritesh Agarwal said that the company had increased its international footprint to China, Malaysia, Nepal and the UK. “With this additional funding, we plan to rapidly scale our business in these countries, while continuing to invest further in technology and talent,” he said. Even as startups go global to more financially attractive markets than India not all has worked out as planned. In 2016, Zomato scaled down operations in a number of its markets and began managing the businesses there remotely from India. These geographies – the US, Chile, the UK, Ireland, Sri Lanka – were mainly those where Zomato was not in the leadership position.

Further, a push from a marquee investor like SoftBank to grab opportunity across the borders comes at a time when growth in India is said to be slowing down in particular categories as the firms go deeper into the geography. “Softbank’s philosophy is to tap the largest opportunity that is available. Their whole intention behind investment is scale. Most of the investments made by SoftBank are in hundreds of millions or billions. This is because they want to invest enough funds to allow the company to scale at that level. That’s why you see them pushing the companies to scale beyond India, while at the same time capture whenever the pie of Indian opportunity grows,” Meena said, adding that beyond hospitality, mobility and fintech, companies in segments such as online travel and e-commerce could soon be looking at cross-border offerings.

For all the latest Business News, download Indian Express App

Advertisement
Advertisement
Advertisement
Advertisement
Advertisement