Education is the last sector to be disrupted by technology: Roopa Kudva, OmidyarPhilanthropic investment firm Omidyar Network established its India office in October 2009 to expand the firm’s investments in the rapidly growing economy. Since then, Omidyar Network, which has the flexibility to offer two kinds of cheques – grants and equity – has invested over $200 million here across 70-72 organisations. As several grants have now expired, the active portfolio comprises 45-50 firms. The investment firm remains bullish on India and has decided to double its exposure to India by 2020 with investments of $350-$400 million. In an exclusive chat with Techcircle, Roopa Kudva, partner at Omidyar Network and managing director of Omidyar Network India Advisors, tells us about some of the emerging models in financial inclusion, education and consumer Internet and mobile and why she believes education sector is not as disrupted by technology as financial services and consumer Internet. Edited excerpts:
Year 2016 has been a lackluster one in terms of deals. What stands out for you in this environment?
Last year, the money invested by venture capital investors and angels was about $5 billion. In 2014, it was less than $3 billion, so it almost doubled in 2015. Two things have happened – the Silicon Valley funding environment went into a freeze. The venture capital industry sees cycles. Funds raise capital and then they look for opportunities. So, you see a lot of deals. It’s cyclical to that extent. There is also a softening because of valuation knock downs. Valuations of some of the large e-commerce companies have been knocked down. We have also seen a couple of failures in the US. I would say there has been a dampening, more so if compared to 2015. The other observation in 2016 is that it is harder to raise Series B round of funding. I guess these two would be the big trends of 2016.
Is there any good in dampened investment sentiments?
If you talk to VCs, there is no doubt that people are getting more selective. We are seeing entrepreneurs doing two things – focus on reducing the cash burn. Funding restraints make you more sensible about that. Second, focus on unit economics. Earlier, the focus was a lot on getting eyeballs, getting customers. Now it’s a lot more on unit economics, which I think in the long-term is healthy. We will keep having these ups and downs. Today, there is recognition that India is a hub for innovation, particularly social innovation – education, healthcare, consumer internet, and mobile which impact the life of the masses.
How has 2016 been for Omidyar?
Overall, we, as a firm, are very bullish on India. We have decided to double down on India. We are increasing our capacity here, we have built out the team, and we just announced the opening of our Bengaluru office. In India, the ratio of grants and equity is 30:70, while globally it’s almost 50:50. So far, we have deployed $200 million in India and we are doubling down. By 2020, we expect nearly $350 million to $400 million to be invested in India. Globally, we have invested $1 billion.
At Omidyar, financial inclusion is an area of big focus for you. Tell us what are you bullish on in this segment?
In financial inclusion, in the last 18 to 24 months, from being way behind in digital finance, India has suddenly catapulted to the forefront of digital finance globally, thanks to all the regulatory changes that have come, which is payment banks and digitization of cash. We think payments are the digital rails on which the entire edifice of digital financial services is built. So what are some of the trends we are seeing? Number one is – mobile money. Then you have alternate credit assessment, using non-traditional data. We are seeing significant expansion of opportunities in this space. There are a lot of companies which are coming up that are using non-traditional data, be it social media information or mobile phone data, to make credit assessment on people who do not have credit history, hence, expanding the market for lending. We think that these alternate technologies have the potential to expand consumer credit market by 150 million people. It is a significant addition to the consumer base. The third trend in financial services is innovative products and services… for example, companies that simplify mutual fund investments. The fourth theme is making credit available to SMEs. Earlier, you had the offline credit model but it is now moving to digital.
How is consumer Internet and mobile coming up as a sector?
If you look at consumer internet and mobile, what is becoming very clear is that India unlike US where you can have pure marketplace models, in India to be successful you will need to provide full stack models where the entrepreneur is taking charge of the supply as well and where you are also providing utilitarian products and services. So if you are providing basic products to mass markets with affordable services with a full stack model these are the things that are picking up. You could be a bus sharing platform or hotel aggregator… all these are examples of tech led businesses which are full stack where entrepreneurs take control of the supply as well and not just a pure marketplace.
Is the education sector getting truly disrupted by technology?
Despite seeing so much innovation, education is probably the last sector left that has not been truly disrupted by technology. Financial services is totally changed by technology, retail sector has been completely disrupted by technology. All over the world, no matter where you are, however technologically advanced a country may be, the primary mode of education today is textbooks, pen and notebooks. So, it is really the last sector to be disrupted by technology.
What is happening in the education sector in India?
In education, trends do not change year to year. There are a few things that we started seeing – there are a lot of ed-tech companies outside the classroom, which is one trend. We are starting to see interesting forms of student financing being made available. Finance options providers are coming up. Hopefully, we will see a lot more focus on adoptive learning which means you and I learn differently so why should we be taught in the same manner. Therefore technologies that enable students to learn at their own pace are emerging.
Another is connecting skilling – these are skills platforms that not only help you to learn new skills or upgrade your existing skills but also connect you to jobs and placements.
Long term, I think, a lot of new things will come to India. Early childhood development is one. Today, there is a recognition that what you learn from the age of 0 to 6 years is far more impactful than what you learn later. Soon we will see schools on that line. In US, real questions are being asked about what are skills – is math or English more important or other life skills such as collaboration, sensitivity. It’s like social and emotional learning.
Which is the most exciting space for you right now?
Clearly, it is financial inclusion and consumer internet. The opportunities here are way ahead of what we are seeing in education.
Emerging technology and education are areas of interest to other investors also. How are you different?
We will not do fashion, food, gaming and entertainment …bulk of the commercial capital is in these areas. We are firmly in affordable utilitarian products and services for the mass market, which is middle and lower middle income group. This makes us different. In financial inclusion space, we don’t do MFIs (microfinance institutions), so that is a big differentiator, compared to others. In the areas of financial inclusion, we like credit assessment, alternate credit lending to SMEs. These are areas where you see VCs also playing in. So I would say in those areas we have common interest. Our role is catalytic; we want to get into areas that others may not be willing to fund. We get into companies early. We don’t have a fund, so we can afford to be patient.