Sequoia Capital India on Investing in Indian Gaming Market

Sequoia Capital India has been partnering with Founders in India for over 15 years helping build legendary companies while the video game ecosystem in India is still early the firm is increasingly seeing a rise in startups as well as investment activity in the space Shailesh lakhani and prachi parwar from the team focus on gaming amongst other sectors in India so last year I had the really great opportunity to speak to both prachi and Shailesh about the Venture Capital industry in India their thesis on India and specifically gaming in India and how should entrepreneurs think about the current state of the market please join me for a really great discussion with Shailesh and prachi coming up Shayla you've been doing this for quite some time I believe 14 over 14 years around 14 years just crossed 15. oh wow congratulations so I I could you tell us a little bit about like how did you come

into venture capital and then how did you wind up at uh Sequoia India yeah it's a it's a long story of how I wound up in Venture Capital um but I was always into Tech growing up as a kid and uh um yeah the abbreviated version as I tried my hand at programming I was never very good at it but I still love Tech um and I did Business School uh and Sequoia was just setting up in India at that time and got to know some of the Sequoia folks who were setting up the office here in India and got to know them and the marriage of tech and businesses which is what I think venture capital is was was a was a great fit for me and uh it just ended up working out and when I started like we were very early in India and venture capital in India was was Tiny and really in its infancy um I don't think I would have would be able to be hired today given the the uh the evolution of the market uh but it's been a been a great ride

and prachi you're newer to venture capital and just wondering what your experience has been so far and how did you wind up joining Sequoia India actually my journey in Sequoia or at least in Venture Capital started say about five or six years ago I've been doing this for about two and a half years um I joined this early stage company it was actually one of sequoia's portfolio at the time and what I realized at that time was I loved working with early stage Founders so um so the founders name at the time I mean Shreya that I worked with uh absolutely were loved working with her uh we you know one did a bunch of category launches I just saw fashion rental company so we did a lot of fashion category launches retail store launches and so on so there was a lot of ambiguity to go between say the zero to one Journey okay and I felt that this is what I'd like to do more long term which is work with more Founders uh in the zero to one journey and that's why that's how I sort of like wound up here uh with a message to shellish in fact uh

and that I'd love to talk to you about VC yeah and how so how did you connect with shylash was it if I remember correctly it might have been like a business school connection or how did that happen yeah that's true so we graduated from the same business school okay um and there was actually a common connect uh common Alum actually who connected both of us and then the first chat was actually our Bangalore office for a 30 minute coffee chat and yeah that's how it started three years ago easier okay and then in terms of Sequoia India as far as the type of Investments that you seek to make or the kind of Founders or companies that you want to partner with could you tell us a little bit more about Sequoia India and obviously long history here here in India yeah so why India has very much the same mission that Sequoia has everywhere in the world we seek to invest in the leading early stage technology and Technology enabled businesses um we want to be the first private investor in in all of those types of companies uh and through that we are

very active at the early stage uh rachi works on our program called surge which which you can talk about but across surge seed Investments series A's and uh sometimes series B's and certainly also in growth investment were amongst the most active uh investors of tech and Tech enabled businesses um we have a large team across across cities and across stages we have a bunch of programs we have a bunch of ecosystem Partnerships that we we nurture we try to be the most active and the most helpful investor to these types of companies okay and so speaking of surge project be great to hear a little bit more about what that program is and how you're involved in search um so I work on the investment team at Serge surges are uh pre-series ACL investment program uh so when search started out there were two three things that we wanted to really help um you know early stage founders with one is good quality mentorship so which is many early stage companies don't get

the right Partners or say mentors in the early stages second is good quality knowledge which is basically some sort of benchmarks or say good quality sort of uh you know knowledge to look at and the second third is capital and so search essentially does all these three things for you uh so we run this program to Isaiah there are about 15 to 18 companies across India and Southeast Asia across different sectors like software Commerce consumer Brands deep Tech got it yeah and maybe speaking more about India specifically as you guys are investing in this region India has the fastest growing GDP in the world I'm sure there are a lot of different things that are happening in India a lot of growth but if you were to try to characterize some of the specific opportunities or areas or Trends within India what what are you seeing right now what are the most exciting type kinds of opportunities that you're seeing here in India all sorts of things that we are still in the midways of the consumer internet or

mobile Revolution uh smartphones are still growing at a relatively quick Pace 4G and 5G networks are are still reaching broader segments of the population people are doing much more of everything online e-commerce penetration is still very very low and they're still a long wave for for that to grow even offline things like organized retailer chain shops as you see is a very under penetrated segment in what you see in the US or other developed markets is many more people are buying at organized retail in India most of us buy it unorganized retail okay within other areas of tech like software companies and SAS have been a huge area of focus India has a long history of uh of doing I.T services or development for hire now people doing their own products and there's now hundreds and hundreds of very interesting and many any of them venture-backed companies fintech has been a huge area of investment Financial Services is the

largest publicly largest segment of publicly traded companies in India and it's a one where we probably have one of the most advanced or or high quality Regulators anywhere in the world there's tens of companies that have reached billions of dollars in value and we expect there'll be many many more um and aside from that like just about everything else everything yeah we're we're seeing like the world is going through this uh crazy Tech transition yeah uh what we see with energy transformation um that every segment of energy will probably reimagined um geopolitics is reshaping manufacturing obviously AI is going to reshape how we all use and interact with computers if we look at other other interesting areas that we are all spending tons more time online and so things like games which is where a lot of us interact and and and and and play is something that is also

something that we're really really excited about prachi would you agree with that any other thoughts yeah I mean uh I mean actually building on on some of these points that challenge mentioned was that uh you know especially because of all the say geopolitical uh situation post covered uh India honestly has a very good opportunity to probably be able to leverage the fact that they have good quality Talent as well as technology jobs to be able to drive on something like that so instead in fact it's set in the next seven or eight years manufacturing will probably go up seven or eight X and so we might see that India becomes the Hub or manufacturing or sourcing hub for many different kind of for many different companies across the world this will also lead to a lot of increased consumer spending so there would there could be actually tens of millions of households with substantial household income and what that means is there would actually also be a lot of consumer Brands because there'll be a lot more disposable income so uh we're seeing a lot of these opportunity during

at early stages of course which will become a lot more larger in the coming years okay so I want to now ask about the specific opportunity in gaming here in India there's a lot of viewers here who are interested in gaming so I was wondering if you guys could characterize that the opportunity here in India for gaming gaming has massive opportunity in India um from an investor perspective it's often been underappreciated and often you know misunderstood if I look back a decade ago many people thought that Indians wouldn't came or there wouldn't be a lot of people who would be as active in in playing games as they were in East Asian countries or other developed markets um but what we're seeing is actually completely opposite there are now hundreds of millions of people that play games uh games are amongst the largest category of application downloads on App Stores and play stores uh they're amongst the largest categories of viewership on online streaming platforms uh so there's lots and lots of interest in this uh what we're seeing of uh of

young streamers is that they can make millions of dollars a year there are 18 and 20 year olds who names most people won't know who make lots and lots of money being competitive Esports players so it's a very uh interesting Market that we think has lots of Tailwinds and will continue to get much much bigger I I would even go out on a limb that in the domestic market and in the course of the next decade there will be a single game title that reaches a billion dollars in Revenue you heard it here first everybody great and uh prachi I was wondering if you could also let us know what you think about the opportunity for gaming here and maybe as a follow-up question um I certainly also believe in your thesis about the local game development sort of Market but also in terms of the the game developer ecosystem wondering if you guys could give a few thoughts in terms of what you what you think of the current environment and what will it take to get local game developers to the next level

watching I'd say that maybe just first actually commenting a little bit more on the opportunity we've seen that over the last few years at least um you know we recently did this report also in you know about just gaming in India uh and our way work came out saying that uh you know about 400 to 500 percent in uh you know increase in just the market size in gaming so it's pretty clear now that uh India not just plays but also pays right and so this has been you know thankful to a lot of good quality games which can play on affordable uh mobile handsets you know mobile handsets have also gotten a lot more sophisticated over the last few years um internet is a lot more cheaper right and so we've seen with games such as say free fire and pubg uh many gamers are actually you know they have now trained to you know shoot and run and uh you know play on these small mobile headsets so uh handsets uh so that's why that's also one of the that's basically the

largest reason that you know we're so excited about the game ecosystem um I'd say in terms of the developer Community um let's say we've had say maybe fewer games in the beginning which were built of that sort of quality um back in India right so a lot of these were probably uh you know casual or hyper casual games uh quality games such as say pubg and free fire with has a lot of content on it um and you know something like you guys are trying to build as well right did not exist before and I think that Community is now growing in India and I think incrementally when there are more uh teams such as Leela which will grow in India I think we'll see more and more of the developer Community uh sort of develop better quality games got it and um on talent I think gaming is where consumer internet or mobile was in India in terms of talent maybe a decade ago or where software was uh maybe seven or

eight years ago there'll be various parts of developing a game that there are is a reasonable amount of talent but a lot of other parts that they're not and you will have experienced that much more firsthand uh but uh I think in engineering capability of writing logic and writing uh a game there's probably a decent amount but art game design production uh and and live Ops at the scale that that we expect some of these titles to reach there's probably less less Talent and it's incremental uh as as folks like you guys uh uh go through the Journey there'll be some people who learn and they'll eventually hopefully do startups and and build their own stuff and they'll be more and more talent that that spreads throughout the ecosystem with with experience right and so given like the current landscape right now and where the market is at from a developer ecosystem perspective Are there specific investment opportunities that you guys are

specifically looking for or is it just general is it just kind of wondering what you're is there a specific kind of thesis or thing or type of company or type of founder that you're looking for right uh high quality Studios uh is is definitely uh something that we're very excited about and we we've done a few of those at at pre-launch stages um both now and and in the years past uh we're certainly looking at Esports and and overall aggregation platforms uh whether it be streaming we have an investment in a streaming platform uh or it could be more on on distribution uh so we're looking across all all real areas this ecosystem is just super nascent we've also taken a look at at gaming from from a web 3 angle that there's lots of people who believe that web3 will have an important role to play and how gaming transaction we'll we'll see how that that develops right and maybe you know for for the audience Sequoia

India has invested in Leela games and wondering like from from that investment partnership that we have wondering what did you see in us what what uh what made you guys want to uh partner with us yeah sure I mean I'd say the team was probably our the number one sort of reason for excitement I'd say that probably one of the best gaming teams we've met um in terms of talent the way you guys think about the user uh honestly the other day when we were looking through you know the amount of research you guys have done uh you know on what the Indian consumer wants was just remarkable in the second thing actually it comes through with just your insights which is your insights about how these games need to now be modeled on persistence you know so black the game that uh you're planning to launch which is um a gamer doesn't probably want to be reset to zero or your Insight around consumables uh versus Cosmetics you know so a lot of these things especially your

expertise uh what the team caliber is came through with a lot of these insights do you guys have a very high bar for quality and that came out through the interactions and um that that is a great signal for us as someone who might develop something that is that is truly special in in world class um and you know anyone who wants to do something that audacious we want to support us audience out there who might be Founders who might want to be starting a game Studio here in India I was wondering if you could also just kind of characterize the current investment environment you know there's been some terminal in the public markets there's sort of you know you kind of alluded to geopolitical things happening right now and I I do I it feels like valuations I don't know about India but globally seems to be a little bit down so what is the current

investment environment to invest or to partner with in with the Indian gaming studio here what what is it currently like if you guys could characterize that I'd say I I don't think valuations are down I'd say valuations were up between 2020 and 2021. uh due to elevated levels right uh if you look at most uh publicly traded companies you're at sort of long-term averages of multiples I see uh based on what outlook for for earnings is a healthy level of competition from from the investor side to invest in in good quality teams and and and uh and Studios um we're not seeing uh irrational competition or ridiculous pricing and I think that also just helps in in building for for Founders because that translates into a more aggressive War for talent which makes it harder to recruit harder to retain harder to build uh so it's a it's a very good environment uh right now as long as you

ignore some of the uh the Doom and Gloom and as you can see in India we're relatively insulated the macroeconomy as you mentioned is doing quite well and we're we're not seeing uh we're not seeing any real sign of a Slowdown are you pretty I would say so as well a much earlier stage of business which is field uh we are seeing as many entrepreneurs uh we are also we're very much open for business we've been evaluating and also being I mean we've been uh We've also recruited many companies to be a part of search now we've invested partnered in a in a bunch of those companies uh maybe a lot more focused on economics uh growing the business more sustainably so any company which wants to probably grow aggressively with burning a lot of money would probably not be appreciated at this point of time right and maybe speaking to that if you were to think about some of the trends happening right now you mentioned some geopolitical

things or you know maybe a coming recession or things like that is there specific advice like slowing down potentially or other kinds of advice just based upon General trends that you guys could think of that that you would recommend to Founders operating the company right now it's hard to give like general advice because every context is different but um the the the generic advice is cut burn uh make make your Runway last longer focus more on Union economics uh and and just give yourself enough time to get to product Market fit um but uh yeah it's every context is is different we are advising some companies to accelerate uh in in this this Market uh we're advising some companies to upgrade quality Talent uh where they had uh maybe recruited too quickly and and want to have a different caliber of Team uh we're advising some companies yeah

certainly to cut burn and to figure out the business um but it's all really based on sector and segment that you operate in right I mean I'd say that a lot of our seed companies for example which are in their pmf Journey right so they're really in the zero to one to be able to figure out what's the right business model what their ICP is uh uh you know what sort of pricing makes sense and all of that so until unless they start seeing those early signs of product Market fits it sort of advise that it's better to not grow aggressively right once you figure out that engine then it's okay to run faster so much like what you know shalish mentioned first you have once you figure out the pmf journey so that you can you know scale a lot more confidently okay and maybe one Trend that some people are kind of thinking about right now is you mentioned web three what's your specific Outlook now that kind of crypto's taking a little bit of a hit um is there a longer does a longer term Outlook stay the same or how are you

thinking about it I think we're a little more excited about the long-term Outlook because with all the excesses in the system okay being flushed out um that uh web3 enables us to not have to trust each other and transact um and uh there will be applications that's good for uh and there will be use cases where that is needed um we need to understand exactly what those are and how those scale and is this uh is this something that is important for for lots of people um but we do think that there will be uh use cases that that people find web3 better for than than current Solutions um particularly as as the world trusts each other a little bit less than we did in the globalization era uh so we're we're optimistic and spending just as much time as we used to uh and we think it's again a that was perhaps the most

um elevated or exaggerated sector in in uh in valuations and momentum uh over the past two years it's a much better time for folks who are doing sensible things in that space to actually get stuff out and build without you know token prices oscillating super super up in a huge way like each day which is a super tough environment to build right and maybe um probably just to close the loop on one of the comments you made about uh maybe it's not in terms of investing in a company that's going for a super aggressive strategy maybe they need to focus uh maybe a little bit more conservative but if you have general advice for in the current investment environment how a potential entrepreneur should be pitching you guys what would you be specifically looking for what is there is there specific advice that you would give a Founder that is trying to reach out to you to pitch a specific opportunity

I'd say that um actually on your point around aggressive versus being conservative it really depends on if a company has pmf and if you have early signs of pmf you know by all means 5 pmf just for that just a product product Market fit which is you have good signs with customer love good economics and good enough scale these three things about product Market fit I think in all by all means a company should think about how they could aggressively scale um on on how they should reach out to us again you know um you know email us reach out to us on on whatever Channel works best um and and for anybody that we probably don't know before maybe a small email about you know quick introduction about uh what you do uh as in what you're building uh some background about why you are the best person to be building it and your unique Insight I think that's a good start um and maybe if if you already have a pitch deck then maybe just attach it along with that email so I think that's the best way to sort of reach out I'd

say two three things always important to maybe uh take care of when you're reaching out to someone try to make it as Compact and succinct as possible so that they're able to communicate your unique Insight why you're doing it why you're the best team to be able to doing it as quickly as possible to wherever you're reaching out to great all right well that was my last question should I asked Patrick thank you so much for your time and for audience we'll catch you next time thank you thank you [Music]