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Best of Young Turks: When Sanjeev Bikhchandani said, 'After an IPO, you belong to the company'


On this Young Turks Special in 2010, a sort of Entrepreneurial 101, Sanjeev Bikhchandani and two other stalwart startup investors discussed if an economic downturn is the right time to startup? What should an entrepreneur being chased by big money do? And how to find compatible investors as an entrepreneur?

Best of Young Turks: When Sanjeev Bikhchandani said, 'After an IPO, you belong to the company'
India’s longest-running show on startups and entrepreneurship Young Turks marks another milestone as it completes 19 years! To celebrate this landmark occasion, we wish to take you through our time capsule, The Young Turks Archive, recounting the journeys of some of the trailblazing entrepreneurial talents this country has produced over the last two decades.
As India transforms, shrugging off the old cloak and dressing up with the digital debonair, we believe the lessons gleaned from these handpicked stories will be a trusted guide to the next generation of changemakers. Join us in this celebration of ideas, innovation and inspiration!
This week, we feature entrepreneur-turned-investor, Sanjeev Bikhchandani. These days, a big newsmaker, most-spoken-about as the investor who nurtured and guided Deepinder Goyal for a decade as Zomato metamorphosed from a restaurant-listing startup to a publicly-traded company following the first-of-its-kind IPO.
While Zomato gloriole is yet to subside, the other unicorn in Bikhchandani’s portfolio, PolicyBazaar is waiting in the wings to ride the tide to Dalal Street. He cut the first cheques to both Zomato and PolicyBazaar. Today, his conviction that Indian consumers will at some point begin to ‘buy online, pay online’ is paying off.
For Bikhchandani, startup investing started off as ‘a small cottage sector type of experiment’ in 2007. It is now a venture capital factory with investments in at least 14 startups, including Zomato and Policy Bazaar.
However, Bikhchandani first became famous as an entrepreneur after setting up online classifieds portals under the umbrella of Info Edge in the 1990s, which saw the first boom of internet startups in India.
With a market capitalisation of over Rs 65,000 crore, the listed Info Edge presently runs on five gears - venture investing, jobs, real estate, matrimony and education classifieds.
On this Young Turks Special in 2010, a sort of Entrepreneurial 101, Sanjeev Bikhchandani joined two other stalwart startup investors - Kanwal Rekhi, the founder of the IndUS Entrepreneurs, and Saurabh Srivastava, the founder of one of India’s largest angel investing platforms the Indian Angel Network (IAN).
The questions they answer in this episode are as relevant as they were a decade ago. Is an economic downturn the right time to startup? What should an entrepreneur being chased by big money do? How to find compatible investors as an entrepreneur? How to fend-off a well-funded rival?
Most importantly, as tech unicorns in India line up to go up on the bourses, is there peer pressure of IPO-ing too early?
Here is Sanjeev Bikhchandani’s rejoinder: "In the beginning, the company belongs to you. After an IPO, you belong to the company."
Watch this edition of Young Turks Archives to get a masterclass in how to get a startup investor to sign a check!
They are entrepreneurial champions with almost 100 years experience, in building and supporting businesses which we've known, between them.
Known as the Zohan of Silicon Valley, Kanwal Rekhi is the man behind Inventus Capital Partners - a $30 billion venture fund. Having spent almost two decades as a venture capitalist, Kanwal led investments in more than 90 companies holding 23 board positions and has guided 19 entrepreneurs to big exits, including tech IPOs.
Often recognised as one of the architects of the Indian software industry, Saurabh Srivastava co-founded the Indian Angel Network in 2006. Mentoring over 20 early-stage ventures, Indian Angel Network today has invested over ?40 crores.
And meet Sanjeev Bikhchandani, the new kid on the block. From a successful entrepreneur having built InfoEdge from scratch to ?270 crore rupee venture, today, Sanjeev has donned the role of an angel investor, and has already invested in three companies.
So it's time now for the Young Turks Masterclass!
Shereen Bhan: Gentlemen, many thanks for joining us on this Young Turks special. Kanwal Rekhi, let me start by asking you. You've been supporting entrepreneurs for the past two decades now, you've been an entrepreneur several times over yourself. You've always said the recession is the best time to actually start a company. You're not the only one who actually believes in that one. It adds a lot of romance in it, rising from the ashes and so on and so forth. Do you think after the 2008 recession, this really is the best time specially for Indian startups to go the entrepreneurial way?
Kanwal Rekhi: Well, 2009 was the best year for us.
Shereen Bhan: Yeah?
Kanwal Rekhi: Yeah! I have given you the basic message. The recession is a way of filtering out the riff-raff so you have the best entrepreneurs. The prices go down. The rents are down. The expectations are down.
Shereen Bhan: Talent is cheap.
Kanwal Rekhi: Talent is cheap. Talent is being freed up by the last companies when they're letting people go. On top of all that, your potential markets are not ready. So, entrepreneurs have time to get their service, their product ready.
Shereen Bhan: So, you said 2009 was your best year. In what sense? Take us through that.
Kanwal Rekhi: We did more deals in 2009 than we had done a year before. By this year we'll do more. But, we were starting in 2008. The expectations were very unreasonable. In 2009, we did four deals.
Shereen Bhan: So, let me get the other two entrepreneurs in on this discussion as well, before we actually proceed. How have you actually seen the entrepreneurial mindset changing since 2008?
Saurabh Srivastava: I think it's been very positive. Even though when things went down, we saw no difference in the number of entrepreneurs coming to us at the Indian Angel Network. As Kanwal was saying, “Hey, listen, this is a good time. I can get a good team.” India was lucky because we didn't go rock-bottom. So, we still had a market. Very good talent from overseas was willing to come in, and then work with us.
Shereen Bhan: How would you read what has happened over the last two years? And has that changed your approach, your attitude and your strategy towards, for instance, your own business?
Sanjeev Bikhchandani: Personally, I've had the experience of four recessions, since I became an entrepreneur. The last two were more significant since they were post venture capital and post taking larger risks. I think the single biggest thing that we learned is that, “Leaders get stronger in recessions, because while you maybe hit, competition gets murdered.” So, you exit a recession as a leader in a much stronger position relative to competition, as opposed to when you went in. Sure, you'll have a couple of barriers in terms of profit growth or revenue growth, but that doesn't matter. Because when you come back, your market share will be up. At Naukri we were at 47% traffic share when we went into the last meltdown. About 60% right now. That's across all our businesses.
Shereen Bhan: But, Kanwal Rekhi, I want to pick up on the point that you made in terms of valuations. You said the valuations have become a lot saner post the 2008 recession. At this point in time when you speak with entrepreneurs, especially in countries like India, what is the sense that you're getting in terms of expectations, when it comes to valuations?
Kanwal Rekhi: After recessions, they stay low for a while before the boom time comes back and it pushes up the valuations. They're still pretty reasonable. But, I should tell you, there are VCs in India who have lots of money to spend. For them, valuation doesn't seem to matter as much.
Shereen Bhan: Okay, Sanjeev, let me ask you. As an entrepreneur, who actually decided when the money was actually chasing you, to shut the door on them and then call them back later when you saw that the competitive landscape around you was changing, and then get the investment in; what was the strategy when you finally decided to actually accept funding? And what would your advice now be to entrepreneurs who are being chased by the money at this point in time.
Sanjeev Bikhchandani: When we first met VCs for the first time in mid ‘99, and that time it was the bubble and exuberance, and we were running out of my home, these guys who would come from the U.S. had told us, “So we're putting so much money and the new spend on advertising. And then second-order twice the valuation, then we'll go public on NASDAQ in one year.” And that was a complete bouncer. It just went over my head. I said, “Look, we can't list at Paharganj forget about NASDAQ. What are you talking about? We’re running out of my home. There’s no power half the time, there's no AC - nothing works. We are nine people just trying to do something or somehow getting by.” And so we said, “These guys are dangerous. You let them into the company with a distribution of rights in a shareholder agreement, you don’t know what will happen.” So, we said, “Look, we built the business the hard way last 10 years - we bootstrapped. We don't mind doing it without more money right now. It’s okay.” We walked away.
Then when competition came in, funded competition came in, we said, “Okay, the game has changed. We need the money. But this time, let's go and talk to people who talk our language.” Finally, we went to venture capitalists who said that, “Okay, we know it’ll take five years, seven years, ten years. Take the money. Don't spend in a hurry. Do it the hard way. It's okay, we're with you.” I thought that made a lot of sense. So really, it's about like, investor compatibility is key. And we found compatible investors.
Shereen Bhan: Since we're talking about funding, and we're talking about raising money, in fact a whole host of entrepreneurs who featured on Young Turks have either already IPO-ed or are in the process of IPO-ing. Do you think that there is a little bit of that peer pressure of perhaps IPO-ing too early? Is this a common mistake?
Kanwal Rekhi: There’s pressure from the investors also. They have that ten-year time horizon. And they want to be able to distribute shares or distribute cash. So there is a pressure from that side.
Shereen Bhan: Did you feel this pressure, Sanjeev, when you actually decided to go the IPO route?
Sanjeev Bikhchandani: No. Well, actually, we wanted to IPO ourselves.
Shereen Bhan: And what prompted that decision for you?
Sanjeev Bikhchandani: So I think listing a company puts us in a different strategic space vis à vis competition because it A) gives us access to capital B) It provides liquidity to the ESOPs, which was very important for us to hold employees and C) it gave our stock currency, and D) which was the unstated reason also, the fourth reason, which was it made our company virtually untakeoverable. Because it's very hard to take over a listed company in India. So, we could not be sold. So, we were very happy to IPO. But, there was no pressure as such.
Shereen Bhan: What would your advice be to entrepreneurs who are looking at going the IPO route at this point in time? And if they don't feel the pressure, like Sanjeev is.
Saurabh Srivastava: I think you need to be very careful when you go for an IPO. I mean, amongst the other reasons that you just heard, you also need to be able to have a large amount of stock. That's available when you do the IPO. Because in the Indian stock markets for sure, most companies which go public, are actually not there yet. They shouldn't be public. Because you do it, nobody covers your stock, you don't get traded, and all the public shareholders in effect, just come croppers. So, I think for an IPO, the best thing is to wait for when you think you largely have a handle on how your business is going to go. Can you predict quarter-on-quarter or half year and a half? If you're not there yet, wait. That's usually a good test. Because if you're not mature, you will never be able to do it.
Sanjeev Bikhchandani: Can I add one thing there?
Shereen Bhan: Yeah.
Sanjeev Bikhchandani: See any entrepreneur who thinks he's going to get rich in an IPO is mistaken. Because you can't sell your shares. It's been almost four years since our IPO - I have not sold a single share.
Shereen Bhan: So, that shouldn't be the motivation, clearly, because that can’t be a motivation.
Sanjeev Bikhchandani: You do it because it makes sense for the company. That's it.
Saurabh Srivastava: A lot of entrepreneurs believe that they can make a pot of gold. They don't realise that if they want to make the pot of gold, they should just sell it to another company. In an IPO, you can't.
Shereen Bhan: Yeah, you can't make the money...
Sanjeev Bikhchandani: In one line - In the beginning, the company belongs to you. After an IPO, you belong to the company.
Shereen Bhan: How should you approach joint ventures?
Sanjeev Bikhchandani: You cannot have two strategic players in one company. One has to be the top dog.
Saurabh Srivastava: If you can't think of how you separate when you're in love, there’s no way you’ll be able to figure it out when you're fighting.
Shereen Bhan: As an entrepreneur, when you're actually looking at either diversifying or scaling up, or getting into an area which perhaps was not your area of core competence, how should you approach joint ventures? How should you approach strategic alliances? Indian companies haven't had the best experience as far as joint ventures are concerned? What should the approach be to partnerships and alliances?
Kanwal Rekhi: It has to be done for the right reasons, right? You can’t diversify if you have the opportunity, in the business where you are, which is really large and you still have a small part of it. Then, you’re much better off staying focused and digging the market share, getting insights.
Shereen Bhan: Is this a common mistake that most entrepreneurs make? That they diversify too quickly?
Kanwal Rekhi: Once you learn to ride a horse doesn’t mean you can ride two horses simultaneously. So, when you start to diversify, now you have two businesses with two different sets of economies, two different sets of customers, two different sets of whatever, right? And, you start to split yourself. You have to have the right reason to diversify. This business has matured, I have as much of a market share and maybe I can put managers over here and pay attention. Joint ventures are very hard to do. Joint ventures are like getting married. You have to sides together with different expectations. Sometimes you have a mismatch of expectations. Very often, I should use the word, mismatch of expectations.
Saurabh Srivastava: The only caution I would do is when you're doing a joint venture, be very, very clear. What is it that you're willing to give? And what are you willing to get? What trade-off are you ready for? There's a lot of give and take. And if it doesn't work out, are you very clear on how you will part ways? If you haven't signed a prenuptial agreement, if you can't think of how you will separate when you’re in love, there's no way to figure it out when you're fighting.
Shereen Bhan: Okay, Sanjeev, were you ever wooed? Were you ever approached by anybody?
Sanjeev Bikhchandani: Even three weeks before the IPO we were told, “Listen, don't list. We'll give you the IPO valuation. Just sell to us right now.” And we said “No, we’ll take the IPO, we'll take the IPO route. But the thing about joint ventures is that it's not just in India, I think anywhere in the world it’s hard to do. And the reason is simple. You cannot have two strategic players in one company. One has to be the top dog. And if both want to be the top dog then there is a problem. So the “convergence of interests” thing is a big deal. It doesn't happen easily.
Kanwal Rekhi: I have been through 14 mergers in my life. And only one of the 14 worked.
Shereen Bhan: Only one of the 14 worked? Okay.
Kanwal Rekhi: At the point of selling the company, he (the founder) doesn't feel the same. He wants to be the boss. So, I tell people, “When you set up your company, you should make sure that money alone would be enough.” If you have to leave, then you should say “I haven't paid for it.” You don't turn on any future because you have sold and somebody else should have the control. You should be very, very much resigned to that. If you don't, you'll be very unhappy, as you admit, to the other party you were very unhappy. And that's the most common problem that I see.
Shereen Bhan: One of the other things that I want to talk about is tech entrepreneurs in India. Especially since we are talking to three. What we are seeing happen with most web businesses is that you’re not just doing an online model, you've now got this hybrid of an offline-online model. Do you think that really is the way ahead?
Kanwal Rekhi: The whole idea of selling on the web is that I can reach a large market in a very cost-effective fashion. I don't even have to carry inventory because I can have the drop shipments from the source straight to the consumer. My value add is to turn that consumer into a buyer. If I have to create the presence or street presence, and I'm using the web as a way to build the brand, then it’s a very expensive way to build a brand. So, in the U.S., they have already done that in the full sector. They thought for a while that maybe we should have a presence. And the notion at one time was if, “I am Walmart, I have inventory anyway. I have a street presence anyway. This is one more way to move my inventory.” But, that's different from saying, “I set up a web business. Because the whole idea of web business is that...the fact that you're in web business doesn't make you an expert in the real estate that retail requires, doesn't make you an expert in the logistics that retail requires. So, you're now in an industry that requires no basic expertise, right?
Shereen Bhan: Sanjeev, how are you looking at this? Because this is something that we are seeing in a lot of Indian companies at this point.
Sanjeev Bikhchandani: So, it’s like this. Now, if you want to sell to businesses in India, and you're selling customer solutions and big-ticket items, you will need a field salesforce. Because, companies do not buy online. But, tomorrow when there are 200 million internet users in India and markets become viable, where individuals are paying - whether it's ecommerce, whether it's buying books or buying electronics or whatever, or it is matrimony sites or dating sites or it is other businesses where Indians are paying - there, it is not financially viable to have a field salesforce to sell to individuals. Then you’re going the other route where you’re buying online, paying online. On Jeevansathi, for example, we have a large percentage of money coming in by payment online. So there isn't much of a field salesforce there. So, it depends on the stage of evolution of the market in India - on internet penetration - it depends on the nature of the product, and depends on who's buying.
Saurabh Srivastava: Now, I would say, that's been my experience, the companies that I’ve invested in who actually did a hybrid model have done brilliantly. The internet companies that we invested in that just went pure on the net didn't do well. And I think at the end of it is a very simple factor. How many internet users do we have? Cannot drive a retail consumer-to- consumer-type interaction. It will have to wait. My sense is, for the next few years, it will have to be hybrid.
Sanjeev Bikhchandani: But, there's one change, one change is happening. I think with 3G coming in, in September, with broadband wireless immediately after that, with iPad clones expected from China at ?12,000. I think everything will change in the next two or three years.
Kanwal Rekhi: So, we have this one company called Redbus.
Shereen Bhan: Yeah, I know. They’re in fact a Young Turk. So, they've been featured on our show.
Kanwal Rekhi: Initially when they were an internet site and were having a tough time, they set up call centres. They had their deliveries usually on motorbike. Seventy percent of the business was through call centres, thirty percent of their business was through the internet. But, over the last one year, the number has shifted. Sixty percent internet and forty percent, now, call center. They’re shipping even faster this year. There's a deeper penetration now and they’re profiting tremendously as a result of that.
Shereen Bhan: What kind of money are we talking about that you expect to spend in 2010 in India?
Kanwal Rekhi: We expect to do maybe eight investments this year, so maybe $10 to $12 million.
Saurabh Srivastava: We look to do almost one deal every month.
Shereen Bhan: What are the sectors from an India point of view, at this point in time, that are looking exciting that you're willing to put your money on?
Kanwal Rekhi: We are technology players. So, we are not willing to go into businesses which are outside technology space, and which will require a lot of cash. So our definition is capital-efficient companies and that typically starts to become internet-based, software-based services in the consumer space.
Shereen Bhan: Are you betting on product companies out of India?
Kanwal Rekhi: Oh, yeah!
Shereen Bhan: You are?
Kanwal Rekhi: We have a company called Insta Health which is building a software product to manage hospitals. They're selling software products to hospitals. They’ve sold to 50 hospitals already this year. We had this other TELiBrahma - a Bluetooth-based parts, which is parts plus services bundled into one.
Shereen Bhan: What kind of money are we talking about, that you expect to spend in 2010 in India, in terms of deals?
Kanwal Rekhi: We expect to do maybe eight investments this year, and our average investment is over a million dollars. And, if you end up doing follow-up investments on the previous term ones then maybe $10 to $12 million.
Shereen Bhan: Sanjeev, you’re now going the Kanwal Rekhi way, finally, after having spent your time being an entrepreneur. Why the decision or the motivation to actually help and fund other entrepreneurs?
Sanjeev Bikhchandani: So one is, as a company, we are investing in other companies. So, we invest in three startups, we're looking at more. And the reason is simple - for us, that's a strategic decision. We are not looking at financial returns in a short-run there. We don't want to exit, we want to invest more and more and help build those companies. So, if there's an opportunity, and we like it, and the team is good, we look at it.
Shereen Bhan: Okay. And you're not sticking only to technology, are you?
Sanjeev Bikhchandani: No, we’re looking at the Internet. As an individual, on the individual networks, I do look at companies but those are non-internet companies. So as an individual, I don't invest in the Internet.
Shereen Bhan: Why is that? As an individual, why don’t you...
Sanjeev Bikhchandani: Because, as an individual, I don't want a conflict of interest in the future with my company.
Shereen Bhan: Okay. Which side is looking more exciting at this point in time?
Sanjeev Bikhchandani: I understand the internet better so I naturally get more excited about the internet. But, those investments go through a company. I typically like businesses that create IP, whether its brand, whether its content, community, or algorithms or whatever technology - it’s all IP-based. I really like those kinds of businesses.
Shereen Bhan: So what do you like currently, Saurabh? What are you putting your money on?
Saurabh Srivastava: It is surely in technology, in products. So we've invested in software products. I have two as well. They're doing very well. Food, retail - great ideas coming in there. You're getting them in different kinds of services. You're getting them in pharma. As an angel group, we sort of look to do almost one deal every month.
Shereen Bhan: A deal every month, and the average ticket size would be what?
Saurabh Srivastava: I think the average is more like half a million.
Shereen Bhan: So, I'm going to get you now to give us a crash course in entrepreneurial 101. Let me start with you, Sanjeev. What would your advice be, in your experience, about the road ahead? What should somebody be looking out for?
Sanjeev Bikhchandani: So, I think if you can solve an unsolved problem, chances are, sooner or later you'll make money. And you will always be needed. But if you are a “Me Too” or you're solving a problem someone has solved already, you won’t get seed. Second is, I think in India especially, when I go and talk to the young companies at incubators, what is happening is that most of these young companies are started by engineers, and they've never met a customer. They have never sold. So, I think people have to meet customers. You have to go out in the field and you have to understand what the customer needs. That's a challenge.
Kanwal Rekhi: So, I will put the same thing, yeah, slightly differently. I've met a lot of people who want to do something, and then sell to the world. Then you ask them, “Who will buy it? Why would they buy it? Why does it matter?” They start to scratch their heads. They start telling you about the attributes, the features they have. So, you need to solve a problem from outside-in. You need to identify your problem over there and see if it is the target, rather than have a solution and identify the problem. So, I tell them - most engineers, most entrepreneurs - that, “Becoming an entrepreneur is a process. You start working your way out of design and start getting closer to the customer.”
Saurabh Srivastava: I define the uniqueness a bit differently. I'd say, “You need to be doing something very different. Or, you need to be doing something very differently. It's got to be both, that's great, but it's got to be one of the two.” The second piece is you have to keep asking yourself a very inconvenient question, “Why will I succeed?” You must make sure you have answers to that question. The third one, I would say is, “Every time I've got a good team, that's worked. And when I figured I don't need anybody then it's taken a lot longer for that to come.”
Shereen Bhan: All right, gentlemen, thank you very much for joining us on this Young Turks special and sharing your thoughts, ideas and experiences with our viewers. So the bottom line really is: come up with a unique idea, come up with a unique proposition, have a clear differentiator in place and have the courage and the ability to face the “Inconvenient Truth”. Many, many thanks for joining us on this special show. It's been a pleasure.
Transcriptions by Arunima Rao
Arunima Rao interned with Young Turks from April to June 2021
Twitter @_arunimarao