Siddhartha Ahluwalia 1:12

Hi, this is Siddhartha Ahluwalia. I’m your host at Neon Show and also managing partner of Neon Fund. Today I have with me Dev Khare, partner at Lightspeed Venture Partners.

Dev, welcome to the Neon Show.

Dev Khare 1:26

Thank you.

Siddhartha Ahluwalia 1:26

I’ve been meaning to have this conversation for a very, very long period of time.

Dev Khare 1:30

I know.

Siddhartha Ahluwalia 1:30

Thank you so much for making it happen.

Dev Khare 1:30

Thank you for doing this.

Siddhartha Ahluwalia 1:32

So, Dev, Lightspeed today is one of the top venture firms in India and also globally, right?

But in India, with a track record of let’s say 14, 15 years, Lightspeed has come up among the best investors in India, right? I think you and Bejul started it and now the team has expanded, right? How has your journey been from the starting, right?

Because what are the initial days like when you came back to India with Lightspeed?

Dev Khare 2:05

Yeah. I mean, for what it’s worth, I’ve been doing this India to abroad thing for many years, even since childhood. Sort of my dad was in the Indian Foreign Service.

Yeah. So we kept traveling other countries back to Delhi, back out and so on. And so then I went to the US in 1990 for college.

Ended up doing various things, business school there as well. And then moved to Silicon Valley in 1998.

Siddhartha Ahluwalia 2:36

Okay. After your Harvard?

Dev Khare 2:38

After business school, yeah, after HBS and which is where I met Bejul.

Siddhartha Ahluwalia 2:43

Yeah. And you and Bejul were in the same batch?

Dev Khare 2:46

We were in the same batch. What’s interesting is that actually a bunch of investors in India are in the same batch.

Siddhartha Ahluwalia 2:51

Okay.

Who all?

Dev Khare 2:53

Avnish from Matrix, Suvir from Nexus. And there used to be other folks who’ve moved back to the US since then.

Siddhartha Ahluwalia 3:05

But there’s a joke that you haven’t aged at all.

Dev Khare 3:08

I haven’t aged at all.

That’s funny. I certainly have. And all the ups and downs of the Indian startup ecosystem have aged me quite a bit.

But no, thank you for that. But your question was sort of what made me move here. So in 2003, the startup I had co-founded with my two co-founders in the Bay Area, a mobile software company got acquired by Symbol Technologies, a public company there.

We stayed for the typical day, you know, year and a day, did our earnouts. And I left in mid 2004, took time off, traveled the world, whatever. And then end of 2005, beginning 2006, joined Venrock in the US.

And actually, I joined there, interestingly, to start their India investing practice. We ended up not going forward with that for various reasons. But then I turned to investing in the US.

And my first investment ended up being a cross-border US-India company, almost by accident.

Siddhartha Ahluwalia 4:15

Which was?

Dev Khare 4:16

The company was called SlideShare. I was visiting my parents here in Delhi, and just online, you know, at 3 AM in the morning after landing and having my jet lag. And I was like, what’s going on in the internet in India?

This was 2008, 2007-2008. And there was a blogger by the name of Amit Ranjan, who was blogging on a, his blog was called Webyantra. And so he had really great analyses of what was going on here.

And he said he was going to start a company soon. So I pinged him. Literally two hours later, we were meeting at some cafe in Delhi.

And he told me he was going to start something. So I started tracking him. And three months later, he started with Rashmi and John.

Rashmi and John were in the Bay Area. So I got involved with this. Their company was in, back end was in Okhla, front end was in San Francisco.

And we did the series A there. And then I continued investing in the US software and consumer. But then, you know, Bejul and I had been chatting, I’d been visiting here.

And he had been the one initially starting off Lightspeed’s operations in…

Siddhartha Ahluwalia 5:27

In 2008

Dev Khare 5:28

2008. And so in 2011, we got chatting again. And he said, you know, mobile is about to take off.

Mobile was a lot of what I’d been doing in the US, the startup I’d done had been mobile and so on. And so he said, why don’t you come here? And I said, sounds like a great opportunity.

We had a one year old, my wife and I. So we moved here in end of 2011. So and we stayed here for just under 10 years.

And then moved back to the Bay Area, still with Lightspeed.

Siddhartha Ahluwalia 5:58

And what prompted the decision to move back to Bay Area?

Dev Khare 6:02

A couple of things. One was from a professional perspective, it turns out, in the software investing practice that we’d started at Lightspeed in, you know, 2016, 17, had grown about a quarter of our Lightspeed India funds over the years have gone into software investments. We’ve got about 100 total portfolio companies in the region.

So about a quarter of that are software. And many of them had moved to the US. And many were threatening to move to the US.

And so from a fund perspective, it made sense for us to have somebody there who’d had 10 years of runtime in India, new software, and could help these companies bridge over to the US. There’s so many things that companies that need, we can talk about that. And that trend line has strengthened since then, we can talk about that as well.

But we are so closely integrated with Lightspeed globally, and Lightspeed started off in Menlo Park and San Francisco, and has spread to Europe and Israel and Southeast Asia and so on. And India, of course. And so it helped us on that front as well, because as a platform, Lightspeed can help these companies move there and plug into the Lightspeed platform globally, which is exec hiring, customer introductions, partnerships, and obviously connecting with all of our partners there in the US and globally, as well as all our portfolio companies, about 500 portfolio companies globally.

So that was one reason. Professionally, it made sense to have somebody from India there helping the Indian companies bridge over as well. And it’s worked out really well since then.

This trend of India to US has only grown. If anything, I’m seeing more firms from India, setting up or having people there since we moved. And I think this, I mean, we can talk about this as well, the sort of Indian software companies going global, or Southeast Asian companies or Australian companies going global, that’s just a trend that’ll grow over time.

Siddhartha Ahluwalia 8:13

And which are the first few companies that you invested in when you joined Lightspeed India?

Dev Khare 8:17

Yeah.

There was a learning curve for me, for sure. And I think a lot of people who think about investing in India, whether they are already in India or coming from abroad, but including coming from abroad, they come with a framework from somewhere else, right? And so my thought was, well, it’s happening there.

So it should be happening here as well. The first company I ended up advocating for to invest in was a company called Dhingana, consumer company doing basically an early version of Spotify for India. At that time, there was Gaana and a couple of others.

Siddhartha Ahluwalia 9:00

Sawan and all.

Dev Khare 9:01

Sawan. Yes, that’s right. Dhingana was the largest by traffic.

And so we invested there. We got that call wrong. I got that call wrong.

I think the willingness to pay was sort of very early in India at that time. Remember, this was when Zomato was a, you know, a new company. There was no food delivery.

Flipkart was early, you know, there was no easy way to pay online. Cash on delivery was what was happening. Imagine trying to do cash on delivery for music, it just doesn’t compute.

I got that call wrong. And the other thing I got wrong was the business model. The model of music is tough, the business model, because you’ve got the rights holders who have essentially monopoly power, whether it’s your global sort of rights holders or your Indian ones, T-series and so on and so forth.

And they know that. And so, you know, if you make a rupee, they’re going to make a big portion of that. So the margins left are very small.

And hence, actually, if you look at most music streaming companies globally, Spotify has gotten a scale where I don’t know if it’s profitable yet, I think it is. But for most other companies, they’ve never reached profitability. And they end up being loss leaders for the companies that end up owning them.

Right? So you think of Gaana, they’re part of Times Internet. You think of Reliance’s music service.

You think of Wink from Airtel. All of these are part of other companies that have huge balance sheets. And these companies, my guess is mostly the music streaming companies all lose money is my guess.

But they’re loss leaders to then distribute your users to go to other properties that you might have. So in that sense, doing a pure startup with sort of this very thin operating or low operating leverage didn’t make sense. And that didn’t work out.

So, yeah.

Siddhartha Ahluwalia 11:00

And what are the few companies after that?

Dev Khare 11:03

After that, we had a Truecaller clone that I invested in. I thought it had a different positioning. I had invested in a bunch of these utilities, mobile utilities, which I like to do when I was in the US.

It didn’t make sense here. There was a learning curve first two, three years where I had to readjust to the market that time. And that’s what was happening.

It was all the early e-commerce companies were starting up. Some of the vertical commerce companies were starting up. Software.

I mean, there was maybe a handful of interesting companies, but that was about it. And so yeah, the first three years were tough for me readjusting. But then after that, sort of there’s a thought pattern I went through with my colleagues and then changed sort of what I focus on.

Siddhartha Ahluwalia 11:53

So what did you realize after those three years? Maybe after four, five investments that what really worked in India?

Dev Khare 11:59

Yeah, a couple of things. And this is a learning for our firm as a whole and something that we really sort of make sure that we do as a firm, which is keep in touch with what’s going on on the ground in reality rather than think in an ivory tower and sort of imagine what might be happening or what should be happening. What changed for me was one, understanding the business models that work here.

And we can talk about the different business models that are different here than let’s say the US or China or Israel and so on. Because I think the Indian venture ecosystem has just grown up in a way that’s different from these other venture ecosystems. And you can’t just say, let’s do that.

Something that’s successful in China, let’s do that here. Or the X or Y that people used to talk about.

Siddhartha Ahluwalia 12:45

I think that was a theme for the longest period of time in India. And I think now everybody realizes that doesn’t work. Neither copying the US nor copying China doesn’t work at all in India.

Dev Khare 12:57

Yeah. So for example, I agree with you. So one of the early investments we did was the seed investment in OYO.

And Airbnb was starting to be active in India. And initially, the story goes, Ritesh started a company that was like Airbnb.

Siddhartha Ahluwalia 13:15

Yeah. Oravel.

Dev Khare 13:17

Yeah. And it was having limited success. But then he said, well, what’s different about India?

It’s unlikely that people are going to rent out a room in their house to a stranger in India. It’s tough. Yeah.

US, there’s a, for whatever reason, people are more comfortable with that. But he saw all these guest houses here and he said, they’re there. There’s a huge network of them.

But the quality is broken, reliability is broken, pricing, services, broken supply in a generic sense. And he said, I want to go fix that supply and then aggregate it. Crucially, he didn’t say, I just want to aggregate it, which I think is a lesson that a bunch of founders and investors learned together here over the last 15 years that you can’t just aggregate at the high level and just provide access.

Yeah. Okay. Air tickets and railway tickets, fine, because those are pretty commodity sort of items.

Right. But a stay in a specific guest house, you know, in Ranchi, like nobody knows what the quality will be or not, or even in the middle of Delhi, nobody knows. Right.

And so you have to fix the supply. You have to do a managed service in a sense, not just an aggregation.

Siddhartha Ahluwalia 14:29

You can’t build marketplace for everything in India.

Dev Khare 14:32

Yeah. But the opportunity is there in India, which is one of the big themes, enduring themes, which is that markets are large, but very fragmented in India. So you look at transportation with all the yellow cabs that still are there, used to be the main thing.

You look at all the guest houses, you look at all the small restaurants, you look at all the, any service, small mechanics, you look at all the small factories, look at all the Kirana stores. These are all, it’s the same broad realization that these are large markets and aggregate, but very fragmented. And everybody’s optimized for their limited sort of thing that they do.

But if you can fix supply and provide access, and then there are other services we can talk about that you can do, you can make this sort of a virtual engine or back office in a sense, whether it’s hotels, whether it’s factories, whether it’s people who do outsourcing type of work. If you can fix, supply, aggregate, and provide access, there’s lots of big businesses to be built. And that’s actually one of the big themes that Lightspeed has focused on the last 15 years.

Siddhartha Ahluwalia 15:46

So Zetwerk has been one of the companies.

Dev Khare 15:48

There’s a bunch in this B2B commerce space. Zetwerk is one of them, M-Stack, and Zyod, and Global Fare, and there’s many other companies…

Siddhartha Ahluwalia 15:55

Udaan

Dev Khare 15:56

…that we’ve invested in, Udaan, that are in this B2B commerce category. There’s a sub flavor of that, which is India to the world B2B commerce.

That’s done really well. And I think that that is benefiting from a lot of supply chain shifting from China to other sources.

Siddhartha Ahluwalia 16:13

I think one realization, even I had a founder, as I had a founder was that in India, if you think that, hey, let me fix distribution first and monetization, I can fix later. That rarely happened.

Dev Khare 16:29

Yeah, funded by a lot of venture dollars, but that did happen. And I think though, and we can talk about this later, if you like, I think post COVID, post the air coming out of the growth investing market in India, a lot of companies not only right-sized their models, but the new companies starting have started with a whole different mindset. For example, a lot of the consumer companies starting are not just taking venture dollars or venture rupees and plowing it into Google and Facebook for customer acquisition.

They’re developing owned and operated or organic ways of acquiring consumers, right? You think about Physics Wallah in our portfolio, right? Famously, they have 80 million people a month coming to their YouTube properties. And that’s the top of the funnel to then get into the rest of their engine.

Siddhartha Ahluwalia 17:25

80 million people every month. That’s a huge number.

Dev Khare 17:28

Yeah, eight crores. Yeah. And that’s a huge advantage for them, right?

In the market. Think about all the tech companies that were there in the 15 years before that. A lot of them were, they had great products, but they also spending a ton on sales and marketing because they were doing Google, Facebook, et cetera.

They were doing home visits. They were doing stadium events, all of these things. And also, I mean, there’s a realization when you start in India, you also have to find your way to value, right? Value is consumers willing to pay for something and that what you’re providing them, costing less than that to provide it to them. And that takes a while for companies to do.

And so post-pandemic, I’ve seen companies starting in the right way. Much lower cost acquisition, if not organic acquisition. And then business models that have gross margins built in, et cetera.

I remember coming here in 2011 before joining Lightspeed. And we were looking at an e-commerce company, not to be named, and there were negative gross margins on it. And as an investor in the US and an entrepreneur in the US, I literally never seen negative gross margins in my life at a startup or a large company.

And here, every e-commerce company had negative gross margins, which clearly is not a sustainable thing. Yes, if you want to educate a market and so on, you can do that for a little while, but that’s not a long-term business model. We all know this now.

The ecosystem has learned it. At that time, the ecosystem had not learned it. And so like that, there’s a lot of learnings that investors and the founder community have learned together.

Because if you think about it, in 2011 or 2006, most investors were also first-time investors. I wasn’t, a few others weren’t, but by and large, everybody was investing for the first time.

Siddhartha Ahluwalia 19:27

And most of the investors that came to India, they had, I would say, a template of what worked in the US, right? And the thesis was the internet penetration in India, the monetization would be on the similar lines.

Dev Khare 19:47

Yeah, this is what we were talking about earlier, right? Applying a framework from somewhere else to India. In the middle, there was a huge fashion for applying Chinese models to India and so on.

And then there was a thought around applying US software models to India. There still is. And even in this new AI sort of boom that’s happening, a lot of people are saying, why don’t we do the DeepSeek of India?

Or why don’t we do the OpenAI of India? Again, we’re going down this route of rediscovering what is Indian at the core and where that can give us advantage. And we’ll do that.

We can talk about that as well. But India’s developed a different flavor. I’ll give you an example.

Like in software, let me zoom out even from software. If you think about some of the, whether it’s venture backed or bootstrap successes from India, you think about software, you think about consumer brands, and more recently, a lot of the new commerce companies that have gotten started, a lot of them are compounders. By that, I mean, there’s a Silicon Valley model where you raise tens, if not hundreds of millions of dollars.

You go into a huge negative cash flow cycle for a few years. You’re developing great product. It’s on the frontier.

It’s leading. It’s maybe creating a new market. And then a couple of years or five years later, you come out with super-fast growth.

And you get to hundreds of millions of dollars of revenue, billions of dollars of revenue, potentially over time. And you build a company that’s worth tens, 20s, 30s, 50s, 100 billion, so on these days. And there’s a different model also, which also is active in the US and elsewhere, which is you sort of maybe raise a little bit, maybe even don’t.

You start off. You don’t go into a huge negative cash flow. You’re going to shallow J curve.

And you come out, but you don’t grow at you know…

Siddhartha Ahluwalia 21:46

there’s no hockey stick.

Dev Khare 21:47

3x a year. You grow at 70% a year, 50% a year, but you do that for 15 years. If you go 50% a year for even 10 years, you’re going to be a large company.

And that is the story for a part of the startup ecosystem in India that is very unique to India, I think. You see this in consumer brands. You see this in most software companies in India.

You see this in a lot of the new content companies in India and so on. They are sort of starting to getting to profitability within a couple of years, maybe one or two rounds raised. And then, yeah, you might raise then after that again to accelerate growth, but the model works.

Profitable, economics work. You know there’s a market. You know there’s a brand.

And you grow. You look at a lot of software companies in India. They’re also following that model.

What happened in the middle, I think, was in, I’d say, 2017 to 2021, a lot of these companies that were compounder companies in terms of their architecture ended up thinking they were Silicon Valley companies and raising whatever, $100 million, $500 million, whatever that number is. But at the end of the day, gravity sort of pulled them back to normal compounder growth. And now we’re working our way through that.

You know, companies having raised a ton, but growing at compounder rates. And so then the question for all of us in the venture ecosystem is, do we invest primarily in those sorts of companies, or do we invest in the Silicon Valley-style companies, or do we do something else? The answer is obviously all of the above.

But I think that’s something that the ecosystem has learned, that there’s this compounder type of archetype for Indian companies. Not for all, but for some.

Siddhartha Ahluwalia 23:28

And I believe this compounder has been very hard to find, both for founders and investors. Because, let’s say, in software, we still talk about Freshworks, right? We don’t have more examples from India of companies that have scaled beyond $500 million revenue.

Whereas in the US, we see, you know, today, every week, a company crossing $100 million revenue in three years or four years, right? So why do you think it’s that? Like, is it a DNA difference?

Because eventually we are selling globally from here, right? And they are also, in the US, the American founders are also selling globally.

Dev Khare 24:13

Yeah, I mean, that’s a question. I think there’ll be a lot of opinions in the ecosystem. I’ll give you mine.

Siddhartha Ahluwalia 24:21

Yeah.

Dev Khare 24:23

And, you know, I just think that in the last, and this is the view that the enterprise group at Lightspeed India holds. There’s a view, broader view. Then the last 10 years, 15 years, you know, once the cloud came in and the hyperscalers came in, and you could get going pretty easily as a startup, at least get the product built out easily.

And it became all about distribution, right? The game became about distribution. Yeah, you could build product, but there were 10 other products that were just like that.

And so you had to really focus on distribution. There’s not too much innovation, I’d say. And then when you have a distribution game, and then on top of that, you layer on companies starting from India.

They had to innovate on distribution. And so what is the, if you put that together, the innovation that emerged from India, I would say, is sort of a self-service SMB focused software. Freshworks pioneered that, Zoho pioneered that, and several other companies, Chargebee and many others.

And they’ve all moved, obviously evolved since then. It’s been, yeah. But that model was perfected from here.

I think what happened, though, in that model was that many companies ended up going after mature markets, CRM, service management, ITSM, and so on, and every niche within that. And ended up going after markets, by definition, that are mature, already have leaders. And so if you, by and large, look at this crop of companies that did this SMB model, if you look at it from a worldwide sort of league table perspective, are they the leaders in whatever market they operate in, with the product that they operate in?

They are not.

Siddhartha Ahluwalia 26:40

Yeah.

Dev Khare 26:41

By and large. But what they are is they’re large multi-product companies, most of these companies. They’ve taken $100 million revenue from one product, $50 million from somewhere else, and so on.

I think that’s the model. It’s a very successful model, and kudos to the founders for developing that model from India. That is not a Silicon Valley model in a core sense.

A lot of these companies won’t have early stage investors from the US. That’s changing now, and we can talk about that. And so that’s the reason why those companies, they grew, but they’re not going to grow exponentially.

When you’re number seven in a market, it’s hard to get very, very large in that market.

Siddhartha Ahluwalia 27:24

I think what they cracked was number seven across 10 different products.

Dev Khare 27:28

Yes. And then also sort of having the suite together, so then slightly larger companies can say, we’ll get everything from XYZ company. There are a handful of companies that have broken out though from India that are leaders in their categories globally, and that’s exciting.

And then finally, there are a few companies that have broken out that have created the market in Asia, which is a slightly different thesis. And now we’re seeing a set of companies come out with sort of AI at the core, which actually can win globally. There’s a bunch of interesting companies out there from India, and we can talk about that in a second.

But in terms of the handful from the SaaS era that have sort of grown and done really well, and maybe leaders in their categories, you can think of Icertis in the contract lifecycle management space. You can think of High Radius. You can think of BrowserStack.

You can think of Innovaccer, which was in our portfolio. You can think of maybe a few others. And it’s five, seven. It’s not 10. It’s not 20. And that’s a bit of an indictment on the Indian software ecosystem that that’s all there is.

Siddhartha Ahluwalia 28:51

Everybody’s around the 200, 250 mil ARR mark.

Dev Khare 28:56

Yeah. And maybe some higher. I don’t know all the numbers, but yeah.

But they’re leaders in their category. And that’s exciting to see from India. A lot of these companies, if you look at these ones, they’re hybrid India-US, where the founders have moved to the US and tapped into that market.

I think it’s hard to build a software company that’s going to win in the US, where the founders are only in India.

Siddhartha Ahluwalia 29:22

But even from India to US model, we haven’t seen a pure product, single product, or let’s say a few products, a billion dollar revenue company. Let’s say, for example, Rubrik from Lightspeed Portfolio. Apart from the founder, there’s no Indian angle to it.

So why is that?

Dev Khare 29:46

I like to sort of nuance that a little bit. Rubrik very famously set up a team here early. And the team has a slightly different nuance than a lot of back-end engineering teams set up by, or GCC set up by, software companies elsewhere. The difference was that Ashish Gupta, who’s a VP engineering, who’s the head of engineering, I think maybe SVP engineering, who they hired early, who set up the India-Mangalore office, hired him from Flipkart. His thesis and the founder’s thesis, Vipul’s thesis from the early days was that India is on par with the US. In other words, they ideate products in India, they build them in India, they launch them, and they’re responsible for P&L.

Siddhartha Ahluwalia 30:40

Got it.

Dev Khare 30:41

So much so that, yeah, so you can have a product manager who’s sitting in India, who goes through this full lifecycle, whereas typically, otherwise, the lifecycle is that it’s conceived in the US, spec’d out in the US, it’s sent here to build out, or parts of it are built out, assembled in the US, sold in the US, and somebody in the US is responsible for P&L. So they did that, yeah. So much so that the office looks the same.

They made sure it’s very equal.

Siddhartha Ahluwalia 31:07

OK.

Dev Khare 31:09

And they’ve done really well. I forget, I don’t have the numbers. It’s a public company, you can look it up. But they’ve done super well with that mindset. And so it’s very Indian also, in the sense that I don’t know what proportion, but some proportion of the revenue comes from products conceived and built in India, managed from India.

Siddhartha Ahluwalia 31:31

But the question still remains, why have we haven’t been, you know, able to repeat it? Like, we have examples in corners, Freshwork is only one company, which has achieved what it has achieved. Rubrik is one company.

So it becomes hard for even global investors to figure out like what really works in India, especially in this cross-border thing. Are there any…

Dev Khare 31:56

We are excited about it. I don’t think, I think we have to just not again, apply a framework of The framework from the US can be, oh, enterprise is 50% of the market or more actually right now. Consumer has been in a bit of a sort of doldrums for the last few years.

But is enterprise going to be 50% of the startups in India? No. I think maybe 20%, 30% is sort of where it might settle at the most.

Because India has got such a huge consumer opportunity, right? If not for anything else. And so if you put that frame in mind, and then put the frame in mind, you know, keep the frame on that you might have a lot of compounders from here, right?

Then it’s just a different flavor. Yes, you will have the high flyers. And there the founders probably have to move to the US and tap into that market.

But if you’re sitting here selling into Asia or selling into India, or, you know, going as a fast follower, you know, you’re not going to, it’s going to be tough to get very, very large. And it’s just, it has to be a mindset shift more than anything else. And it takes time.

Siddhartha Ahluwalia 33:09

And let’s just take example of Innovaccer. Innovaccer was able to break that mold, right?

Dev Khare 33:15

Yeah.

Siddhartha Ahluwalia 33:16

How do you, you know, see that journey?

Dev Khare 33:18

What’s the case? What are case study learnings from that? Yeah.

So Abhinav, Sandy, Kanav, we met them in 2016 or 17. I think they’re 2015 Kharagpur graduates, or thereabouts.

Siddhartha Ahluwalia 33:35

2012.

Dev Khare 33:36

Okay, 2012. And they were at Ingersoll Rand and a couple of other places working before that. But they started off sort of servicing clients in the US by saying, we will do your analytics work for you.

It wasn’t in healthcare specifically. There were some Wharton professors, there was the UN and there was a few clients they got there and they would have people here do the work. I might be butchering the story a little bit.

Memory might fade a little bit. So I hope Abhinav and all forgive me for this. But that was sort of my understanding.

And then they said, and they got clients in multiple different verticals, including healthcare, but also manufacturing, media and entertainment, etc, etc. Government, you know, academia, they got a bunch of clients. But over time, they realized that they could productize this work that they were doing.

Okay, so I want you to bookmark this, which is that they started as a servicing type of more customized services for analytics, but then they productize that over time. And then they started getting real traction in that productize analytical sort of engine that they had. That’s when the Series A happened, not as a healthcare company.

Siddhartha Ahluwalia 34:53

So when you invested in Series A?

Dev Khare 34:54

It was not a healthcare software company, not a healthcare IT company. But interestingly, in that first board meeting, I remember Sumir from WestBridge was there, I was there, three founders were there. And the discussion, if I remember correctly, was about how do you differentiate in a market where there are 100 other analytics platforms.

And we had a discussion we left at that we said, let’s, we just pose a question at the end as investors. You know, we have to be very careful to not prescribe what founders may want to do. Because if that was the case, we should start the company.

What are we doing in business with the founder? And so we asked the question, like, how do you differentiate? What can you do here?

It’s not going to be too interesting to be the 100th analytics company. But we really liked the founders at Hustle, Drive Energy, they got customers and large customers, high CV. And so to their credit, I think a month or two later, I remember Abhinav and Sandy coming back and saying, hey, our revenue is now one third of what it was when we met you last.

We fired, you know, two thirds of our customers. And we think healthcare is going to be the place we’re going to differentiate with analytics and an integration engine. And off we go.

And their first customer that they already had from their horizontal days was a company called Mercy provided in the US. And that famously was when they started. At that time, all three of them were living in Noida.

Okay. You know, I got to give a little props to NCR, which also produces great companies. And they’re spending a lot of time back and forth to the US, of course.

They ended up moving there, all three of them to the Bay Area. And they’ve built a nice company. So they focus on a vertical.

This is the second bookmark. The first one was they shifted from services to product, which in these high ACV companies from India, you see that as a actually pretty strong pattern. They start off a bit more servicey, they productize that, and then they go to the US.

And then they built from there.

Siddhartha Ahluwalia 37:08

And in India, are there other examples like of companies which are today more than 100 and started as a services company?

Dev Khare 37:14

Servicey, High Radius. Solid example. Yeah, yeah, a lot of them.

Yeah. A lot of them start this way, which is leveraging the India advantage, which is that you got a certain labor sort of cost here, you’ve got the expertise here, and you can do a little bit more bespoke stuff for your customers. And once you do that, you learn requirements, you get customers, of course, and then you can productize that over time.

Siddhartha Ahluwalia 37:44

I think in an enterprise software, maybe that’s the key for, you know, the Indian founders building out of India, to start with high ACV service-led, especially in this AI world, service-led business.

Dev Khare 37:59

I mean, AI world, it’s very natural, right? AI-led services, and we’ve made a number of investments in that category, or AI services, which is a different thing, which is implementing or building AI applications for enterprises. And there’s a bunch that are doing that from India as well.

And they’re leveraging, one is the IT services industry, taking that into AI, and the other is leveraging the BPO industry, and reformatting that industry, in a sense, to be AI centric. Those are two big obvious opportunities from India, among others.

Siddhartha Ahluwalia 38:29

And which are the companies that you have invested in these two categories?

Dev Khare 38:32

So, we haven’t made one in AI services. By that, I mean, companies that build AI native applications for enterprises, we’ve looked at a bunch. We’ve done one in the US called Distyl.

It’s not an India company, D-I-S-T-Y-L. And from India, we’ve seen a bunch. Obviously, the Infosys of the world have ramped very nicely in terms of AI services.

But there’s a bunch of startups from India, not in our portfolio, but like Cognida was announced recently in that category, and there’s a bunch of others. AI led services. So, sort of AI being used to drive services and other verticals.

We’ve backed Pepper Content, which is doing that in content production using AI. And then we backed Gush, which is doing it for SEO marketing using AI. In both cases, they’re replacing a very fragmented agency ecosystem.

In the case of Pepper, they’re taking the place of a lot of freelancers, media agencies, advertising agencies who do this content production work, translation agencies. Once you look at it, it’s a $400 billion global industry of content production, but it’s very fragmented. Coming back to the theme earlier, that India has a lot of these fragmented markets that you can fix a supply in.

And so, that’s an example. There’s a lot of SEO agencies out there that Gush is sort of competing for their business. So, that’s two there.

And we’ve made another couple of investments there that we’ll announce soon. But there’s a whole plethora of verticals you can go after that legal services, advertising services, design services. You can keep going on and on.

Also, IT services, any outsourcing, financial services outsourcing. In healthcare, there’s a ton of outsourcing for RCM and many other categories. So, it’s endless.

And these markets are much bigger than software markets.

Siddhartha Ahluwalia 40:38

Yeah. And what is the outcome that you are underwriting when you are making these investments? Is it a 100-million-hour company or much, much larger than that?

Dev Khare 40:47

Are you talking about any company we back at Lightspeed or specifically in these AI services and AI led services?

AI & AI led services

So, it’s early days. But if I had to think about the investment thesis, broad brushstrokes.

And we, as investors, we like to think about what is the investment thesis for investing in a company. There are three or four key points that we need to believe to invest in a company. So, one is large markets.

And these markets, and I’ll get to the answer in a second. So, large markets, if you think about customer service as a market, which is sort of a bubbling market these days with AI, that’s a trillion dollars a year spent on customer service globally. It’s a lot.

And can AI make a dent there? Absolutely. I don’t know if you saw the announcement today from Zomato.

Siddhartha Ahluwalia 41:48

Yeah, they launched a….

Dev Khare 41:49

They launched a customer service thing because they’ve already built it internally for their own consumers. That’s an exciting thing. And so, it’s a very large market.

The reason I mentioned this is because you can imagine building multiple 100-million revenue company in a trillion-dollar market. Even if you think that a trillion-dollar pre-AI market compresses to a 100-billion-dollar post-AI market or a 500-million-dollar post-AI market, or the trillion-dollar market expands potentially to a lot of other use cases. These are large markets you can go after, and you can build multi-100-million-dollar revenue companies.

We’ve got a company called Yellow that’s a pre-AI company, but also has then added AI and has become an AI native. So, it is the largest customer service AI company in the world from a revenue perspective and a real-world deployments perspective today. Yes, there are your other sort of new pure AI native startups, but they’re much smaller today.

And so, our thesis investing in these companies is absolutely build very large multi-100-million-dollar revenue companies. The second part of that thesis is, what are the economics of these companies? Are they going to be like software margins?

Are they going to be like IT services margins? Are they going to be much lower for some reason? So, what we’ve seen at least is in this category, companies start off with 30% to 40% gross margins because they’re doing a lot of custom work and they’re figuring out what the product is.

But once the product gets more productized, and there’s always human in the loop, but it gets more productized, you can find your way to 60%, 70%, 75% gross margins. We can talk about how, but that’s the second need to believe in these models, which is how do you get from lower gross margins and sort of ramp your way up to high gross margins. The third need to believe, we think, is that domain knowledge.

So, vertical domain knowledge and the workflows that come with that, the integrations that come with that will drive differentiation. And I think that’s the third thing. And obviously, the fourth big need to believe is the founders.

In this category of AI services or AI led services, we’re seeing founders from the domain come in. So, lawyers coming in and starting legal tech companies and ad tech folks coming in and starting advertising companies and so on. But we’re seeing people coming from other industries altogether.

Like Anirudh at Pepper was an undergrad at BITS when he started his company. I think, on the other hand, Feroze who started Cognida came from another outsourcing company, I forget the name. So, he had experience from this category, IT services and built it up and is doing it in an AI centric way.

So, it’s very interesting. New founders from outside the industry. It’s kind of like the early days of e-commerce.

People didn’t come from e-commerce like Sachin and so on. I don’t think they were in e-commerce. I think they were in Microsoft.

Siddhartha Ahluwalia 45:17

No, they were in Amazon for a couple of years.

Dev Khare 45:20

That’s right.

Siddhartha Ahluwalia 45:20

On the tech side, not even on the market.

Dev Khare 45:22

Yeah. And like when Deepinder started Zomato, he didn’t come from this category.

Siddhartha Ahluwalia 45:25

He was in Bain.

Dev Khare 45:26

Right. A lot of software founders in India didn’t come from software before. And that’s what’s happening in this AI.

A lot of non-AI, even non-technology folks are coming in starting. But what’s interesting now in India, which makes us really excited about India for the long term is that you’ve now got second and third-time founders. I’ll give you one stat.

Siddhartha Ahluwalia 45:47

Sure.

Dev Khare 45:48

We looked at our portfolio from 2014, 2019 and 2024. So, five-year segments.

2014, if I remember correctly, about 15% of our founders were second-time founders that we backed. And in that year.

Siddhartha Ahluwalia 46:07

Either failed or succeeded anyway.

Dev Khare 46:09

Either way, 15%. Today, it’s 70%.

Siddhartha Ahluwalia 46:13

Wow. Is it by choice?

Dev Khare 46:16

They’re also much larger. So, even the number of first-time founders you back per year has grown.

Yeah. So, the number of second-time founders you back has grown even more. Is it by what, sorry?

Siddhartha Ahluwalia 46:24

I was asking, is it by choice? Like you’re backing more second-time founders or is it just, you know?

Dev Khare 46:31

It’s what’s emerged. It’s not like some decision we made.

Siddhartha Ahluwalia 46:33

Okay.

Dev Khare 46:35

And it’s just emerged that way that that’s been the case, right? Similarly, you know, we don’t at Lightspeed, we don’t sort of say, hey, I can only invest in one sector or you can only invest in one sector. So, I’ve done both consumer and enterprise.

A number of my colleagues have done investments in multiple business models, multiple sectors and so on. And we’d like that fresh perspective that it brings. And so, in founders also, second-time founders, it just happened to be that we like these founders.

It happened to be that they end up being this percentage of our companies, but it’s not sort of some, like when you back ShareChat, first-time founders.

Siddhartha Ahluwalia 47:16

Yeah. Fresh out of college.

Dev Khare 47:17

Fresh out of college. When you back Anirudh, fresh out of college, right? When we backed Rohit Choudhury at Acceldata at the seed.

And by the way, two-thirds of our investment historically have been seed investments in India. When you backed Acceldata at the seed, he was coming out of Hortonworks. So, he’d been in software and he’d done a software startup before Hortonworks.

So, he was a second-time founder at that time, one of the few at that time. But it just depends. Zepto, who we backed last year, first-time founders other than his co-founder, right?

And I think they were at Stanford or something when they started or had just finished.

Siddhartha Ahluwalia 48:00

Stanford Dropouts.

Dev Khare 48:01

Yeah.

Physics Wallah, we backed last year. Prateek had started a company before that, Pen & Pencil. It was an ed tech.

And Alok had started posting content many, many years before on education, right? So, I think he was a first-time founder. So, it just depends.

Siddhartha Ahluwalia 48:21

Dev, one area before I go further, I want to touch upon is exits, right? Like Lightspeed has produced some of the most celebrated exits from India. Like OYO at that time, like an Indian company giving $1 billion to a fund was phenomenal, right?

So, how do you determine when to exit? Innovaccer, you exited in 2024?

Dev Khare 48:43

Yeah, a few months ago.

Siddhartha Ahluwalia 48:45

Yeah. So, how do you determine like it was the right time to exit the company?

Dev Khare 48:50

Well, I think the core thesis behind sort of investment strategy for Lightspeed globally, for that matter, at the early stage is to enter and is to invest in a company, partner with the founders and to be in there for 7, 10, 12 years, even more in some cases, right? Companies take time, they all take time to build. We’re not short-term investors by any stretch.

And so, that’s sort of the global sort of view. Now, when it comes to India, it feels like companies have taken slightly longer to build than even that. So, we’ve been in companies for 7, 8, 10 years at a time, longer for that matter.

There’s no specific exit date in our minds when we invest in a company. There’s no specific exit methodology when we invest in a company. It’s all about building market leaders in whichever category they’re in.

In fact, that’s the main criteria, like if you think about most of the companies we’ve backed, whether it’s a Physics Wallah, whether it’s a Razorpay at the later stage, whether it’s a Darwinbox, whether it’s Innovaccer, it’s all about like, at the end of the day, you want market leaders. That’s the big value creation opportunity for founders and investors, right? And so, when we exit, typically in the US, I think we all know this, it’s all been either IPO or M&A, right?

Full 100% stake sales in maybe a year or two after an IPO or an M&A, you’re selling your stake immediately, right? In India, it’s, I think, evolved a bit differently. And it’s a well as I do.

The IPO markets in India for tech companies were shut for the longest time, right? Post InfoEdge and Rediff and MakeMyTrip, there wasn’t any tech IPO till like a couple of years ago, right? And the market was not ready for loss making companies going public.

I don’t think it is still, which I think actually is a healthy thing to have profitable or near profitable companies that go public. Now, it’s opened up a bit more. Market has been a bit choppy last few months.

Let’s see what happens. But there’s a bunch of tech companies in India that are slated to go public in 2025 and beyond. So, we’re excited about IPO opening up as an enduring exit mechanism for companies.

Exit is also sort of, it’s not like people sell their, like investors like us sell our entire stake at IPO. In many cases, we don’t sell anything at the IPO. We hold it, we might hold it for many years for that matter, depending on our view on the company.

But at the minimum, a couple of years post IPO. M&A has been an almost non-existent sort of thing in India. My view is that M&A really gets going when you have multiple companies that are worth more than $20 billion that end up being buyers.

And we don’t have that. Maybe Zomato is the first one. There might be a couple of others in tech that get there, but that’s it.

And there’s not maybe Flipkart, maybe a couple of others. So, when you are 20 billion or more, you can buy, you can pay a billion for a company or 500 million without diluting yourself too much. But if you’re a $3 billion market cap company, then you can’t pay a lot for anything.

So, I think that’ll take time to develop. We’ve all been thinking that maybe the local Indian conglomerates and corporates can buy like a Jio or a ITC or whatever. I think we’re starting to see that, the minimalist sort of transaction that happened recently, but it’s going to be here and there, not some steady sort of stream as far as I can tell.

Therefore, what’s emerged in India over the last few years is the secondary market. So, trade sales, partial sales. And it’s not the most ideal thing to do because it’s a little bit unnatural to sort of create a transaction out of when there isn’t one.

But there are investors who want to come into Indian companies. And depending on their investment strategies, they might be looking, some of them are looking for a 2X, like a lot of the private equity funds are at 2.5X in three to five years. Therefore, they can pay a bit more.

So, actually, a lot of the activity we saw in 2022, 2023, and early part of 24 in India in tech was private equity firms coming into tech companies. Because of this lower IRR profile compared to venture growth, they could pay a little bit more, but they wanted to see profitability or near profitability and so on. Venture growth is a category that obviously Lightspeed is in, a couple of other funds are in.

There are a few local funds that have come up in venture growth, like your A91s and Epic and Fundamentum and so on. But that category is sparse right now in India. But we’ve got a team on the ground in India and Southeast Asia making those investments, like we mentioned Physics Wallah and Zepto last year.

And so exits, yeah, secondaries is a lot of what’s happening today and some IPOs. Software IPOs, I mean, we’ve had some very small ones in India in the ecosystem. There was a commerce software company last year that Snapdeal had.

Siddhartha Ahluwalia 54:23

Unicommerce.

Dev Khare 54:24

Unicommerce. I forget the size of that, but that went public.

And then there was like Tracxn a few years ago and maybe a couple of others, but it’s been very sparse. Large, you know, like 100, 200, $300 million companies, I don’t know. We’ll see now.

I think what’s interesting and you know, this is that, you know, a lot of companies are flipping back to India.

Siddhartha Ahluwalia 54:45

clevertap has flipped. Capillary has flipped. A few more are in the process of flipping back. The companies which have realized that, you know, 400, 500 million scale for them doesn’t look in the near future.

And they’re already between 50 to 100 million in our range. So India is a good market to go public at that scale.

Dev Khare 55:07

Yeah. And it’s a little bit of an indictment of sort of the Indian software startup ecosystem that most of the companies fit this profile rather than a profile that can get very large in a reasonable amount of time. And we have high hopes that the Indian startup ecosystem just levels up to produce much larger potential companies.

I think with AI, there is the potential. And we’re actively investing behind that thesis.

Siddhartha Ahluwalia 55:37

Why do you think it’s different this time with AI?

Dev Khare 55:41

The much larger markets and outsourcing and IT services are two of the largest markets. And India is like, I mean, I’m drawing a line between BPO and IT services and AI led BPO and AI led IT services. There might be a line there, there might not be.

It’s conjecture. But that expertise exists here. And very interestingly, I think if you put a human interface in front of a startup here, it looks like an IT service.

It looks like a BPO. So actually the back end doesn’t, the buyer doesn’t have to do anything different. The buyer is still buying a service.

But it’s AI enabled, therefore higher margin, more scalable. It’s more fine-tuned to certain verticals, those sorts of things.

Siddhartha Ahluwalia 56:31

And there’s a third category, which is built for only India, Darwin Box from your portfolio, Perfios.

Dev Khare 56:37

Yellow initially, and our portfolio started that way and so on.

Siddhartha Ahluwalia 56:41

Yeah.

Dev Khare 56:42

You’ve got HealthPlix on the healthcare side and a few others.

Siddhartha Ahluwalia 56:46

But are you excited about that category going forward or…?

Dev Khare 56:49

We are, we are. And in fact, even this year, we signed one term sheet just now that’s in that category.

Siddhartha Ahluwalia 56:54

Focus on India market.

Dev Khare 56:55

Focus on India, in the BFSI vertical.

Siddhartha Ahluwalia 56:59

At seed or Series A.

Dev Khare 57:00

I forget exactly which one that is. But the thesis there is that there have to be some requirements that are unique to India.

There has to be a largish market and that largish market in India is in either BFSI these days, or actually, that is the largest vertical in India. So FinSaaS, FinAI is sort of a very interesting category, serving banks, insurance companies, and so on. Even serving FinTech companies.

There’s a certain category of companies there that are quite interesting. And they’re leveraging sort of growth drivers in India with UPI and all sorts of things happening on the back of that lending and so on. Like if you think not in our portfolio, like Credgenics is an example of a company that’s grown very nicely on that thesis and so on.

So I think that’s one thing. And then horizontally, Darwin Box, our thesis when we invested in 2017, I think, was that there was a gap in India that also existed in other Southeast Asian and other geographies like Latin America, GCC countries, and so on, which is you had your large incumbents like Workday and SAP and all selling HCM software at high prices and $9, $10, $15 per user per month. Requiring one to two years worth of consulting services to be implemented.

And so yeah, the largest corporations in the world, including in India could buy that. And you wouldn’t be faulted for buying that and paying that price. But what happened is that most of India, if you look at the enterprise buyer market in India, there’s these large corporates, there’s almost no mid-market, and there’s a bunch of SMBs.

And so there’s a very limited market you could sell to purely at the enterprise layer. So there were these guys, Workday and SAP coming in there. And there was a bunch of local entrants that were selling it to the SMB, but very sort of low-ish quality software, sometimes even customized, sort of almost like an IT service where they would build a HR product for the HR department to do leave tracking and payroll, or even payroll processing services.

It was services. So there was nothing in the middle, which was reasonably priced for India, yet world-class quality. And so if you take that thesis, it was Yellow and Darwin Box came out of that thesis, where they said that we can beat the international guys with something built for local requirements and priced properly.

And we can build, we can beat the local guys with just much higher quality product. And what’s worked out, it’s worked out for Darwin Box and Yellow. What’s interesting in both their cases, they then went to Southeast Asia.

And they had similar dynamics where actually, corporates in those countries look up to software companies from India. They think of India as a great source of software companies.

And so they have no problem buying from India. GCC has similar dynamics. And then in both these cases, they’ve ended up going to the US as well, both Darwin Box and Yellow. And they’ve beaten…

Siddhartha Ahluwalia 1:00:29

Has been the last market that they want to enter in.

Dev Khare 1:00:33

Yeah. But they’ve gotten big in Asia before that. This is not something where they have to go to the US or something to get big.

They’ve gotten big in Asia.

Siddhartha Ahluwalia 1:00:40

They have enough…

Dev Khare 1:00:41

Which I think was anti-narrative, counter-narrative. It still is counter-narrative.

Most people say not possible, but they have. And then what’s interesting is when they went to the US, I think the sort of conventional wisdom would be, if you’ve been here and selling into Asia for a number of years, and then you go to the US, you have no chance because you have a design element that’s different for India. You have sort of the DNA is different. It’s very, they’ll say, people will say it’s very servicey or something. Both, neither of these two companies are servicey at all. They are hardcore product companies.

And they now each have a differentiation in the U.S. because they got built out in Asia.

Siddhartha Ahluwalia 1:01:28

Okay.

Dev Khare 1:01:29

In the case of Darwin Box, the differentiation in the U.S. is that there is no other product that is focused on, you know, companies that are, you know, a thousand to a few thousand employees that is mobile centric for high growth companies. And that has this really broad platform functionality. What you’ve got is companies either that are focused on the sub-1,000 employee category that are very simple products that have done really well, but they’re focused on that category.

Or you’ve got companies focused on, or vendors focused on companies with 20, 30, 50, 100,000 employees, SAP Workday, right? That are not mobile centric, not modern UIs, not integrated as a platform and so on. So there’s this gap there that they’ve built into that they have an advantage in.

Yellow, in a similar case, they built their business here selling into companies that, consumer companies, high volume consumer companies, FinTechs and commerce companies and brands that wanted to provide customer service, but couldn’t staff a call center. And their volumes are extraordinary volumes because the population sizes in India, Southeast Asia, and so on, multiple languages, multiple things in WhatsApp, SMS, email, lots of channels, few multiplex, all those together, multiple languages, multiple channels, and the volume that you have here, that’s an advantage in the U.S. Because most of the companies, they have a B2B customer service software, focused on servicing other businesses. Consumer customer service there was a whole different category focused on by Genesis and Nice, and there’s a whole different thing there that was not internet enabled, right? And so these guys had an advantage going there.

They could do high volume consumer businesses with AI. So actually the narrative is a little bit different, that it doesn’t mean that if you’re here, that you can’t sell in the U.S. You actually do build a certain type of advantage. You do have to do that consciously.

You have to build world-class design. You know it’ll take you one or two years of wandering around in the U.S. to figure out the exact wedge. You know that one of your founders will have to move there.

You know that you will churn through your first VP sales. There are these things that are kind of like, it will happen. We know it’ll happen.

But these playbooks are there now. And so these companies can…

Siddhartha Ahluwalia 1:04:00

The earlier narrative was that if you have product market fit in India, your product market fit in the U.S. would look completely different. Is that the case in both of these companies also?

Dev Khare 1:04:11

The product is the same. The market segments are slightly different. I think historically, the view has been that the product also has to change.

Siddhartha Ahluwalia 1:04:20

That’s been the view.

Dev Khare 1:04:21

And the products were not maybe up to par in terms of design and functionality and working out of the box and so on. But at least both these companies have shown that product is the same.

You might have to build some local nuances. Like in the case of human capital management, payroll is a very local concept depending on local regulations. But like talent management, managing leave and recruiting, all that is the same.

Siddhartha Ahluwalia 1:04:49

What are the some things Dev that you think you missed investing or you missed doing?

Dev Khare 1:04:55

You mean sort of the anti-portfolio?

Siddhartha Ahluwalia 1:04:57

Anti-portfolio.

Dev Khare 1:04:58

Yeah, there’s a lot there. And there’s lots of learnings from it. But at the end of the day, I don’t think our view is that we’ll get 100% of companies.

We have like whatever. When we look at it, you know, have we seen all the companies at the right stages? Yeah.

Siddhartha Ahluwalia 1:05:13

Yeah.

Dev Khare 1:05:15

It’s called, we call it coverage, right? We have very high coverage. So that’s fine.

And in some cases, we don’t have the same view as whoever does the lead investment. And that company might or might not work out. But yeah, there are some companies like Sprinkler.

Siddhartha Ahluwalia 1:05:32

Yeah.

Dev Khare 1:05:33

Fantastic company. But I don’t recall ever seeing it. Maybe it was started before I moved here.

But fantastic success that people don’t talk about from India. The real success, public market, IPO, and so on. Obviously, Freshworks.

We wish we were investors there, but we’re not. Some of the e-commerce companies and so on. But yeah, there’s always regrets.

And we saw them all. We saw them all at the Seed or Series A or something along the way. But for various reasons, we didn’t.

And we learned from that. So for example, in a lot of the commerce companies in the early days, we would take a pretty static view of market size. But what we learned is that a lot of these marketplaces expand market size dramatically.

And then you’re selling into a much larger TAM. So there are learnings like that as well. But yeah, regrets as well, for sure.

Siddhartha Ahluwalia 1:06:31

And are you satisfied the way that India is playing the AI wave right now?

Dev Khare 1:06:38

Not yet. I’m not yet satisfied. I think I posted about this about a year or two ago when GPT 3.5 came out. Every wave of innovation out of the US or China, there has been, I think, a legitimate excuse for founders in India to say, we didn’t have access to whatever. So either they didn’t have access to the cloud or to smartphones or to venture capital funding when that market was small in India or to large consumer bases or playbooks to scale or mentors to advise. These were issues in the past.

But today, none of these are issues. There’s enough capital, mentors, hyperscalers, playbooks, second, third time founders to help you. It’s all there.

But we’re not seeing anywhere close to the amount of innovation or even applications companies built on innovative infrastructure out of India that we’re seeing in the US and to some extent, Europe and China as well. A bit of a lag effect that’s in play here, maybe two to three year lag. I don’t know why.

But it’s not a hard, it’s not a 100% case that there are lots of interesting companies. And we’ve backed a bunch. We backed Sarvam in the foundation model space.

We seeded that company, Pratyush and Vivek, I want to say 18 months ago. And then I think Khosla and Lightspeed did the next round after that and so on. Pepper and Gush, we were early.

Rephrase, we were early. Foundation model for audio before ElevenLabs and OpenAI and all that got acquired by Adobe. And then we’ve done infrastructure software, Marco, Supabase, Portkey in this AI infrastructure space.

We’ve done a lot of AI and consumer applications based on AI, about in our account, 15, 20 investments in AI core, AI native companies. In healthcare, we’ve done Triomics, which is an Onco LLM company. We’ve done Cure.ai last year, which is AI radiology. It’s doing really well. We had Innovaccer, which sort of put AI at its core for note-taking and a bunch of other things. So yeah, there’s stuff happening, but it’s far and few between.

Will it get better over time? I’m sure it will. I think we know, the jury is in now over the last 10 years of software in India that doing pure compounders is a way of doing things.

And I think we’ll all continue doing that. But that as we construct our portfolios, we really have to find some frontier type innovation out of India. We think Sarvam will do some of that, for example, the infrastructure layer.

And there are other companies we’ve backed that’ll come out soon that are doing that in different verticals of vertical SaaS. And like we said earlier, AI led services plus vertical SaaS. There might be some really nice market leaders that come out of India now going forward. It’s obviously speculation, but that’s the thesis we’re investing behind.

Siddhartha Ahluwalia 1:10:23

I think in consumer, we have companies where people globally vouch by the products, for example, Zomato, Swiggy and the likes. We have yet to build that muscle on the enterprise software side, where people vouch for the quality of the product, like saying that this was the best product in its category. It might not be the highest by ARR or a category leader, but I think that wave has yet to come in.

Dev Khare 1:10:55

We have some, but I think by and large, not a lot of those, like Postman. People in the US are surprised. Postman, when I say Postman, they’re like, what, really? Yeah. And it’s a high quality product. BrowserStack is a high quality product. You look at the OvenBox is a high quality product. Innovator is a very high quality product. So you see some of those, but it’s not like widespread. Chargebee is a great product. Obviously, Freshworks is a great product, but not a whole ton.

Siddhartha Ahluwalia 1:11:25

But you’re right, there are a few. And rarely have these products come out with the enterprise saying, this is the best product in this category that we have seen. For example, I think once…

Dev Khare 1:11:40

We see more of them, like Acceldata in our portfolio, leader in that category of data observability and data management, according to Gartner and everybody else. So it’s happening. But it’s slow. I think one change in framework that I think we as the investment community and founders need to have is that we’re not building an Indian company. We’re not building a company that’s the best in India, or we’re not building a company that is the best in the US. We’re building companies that are the best globally.

And we have to act that way, because competition is not limited by geography. Who cares if you’re the best company in China or India or whatever in HCM software? You have to be the best globally.

And that’s how we like to look at founders and look at companies and advise founders to win their category. In fact, if I had one piece of input for founders here, and all the founders I work with know this, or many of them, because it’s sort of an isobox, which is define your category and define how you’re going to win that category. Please don’t try and be number seven in a category.

Even if it’s a subset of a category, define it and win it. Because that’s when the big value creation occurs in tech technology, not by being second or fifth or seventh.

Siddhartha Ahluwalia 1:13:02

Thank you so much, Dev. I had a great time having this conversation with you. I learned a lot personally.

Dev Khare 1:13:09

Thank you.

Siddhartha Ahluwalia 1:13:10

Thanks again.

Dev Khare 1:13:12

Excited about software, excited about this whole ecosystem, and looking forward to co-investing with you in other companies.

Siddhartha Ahluwalia 1:13:18

Absolutely. Same here.

Yeah. Same here, Dev.

Dev Khare 1:13:20

All right. Thank you.

Siddhartha Ahluwalia 1:13:21

Thanks a lot.