“Investors Are A Lot More Cautious Now” Essay
A company will take at least ten years to be successful, says industrialist and founder of Info Edge Sanjeev Bikhchandani. A person who wants see startups sprouting in every part of town, Bikhchandani also believes that only the best would win and time and customer would be the judge. Sharing such insightful answers with us, I had the opportunity to interact with the man himself and this is what he has to say.
Do you see a big wave coming out of small places in India?
Everybody in the country is interested in startups; the government is really pushing it with a number of incubators coming up, there’s a fund of funds, there are angel networks coming up. Having said all that, the challenge is that seed venture capital is left at where it was last year. Investors are a lot more cautious now.
Also, not enough businesses are getting the profit and sustainability. And if a few of them do get that it’s very good because they are sustainable and that would help a lot.
What would you advice to startups who aren’t successful?
For each founder, it’s their own personal call. Typically entrepreneurs don’t take a salary, at least in the beginning. When they get funded they might get some salary, but it still wouldn’t be a high salary. First of all, the founder has to see what his own financial hold is in the short run and how long he can last on a low salary or no salary at all and then take a call but maybe a second startup or maybe going to a bigger company as an employee and then coming back after a few years. Each person will do it differently.
Do you see funding stream coming out of alternate avenues like corporate garages of Hero, Mahindra?
I do see that happening but that doesn’t mean it can replace venture capital or the individual angel and it cannot replace the customer’s money. Finally, the customer has to pay you.
But even the corporate wouldn’t do a thousand startups, they would do few startups. Also, different companies will have different takes on this, and some wouldn’t bet on startups and some would say they will, but you have to go through all cycles that you invest, they do well; either they become big businesses, and you take all of it or a chunk from it or you exit at profit. This is because merely starting a cycle is not success.
How do you enforce corporate to do that?
I think it’s about selection of right startups, about the right terms, the right incentives and having the right people running this effort for the company. Somebody who understands entrepreneurs and entrepreneurship. He could be an entrepreneur himself and try to see success.
Venture capital has been very sector loving till now. Where is it going?
Venture capitalists invest when they see a potential effort and ten times return. They might not be able to get it but they will go and say I can earn 10 times returns. Given they have a finite fund life, ten times in six or seven years with an exit. So which are the businesses that can scale in a non-linear manner which can potentially give me a ten times the return and then you’re coming down to the usual suspects because there are very few that can scale so fast. PE and growth capital guys on the other hand want a want a threefold extra return but over 3-4 years. So, as you mature and you become larger, maybe PE becomes an option but if you want 7-8 years of money, you’re good with venture capitalists. VC wants return and that’s why they only go for certain sectors.
Don’t you think there’s too much of going into one sector due to this?
If you are looking for 10x return, you will get into sectors that will give you 10x returns. And if there are some sectors that don’t give it to you, they are not VC fundable.
Do you see more VCs coming up in India?
More VCs might come up. But the problem is that VCs today have got money but they’re very cautious, simply because they have been spooked by the correction in January and August. Although the government does have a 10 thousand crore fund of funds and that’s good because they are seeding the Indian domestic venture capital industry.
They’re giving 10 thousand crore to SIDBI for them to invest in other funds and yes, SIDBI will have a return criteria while deciding which ones to invest in
Do we need more accelerators sin India?
Well, it’s a large country and there are people who want to startup everywhere. I do think that a good accelerator program with good mentors and good faculty plugged into the right kind of investors will help.
The startup culture has gone top down and there are a number of startups coming from small towns but do you think they should move to a place like Delhi?
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No, I think startups can come out of anywhere. With the internet and mobile, your internet is not just national, it’s global. So, you can sit anywhere and do business anywhere. It doesn’t matter. Like Jaipur has produced this great app – Hello English with millions of downloads.