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General Commentary
January 24, 2016

A Tale of Two Countries

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Indices Week YTD

It was the best of times, it was the worst of times.

— A Tale of Two Cities (Charles Dickens)

For much of World history, the two dominant geographies were what is now China and India. Connected by the Silk Road, these regions produced great empires — from the Hans to the Mughals and the Mongols — driving global commerce and culture for centuries.

Finding a faster route to the Far East inspired fortune-seekers and explorers like Marco Polo and Christopher Columbus. Opportunistic investors from the west have long been enamored with these markets.

While most of the 20th century saw China and India in decline — China under the communist regime of Chairman Mao, India under the colonial British Empire — this has been a blip in the broader sweep of history.

The Silk Road
China and India Have Been Catalysts for the Global Economy Since 200 BC

Source: Wikipedia

Beginning around the time of the fall of the wall in Berlin, we saw Chindia roar back to life. By 1990, China had emerged as the World’s manufacturing champion. Later, India emerged as a key exporter of services, ranging from back office work, to call centers and R&D.

While China has been the lead actor, India has played the part of the understudy. China was recognized as an economic powerhouse and served as an original member of the UN Security Council. At the same time, the World bracketed India with Pakistan as a more complicated region and opportunity. In the 1990s, India and Pakistan both required massive assistance from the IMF and World Bank.

India’s GDP Per Capita Growth Has Lagged China*

Source: USDA, ERS Macroeconomic Data, World Bank
*2010 USD **TTM Revenue ***Revenue per User

This paradigm began to change with the information technology revolution. From 2003 to 2008, the Indian economy averaged nearly 9% growth, second only to China. But China continued to outpace India on several fronts, including the creation of game-changing global businesses. While waves of Chinese companies like Alibaba have listed in U.S. markets over the past 20 years, Indian IPOs have been virtually nonexistent.

Foreign Company IPOs on U.S. Exchanges: China vs. India

Source: Capital IQ, Bloomberg, Professor Jay Ritter (University of Florida)
*Excludes IPOs with an offer price below $5.00 per share, unit offers, REITs, closed-end funds, and natural resource limited partnerships

Today, it appears that the roles are reversing. China recently announced that its economy grew at 6.9% in 2015, the weakest pace in a quarter of a century. India, on the other hand, is set to become one of the fastest-growing major economies in the World over the next several years. In 2016 its GDP is expected to expand by over 7.5%. A big catalyst we see is the election of Prime Minister Narendra Modi, who appears to be a transformational leader.

Late last week, Modi unveiled a platform he calls “Startup India”, promising to cut taxes on startups, accelerate innovation, and pump more than a billion dollars into new Indian companies.

“India’s youth should be a job creator, not a seeker.”
India Prime Minister Narendra Modi at the launch of “Start-Up India”

Source: Huffington Post

The announcement came just a few months after Modi made a whirlwind tour of Silicon Valley, meeting the chief executives of FacebookAlphabet (Google), and Apple. Partly because of a large Indian population, and partly because of the sense that India is on the verge of taking off, the Prime Minister was treated like a rockstar, greeted by large crowds everywhere he went.  (Disclosure: GSV owns shares in Facebook, Alphabet, and Apple)

With a stable of Unicorns — including Flipkart ($15 billion valuation), Olacabs ($5 billion valuation), and Snapdeal ($4.8 billion valuation) — the Indian innovation economy is ascending.



During a stop in Delhi, I had the pleasure of joining the Economic Times — the World’s second-most widely read English-language business newspaper, after the Wall Street Journal — for a fireside chat with the CEOs of nine emerging Indian startups (PolicyBazaar, GreenDust, Grey Orange Robotics, FabAlley, Overcart, IndiaLends, Nurturing Green, Proof of Performance, and Citylife Dental).

“Make in India”

Source: Associated Press

While you can read a full recap from the Economic Times HERE, below is a brief summary of the key insights shared by this impressive group of entrepreneurs:

  • Welcome Bloodbath: The consensus among CEOs was that while the Indian startup ecosystem will continue to see investment activity from leading VCs, the correction in funding rounds and valuations in the latter half of 2015 was not only expected, but also justified. Too much capital has been chasing “me-too” ideas.
  • Look Deeper: A refrain among entrepreneurs was that international investors testing the waters in India tend to apply assumptions about startups from the U.S. and Chinese markets. But conditions on the ground — from the regulatory environment to consumer demands — are incredibly nuanced. Entrepreneurs were less interested in talking about building India’s Uber or India’s Amazon, and were more focused on opportunities that were unique to the Indian market.
  • Big Brother Causes Big Problems: Entrepreneurs talked about hassles in moving goods across state boundaries, about compliance nightmares when it came to spending money on marketing, about confusing excise tax rules, and about regulation stuck in early 20th century. All agreed that this was a material challenge and that the regulatory environment must become more startup friendly for India to realize its potential.

During a later stop in Bangalore, I had the opportunity to speak with another group of entrepreneurs in an event organized by YourStory — an impressive new digital media platform that has emerged as an information hub for India’s innovation ecosystem. You can read a recap of my interview with YourStory’s founder, Shradha Sharma, HERE.

The overwhelming takeaway from both gatherings was that India is teeming with ambitious, talented, and innovative entrepreneurs who are ready to build a generation of great businesses.


VC activity in India surged in 2014, totaling more than $6.5 billion, nearly tripling the 2013 total of $2.2 billion. While 2015 was higher still at $10.6 billion, deal activity fell sharply in Q4 with prominent investors expressing concern about overheating in India’s VC ecosystem.

India VC Activity
VC Deals and Dollars Invested, 2011-2015*

Source: CB Insights
*Includes Corporate/Corporate VC

VC Activity: Top Cities in India

2015 VC Activity in Key Indian Cities

Source: CB Insights, Government of India Ministry of Home Affairs, GSV Asset Management


Despite its progress and promise, India still has a long way to go. More than 170 million of its citizens live on less than $1.90 per day, according to the World Bank. And the subcontinent remains a heavily rural economy, with nearly half of all jobs related to agriculture.

Prime Minister Modi is betting on an Indian innovation economy to accelerate progress.

Last Saturday’s launch of “Startup India” included a variety of initiatives to support the country’s entrepreneurial ecosystem, including a $1.5 billion fund targeting Indian startups, regulatory overhaul, and a variety of tax incentives for investors and new businesses.

While the initiative was greeted with a mix of optimism and skepticism, the message from Modi is unambiguous. Game-changing ideas and businesses from India are coming.

Key Elements of the Startup India Initiative

Source: QZ, Live Mint, GSV Asset Management

The market took a u-turn last week, with NASDAQ finishing up 2.3%, the S&P 500 advancing 1.4%, and the GSV 300 up 0.9%.

World Indices

Source: Yahoo Finance, GSViQ

Part of the u-turn was driven by a rebound in oil prices, which were up 9% (including a 21% jump over two days), and the aforementioned 6.9% growth in China, which was below forecast but above what the nervous market had feared. As Apple is falling, Alphabet and Facebook (which reports next week) increasingly seem poised to take the mantle of the World’s most valuable business.

Money has always been made when people are the most nervous. Anxiety remains at ultra-high levels, which is positioning long term investors for the greatest opportunity.


by Luben Pampoulov

Delivery Boom

Over the last few years, delivery services have emerged as a major focus for entrepreneurs and investors. The pace of money raised has accelerated significantly, and the number of local delivery apps and services is growing quickly. In some places, the choices are overwhelming. In Paris for example, I can order food through Deliveroo, Alloresto (acquired by JustEat), Uber Eats, and Tok Tok Tok. If I am in San Francisco, I have a broader choice between Google Express, AmazonFresh, Instacart, Postmates, Uber Eats, Eat24, DoorDash, Seamless, Blue Apron, Grubhub, etc. By the time I figure out which app I should use, I will have starved. (Disclosure: GSV owns shares in Alphabet, Amazon)

The list of delivery apps across the World is long and growing, and there is a good chance that some of those services will fail over the next year.

The Delivery Landscape

Source: News and company reports, GSV

From a micro economics point of view, there are four market types: Monopoly, Oligopoly, Monopolistic Competition, and Perfect Competition. For a company, it is best to be a Monopoly (think Google, Facebook, Airbnb) because you can set the price. For the consumer, it is best to have perfect competition as the price is set by supply and demand. And in-between the two extremes there are Oligopoly and Monopolistic Competition.

Given the increasing number of delivery services, that industry is moving from Oligopoly to Monopolistic Competition. Unlike the ride-sharing space, which is a duopoly (a form of Oligopoly with only two competitors) between the local leader and Uber, food delivery is becoming a highly competitive in most countries, with many of the companies burning cash. Benchmark’s Bill Gurley rightly criticized the rise in valuations and influx of capital in those services, warning that there will be a burst soon. 

Market Examples

Source: GSV

London-based JustEat listed on the London Stock Exchange last summer with a $2.4 billion market cap. JustEat was backed by Index Ventures and Redpoint Ventures. Another London-based startup, Deliveroo, is seeing strong growth across Europe and is very popular across Western Europe. Recently, it also expanded further East and launched in the UAE, Singapore and Australia. Deliveroo has raised $200 million from Index, Accel and DST Global and is valued at around $1 billion.

Interestingly in China, 3 out of the 4 most funded private companies are on-demand services. Ride hailing provider Didi Kuaidi has raised $4.4 billion, Meituan-Dianping raised $3.1 billion, and raised $1.1 billion to date. Phone maker Xiaomi is the only “other” company in the mix with $1.5 billion raised.

Unlike in the U.S. or in Europe, China has two very large competitors owning the delivery market: and Meituan, the latter recently merged with local review provider Dianping, and the combined entity was valued at $18 billion. specifically is growing very fast and has large investments from Tencent and Reports last week indicate that Alibaba is now investing a fresh $1.25 billion at a $4.5 billion valuation in

Berlin-based Delivery Hero, which is available across most of Europe, the Middle East, South America, China, South Korea and Australia, is reportedly in discussions with Citigroup and Goldman Sachs to go public later this year. Delivery Hero has raised $1 billion to date and might be looking to raise an additional $1 billion at its IPO. In 2014, the company reported €88 million in revenue, growing at 100%, but also €70 million in operating loss that was up 171% over the previous year.

While there is clear momentum across the globe, some countries are being oversupplied by delivery apps. China, due to its size and early stage, has enormous potential ahead. India is another country that will experience huge growth for on-demand delivery apps. But the U.S. and Europe are already overcrowded, with big leaders like Amazon, Google and Uber on the forefront.

And signs of troubles are starting to show up. Last week, the WSJ reported that DoorDash is struggling to raise a new round that would have valued the company at $1 billion. Instead, the fundraising is now targeted at the previously set valuation of $600 million. And there might be more struggles ahead…stay tuned.

Pioneer Notes

by Li Jiang

I Like Small TAMS and I Cannot Lie

We’ve all seen this before — at demo days, pitch competitions, or just in individual meetings with investors — the “Total Addressable Market”, also known as simply “TAM”, slide in a pitch deck.

It’s usually some gigantic number — just absolutely the largest figure that the founders could find that some (we think) reputable source put on the Internet somewhere. It also happens to be the most problematic slide in presentations.

At best people gloss over it and at worst it generates skepticism amongst the audience. Investors have been perpetuating this disservice to founders by blogging, tweeting, and claiming in all manners that you have to be going after a huge market opportunity.

This is by now conventional wisdom, but it’s a bit silly.

Instead of using a top-down Total Addressable Market, founders and investors would be better off discussing a bottom-up Specific Addressable Market.

For example, rather than saying our TAM is the talent management software industry and it’s a $5 billion industry in the U.S., companies need a market segment that is tangible enough to build a product for. 

Instead use a bottom up approach and say we make software for HR managers and we plan to sell it at $100/year/user and we are going to focus on the segment that recruits for rapid turnover retail jobs. Say there is about 500,000 people who recruit for retail jobs so the Specific Addressable Market is about $50 million ($100 per user times 500,000 potential users). Now, that’s a lot lower than $5 billion, but the clarity in thinking is worth the trade off.

Clearly defining a Specific Addressable Market will help founders get to product-market fit much faster because it narrows the product focus on the customer group you are actually building for. Building a product for a small core customer base that both loves the product and pay for it is a huge milestone that lets a company expand into other segments.

Whereas having no clarity on the exact customer demographic you are building for in this massive ocean of interesting opportunities in your gigantic TAM is a death knell for a startup.

Having a gigantic TAM is not only inaccurate and useless, but it also distracts and is an excuse not to have a clear customer group to build for.

Size doesn’t matter. Growth does.

In fact, market growth is the only real enabler of major new companies being built. A large but stagnant market means that established corporations are already attacking it in every way imaginable. But an emerging market segment is often off of the radar for bigger corporations.

What was the market size for online commerce when Jeff Bezos started Amazon? What was the market size for online social networking when Mark Zuckerberg started Facebook? What was the market size for virtual reality when Palmer Luckey started Oculus? What was the market size for renting out your house when the three Airbnb founders got started? And so on.

When Jeff Bezos read a study in 1994 that the Internet was growing at a rate of 2,300% per year, he saw an opportunity to start a company. When he started Amazon, there were less than half of one percent of the world’s population online. 

Could even Jeff have foresaw the growth of the Internet in the two decades since he founded Amazon.

In every meeting between founders and investors, there should be a real discussion of the Specific Addressable Market and the plan to achieve product market fit rather than some unproductive handwaving about how “huge the market is” in the form of a vague TAM number.

Having a more nuance discussion, a more focused market based on specific bottom-up analysis will be a great service to both the founders to help startups get to product market fit faster and for the investors to set realistic targets for the company and its board.

All hail the small market analysis exercise.


Important Disclosures

These materials are provided exclusively to A 2 Apple subscribers for informational purposes only, and should not be relied upon as the sole basis for any investment decision.  They are not an offer or a solicitation of an offer to buy or sell securities, and must not be used or construed as such. The opinions expressed herein are the personal opinions of the authors.  All information of any sort contained herein, including but not limited to research, market valuations, calculations, estimates, performance data and referenced source material is believed to be reliable, but neither the co-authors, A 2 Apple nor any of their affiliates warrants its accuracy or completeness.  Past performance data is not indicative of future results.

Market Update

Week ending Jan. 24, 2016

World Indices

U.S. Indices Snapshot

Valuation P/E Est. P/E/G Price/Sales