Majority of the VC firms from Silicon Valley now have an India focused fund and several Indian companies as part of their portfolio.

Yes, India’s market is blazing hot right now and ‘Go East’ is the new mantra.
There’s no denying that India is hot – but how hot exactly is the consumer Internet space in India ?

The Comscore India report put the Indian Internet penetration rate at 3% with the total user base at 22 million.

That pegs the total Indian population at 733.33 million.

As per the latest Indian census report, the urban population accounts for 27.8% of the total Indian population.

Assuming India’s population is 733.33 million, this puts the urban population at ~203 million (27.8%).

Now, as per the latest TRAI figures (PDF file), broadband subscriber stands at ~2 million.

Getting real that broadband is still a distant dream in rural areas in India, the 2 million can be safely assumed to be contributed from urban areas.

So, 2 million of ~203 million urbanites have broadband – roughly 1%. Thus, broadband penetration in India can be assumed at about 1% (if you calculate it for the actual Indian population of ~ 1 Billion, the penetration rate will dip way further down).

Do these figures give enough incentives for VC’s to invest in the Indian consumer Internet space ?

Let us briefly look at the major VC investments in Indian consumer Internet companies:

Sequoia India – Guruji, Travelguru, MingleBox, ApnaLoan, Shaadi

Helion – Komli, MakeMyTrip

Matrix Partners – seventymm

Norwest Venture Partners – Yatra, Sulekha

Canaan Partners – bharatmatrimony

NEA IndoUS Venture Fund – Via / Flight Raja

KPCB – cleartrip, naukri

If you look closely, you’ll notice that majority of these investments are either into travel portals or existing, prominent portals (shaadi, sulekha, naukri etc.).

Very few are actually “startups” in the true sense.

Well, okay – the penetration rate is miserable. But look at the growth rate – 33%, fastest in the world as per Comscore. Yes, true..the growth rate is stupendous. But the growth rate does not actually depict broadband / “always-on” usage – the piece that is key to the proliferation of consumer Internet space.

Is that in any way, affecting the VC investment decisions in the Indian consumer Internet segment ? Should we be betting on the double digit growth rate or be wary of the poor penetration rate ?

Note: I’ve tried to be as accurate as possible. in case you notice any errors, kindly give me some leeway – its 3 in the morning as i write this

This entry was posted on Friday, July 13th, 2007 at 3:12 am and is filed under India Funding, India broadband, Stats and Numbers. You can follow any comments to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.