Financial Services & Education: Potential Areas for Startups

By Bejul Somaia
Financial Services & Education: Potential Areas for Startups The areas we invest in India are fairly broad. Currently we focus on four investments— power sector, financial services, education and media. These sectors seem to be reflective of the opportunities set in India. Even though these sectors sound like traditional sectors we have actually invested in the non-traditional segments of these sectors. In these large traditional sectors there are pockets of emerging subsectors that create a lot of opportunity for entrepreneurs. For example, in power we are investing in the Power Exchange and in the financial segment we have invested in a prepaid card company. Then there is technology and technology enabled sectors like the internet and e-commerce, which are seeing a revival of activity. The same is the case with mobile sector with 3G and BWA rollouts.
This is a growing trend. A lot of activities are being registered around the cloud, though it is not generally focused on the domestic market. Areas that are gaining speed more than others would be Internet and e-commerce.
We are also witnessing a lot of activity in the education sector, not just schools but in IP related businesses and content driven businesses. Take a look at education sector, one can see a lot of companies trying to leverage the current teaching or school infrastructure to improve the quality of education. So curriculum services, curriculum products and technology products would be distributed through the existing school infrastructure rather than trying to create an all together new infrastructure. This is an area of new trend.
In financial services, we are seeing increasing opportunity for niche or specialized lending businesses. For example, the banks typically lend to the cream of the crop in any particular area, and a shift from housing finance or construction finance or student finance to microfinance is being seen and at the same time specialized lenders are coming to the market as well. The same trend is beginning to be seen in the Indian market too. Financial service to me is very exciting I read an article recently according to which from $15 billion seven years ago, the bank consumer credit outstanding had become $100 billion a couple of years ago. An increase of this magnitude in five years! and we are just at the beginning. Financial services touch every one’s lives in different ways, unlike a sector that sets a single target market. It is still at the ground floor in terms of innovation, products and services that are provided and so the number of businesses that are going to grow out of this sector will be significant.
When a financial recession comes there is generally nowhere to hide, but what an entrepreneur must to do is stay focused as if there is a large unmet consumer need. If you are solving it well, then over time you will be able to build a business that can survive recession. Financial services were quite badly hit by the recession but it also recovered very strongly and fundamentally whether you look at credit cards or home loans or insurance products the penetration is tiny compared to any other markets including other emerging markets. This means that the head room is significant and an entrepreneur has to find the right way to serve those needs.
There are opportunities for real innovations across the board. The power related sectors are going through a lot of changes now. One of our recent innovations is in Power Exchange. This is a company that is now a couple of years old so it is essentially a start up and it is being a transparent competitive market for electricity. That is something that India needs, to create the right kind of incentives for investments and price signals. Now this is an innovation in a very large, very mature market but still it is a disruptive innovation that has a significant impact on the industry.
In India where ever you look there are opportunities to innovate and apply technologies in interesting ways. The limitations are only by the entrepreneur’s imagination and knowledge of a sector, so it is not fair to say that there are only limited ways to innovate.
Entrepreneurs need to make sure that they are solving a large painful problem. Sometimes we see solutions looking for problems and sometimes we see really interesting technologies or ideas that no one is willing to pay for. In India the willingness to pay is often a challenge. That is why it is important to solve a large and painful problem, because if it is painful then people will pay. Another thing is to have a great team. This helps to increase your chances of success. Building businesses are not easy, it is an unnatural act to build something from nothing and so the human capitol that you assemble is the most prudent weapon you have. And finally the focus should be on execution.
Bejul Somaia
The author is Managing Director, Lightspeed Venture Partners.