The Asia-focused early stage venture capital firm Rebright Partners entered India in 2015 with a USD 20 million fund after seeing the surge of internet companies in the country and hearing murmurs about the next big market after China.
Rebright has until now invested in companies such as B2B logistics startup LetsTransport, online medicine delivery platform Medikabazaar, content platform InShorts, digital medical consultation platform DocsApp and a C2C marketplace Elanic.
The Passage spoke to Brij Bhasin, principal of the company’s India investment lead, to understand its expectations from the India technology space. Following are excerpts from the interview:
TP: Please tell us about Rebright Partners and your work in India so far?
BB: It’s a Japanese and Singaporean fund. We have been active in India for the last four years and have 11 portfolio companies here. Primarily we invest in seed to series A stage with a typical ticket size of USD 0.5 to 1.5 million.
We have invested across various sectors in the past — digital media, healthcare, gaming, e-commerce and logistics. Within e-commerce, we’ve invested in both consumer and B2B. Recently we have been focusing on deep-tech businesses and have invested in a couple of companies — one in computer vision, computer and surveillance space, another in chip architecture for AI processing, another one in audio analytics and the most recent investment was in agri-tech in an IoT and analytics company. Going forward, we will be specifically looking into deep tech businesses.
TP: Do you have any preferences in deep tech space when it comes to Indian businesses?
BB: Our LPs (limited partners) are primarily large Japanese companies that are looking at India as the next frontier market for them to invest in and build businesses, and also partner with Indian startups that are building intellectual property-based products and businesses that have applicability in India, southeast Asia and across the world. Our focus has always been to help startups access not only financial assistance but also customers in southeast Asia and Japan.
We are looking at a couple of sectors where there is a strong interest from Japanese investors in India. Mobility remains a strong interest, within that there is a shared economy, logistics, transportation, new software platforms for mobility and transportation sectors. That’s one of our strong focus areas.
The other is healthcare, where we see that there is a large market in India and there is a long evolution of both services and products for the India healthcare market. Interestingly we are also seeing new IP being developed in the form of medical devices and software platforms that can be applied globally. Some of these can be applied even in the Japan market. Companies from Japan are looking to partner with Indian healthcare startups to perhaps form a joint venture to help them with their market entry into southeast Asia and Japan.
Other than that, some of the specific areas we are looking at are industrial automation. Japan is a manufacturing economy that is always looking to build in more efficiency. Again, in terms of software platforms being built, using AI and machine learning together with IoT sensors data provides new mechanisms for these factories to increase output and efficiency.
Beyond this, opportunistically, we look into fintech. Non-banking financial companies in Japan are looking to make later-stage investments in series A-, B- and even C-stage companies in India. When it comes to fintech, we specifically like to bring in a consortium of our LPs to invest in Indian startups at later stages.
TP: What is the segment in fintech that you are interested in?
BB: Personally, we invested in a fraud analytics and anti-money laundering company called Tookitaki almost four years ago. We also invested in ePayLater. Payments and lending is a use case for our LPs that are NBFC companies.
For Rebright Partners, we are looking at companies that are into software and services for the financial services industry. These could be products that enable faster processing for loans and credits. These could be CRM (customer relationship management) and SaaS (software as a service) products for the BFSI (banking, financial services and insurance) industry. It could be a newer consumer model when it comes to insurance or other financial products.
TP: What is your average fund size?
BB: We have allocated about USD 25 million for India investments and until now about half of it is already invested. We previously had a fund of about USD 10 million which we invested in Southeast Asia.
We continue to also help our LPs and strategic partners do follow-on investments. You could think of our initial funds as more of a gateway fund where we put the first cheque, but in almost all of our portfolio companies, we are able to bring in at least 30-40% of the follow-on round from our Japanese partners. In that sense, the total quantum of money we have through our network to deploy in India is in upwards of USD 50 million.
TP: Is there any specific difference between how Chinese and Japanese VC firms look at investing in India?
Chinese investors are primarily looking at later-stage investments. They are starting from at least a Series B, and sometimes Series A, where they want significant traction and scale which can have a correlation with Chinese markets. Of course, in the Chinese market, even at Series B startups would have a much higher scale.
I am not talking about Softbank and Alibaba, they are in a different league of their own.
Majority of the Japanese investors are actually seed-stage investors. They like to come in early stages of the company, maybe just at the post-product market fit with a few marquee customers or POC (proof of concept), and then support the company in seed and Series A. They are more aware of the fact that they want to start small and build a relationship for a long term, where let’s say, they put in half a million initially, then they would put USD 2 million in the next round and then they would bring their LPs to put in higher amounts.
TP: What is your investment plan in the southeast Asia market?
BB: We have already made our investments in the southeast Asia market and we are no longer investing there. Our main focus is now in India. Till about 2016, we were actively investing in southeast Asia, but post that we have raised India-specific fund. We are a small fund and we don’t have the bandwidth to spread ourselves too thin across different geographies. Also, our LPs are actually more interested in investing in the India market. They see more opportunity here.
Could you give us names of some of your LPs?
BB: One of our LPs is GMO Venture Partners, which is a large financial services company in Japan. They run the biggest payment gateway company and financial services platform. One of our other LPs is Unisys Japan, which is one of the largest IT services in Japan. Another one is Mitsui Sumitomo Marine Capital. It is a large Japanese insurance company interested in investing in healthcare businesses in India. They have already made follow-on investments in two of our portfolio companies in the healthcare space.
TP: How many companies are you actively talking to in India this year?
BB: I foresee to complete about four to five investments. We made about two investments last year and on an average we do about three or four a year. Currently we are in late-stage discussions with two companies and we should close that by next month, and then probably do at least two more before the end of this year. These two companies are in mobility, healthcare, enterprise and SaaS.
TP: Are they into deep tech as well?
BB: They are building products that are specifically software tech-oriented, but I wouldn’t classify them as deep tech as they are not really building computer vision deep learning algorithm or chip design. Almost every company today has to have machine learning and AI algorithm to be globally competitive. Ultimately, every tech company will have to become deep tech company if they want to compete globally.
TP: A lot of companies claim to be AI-enabled. Do you think this has become more of a marketing gimmick?
BB: The way I see and encourage others — think of how mobile was coming up in late 2000s. In 2007-10, every company had a website, but mobile was the thing. Everybody was saying you have to have a mobile presence, if not an app at least a mobile compatible website. Some companies built it from scratch, some used an external platform to create their app and then improve it further.
I see every decade or so there is a new technology layer that gets added to our ecosystem, which then becomes a fundamental part of it. In the 90s the Internet and websites were added and they became a fundamental part. Post 2000, if you are a business and don’t have a website, you were not really a serious business. The same logic applied for mobile app — if you didn’t have either a mobile-optimised portal or a mobile app post 2010, you were not really a serious business.
I believe we will see a similar trend with AI. If you are a business that is not using AI or machine learning in some significant manner to improve your business, you will lose the competitive edge in the market. We are already starting to see that happen.
TP: As an investor, does it not matter if the AI capabilities have been developed in-house or using a third-party platform?
BB: If the company is specifically pitching to us saying they are building a Deep Tech company, there are two ways to look at it: are you a horizontal player which is providing the technology platform for multiple industries or are you a vertically-focused player, where your product, value proposition and business are very specifically geared towards one industry.
The maturity level of the team needed for each of those scenarios may vary. For example, you are coming in as a computer vision company writing deep learning algorithms to make CCTV cameras small. If you don’t have those capabilities in-house, obviously we will not invest in you.
If you don’t have very strong machine learning and an AI team, then it doesn’t really matter what your use case is. But if you are, let’s say, a B2B e-commerce company and you have done a decent healthy business. Moreover, you have a lot of data about your customers, the operation, order flow and inventory, but maybe you don’t have immediate internal capabilities to build a predictable ordering platform, that is fine. Because we can help you build that platform and hire the right team for it.
TP: As long as you have data it doesn’t matter if AI capabilities are in-built or not?
BB: A lot of it depends on the quality and quantum. What is the quality of data which can actually be put into training the data sets to create machine learning algorithms, and what is the quantum of data that you are generating, not just what you have at hand but also what you will generate going forward, which will improve these initial machine learning algorithms to create an AI platform around that.
It’s very important to understand their existing scenario and where they are taking that.
TP: You have not exited from any investment so far?
BB: Not yet in India.
TP: Typically how long does it take for you to get returns on your investment?
BB: We are a 10-year fund, which means we are a long-term strategic investor. However, India market’s exit scenario is evolving significantly, just like how it’s evolving in southeast Asia where we are starting to see exits between 5-8 years of investing in a company through acquisition and secondary exits. That’s what we would be aiming at in India as well.
(Moulishree Srivastava contributed to this story)