Paytm eyeing big-ticket investments in consumer-facing start-ups offering local services

Paytm has been in the news this year, for big ticket investments in start-ups. Its strategy goes against that of close rivals Flipkart and Snapdeal, which have mostly been associated with smaller investments in start-ups, a number of them being acqui-hires or team acquisitions.

Chandigarh-based auto-rickshaw aggregator Jugnoo is the recent one to have received Series B investment of $3 million from Paytm. This round comes four months after the company invested around $5 million in Jugnoo, in June.

In July, the mobile wallet company, along with SAIF Partners and Tiger Global Management had invested $50 million in hyper local deals marketplace 'Little' founded by former Zovi founders Satish Mani and Manish Chopra.

In one of the biggest Series A rounds, Paytm also invested $10 million, in logistics data start-up LogiNext. Earlier the company had invested in bus aggregator Abhibus and online tax-filing start-up ClearTax.

"Our approach is to build a mobile internet conglomerate out of India, the way SoftBank has done in Japan and the way Tencent and Alibaba have done it in China," says Vijay Shekhar Sharma, the Founder and CEO of One97 Communications which owns Paytm, on the strategy behind Paytm's trail of start-up investments this year. Recently, business rivals Alibaba and Tencent decided to merge two local services supported by them - Meituan and Dianping, respectively - in a $15-billion deal.

Sharma wants to invest in start-ups, not acquire them because the game plan is not to build new business verticals but to build an ecosystem of partners around what Paytm does.

Paytm will clearly stay away from small acquisitions. "If we had an opportunity to acquire a company versus supporting an entrepreneur to build his company, I would go for the latter," says Sharma who will be a minority shareholder in the companies he invests in.

All these investments are from the company's balance sheet. "We don't want to call it a PayTM company but a partner of the Paytm ecosystem," he says. One of the pointers that justifies his strategy is that often the entrepreneur who builds the company leaves after the company has been acquired. This is what he calls the 'Eastern business model.' In the 'western business model', Sharma explains, a big company continues to become bigger and a large monolithic organisation. And the Eastern business model is to support fellow entrepreneurs and come together as a family, help each other, grow and scale together. "We believe in the latter," he said.

While Paytm is looking at businesses that enable spending from the consumer's wallet, 'local services' is inarguably the hottest segment that Paytm is scouting for start-up deals. These are services that essentially refer to start-ups connecting local service providers such as home services, beauticians or food delivery and such start-ups have drawn huge investments this year.

Sharma thinks the next wave of ecommerce in India will be O2O (online to offline), as it is in China. "I would say that commerce 1.0 was all about shopping but because of the mobile phone, there is a bigger commerce revolution happening in the offline shops. True commerce happens in the offline world. In the best of the markets, online shopping is still small, 20 per cent in China and 5 per cent in the US," he said. The thought explains Paytm's biggest bet so far in local deals company Little.

The focus on local services is in Sync with Alibaba, which happens to be one of its largest shareholders. In June this year, the Alibaba Group and its affiliate Ant Financial invested $1 billion in a joint venture called Koubei, with each entity holding 50 per cent equity. Koubei, to begin with, will start off with local food delivery services. Sharma, who is soon planning a trip to China, says there is a lot of China in the way he thinks, and laughs to end the conversation.