Despite the tremendous progress made by the Indian start-up ecosystems, there is still a long way to go when it comes to innovating for rural India, according to Rajan Anandan, Managing Director, Sequoia Capital India.
Speaking at a session on innovating for Bharat (rural India) at Nasscom’s ‘Bharat Un-Conference: Build With Bharat’, Anandan said: “Despite the tremendous progress that we have made over the last 10-plus years in the Indian start-up ecosystem and the technology ecosystem, we are still in the early days of really innovating for Bharat.”
“At the end of 2019, India had over 14,000 start-ups, it had 30 unicorns. And in 2019, we had over $14.5 billion of venture capital that could come in the Indian start-up ecosystem. But despite this tremendous progress, the reality is that the innovations have largely focussed, in many ways, on the first 200 million users and in a few sectors extensively,” he further said.
The hindrances
According to the Sequoia Capital executive, there are multiple issues hindering innovations for rural India. One of the major issues is the lack of disposable income. On being asked about the obstacles faced by social entrepreneurs willing to innovate for ‘Bharat,’ Anandan said that an addressable market in terms of revenue is a major problem.
“Addressable markets from a value or a revenue standpoint, are still quite low,” he said.
“We have massive problems to be solved. We have massive opportunity spaces, such as agriculture, healthcare, education, sanitation, farming, so on and so forth. But the issue is, there’s very little disposable income,” said Anandan.
“In Bharat, what we have is a large population. But the average income levels, in general, are much lower. So, in a country where GDP per capita is very low, you are looking at a sub-segment of more than 60 to 70 per cent of the population, which has income levels that are even lower. So, as a result, what you end up with is this possibility that you can get a large number of users using a product or a service, but monetising from it becomes very difficult,” he added.
Rural India innovators
Apart from a challenging market, entrepreneurs looking to delve into such innovations further face a roadblock in terms of capital.
“There is very little capital that is currently focussed on solving these kinds of problems. The reason you are not seeing as much traditional venture capital is because of this issue it is very difficult to see how a large company gets built. How do we see a business that’s going to generate thousands of crores of revenue that becomes profitable over some period of time, built over a 10-year period? So, it still has been quite hard to see that happening, although that’s changing,” said Anandan. “Capital always goes, where there’s a large market opportunity, but the market opportunity needs to be centred around the ability to build a large business,” he added.
The issue can be addressed by the government that can provide launch capital for such ventures. Apart from this, the social entrepreneurship ecosystem focussed on innovating for ‘Bharat’ also needs some ‘policy unlocks’, according to Anandan.
He further suggested that the government should create a new class of capital to fund such ventures.
“You need to create a new class of capital or a new category of capital that is going to go out and fund social ventures, for-profit ventures and traditional start-ups that are going to solve these kinds of businesses,” he said. “This would be funds that maybe have a lower rate of return. They may also have slightly longer holding periods because it does take a long time to build these types of companies,” he added.
There is also a lack of awareness among entrepreneurs in terms of building for rural India. The Sequoia Capital MD further suggested creating tailored, multi-step entrepreneurship programmes for seasoned entrepreneurs who are willing to delve into such businesses. In order to further encourage entrepreneurs to build for Bharat, we must ‘celebrate’ other entrepreneurs who are currently engaged in such innovations.
“We have to create role models, right. We have to celebrate the fact that there are companies or start-ups or innovators that are doing really interesting things already,” said Anandan.