Q		You recently invested in iXiGO.com, an Indian travel search engine. Within the past year, a number of venture capital firms have invested in similar online travel businesses in India. What makes the Indian travel market attractive to investors?
A		The Indian online travel space has received more than USD $100 million in less than two years.  As the Indian economy is booming, more people can afford to travel and most of this travel will happen domestically. Studies estimate the Indian online travel market to triple from 2006 to 2010, reaching $6 billion. We believe India will follow the US and Europe in the sense that consumers will start their travel bookings, not with an online travel agent, but with a travel search engine.
Q		There are now a number of travel search engines targeting the Indian market. Are these sites materially different from each other and do you think it will be the case where one winner takes the whole market or do you think a number of these sites will continue to profitably co-exist?
A		As you point out, iXiGO is a travel search engine and not an online travel agent. This means that iXiGO seeks to give the user the complete overview of all available travel products. iXiGO has no inventory of its own and does not sell the actual tickets or the actual booking.  You have, for example, Kayak, which now is the dominate search engine for travel worldwide.  On the other hand, Orbitz and Expedia are online travel agents and they would actually collect your money and they give you back a ticket or a hotel voucher. Kayak just list and link to agents like Orbitz or Expedia.   There is going to be a shake-out in the Indian travel search engine market as has already happened in more mature online markets. And, yes, we believe the travel search engines are materially different. Today, you can compare iXiGO with competitors and you will find that it is the engine that most often comes up with the best travel combination and price. We believe this matters to consumers. And we believe consumers are smart and that, ultimately, the search engine that continues to deliver the best value will capture the largest market share.   We believe there is room for a limited number of players; typically one search engine will dominate and 2-3 others will co-exist.
Q		As someone with a history of venture capital investing in Europe and Asia , how competitive and mature do you think the Indian venture capital market is today?
A		The venture capital industry always has to be preceded by a lot of entrepreneurship and new business activities. This has happened much earlier in the U.S. than anywhere else. If you don’t have this infrastructure, you don’t have as many qualified founders or business people that can carry out such investments; and both venture capital companies and new businesses need people with specific industry experience to succeed. In India, there’s a lack in that kind of experience and talent, in a way, but that's being developed.   What happens in India is there is an enormous number of funds available for venture capital investments. However, the seed funding infrastructure is poorly developed; thus there is a lack of funding and organized activities in the stage before when the venture capitalist typically invests.  When you’re a seed investor like us versus a VC investor, you spend much more time with the company. You typically coach and stay in touch with the management right where they work; you provide a lot of basic advice; you spend a lot of time to help on the strategy and to help on actual execution.   To simplify a little bit, Indian start-ups either remain unfunded and make enough revenues to grow organically, or they are over-funded, too early, by an aggressive VC with too much money. With a growing number of business angels and more early-stage funds, this might be mitigated.   Venture capital companies in India have been criticized as trying to force millions of dollars on companies that don’t really need it. Many companies are not mature or large enough to actually make proper use the VC investment. They either don’t know what to do with all that money or they spend it too fast.   That’s the case in the online travel industry right now, I think. There is a forced competitiveness of having so many well funded online travel agents. Every big VC in the U.S. now has an online travel play in India. If you look at the marketing activities, the media exposure in India, it’s just enormous how much time on TV or space in the newspapers the online travel agents actually purchase.
Q		So what needs to change to improve the funding climate so that travel businesses or other ventures get off the ground sooner or in a better fashion?
		Singapore has a much more aggressive stance towards supporting entrepreneurship than I believe the Indian government has at this point. This is my general observation. In Singapore, we have private-public partnership initiatives where private seed investors co-invest with the government. This also happened earlier in Silicon Valley and was one of the driving forces behind innovation and the growth of venture capital companies.   You can apply for an automatic or a case-by-case government matching of your funds invested in small companies. The ideal situation is leaving the investment decision up to the private sector but use public money to leverage the investment.   These schemes clearly serve a national purpose quite directly because it stimulates the seeding of new companies into the economy. That is one way India could be much more aggressive, I think, to correct this phenomenon.   There is a staggering amount of USD $2 billion in the Indian venture capital funds that need to be invested in the next three to four years. That’s a lot of money. If there is not enough seed money around to grow companies to a level where it makes sense for the VC to take them on, then we have a problem. Either the VCs have to change their business model to fund more companies with less money and spend much more time per company or there has to be more seed investment to create a larger pool of small companies and grow them to the VC stage.
Q		The site in which you've invested, iXiGO.com, offers booking choices of dozens of cities across India but does not allow one to make reservations from typical international hubs like New York, Sydney or London. How important is the international tourist market to India compared to homegrown, domestic demand for travel services?
A		There is clearly a growing inbound travel market to India, but iXiGO has so far focused on becoming the travel search engine for India. We believe it is important to be best in one clearly defined area and then move on. BAF Spectrum believes that capturing the hearts and minds of Indian domestic travelers is by itself a sufficient challenge and opportunity at this point.
Q		If one were to book a business trip into India and plan for an extra week of sightseeing in the country, where would you recommend that someone go?
A		I have always favored Rajasthan – Jaipur, Jodhpur, Udaipur – with its vibrant colors, magnificent monuments and architecture in general, and its friendly people. There is also so much variety in what you can see and do, combined with a very pleasant climate most of the year. I’ve been there a number of times. Jaisalmer is really, really beautiful: the landscape and the cities on the small hills. That’s my favorite, absolutely.

Published: July 2008