Don't judge opportunity by current effort: Accel Partners' Peter Wagner
Namitha Jagadeesh -
Monday, July 28, 2008 2:59 PM
With the Accel-Erasmic merger, the Palo-Alto headquartered Accel Partners, which until last week did not have a single India investment, has now acquired over a dozen companies in its India portfolio and will add several more with a new fund of $ 60 million. 
The question is, how many? Accel India says it will retain the Erasmic focus on seeding very early stage companies, but will it be strained for bandwidth if it continues to invest small amounts, with four partners and a fund six times larger than its first? Erasmic's average deal size was a few hundred thousand dollars. A quick calculation will show that at $500,000 per deal, this translates to 120 companies out of its new fund! Even at $1 million, it will be 60 deals - that is, 15 companies per partner (even factoring in follow-on rounds, the number will be significantly higher than for its first fund). To bring down this figure, the firm will have to either add partners or up the deal size. The sector focus too will remain broadbased - Accel India will invest in Internet, mobile, media, life sciences, technology and tech- enabled services and consumer focused companies. A few weeks before Erasmic turned into Accel India, I interviewed Peter Wagner, partner, Accel Partners. While he did not mention the merger, Wagner spoke about the opportunities and challenges of the Indian market. Here are his views on some of the areas of interest for Accel in India:
Internet
We are very excited by what we see in India. At the same time, we can’t be naïve about challenges of the market.
For online businesses, for example, there is a relatively small audience in India at present, which calls into question many business models that are very audience dependent. There is innovation going on now, you have to be patient, though, especially in areas where people are used to seeing explosive growth, like the Internet business. You just don’t have that kind of traffic yet. But I’ve seen very good Internet entrepreneurs in India realizing this and achieving financial sustainability even with a small audience size. For example, travel has a bad name because of so many companies and such a tiny market but I’ve met entrepreneurs who’ve been so thoughtful about user-generated content in travel for Indian travelers to Indian destinations.
On Social Networking:
I don’t know if anyone’s really figured out revenue model anywhere. The me-too phenomenon in India is probably true, but I wouldn’t judge the opportunity by the current effort. Just because certain companies might be doing things that don’t look exciting doesn’t mean there isn’t opportunity there. That’s embryonic, early phases. It won’t be straight clones of the US model, but there will be local adaptations. We’ve not necessarily seen it yet, but I’m optimistic that over the next several years, that will come into focus. I think there will be a role that global social networks play, but there’s room for an Indian one. You just need to think deeply about what are the needs of Indian consumers and what they are using it for. None of the communities that have been successful rolled out a network and said come on to my network, there was an origin from which it was built. It was different for Myspace and for Facebook. In India too, there will be a different origin point for that consumer and different needs to be served.
Mobile
On the mobile side, of course, there is a huge base of mobile subscribers but monetising mobile applications and content has not been easy in India or anywhere else, frankly. But (it is so) particularly in India, with low ARPUs and the controlling role of operators. We’re particularly interested in what’s called the off-deck mobile ecosystem, sort of open mobile, not carrier controlled. A number of drivers pushing the industry in that direction – the iPhone is one, there are other initiatives such as Google’s (open social platform). We have Admob on our portfolio (and) Getjar in Europe. Just as Admob allows publishers to monetise, Getjar allows them to get distribution…and neither is controlled by the carrier. In India too, there will be different adaptations.
Products businesses
I’ve seen interesting product businesses targeting the emerging markets, not necessarily for the global market but Indian and other emerging markets and built with a different cost structure in mind. It is not a very good market for products developed for the US or Europe market, as the cost and capabilities of those are not the best fit for the Indian market. If on the other hand, you develop something specific for Indian market, the opportunity exists to do it at a much lower cost and solves a real problem and a broad enough market, that’s pretty exciting. Medical devices would be one area for interesting product businesses.