SIERRA VENTURES - INVESTING GLOBALLY
Spotlight: INDIA & CHINA - Growing Emerging Economies
Sierra Ventures is an active, early-stage investor in India and China. The Firm has invested successfully in India and China since 2006. As the emerging markets of India and China continue to grow at a pace nearly double the pace of developed markets, they create significant investment opportunities. Our investment focus for these regions includes domestic consumer solutions, advanced technology and enterprise class services offerings. Sierra Ventures has a number of active and past successful investments including the following companies:
2020: TOP THREE WORLD ECONOMIES
Investing in the Domestic Growth Opportunities of India and China
While exports have driven growth in the India and China markets, over the last few years both countries’ domestic economies have grown at an increasing rate due primarily to a strong consuming middle class. We expect that demand for Chinese and Indian exports will continue to grow but at more normalized pace for the next ten years. Meanwhile, current economic growth is driven by domestic demand for goods and services by a growing class of consumers and cash rich enterprises.
CURRENT INDIA & CHINA PORTFOLIO
This growth in domestic demand is what will drive GDP growth for both countries and help them emerge over the next decade as the largest global economies in the world after the US.
Also, we expect that domestic consumption will reach a level in both countries which will rival that of developed countries. In the US, domestic consumption as a contributor to GDP is in the high 70% and in China and India it will be 55% and 65% of GDP respectively from a base of less than half that earlier.
Our investment thesis in both countries is centered around this shift from an economy where growth is driven primarily by exports to one where domestic demand will play the leading role.
A middle class household is economically defined as one that has a stable disposable income capable of purchasing goods and services like healthcare, education, cars and homes in their respective economies.
In 2000, the US had a fairly saturated middle class of about 2/3 of the population and since the US is a stable, developed economy this is not expected to change significantly. In China and India, less than 15M households were members of this middle class in 2000 and this was less than 10% of each country’s population.
Thanks to opened economies and historically high savings rates, middle class households in both countries have grown significantly over the last few years and today equal that of the US. In 2011, there are 65M households in India and 50M households in China that are in the middle class and this is still less than 25% of the total population.
Over the next ten years, as China and India become the second and third largest economies in the world over 100M households in India and 85M households in China will constitute the middle class. Their combined middle class will be over 3 times as large as the US and in both countries still less than 40% of the total population.
Envision also the increase in sales of luxury goods (like homes and cars), services (like healthcare and education) and consumer durable (like computers and electronics) as tens of millions of households are consistently being added to this consuming class.
The sheer scale of this new consuming class warrants an investment focus on companies catering to domestic demand rather than exports. The following portfolio section demonstrates that our investment thesis is well aligned with this shift in economic growth drivers.
An update on our portfolio laid out against our core sectors and also the stage at which we’ve chosen to invest. We have a balanced portfolio across both our standard technology sectors of interest and across our stage focus.
In India our investments are in Consumer and Services, both sectors where Sierra has an established track record in the US. Our early investments in Astra and CSS addressed the established demand for the export of IT and IT Services from India, but our more recent investments in CarWale and MakeMyTrip cater solely to the domestic consumer and enterprise market.
CarWale is the market leader in the high growth automobile transaction market in India where the demand for used and new cars is at a fraction of what it is in developed countries.
MakeMyTrip (NASDAQ:MMYT) is the leader in the online travel market. India’s growing economy has resulted in a greater need for services associated with consumer and enterprise travel.
In China, we have three direct investments in sectors where we have an established track record.
Verisilicon, lead by Ben Yu, is a solutions company for chip design that provides services for both global and domestic markets.
DMG, a media company acquired by VisionChina, provides outdoor digital displays for advertising for the domestic market.
Our newest investment in China is 800App. They provide CRM solutions in Software as a Service format for small and medium size enterprises in China.
While we have stayed focused on core sectors and stage, you can also see that most of our portfolio companies cater to the growing demand for goods and services consumed within the domestic market by new middle class consumers and enterprises. This domestic demand to travel, buy cars, consume advertising, and purchase enterprise software is relatively independent of the global economy.