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Indian startups eye Gulf nations as the next market to conquer

KrASIA 

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Until now, Indian startups have not been able to make their mark in the UAE. With Gulf-based investors betting on Indian startups, that is slowly changing.

When food delivery company Zomato entered the UAE market in 2012, it was a rare feat for an Indian startup. For the then four-year-old Zomato, the Middle Eastern country was its first international expansion, which it used as a launchpad to enter the Gulf region, South America, and Europe over the next few years.

Seven years later, after wrapping up its UAE business by selling it to its German rival Delivery Hero for USD 222 million, it continues to linger in the country by running operations for Delivery Hero. After all, the UAE market contributed almost 20% to Zomato’s revenue at the time.

The Gurugram-based food delivery giant isn’t the only company that has been hooked on to the richest country in the Gulf region.

Since Zomato’s attempt to create a strong footprint in the Middle East, several startups have tried the same, but few have succeeded. Companies that have managed to do so include insurance marketplace PolicyBazaar, home services firm Urban Company, meat delivery startup FreshToHome, and logistics SaaS platform Shipsy.

With the Indian startup ecosystem maturing and more Indian startups wanting to expand in the Middle East, investors from the Gulf region that have invested in these companies are helping them set up camp.

For instance, omnichannel eyewear retailer Lenskart had set aside USD 50 million after landing a USD 275 million check from SoftBank to establish its business in the UAE this year. But the company accelerated its plans in July after US-based fund Falcon Edge, which has a significant presence in the Middle East, participated in Lenskart’s USD 220 million round. PolicyBazaar, which has been present in the UAE since 2018, raised USD 75 million this March from Falcon Edge to further expand in the region.

Social commerce startup DealShare is leveraging a USD 144 million investment from Tiger Global and Alpha Wave Incubation (AWI)—a fund anchored by Abu Dhabi’s ADQ and managed by Falcon Edge—to foray into Abu Dhabi.

Until now, Indian startups have not been able to make their mark in the UAE as they lacked local insights, capital, and on-ground support. However, with Gulf-based investors stepping in and betting on Indian startups, that is slowly changing.

Taking the flight to UAE

In 2016, a UAE-based early-stage VC firm Ideine Ventures wrote seed checks for Indian startups specifically to take them to the Middle East. Set up in late 2015 by an investment holding of a royal family of the UAE, it made five seed investments in India in 18 months—the only time period when it was an active investor. Its Indian portfolios include Infurnia Technologies, BuildTraders, Oxa Health, ReEstate, and Qriyo.

This was perhaps among the first group of local startups that tried to venture into the Middle East after Zomato, but none succeeded. At that time, Indian startups were not a priority for Gulf investors, as they were primarily interested in the US market.

A year later, the UAE hosted a startup summit for Indian startups for the first time to gauge engagement opportunities with the world’s third-largest startup ecosystem. By 2018, Indian startups had started exploring the UAE market. PolicyBazaar, Urban Company, and Shipsy were among the few startups that rolled out their operations in the region that year. The same year, the Middle Eastern VCs and PEs pumped USD 1.2 billion into India—a significant jump from USD 667 million in 2017 and USD 502 million in 2016, according to data collated by Venture Intelligence.

As more and more Indian startups began establishing operations in the Gulf, it piqued local investors’ attention. Compared to the USD 1.8 billion put in by Gulf investors in India in 2019, last year, they poured in a record USD 7.5 billion. Although over USD 6 billion went into Reliance’s retail and digital arms, Mukesh Ambani-owned Indian conglomerate lured heavyweights like Mubadala, Abu Dhabi Investment Authority, and Public Investment Fund to India. This encouraged their peers to invest in India.

By the end of 2020, investors like ADQ, Alpha Wave Incubation, Vy Capital, Investcorp, and Qatar Investment Authority had participated in multiple funding rounds in the country. So far this year, Middle Eastern investors have written checks worth USD 1.2 billion, as per Venture Intelligence data.

Many of these investors are setting the stage for local startups to foray into the Gulf countries and helping those with a presence there expand into neighboring regions.

“We have negotiated a deal [with Alpha Wave Incubation and Alpha Wave Ventures], wherein we will set up our first international office in Abu Dhabi. We will also build a high-tech center where we will work on machine learning and artificial intelligence to customize our core offerings,” Vineet Rao, CEO and co-founder of DealShare, told KrASIA.

After establishing operations in the UAE, DealShare will expand into the Gulf Cooperation Council (GCC), which includes neighboring countries like Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia. According to Bahrain-headquartered Investcorp, GCC is a USD 3.5 trillion economy.

“In effect, this doubles the opportunity for an Indian business. Culturally, the Indian diaspora has a strong presence in this market. There are 18 million Indians in GCC, which is almost a third of the total population of GCC countries,” Harsh Shethia, head of India business at Investcorp, an investor in FreshToHome, told KrASIA.

Right time, right place

The Middle East region, home to several rich countries, has always been a coveted opportunity for Indian startups because of its world-class infrastructure, higher consumption spends, and geographical proximity to India as well as Europe and West Africa.

“Expanding in the Middle East makes sense because India is a price-sensitive market and the UAE is not. Aside from the fact that revenue is better in the UAE compared to India, the region also helps in giving startups access to a much larger global territory,” said Anil Joshi, managing partner at Unicorn Ventures.

The competitive landscape in the UAE is not as fierce as it is in India, which is a few years ahead in technological development than Arab countries, he added.

With massive digital adoption, normalization of remote work, and the funding deluge to the tune of USD 12 billion in the first half of 2021 in India, industry veterans believe now is the right time for local startups to tap into the Middle East market. What is fuelling Indian startups’ global ambitions is the fact that they are scaling faster than ever.

“What used to take five years for startups to do in 2008 or 2010 is now taking a year or so. This is making startups look at expansion early on and ultimately grab the market at a faster pace,” said Rao. However, he believes, of all these factors, the record inflow of capital has been the critical one for Indian startups to reach new markets.

Shethia of Investcorp believes that besides better access to capital, India now has a better breed of entrepreneurs, in terms of knowledge and experience, who are now hungry to scale in global markets.

The playbook

After working with customers in Dubai since 2018, the six-year-old Shipsy, which provides decision-making insights to shippers and retailers, opened a regional office in April this year. Soham Chokshi, CEO and co-founder of Shipsy, told KrASIA that it was a strategic call to pursue the market, considering the UAE is a logistics hub.

Shipsy has seen its business in the Middle East grow 3x year-on-year and currently works with 50 clients, Chokshi said. However, it took some time and patience for the Gurgram-based startup to cultivate its clientele.

“Having a good product and credible clientele [in India] helped us land our first client in the UAE,” Chokshi said. “Gulf companies look up to large Indian enterprises, and if you have them as your clients, it helps in building trust.”

“So our focus was on bridging the trust gap. This also meant flying to Dubai quite often for face-to-face meetings, although the pandemic has changed that quite a bit,” he added. “They needed to know that we are not a fly-by-night operator. So, we started doing trials and proof of concepts with them, which required a bit of investment from our part.” Once the company had a few clients, it grew through referrals, he said, adding that the company also forged partnerships with resellers, system integrators, and consultants.

Shipsy is one of the few startups to successfully expand to the UAE market without having any Gulf investors on its cap table. However, backing from significant Middle East investors ensures Indian startups land on their feet when entering the Arab market.

“We are getting a tremendous amount of support from the government and AWI, which has a dedicated team there to help its portfolios,” Rao said. In the first phase, DealShare will send ten people from its India team to Abu Dhabi to set up a technology center and a tech team.

“The second phase will be to establish our business, which we will start by setting up distribution for some of our existing brands. Out of the overall 200 Indian brands that we plan to take to the UAE market, we will initially bring two dozen brands that have a strong market in India.”

In the third phase, DealShare will partner with UAE-based brands, aside from launching all D2C products from India. Later, it will roll out its own line of products to the market, Rao explained.

The UAE market will also prove to be a testing ground for DealShare, which primarily focused on lower-tier cities, before its recent entry into major cities like Mumbai and Delhi. Rao said the company became confident about foraying into the rich Gulf region after it saw phenomenal growth in metros.

“Today, e-commerce typically works for the elite. But the mass market, which is over 90% of the population—those working on daily wages—doesn’t have a credible option,” he added. “We are building an e-commerce product for this market. The UAE will be our first test market to see if our product really works in the western markets. As soon as we are successful in the UAE, we will launch into the US and Europe.”

“Nobody has been able to successfully crack online grocery and daily essentials categories, even in the Western markets. We believe that being successful in India gives us a strong advantage,” he said.

As a host of local startups get ready to crack the Middle East market on their journey to go global, Investcorp’s Shethia believes, “this wave should play out differently” compared to their previous attempts.

However, he said, to succeed in the Gulf region, Indian entrepreneurs need to pay more attention to local knowledge. “Success in one market or with one strategy may not bode well in other markets without some thought around customization,” he added.

KrASIA is a digital media company reporting on the most promising technology-driven businesses and trends in the world’s emerging markets.

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