Recap of “An American Investing in India” a conversation with Hershel Mehta.

In March of 2024, I had an conversation with Hershel Mehta, GP at 2AM Ventures who I have co-invested often. I am also an LP in their fund as my strategy to be a US investor internationally is to partner with local pre-seed VCs to understand the market. We had a wide ranging discussion around the overall India Opportunity as well as some of the unique challenges of that market. Here is the full video and a summary below.

Quick recap
Hershel and Martin discussed their personal experiences with India, as well as the growth of the Indian venture ecosystem, with Hershel sharing his observations on the increased usage of digital payments and the development of software platforms like PayTM and Ola Rooms. They also discussed the emerging market opportunities in India, the country’s income stratification, and the challenges faced by foreign companies. Lastly, they explored the regulatory environment in India, the potential of AI-driven disruption, and the success of several Indian companies, including Post Men, Browser Stack, and Fresh Desk.

Summary

Discussing Personal Backgrounds and India
Hershel and Martin discussed their personal backgrounds and their experiences with India. Martin shared his plans to visit India to witness the solar eclipse, and Hershel spoke about his initial investments in the US and his later trips to India. They also discussed the growth of the Indian venture ecosystem, with Hershel sharing his observations on the increased usage of digital payments and the development of software platforms like PayTM and Ola Rooms. The conversation concluded with Hershel expressing his gratitude to Martin for his support in his early venture career.

Hershel’s Insights on India’s Global Mindset and Investment Opportunities
Hershel discussed his experiences and observations with India, emphasizing its unique global mindset, high English proficiency, and the success of the Indian-American community. He shared his investment journey and focus on early-stage Indian companies through their fund, 100 xVC, which he identified as the largest pre-seed accelerator in India. Hershel also highlighted the significant increase in GDP per capita and the growing digital-first consumption trends among India’s young population as potential opportunities for investment. He shared his investment in Zpto, a company offering grocery delivery services, as an example of a successful Indian start-up. Lastly, they discussed the emerging market opportunities in India, the country’s income stratification, and the challenges faced by foreign companies.

India’s Managed Rental Marketplace and Regulatory Environment
Hershel discussed a new managed rental marketplace that allows individuals to list their homes, which could address the pain point of young Indians looking to rent in cities like Bangalore. He also shared insights on the regulatory environment in India, highlighting the government’s reactionary approach to issues like the ‘angel tax’ and the impact on the venture community. Martin asked Hershel to share more about unique challenges he faced in India and how they were turned into opportunities. Hershel shared his experiences with the Indian fintech sector, which he said would continue to be the most funded sector due to the high volume of digital payments.

Strategic Investing in India and AI Disruption
Hershel and Martin discussed the dynamic investment climate in India, emphasizing the need for strategic timing, diversification, and flexibility. They highlighted the Indian government’s relaxation of certain FDI restrictions, which has increased liquidity and attracted more venture capital to the country. The discussion also touched on the potential of AI-driven disruption in various industries, with a focus on software opportunities, automation, and customized solutions. The potential for business-to-business (B2B) opportunities in human capital arbitrage was identified, but the challenges of scaling up successful ventures abroad were noted. The conversation ended with the suggestion that finding a space where incumbents are disliked could be a potential strategy for success.

India’s Successful Companies and B2B Trade
Hershel discussed the success of several Indian companies, including Post Men, Browser Stack, and Fresh Desk, highlighting their achievements without external funding. He also identified the potential of B2B trade in India, mentioning the country’s large population, manufacturing capabilities, and government initiatives to attract foreign companies. Hershel noted a significant shift in young people’s mindset towards building their country, leading to a reverse brain drain, and expressed optimism about India’s potential to become a global hub for ag-tech and space tech. Martin expressed interest in these opportunities and agreed to visit India again.

Exploring Ond DC and Its Applications
Todd sought insights on the new regulatory framework, the Ond DC – Open Network for Digital Commerce from Hershel and Martin. Hershel explained the Ond DC in the context of India’s digital initiatives, notably the India Stack and the Unified Payment Infrastructure (UPI), and highlighted the success of UPI in facilitating digital transactions and reducing cash usage. Hershel also mentioned the potential of Ond DC to enable the creation of new lending opportunities by collecting and utilizing merchant data. Furthermore, Hershel presented the Ond DC’s application in enabling individual sellers to create vertical-specific apps, suggesting a new business model for e-commerce where sellers can list their products on his app, thereby connecting buyers and sellers for true price discovery without additional fees. Hershel envisioned this app becoming the primary destination for consumers to search for products, replacing the need to visit multiple e-commerce sites, and predicted that struggling B2B marketplace companies would shift to this model, leading to increased price transparency and better decision-making for sellers.

Exploring Fintech and Regulatory Opportunities in India and Africa
Martin and Hershel discussed the efforts of Indian regulators to ease friction and taxability in financial and e-commerce transactions, with Martin expressing a desire for similar regulation in the US. They explored the potential of Fintech, with Hershel suggesting B2C opportunities may be more fruitful than B2B, and discussed the potential of expanding credit opportunities in India and Africa. The conversation also touched on the use of technology to increase access to insurance and other financial services, with examples given of successful companies like Sparate. The conversation ended with a discussion on how to reach out to them for potential investment deals.