Karthik Reddy – PreMoney Presentation

Private and Confidential

Investing in Emerging Markets

India

Blume Ventures

Pre Money Conference, San Francisco, June 27

Blume Ventures


Incredible India ! Why it Matters

Section credits: Citibank (India) Technology Banking

Blume Ventures

China

India

ASEAN

USEU

(2.0)%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

2012

GD

P G

row

th

Population Growth (2012–14)

…is Expected to Propel Consumption to New Heights

Source: The World Factbook and Economist Intelligence Unit.

High GDP Growth, With a 1.1 billion & Growing Population…

India Continues to Have a Favourable Macro-Economic Profile

Bubble Size Current Population

156222

378

756

1556

0

200

400

600

800

1000

1200

1400

1600

1800

1985 1995 2005 2015F 2025F

Agg

rega

te C

onsu

mpt

ion

In U

S$

bn

Source: McKinsey Global Institute Consumer Demand

Aggregate Consumption to Quadruple

1,556

Calendar Year

FDI flows in India continue to remain strong(US$ bn)

43

36

27

34

25

2008 2009 2010 2011 2012

Source: Economist Intelligence Unit.Note: Figures in US$ bn

There are Concerns – but also Confidence

Currency devaluation Political uncertainty given general

elections in 2014 Lack of political consensus Uncertain tax environment That said, Growth projected to be 5-6%+,

and if the above concerns are alleviated and a more investor-friendly Govt is in Power, this could be higher

Attractive Economic & Demographic Trends…

2010 World Population (mm of People)

Real GDP per Capita Growth (2011 – 2020 CAGR)

Source: US Census Bureau (2010).

Total Population: 6.9 Billion People

6.6%

6.1%

4.1%

3.5%

2.1%1.9%

1.4% 1.4%1.1%

0.9%

Sources: The Economist Intelligence Unit, CIA Fact Book and Citi Investment Research as of March 2011.

China18%

India (1.2 bn people)17%

Africa15%

North and Latin America14%

Europe8%

Indonesia4%

Pakistan3%

Asia (Other)14%

Others7%

Just this month (June 2013), Fitch upgraded India’s Rating Outlook to Stable – driven by Government steps to contain the deficit, stabilize the rupee and other positive reform- oriented actions

Attractive Economic & Demographic Trends (Cont’d)…

Projected Shift in Composition of World Economy 2010 / 2030E Global GDP Composition

Projected Evolution of the Global Economy($ in trillion, purchasing power)(1)

Total

Emerging Economies

70%

Developed Economies

30%

Total

Emerging Economies

52%

Developed Economies

48%

C.E.E4%

C.I.S4%

Japan6%

Aus & NZ1%

Western Europe19%

North America

22%

Africa4%

Developing Asia27%

Latin America

9%

Middle East4%

Rank Country 2010

1 US $14.12

2 China 9.98

3 Japan 4.33

4 India 3.92

5 Germany 2.91

6 Russia 2.20

7 Brazil 2.16

8 UK 2.16

9 France 2.12

10 Italy 1.75

Rank Country 2030

1 China $38.49

2 US 24.62

3 India 23.27

4 Japan 5.55

5 Brazil 5.28

6 Russia 4.82

7 Indonesia 4.28

8 Germany 4.05

9 UK 3.67

10 Mexico 3.20

Developing Asia27%

CEE4%

CIS4%

Latin America9%

Middle East4%

North America22%

Western Europe19%

Aus & NZ1%

Japan6%

Africa4%

Developing Asia44%

CEE3%

CIS4%

Latin America8%

Middle East4%

North America15%

Western Europe11%

Aus & NZ1%

Japan3% Africa

7%

Sources: The Economist Intelligence Unit, CIA Fact Book and Citi Investment Research as of March 2011.(1) “PPP” stands for Purchasing Power Parity, which is a theory of long-term equilibrium exchange rates based on relative price levels of two countries; the purchasing power of different currencies is equalized for a given basket of goods.

…Driven By Rising “Middle Class” and Domestic Consumption

87 109158

220290

350

590650

1961 1971 1981 1991 2001 2010 2030E 2050E

India is One of the World’s Youngest Nations…

. . . With a Rapid Increase in Urbanization(in millions)

… With the Most Diverse Society

2010A – 2030E CAGR: 2.6%

2030E – 2050E CAGR: 0.5%

64%50%

26%15%

31%35%

40%

32%

4%13%

25%

29%

6%17%

3% 7%1% 2%

1%

2000 2008 2020E 2030E

Annual Household Income (USD)

<$2,000 $2,000 - $5,000

$15,000-$25,000 >$25,000

$5,000 - $15,000

46% middle class by 2030

0-411%

5-912%

10-1412%

15-1910%20-24

9%

25-4427%

45-6414%

80+1%

65-794%

Over 300mm People Within the Target Age Group

AoAssameseBengaliGujaratiHindiKannadaKonkaniKashmiriKhasi & GaroMarathiManipuriMalayalamMizoNissi/DaffiaOriyaPunjabiTamilTelegu

Jammu&Kashmir

Punjab

Haryana

Rajasthan Uttar Pradesh

Delhi

Uttaranchal

Bihar Assam

West Bengal

OrissaMaharashtra

Madhya Pradesh

Andhra Pradesh

Karnataka

Tamilnadu

Nepal

Bhutah

Arunachal Pradesh

Nagaland

Manipur

MizoramChhattisgarh

Kerala

Mahe(Pondicherry)

Gujarat

HimachalPradesh

Sikkim

MeghalayaBangladesh

Tripura

Andman & Nicobar Island

Jharkhand

Yanam (Pondicherry)

Karaikal (Pondicherry)

Pondicherry (Puduchcherry)

A Growing Middle Class

Sources: Street Research, Mckinsey Estimates and The Economist Intelligence Unit

India is Among the Most Attractive Internet Markets Globally

Low Internet Penetration Presents Further Upside

Unique Internet users in India India: 2nd Largest Wireless Market Globally

Source: Internet World Stats, as of December 2011.

Internet Penetration (%), As on December 31, 2011

121 140

190

273

376

10.0%12.4%

15.3%

21.7%

29.5%

2011 2012E 2013E 2014E 2015E

Unique Users (mm) % Penetration

(Wireless subscribers as of December 2011, in millions)

245 61 79 513 2,267 1,016 121# of Internet Users (mm)

78%

44%39% 38%

33%26%

10%

US Russia Brazil China World Asia India

984.1

893.8

333.4246.4 242.5 216.8

125.6

China India USA Brazil Indonesia Russia Japan

Source: WCIS and TRAISource: Street Research

Rapidly Growing Smart Phone PenetrationSmart Phone % of all Cell Phones

Source: TomiAhonen Consulting Analysis December 2011, Citi Investment Research and Analysis.

Active Internet Enabled Smart Phones(1)

Source: KPMG in India Analysis.

1024

58

105

166

264

0

50

100

150

200

250

300

2011 2012P 2013P 2014P 2015P 2016P

(Milli

ons)

60

107

26

10

2012E 2013E 2014E 2015E

Early 3G numbers are encouraging and point to medium-term upside

Analysts project a c.8% 3G penetration by 2015, which we believe is conservative

1% 2% 8%5%Penetration

3G / 4G Adoption a Key Growth Driver…(2)

…Supported by Increasing Smart Phone Penetration

(Subscriber base in mm)

8%

12%

14%15%

2012E 2013E 2014E 2015E

0%

10%

20%

30%

40%

50%

60%

Sin

gapo

re US

Aus

tral

ia

Sou

th K

orea U

K

Fra

nce

Isra

el

Ger

man

y

Sou

th A

fric

a

Mal

aysi

a

Japa

n

Chi

na

Indi

a

(% o

f Cel

l Pho

nes

that

ar

e S

mar

tpho

nes)

Source: Analysys Mason, IDC

Notes: (1) Includes Wi-Fi and 3 / 4G enabled smart phones. (2) Includes 3 / 4G enabled smart phones.

India The “Mobile First” Digital Economy will kick in (very) soon

Source: Qualcomm, KPCB Report


Early Stage VC in IndiaVenture 2.0; building ground-up this time

Blume Ventures

Why “India early stage”?

Blume Ventures


Early stage venture in India can offer higher risk-adjusted returns relative to other asset classes. Investors can potentially get earlier and multiple exit options – besides IPO or M&A, stakes could potentially be acquired by VC/PE investors across various financing rounds

Public markets

Private equity

Venture capital

Early stage

Asset class

14-18%

18-22%

20-25%

> 25%

Target IRR returns

Increasin

g C

om

petitio

n

100’s

> 50

~ 25

5-10

# of Organized Funds (India)

In

crea

sin

g R

etu

rns

More competition,

inflated valuations,

capital deployment pressures

Valuations are still

attractive, Investors

collaborate & cooperate

Blume Ventures

India - Early Stage Funding


Many VCs in India have moved upstream, into the realm of Growth VC and PE. This has created a gap for startups that need critical seed and angel funding

Blume’s focus A majority of VCs have moved upstream

Pre - Series A

• Angel groups• Individual angels • Angel funds• Incubators & Accelerators

• Inventus• Accel• Helion• Sequoia Capital• IDG Ventures• Saama (formerly SVB) • Kalaari (formerly IndoUS)• Matrix• Nirvana• Omidyar • Qualcomm

• Nexus • Canaan• NEA • Bessemer• Norwest • SAIF• Lightspeed• Fidelity• Tiger • Vertex• Intel• Cisco

Blume Ventures

India – Shift from 2009 to 2013


Pre - Series A

• Burst of accelerators, seed funds, super angels (& their quasi-funds) • Blume was first of its size in this cycle – at least a dozen more emerged in last 24 months

• Reduced attractiveness of the 2006-08 vintage angel groups

• Fragmented angel networks don't work well as yet (close-knit networks only)

• Lack of a network / marketplace of mentors, advisors, domain experts, service providers (we may build it like FRC / @500)

• Almost NO change in the set of Series A / B / C players

• Some wind-downs, some rebranding, some splits amongst larger VCs

• Most of them on new funds + limited exits => large active portfolios

• IPO market as dormant as ever in tech, focussed only on exceptionally large cash-flow or gross rev biz models

• Trickle of M&A; we need a flood

Blume Ventures

Lack of transparency around VC performance


Smorgasboard of Investment Styles Blume Ventures

the Pre-80’s style small funds, small investments (not too many deep tech

plays though)

the 2005+ disruptor funds such as the entire audience at pre-money

the 2008+ "new accelerator" models

(YC / TS clones and bad ones at that) - more

focussed on demo days than value

-

the pre-2005 "incubator" models - legacy college

based, govt funded

the we-are-the-domain-experts accelerators like tandem and angelprime

the let's-copy-the-valley model (classic $150-250 mill funds, all the usual

suspects)

all models coexisting and jostling for space - what we have is a smorgasbord of

styles, lots of noise, everyone waiting for the music to begin

India – the Nuances


• RedBus (Bus Ticketing)

• Tally (Accounting Software on CD)

• AppsDaily (offline App Store)

• Gharpay, Delhivery (e-comm Only Logistics and Payments)

• JustDial (yellow pages on Voice)

• MadRat Games (Indic language, local character design – board games)

• Large Cash Economy, cards underpenetrated, payment infra highly regulated

• Do-it-for-me > DIY

• Transport Infrastructure creaking – overburdened as its being built

• Every City’s Tech culture is quite different

• Broadband Infra well below optimal

• Mobile Service Providers have too much control over app economy

Blume Ventures

Every challenge is an opportunity, but nuanced….

Some Localized Startup Ideas Localized problems that Investors need to be aware of

India – some big ideas & themes


• Mobile First (device and access penetration much higher)

• Fix the SMB problems (35-40 million small businesses)

• Location tracking and services

• Fixing e-commerce backends – B2B commerce, payments

• Video bigger than text?

• Audio / Video Indic languages content bigger than English

• Gaming – will leapfrog consoles to Mobile and Tablets

• Crowdsourcing – Surveys, Information, Tasks, Capital

• Reimagine traditional plays – travel, jobs, housing, dating/marriage

Blume Ventures


Blume Ventures @ the heart and center of the microVC

movement

Section credits: Citibank M&A

Blume Ventures


Blume – a short history

Blume Ventures Fund I is a 2011 vintage $20 mil India-focused seed stage fund

Helping Indian tech startups seeking a round between $100,000 to $500,000 in a seed/angel round

Blume’s sweet spot is $100-$250K (in rounds that it LEADS; >50% of round)

And $50-$250K in Syndicates (<35% of round)

We then support our best companies with bridges (mostly convert notes to next rounds) + pro-rata participation in Series A rounds – with an additional $200-$750K

Stakes post-Series A are 10-15 % (in Leads) and 5-10 % (in Syndicates), with a few exceptions on either end of the range

Blume Performance


6 “up-rounds” (Series A / “green shoots” Series A’s) in Blume’s portfolio to date – from VCs including Accel, Helion, Kalaari (formerly IndoUS Ventures), Nirvana Ventures and Jungle Ventures (Singapore)

Blume Ventures

……Another 3 in term sheet stage

………..Average multiple achieved @next round = 3x

……………..2 shutdowns, both cos’ assets being sold for a small price

Blume - Investments & Sectors Blume Ventures

HR / Skills / Employability

Internet + Mobile - Infra & Platforms

Ad Tech / Marketing /

Mkt Research

Consumer (other)

Consumer (e-Com -Goods

+enablers)

Content / Publishing

SaaS

Internet / Mobile /

Digital Media

Clean / Green Tech

ITeServices

Other Niches (25%)

Life Sciences

Consumer (e-Com –Svcs

+enablers)

Manufacturing / Robotics

Core (75%)

We invest in the change we want to see in India and founders who believe the same 55 Investments (as of Mar 2013, 27 months from launch)About 40% will grow out into or cater to international markets – more B2B, some B2C 100+ founders, 10% Women, 5% Non-Indian citizens40% Bangalore, 30% Mumbai, 20% Delhi NCR (Rest in Pune, Hyderabad, Chennai) 60+ LPs (all entrepreneurs) invest $20 mill; 1st VC fund w/100% Indian money4 member Investment Team, 4 member Support team, 3 member platform teamPlatforms being built out – 1st hacker on payroll

ITeServicesEducation


Blume Mantra = Back to basics + best-of-breed

India’s need:to build a classic bottom-up Venture Ecosystem model with best-of-breed practices adopted from disruptor funds - both from US Innovators and Other Markets (China / Europe / Israel)

We take “inspiration” from all the godfathers- USV / FRC / Felicis / @500 teaching us risk/capital allocn- First Round teaching us building automation of ecosystems- Angelist will enable future building of co-investment syndicates - Innovation Works & Andreesen Horowitz teach us scaling ops- Learning from Israel on how to “Build in India, Ship to the Planet”

We will further adapt for India- Build proprietary angel network for high quality co-investors- Build proprietary mentor and advisor networks- Build own M&A platform for systematic exit strategy


Thank you @500You’ll see a lot more of India and Blume soon

Section credits: Citibank M&A

Blume Ventures