Historical Parallels of Venture Investing in India ‘Alpha’

The concept of 'Alpha' - commonly associated with exceptional returns in finance - extends far beyond its modern usage. From the age of exploration to today’s digital civilization, the pursuit of 'alpha' has driven humans to innovate, disrupt, and fundamentally transform societies.

In examining India’s extraordinary startup ecosystem and the opportunities it presents, I find two compelling parallels in the annals of history, where exploration and investment reshaped have always global economic landscape.

Vasco Da Gama and the Birth of Global Trade Routes

One historical example is the journey of Vasco Da Gama, who reached the shores of Calicut in 1498 after traveling for over two years on a ship. His journey ultimately charted the naval route that connected Western Europe with the ‘Eastern Spice Land’, changing the price of precious commodities at that time, most notably Black Pepper.

While today, 1 KG of pepper costs $6-8; in the Middle Ages, as most of us know, this was more valuable than Gold. At its peak, purchase price adjusted, the same 1 KG cost over $175,000.

Naturally, every Kingdom had a vested interest in the trade routes, because if you controlled, you controlled wealth and, therefore, power.

Surely, Da Gama’s journey was not merely a geographical discovery but a monumental economic catalyst. By establishing the direct maritime route to India, Da Gama bypassed the cumbersome and expensive Silk Route, thereby altering global commodity markets and trade dynamics forever. This fundamentally transformed European and Asian economic landscapes at the time.

As we converge on this economic and political disruption, there is always a lot that goes into every momentous event.

Da Gama’s ship, the ‘Sao Gabriel’ took two years to build and required many innovations of that time. With a crew of 150 people who voyaged together for two years to reach India. Imagine being locked down with your start-up team, with all the good and bad choices that might entail, for 2 years.?This was an expensive (if not the most expensive), risky, and daring proposition for anyone to undertake at that time, anymore so to do it independently. Not too different from Startup founder who dreams of proving the ‘New thing’.

Interestingly, Da Gama’s venture was funded by private merchants and the Portuguese Crown at the time. In this arrangement, it was decided that 80% of the profits from the ‘carried goods’ in his expedition would go back to these investors, while 20% would be rewarded to Da Gama and his crew as commission for leading the risky venture.

Perhaps carried interest, or 'carry' as we know it in venture capital, is a much older concept that most of us think. A concept of getting paid for the risks you take.

The East India Company: Pioneering Modern Investment Principles

Following in the wake of explorers like Da Gama, the East India Company (EIC) also exemplified early venture investment models, funded by private investors through what was arguably the world's first publicly issued stock.

The EIC established a commercial foothold in India that lasted for over 200 years. The dominance that colonizers established proved that first-mover advantage (on Da Gama’s part) is not always defensible because some estimates indicate that the EIC managed to siphon off close to $45T from India. Also the nature of explorers versus exploiters, those that discover but those that know better how to capitalise.

Perhaps, those early investors generated a much higher IRR than most of us have today from our tech investments.

As I reflect on these historical narratives, it becomes evident that the pursuit of 'Alpha' never was a modern phenomenon. Throughout history, bold, visionary risk-takers have disrupted the status quo, either as explorers like Da Gama who charted new routes, or as investors who were interested in finding and backing the ambitious ‘moon-shots’ of their time.

All of these stories serve as a testament to the enduring human spirit of exploration and entrepreneurship – which is at the core of where India stands today.

India's Techade is a convergence of History and Innovation

When I started my journey back in 2006, India was transitioning to a service-first economy with the explosion of IT services. Most people didn’t trust digital payments and the internet and logistic infrastructure was still in it’s nascency. The word ‘startup’ was just a buzzword from the west.

Fast forward 2024

India is home to the 2nd largest base of internet users; that are consuming, communicating, learning, lending – all mobile first. 40% of India’s workforce transacts via UPI accounts for their daily needs and the modern Indian consumer can get anything, from groceries, to electronics delivered in less than 30 minutes – changing the definition of on-demand.

In this journey, what excites me the most however is that startups have become the penultimate destination for technology/management industry veterans and young students alike, to come together and drive innovation - not just for Indians, but for the world.

Today, close to 1% of India’s GDP today is driven by startups. Of the 100 Unicorns in the country, 1 in 10 have listed on public markets, and 1 in 5 are profitable.

Considering that this is still the 1st generation of startups to truly break out from our ecosystem, I know that this is only just the beginning.

The contribution of startups will inevitably 4x by 2030, and grow further faster than ever before as India moves towards the 2047 vision, of becoming the world’s 2nd largest economy at it’s 100th independence anniversary.

A whole new generation of large sustainable businesses will emerge from the venture ecosystem that will provide a significant contribution to our GDP and the ‘Alpha’ returns to it’s believers.

It’s been a thrilling adventure for us at Kalaari to have had the privilege of helping this ecosystem grow since Day Zero.

While we have only worked closely with a little over 100 founding teams, there are likely over 10,000 that we have interacted with over the years, and I can confidently state that we are more excited than ever before to be here today, to double down on this generational opportunity of a lifetime.

A Global Call to Action with ‘India Alpha’

It is indeed clear from historical parallels that the right blend of visionary entrepreneurship and strategic capital can lead to periods of remarkable growth and innovation. With over $100 billion of equity capital expected to flow into India in the next few years, the opportunity for global investors is clear. Indeed, 2024 is just the beginning.

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