Decode by Huddle

Huddle, being a sector agnostic fund, is bullish across many sectors which we’re going to cover in depth, each Friday, for the coming weeks. But for our first post today, we’re going to be focussing on (*drum roll please*)… Consumer Internet!

Why?

It’s because the attention span of humans has reached a new low of 8 miniscule lower than that of the infamous goldfish which is said to lose its attention in 9 seconds, resulting in greater competition for mindshare.

Consumer spending on internet-based businesses, including online grocery and food, edtech and e-healthcare, is expected to grow to $250 billion by 2024-2025, according to management consultancy, RedSeer. As new consumer habits were shaped by covid, the user-base of the Indian consumer internet sector has grown rapidly.

As consumers get accustomed to the greater convenience offered by online platforms, they are also increasing their wallet share toward the latter. This, in turn, has accelerated growth for the consumer internet sector, which is now expected to grow 4X over FY20–FY25.

What drives startups in this segment? 

  • Today, the most successful products in consumer internet tend to be those that achieve high degrees of virality.
  • Word of mouth, in particular, is an essential driver of distribution for renowned products. Only products that are extremely simple to understand — such as Paytm, Clubhouse, SimSim — can thrive in the telephone-chain word-of-mouth distribution channel.

Now let’s talk about two of the  important sub themes under Consumer Internet for this segment

#1 Fintech

#2 Gaming

Fintech – 

Why?

Simple, because India accounted for one of the highest fintech adoption rates in the world with an adoption rate of 87% compared to the 64% global average, as of 2020.

The 2015-2020 period has seen a phenomenal growth in Fintech startups in India with the Fintech market size valued at INR 2.3 Trillion in 2020 and is projected to grow at a CAGR of 24.56% between 2021-2026 to reach INR 8.35 Trillion by 2026.

Use Cases

#1 Unlocking first time retail investors

Small market of retail financial investors has made monetization a challenge beyond scale!

So, we want to focus on any digital platforms that are designed to invoke investment interest from retail investors. They should primarily target on enabling users in their investing activities without the intervention of a broker or other middlemen.

Validation:

  • Indian investors opened a record 14.2 million new demat accounts in FY21, nearly three times the figure in the previous fiscal year, as the global pandemic and business disruptions opened up new investment opportunities.
  • The unique registered investors on the NSE crossed 50 million on October 25, 2021. While the journey from 30 million registered investors to 40 million took about 15 months, the next 10 million investor registrations took less than seven months. An aspirational lower middle-class, therefore, creating demand for products and the financialization of savings is a big tailwind, which is reflected in the way demat accounts have been opened.
  • Assuming a population of 1.4 billion, India’s equity market penetration is currently less than 4%.

Hence, there is still immense potential to unlock the first time retail investors within the upcoming millennial age groups with more relatable and engaging platforms catering to financial markets.

Portfolio Insight:

Our accelerated portfolio company, Yobee, lies in the similar domain to propel the growth of retail investors in the country. Yobee simplifies trading using professionally created trading baskets with one-click execution & live tracking, creating a lucrative solution for retail investors.

#2: New-to-Credit Universe

With the growing penetration of smartphones and internet subscriptions, the popularity of lending through fintech platforms is expected to keep growing. When it comes to consumer credit especially, the data from the credit information company (CIC) indicates an addressable market of 400 million people aged between 18-33 years in rural and semi-urban areas, and points out that the credit penetration in this segment is only 8%.  Identifying emerging NTC consumers across segments and enabling access to financial opportunities for them is vital for driving economic resurgence and sustainable financial inclusion in our country.

Few business models in the indian lending tech landscape, that we are bullish upon → 

  • B2B lending start-ups are providing short-term working capital loans to the SME and MSME sector. For India, the MSME segment is the backbone of the economy, set to be a $5 Trillion economy by 2025 and thus ensuring the growth of this segment is paramount. These lending fintech companies are also addressing the gap of a customer-oriented approach during the credit process.
  • The P2P lending platforms, a sunrise sector in the Indian Fintech landscape, offer unsecured loans and higher interest rates to borrowers compared to banks and NBFCs.
  • Another market that is gaining popularity in India is ‘Buy-now-pay-later’ or BNPL which is estimated to reach $45-50 Billion by 2026 from $3-3.5 Billion at present.

Validation:

  • Unsecured Products have seen an increase in loan books at a CAGR of 38% vis-a-vis Secured Products, which grew at a CAGR of 17% from 2017 to 2020.
  • The number of users of BNPL is also projected to increase from 10-15 Million to 80-100 Million by 2026. There has been an increase in expansion of credit to Tier 3 and 4 markets for lending.
  • These markets have witnessed a sharp rise in low-ticket high-volume lending products like two-wheelers, entry-level cars, and affordable housing. Meanwhile, metros remain the biggest lending markets given the skew of the working population.

Portfolio Insight:

Rupyo, a Huddle accelerated lending startup, proves our hypothesis in this segment. Rupyo provides early wage access to mid-market segment of users who typically do not access credit to cater to their short term financial needs.

#3: New Investments Models

Investments raised by alternative investment funds in India grew at a CAGR of 74.4% between 2014 and 2020, hitting $27 Billion by September 2020 signaling that investors are looking beyond stocks, bonds, and mutual funds, to grow their wealth. The target group for such a platform are people who fall in the age group of 25-40 years, who earn INR 20 lakh plus and are based in Tier-1 cities.

Validation:

  • 21 percent drop in the benchmark index this year, wiped out more than a fifth of the net values of local equity funds, is making investors view diversification more seriously and invest in mixed asset and bond funds.
  • Balanced funds, investing about 35 percent of assets in bonds and the rest in stocks, mobilized 19.44 billion rupees in January — highest monthly inflow in nearly seven years — while bond or income fund assets doubled, data from fund tracker ICRA showed.
  • Investors are also increasingly looking to diversify globally, making firms launch funds buying foreign equities, gold mining firms and real estate investment trusts.

Portfolio Insight:

Grip Invest, a Huddle backed Fin-tech venture, with a registered user base in over 42 countries and 300+ cities, is an investment platform that enables investors to pool their money in a SPV (Special Purpose Vehicle) which the startup uses to acquire physical assets. It then leases these assets to companies that need them, earning a monthly rental income that goes back to investors as returns and further charging a 2% commission on the monthly returns. Such a model offers investors an IRR of 15-20%, which is often higher than most mutual funds, fixed deposits, and other investment instruments.

Now, on to our second sub theme within Consumer Internet —> Gaming (NFT, Platform, Esports, Publishers)

Why Gaming?

The total Indian gaming market is expected to grow 113% from $1.83 Billion this fiscal year to $3.91 Billion in 2025. India is currently home to over 430 million mobile gamers and the number of gamers are estimated to grow to 650 million by 2025.

A significant shift in India’s gaming sector is the focus on game development, with more than 200 game development companies coming up in the past 2-3 years, creating their own intellectual properties in games. Another shift comes from the smartphone makers as they increasingly focus on incorporating dedicated gaming features on their newest devices and launching gaming-specific phones. Some of the use cases we think will make notable delta in their growth curves are as follows

Use Cases:

# 1: Social Gaming

The next giant social media company is likely to be a gaming company. San Francisco-based Discord has long been the preferred social platform for gamers. Discord’s eschewing of targeted ads built around sharing users’ private data makes the platform an attractive alternative to larger social platforms like Facebook Inc. that rely on such mechanisms to drive profits. While every game will need to incorporate multiplayer, synchronous and social elements, there is a tremendous opportunity in building the social layer for gamers across properties.

New-age mobile gaming has given rise to the need for centralized, social platforms, specifically created for consumption of gaming-related content.

Validation:

  • More than 300 million people play mobile games in India, and the gaming market as a whole grew at a compound annual growth rate (CAGR) of 38% in 2019-2020 and 37% the previous fiscal.
  • According to the report,  gaming has been growing faster than social media in India over the past few years. India’s social media market grew by 11% in 2019-20 and 26% the previous fiscal.

Portfolio Insight:

Our portfolio company,  Qlan steps in to fill in the need for gamers looking to pair up with other gamers and build communities. Qlan aims to be a one-stop shop for new-age gamers looking to build their gaming repertoire, consumer content, connect with industry professionals, and much more.

#2: E-Sports

As the popularity and frequency of esports tournaments grow, esports is often confused with online gaming. Though at a nascent stage, the esports market size in India has quickly scaled to INR 3 billion in FY2021 and we expect it to reach INR 11 billion by FY2025.

The sport has a much larger economic impact: we expect it to generate an economic value of around INR 100 billion between now and FY2025. The esports industry is expected to grow at 46% CAGR over the next four years and streaming platforms will generate the largest chunk of esport revenues.

Validation:

  • The leading gaming player in India, Nazara technologies is reportedly earning half of its revenues from esports.
  • It is also said that the number of esports players doubled from 3,00,000 in 2020 to 6,00,000 in 2021.
#3: Real Money Gaming (RMG) 2.0

As the gaming universe continues to expand, it makes sense to approach any new game with an RMG lens.

  • Conventional gaming genres like MOBA’s (multiplayer online battle arenas), racing or sports could have an embedded RMG layer.
  • There’s also an opportunity to offer ‘RMG as a service’, through SDKs (software development kits) that allow any developer to spin up their own RMG title.
  • Social RMG platforms that allow P2P groups to host RMG experiences at much lower platform fees is another potential area.
  • The freemium model has significant revenue potential for publishers, as larger audiences are traded off against lower revenue per player (for the bulk of players) – the top 10 grossing free-to-play games last year dwarfed the top 10 paid games in revenue terms.

Validation:

  • Real money gaming is the  largest constituent of revenue pool driven by higher user paying propensity, according to the report by BCG and Sequoia on the Indian Gaming Industry.
  • Online skill-based real-money gaming (RMG) market in India is estimated to grow to become ~$3.8 Bn by 2024 on the back of growing digital infrastructure – breakneck speed of growing smartphone penetration, low cost of data and vast digital payment infrastructure allowing individuals access to instant real-time inter-bank transactions.
  • Driven by high growth opportunity in RMG market, horizontal players have started foraying in the segment. In 2019, Paytm entered the casual gaming space with Paytm First Games.

Portfolio Insight:

Democratizing access to games is an inevitability. Given how the west has matured into console gaming, our thesis dictates cloud gaming as a vertical to revolutionize gameplay. This is where The Gaming Project (TGP) within our portfolio steps in to democratize access to games by creating a cloud gaming platform that allows users to play any video games / AAA games on any device (mobiles, laptops).

#4: Crypto Gaming

The sheer possibilities presented by Web 3.0 – whether through issue of tokens, trading of in-game assets through non-fungible tokens (NFTs), new methods of monetisation through models like play-to-earn and emerging competitive arrangements through staking – open up the world of gaming to a fundamental redesign.

Play-to-earn games could bring digital identity, assets, and ownership into players’ hands as the gaming industry is becoming decentralized. It’s a logical assumption that NFTs will sweep through gaming, much like they have through art. NFTs establish digital ownership for players in games like Sky Mavis’ Axie Infinity, which has seen $2.4 billion in trading this year. This ownership model allows players to sell their leveled-up game characters for a profit, enabling a new business model for games dubbed “play-to-earn,” where players earn rewards.

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That’s all for today! This space is for startups in the sectors and solutions we are bullish about, therefore, a call out if you are a founder working on any of the above use cases, you can reach us on connect@huddle.work and we look forward to brainstorming with you. If you are enablers and investors and would like a further look into our ecosystem, then we are  happy to dive deep into these sectors alongside you. .

See you next week, where we’ll be talking in detail about Huddle’s next sector of focus → Digital Commerce.

PS – Our thoughts and thesis is inspired by what we learn from the ecosystem, our founders, investors and experts. Therefore, some of these views are through other reports, knowledge and our continuously evolving.

Pre-Seed + Seed Investments

RocketFuel x Huddle

Recent developments such as the SEBI Circular surrounding revamped ESG and Sustainability reporting are a welcome addition, encouraging large-scale enterprises to adopt tech solutions that aid in carbon reduction, ESG compliance, and Climate Education.
Carbon (Dioxide) is one of the building blocks of all organisms on Earth, such that it allows Earth to hold it’s energy. Carbon Sequestration is the process of capturing and storing atmospheric carbon dioxide. It is one method of reducing the amount of carbon dioxide in the atmosphere with the goal of reducing global climate change.   There has been growth in startups working on carbon capture/tech sequestration that capture CO2/ GHGs and utilize them to create value-added products and/ or sell offsets on exchanges.
Given the large depth in climate finance required, emerging forms of climate finance will be important for us to consider. For example, Refi (Regenerative Finance) is a movement focusing on the power of blockchain and web3 to address climate change, support conservation and biodiversity, and create a more equitable and sustainable financial system.
Energy storage and management for mobility & transport use cases have observed strong investor traction historically, and we believe this trend will continue in the next 3-5 years. This includes Electric vehicles as a category.

Agriculture has vast potential with respect to climate change. Building agri-food supply chain efficiencies will be very important to reduce post-harvest food losses. Hence, solutions that use technology to reduce food losses from farm-to-folk or provide cold-chain infra would be relevant to consider. 

 

Additionally, precision agriculture will be crucial to increasing farm yields, but the sector is vast ranging from farm advisory to Agri inputs to IoTs and deep tech hardware solutions. Hence, we will opportunistically look at this theme to scout good startups.